Saturday, April 15, 2016 7:00am / Grace ‘Jare-Ajuwon
Savings is an important tool because it can help the poor deal with the ups and downs of irregular earnings and help them build reserves for a rainy day – Sylvia Mathews Burwell
Today, I will take a look at savings as a strategic financial planning step. As mentioned in the introductory part of this series - savings is a conscious and calculated step taken towards sustaining your current status and/or progressing beyond that status.
What is Savings?
In simple terms, your savings is any money put aside to be spent at a later day.
Clearly, putting aside certain percentage of your income on a monthly basis can be said to be a saving. How you spend same at that later date depends on your financial goals which should have been appropriately structured in a budget.
In subsequent series I will be making distinctions between investments and savings.
Should saving be a priority?
Yes! For you to wade off fears in this challenging time, savings should be your number one priority. It is a cushion you can leverage upon to build your investment and wealth. In the word of Arkad, savings is paying yourself whilst other expense (such as rent, transport, telephone, clothing, etc.) involves paying others.
Various studies have explained reasons why people save. We can infer from these studies that there are three major reasons for savings. These include:
a. To take care of daily expenses.
b. To cater for emergencies and
c. To take advantage of opportunities to earn more
How should you plan your savings?
· Set an achievable percentage that you should regularly and persistently put aside from your income. You can start from a very small amount (say 10%) and grow it over time.
· You can split the savings based on the three aforementioned saving needs.
· Set a realistic time frame that you desire to keep your money before use. At least 6 months.
· Prioritise your expenses (having a budget would enhance your ability to do this effectively)
· Take action by ensuring you set aside the amount you have agreed to save before spending at all
· Take advantage of interest paying schemes. E.g. Treasury bills or mutual funds
· Be disciplined
A hypothetical example of Mr. Kotun with a monthly income of one hundred thousand naira (N100,000) and an aggressive saving culture of 50%. His savings table would look like this:
Some may argue that inflation and hidden bank charges can make you question the essence of saving. This fear can be averted if the “how to save” that I explained above is judiciously followed. The essence of diversifying your saving into various schemes or instruments is for you to be able to protect your monies against inflation and make more from same.
The simple way to achieve this is to automate your transfers and remain discipline.
Share your thoughts and experience with me via firstname.lastname@example.org and stay connected with Proshare Finance for more….
The Power of Financial Planning for a Typical Nigerian - Part 1