Sunday, 27 January 2013

Savings 201: What should I do with my Savings?

If you have read my Savings 101 article, you should remember I told you that a part of all you earn is yours to keep. It could be 10%, 30% or even 50%, you determine how much you can comfortably save.

 If you have not read it I will implore you to do so for you to fully grasp what I am saying. January 2013 will be dedicated to Savings.

 I have a short story to tell you. I have a friend that once saved from January to December many years ago. She did this cooperative society savings. The norm was to save for a year and receive your savings with little interest generated from loans given to people through that year.

 My friend saved N2, 000 (two thousand naira) monthly and ended up collecting around N26, 000 (Twenty six thousand naira) at the end of the year. That was good, she saved. The part I want to dwell on is what she used the money to do.

 After collecting the N26, 000, my friend went shopping! She bought clothes, shoes and accessories and down the drain went the savings for a whole year. This story takes us back to this write up’s title “What should I do with my savings?”

 The savings I asked you toset aside is not money for emergencies, no. It is not money meant for your children’s school fees, not meant for your house rent. It is not meant for medical bills and it is not meant for shopping. It is the money meant for you, money for your retirement, money towards your wealth accumulation.

 We will use a monthly income of N300, 000 as example, you can always slot in your own income value to do the analysis. If let’s say Mr. A earns N300, 000 monthly. Like I advised, he has to pay himself a part of what he earns. Let us assume Mr. A pays himself 10% that makes his savings N30, 000. If Mr. A is a Christian, he pays another 10% as tithe, which is N30, 000. Mr. A as a family man has a wife and children, he feeds them, clothes them, he pays house rent, school fees, medical bills, phone bills and any other bill. Deducting N30, 000 for savings and N30, 000 for tithe, Mr. A is left with N240, 000 to pay every other bill he has to pay including taking care of himself. This is where living below your income comes in.

 I know several times we are tempted to use part of our savings to sort out some needs, if you are dreaming of a future where you don’t have to wait till month end or a future where you don’t have to live on loans, you should never take from your savings. You will see reasons you should not do so.

 The savings I asked you to set aside is what I will call SEED MONEY. Seed money for what? It is for investment, for investing into a business venture that will provide you with the kind of future you envisage for yourself and for your family. This seed money will help you towards wealth accumulation.

Please note the size of your paycheck has little to do with your ability to accumulate wealth. What counts is your ability to regularly save your money and wisely invest what you have saved. It does not matter if you earn N80, 000 or N600, 000 monthly.

 The money you save is meant to be invested in any business venture where it will grow. It could be stocks, real estate or viable businesses. It will help you towards generating passive income. Active income is the one you collect monthly after working for a number of hours as agreed with your employer while passive income is the one you make even while sleeping. You don’t have to be actively present to make such money

 For the business people, you should also learn to save a percentage of your profit from each sale you make. You also need passive income. You need to move from self – employed to business owner.

 So we have established that you need to put aside percentage of what ever money you earn or you are given for investment purpose. You can’t spend all your money and expect to be rich without setting aside some for breeding purpose.

 Saving alone is not enough; you have to learn to invest it. Savings is what you have when you accumulate your cash while investing is what happens when you make the money work for you and thus earn more money. It is imperative you learn how to make your money work for you.

 You have a price to pay. You have to give up some of today’s pleasures and luxuries in exchange for tomorrow’s financial security.

 Look out for more on Savings Series.

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