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.