NAIROBI, Kenya, Sept 17 – Albert Einstein once said: “Anyone who has never made a mistake has never tried anything new.” I half agree with that; if it is making blunders on who to date, where to shop or where to go to on your next adventure, I’m in agreement. If, however, the blunder in question is money, then no. I disagree; throw stones at me if you want to.
First, Kenya is a still a third world country; we have no business making first-world money blunders if this country is to develop. Second, a big percentage of Kenya’s population still lives under a dollar per day, meaning that there are money blunders being made somewhere and no one is willing to talk about it.
I, therefore, sought out experts’ advice on where most of us are making mistakes as far as money is concerned. And that’s not all; I also sought for recommendations.
1. Living beyond our means
It does sound cliché, but it’s actually not. A majority of us have sunk into a middle-income mentality while we are in fact not there yet.
According to Solomon Kogo, Pension Administrator at UAP, many Kenyans, especially young people are living beyond their means, meaning they consume things that they cannot really afford.
“You get a young person who earns Sh40,000 per month, living in a bedsitter worth Sh25,000 in Kileleshwa. This is a classic case of living beyond your means.”
Kogo recommends that people should live lives they can comfortably afford. For instance, if your rent takes up to a third of your salary, you need to reconsider your options.
2. Investing in luxuries when you should be investing in ‘needs’
The easiest way to know if you are making this huge money mistake is easy. List down all your ‘needs’ and your ‘wants’. Then check where most of your income goes to. If it goes to your needs, such as investing in a mortgage, or getting a solid health insurance, then you are on the right path. If however your income goes into financing a luxury car that you can do without, that’s a red flag right there as Kogo says.
“The first thing that most people do when they get a solid job is getting a car, mostly a luxurious one which they perhaps may not even need. Young people out of college who are without family responsibilities are fond of doing this. This usually means that for a long period of time, the biggest percentage of the money they make usually goes into fuelling and servicing this car,” he says.
We recommend that before getting any luxurious items, meet your short term and long term needs. Even if not fully met, ensure that they are at least half way met. For instance, consider investing in land or taking mortgage before getting a luxurious car.
3. Misusing your provident fund
Once you have been enrolled into a provident fund by the company you work for, ensure that you protect it and do not misuse it. This is especially so for people who frequently change jobs.
According to Kogo, most Kenyans demand access to their provident funds upon leaving their current work-place for another. Sadly, this money is usually used to purchase unneccesary stuff or things that do not have long term value.
He recommends when you move jobs, you should move the provident fund too so that it continues to accumulate. In case the person does not have a clear idea on what to do with the money, they should first leave it alone. He also advises people to not withdraw the entire amount as that means starting saving all over again in their new work place.
4. Being ignorant about retirement
‘I’m only 26/27/32,’ you may be telling yourself, hence ignoring the fact that retirement, although still a long time from now, is not inevitable. Understanding the importance of having a solid retirement plan and knowing how to go about it saves you years of wasting your money and securing a decent life upon retirement.
“People need to acknowledge that a time will come when they will retire and they need to know what to do with the money you receive upon retiring. Retirement money is not for building a home to live in or a luxury car, it is for sustaining the retiree seeing that their employment days are over,” Kogo says.
If you are just entering the employment circle, look for a good retirement plan and start contributing towards it early. Also, understand what is important right now; get a house and other necessities now so that you do not have to spend your retirement money on such things.
5. Assuming you do not need a financial help
Samuel Kariuki, Corporate Business Executive at UAP, poses an important question, “Who do you consult when you get sick?” A doctor.
According to Kariuki, far too many Kenyans are financially ‘sick’ but refuse to get help. “On average, Kenyans do not talk about their money problems with professionals. In fact, we do not talk about our earnings with anyone else apart from our employers. This is a big problem.”
Kariuki insists that Kenyans should be open to seeking financial help because it is equally important.
“You need to have an honest evaluation of your financial status. Admit it when you are in a downward spiral, then seek help if need be before it is too late.”
6. Taking loans to buy things that will not service the loan
A rule of thumb; take a loan and invest in something that will service it. There are dozens of institutions in Kenya today willing to give out loans regardless of what the loan is for. People are now taking advantage of this to get loans to purchase items that cannot repay the loans.
“If the loan you have applied for is to buy a liability, for instance a car or a house to reside in, then you need to reevaluate the purpose of taking that loan,” says Kariuki.
Have a clear idea on how any loan you desire to take will be repaid. If you doubt whether it is will be easily paid off, then wait until you have figured that out.