Is your mobile banking app enabling your bad money habits?

Mobile banking has made life easier, no one can dispute that. Unfortunately, for those who dive into it with reckless abandon, it is a slippery slope. 

This week, a writer narrates a close shave with the wrong side of online transactions and how she managed to break free from bad money habits.

Let me take you back: It was the year 2020, the grayscale brittle year of the pandemic, the year that smelt of hand sanitizer and lived-in sweatpants.

Covid-19 roamed about our country untethered and the government told us to hunker down behind our closed doors.

‘Work from home,’ they said. ‘Order your groceries online and have them delivered at home,’ they urged. ‘Have a stiff drink to wash down the anxiety,’ they egged. (OK, that one is mine.)

It was in this year that it became normal to make payments through M-Pesa.

Banks no longer charged for this service, they did away with the exorbitant fee and it became free to move money from your bank account to your M-Pesa account.

Read: Why you should get a financial planner

Some banks went the extra mile by incorporating M-Pesa payment features into their banking app.

That is, the features to send money and to make payment to a Paybill or Till number.

Once you logged into your banking app, you did not have to leave again – you could get all your business done right there in the app.

And from the comfort of your home. This new normal had us forget what it felt like to hold notes and coins in our hands.

One-stop shop

Being able to get all your payments done directly on your mobile banking app is akin to walking into a salon looking like a wild bush baby then you get your hair done (braided, shaved, whatever), your fingernails manicured, your toenails pedicured, your excess body hair waxed.

A one-stop shop is what I am saying.

We are now in 2022. Covid-19 has been tethered but we have since been untethered.

We are no longer working from home, and no longer shopping from websites but most of us are still getting our payments done on M-Pesa.

Mobile banking apps continue to offer us convenience on a silver platter but they have also awakened a sleeping giant: the giant that is impulse buying, unbudgeted spending and mobile-based loans.

Money has psychology to it. One of its maxims is that you are more likely to spend more money when you are paying using digital money – your M-Pesa or Visa card.

Read: How to approach your financial goals now

You are likely to spend less money when you are paying using cash money – notes and coins.

When you see and feel money moving out of your hands, you will think twice and think hard before spending it.

You will hesitate before pulling it out of your wallet. You will feel the pinch when you buy things you know you don’t need, things you haven’t budgeted for when you have to pay for loans you took out on a spending spree.

I can personally attest to this maxim. I am an urban wife and mother, we have two children.

The four of us live with our live-in house help. We all live together in a rented three-bedroom flat in Nairobi.

Envelope method

Before 2020, I managed my money using the envelope method.

How the envelope method works is by using separately-labelled envelopes to manage the expenditure of different line items from your budget. I liked to use white clean envelopes.

When my salary checked in, I would withdraw money over the ATM. I withdrew the maximum I could because I didn’t want to have to do this again as my bank charges me each time I make an ATM withdrawal.

Whatever was left in my account was for other budgeted expenditures such as monthly household shopping and weekly shopping for milk, bread and water.

My savings and investments were automated through a direct debit order, including the education policies for our children, the premiums on the policies go to the insurance company.

At home, in the dark secret corner of a dark secret drawer, I had an envelope for each line item from my budget that needed cash.

Each envelope was clearly labelled with a marker pen. I had such labels as, ‘Marikiti fruits and vegetables.’ ‘Fuel.’ ‘Hair and nails.’ ‘Personal shopping.’ ‘Date night.’ ‘Petty cash.’

I didn’t have an envelope for the house help because I would pay her in cash as soon as I got home.

Read: Time to take tabs of your finances

The same went for the money I would send to my retired parents down in  Kaplong, I would M-Pesa it to them.

As the month wore on, I would gradually take money from each envelope and use it as I had budgeted.

Sometimes money ran out from an envelope before the end of the month. Other times I would have a small excess to start the month with.

I did not give much mind to this because I was spending money within my financial planning personal budget.

I used the envelope method for many years and it worked beautifully for me and my family’s finances. It helped me make progress in the right financial direction – towards my personal money goals.

Then came Covid-19. Our salaries were slashed. I revised my budget and stopped all direct debit orders for my savings and investments. I flung my money goals out the window.

The government encouraged us not to use cash money anymore but to use M-Pesa.

I had never used mobile banking before 2020, I was not even set up for the service.

But there was no time to squander on personal preferences, not when the world was on fire.

The bank had also scrapped the fees for the service. I really had no reason to go against the tide.

I signed up for mobile banking with my bank and got surprisingly cosy with its convenience and ease. Plus, it was free!

Who doesn’t like free things? I threw away all my white envelopes and digitised my personal money management approach.

Because I could no longer fully finance the household and my personal budget from my slashed salary, I began taking small loans from M-Pesa’s Fuliza services and other independent mobile-lending apps such as Tala and Branch. I also borrowed from my Sacco.

The repayment period for these loans was 30 days. I would use my slashed salary to pay them back and then borrow more money to take me through the month until my next payday.

I would borrow Sh7,000 from Fuliza and Sh15,000 from my Sacco. I would borrow from Tala if this Sh22,000 was not sufficient, this money from Tala went to spend outside my budget.

The total interest I would pay for these two loans would not be more than Sh3,000 a month: I could live with it. Or so I thought.

Slashed salary income + Mobile loans = Total income

Sometimes I was unable to pay back the loans on time and they would roll over into the next month with a bloated interest.

With time, I even abandoned my budget. I was no longer saving or investing, not even in our children's education policy.

How could I anyway when there was barely enough money to finance my basic expenses?

These mobile loans supplemented my budget for most of 2020 and 2021. They were helping me but they were also hurting me.

Solutions

Thankfully, I managed to snap out of this trap and learned how to enjoy the convenience and ease of mobile banking while strangling these bad money habits of unbudgeted spending and impulse borrowing. Here are a few pointers;

First, ensure you continue saving and investing even when your income has been threatened.

Your goal here should be to maintain the discipline and the mindset of setting money aside.

Saving and investing as little as Sh500 does a whole lot of good than nothing at all.

Fight fire with fire: use innovative banking tools to automate your savings and investments.

Set up standing and direct orders with your bank so that as soon as your salary checks in, your money moves from your current account to your savings and investments account.

If you are not on a regular salary but on a sporadic income, then spend your money using budgeting ratios.

Set the ratios based on your financial needs and wants.

A suggested ratio-based budget looks something like this: 45 per cent for monthly bills, 25 per cent for non-monthly bills, 10 per cent for savings, 10 per cent for investments and 10 per cent for personal spending.

If one of your projects pays a deposit of, say, Sh50,000, to your M-Pesa, immediately settle your monthly and non-monthly bills, and make your savings and investments, and then the Sh5,000 left in your phone is yours to spend as you wish.

Also, build the discipline to avoid taking mobile loans on your M-Pesa or from mobile-based lending apps.

These loans are addictive and put you in a cycle where you keep borrowing to stay afloat.

They abuse the convenience of technology while enabling your impulse buying and other bad money habits.

You must strangle this habit of borrowing yourself into a hole of unmanageable debt. You must.

The immediate measure is to opt out of M-Pesa loans and uninstall mobile-lending apps on your phone. These measures are short-term, though, and are merely a band-aid response.

The long-term permanent solution is to boost your income, that way it adequately finances your budget.

I eventually wrote a book on personal finance, I launched it in December 2021.

The passive income from this book has been going into financing my savings and investments.

Its income is securing our children’s future. I am back on the path of progress towards my money goals.

Florence Bett-Kinyatti is a certified accountant and former financial auditor. She is also the author of the book, ‘Should I? Your questions about money.’