Over the past few weeks, the Saturday Magazine has been receiving messages of distress from Kenyans who are unable to save money. The lack of a saving plan and the inability to save cash are common issues. Below are some messages:
“I don’t know how to save. Please help!”
“I work in the armed forces. I get paid on the 24th of every month. However, I am totally unable to manage my salary. I don’t know how to save. Once I get paid, I usually have nothing left in my account by the time the next month starts. Please help me know how to save.”
“I am a hustler earning Sh10,000 per month. Please help me on how I can start saving from this money.”
“I earn a salary of Sh20,000 per month. Please help me know how I can save so that at the end of the year I will have something to be proud of.”
In July 2021, financial analysis by EFG Hermes showed that Kenyans are among the poorest savers in East Africa. We fall below the African continent’s average of 17 per cent. Kenyans’ saving rate stands at 12 per cent. If you are struggling with saving money, here are a few saving methods to guide you:
The bare minimum you should save is at least 10 per cent of your income. This may vary depending on earning power and expenses. George Mangs, the director at Market Cap Trainers, says creating wealth through saving is possible where a saver strives to set aside up to 30 per cent of their income. But this might be too high for some savers, especially the beginners. So you may want to try the 50:30:20 budgeting technique popularised by the US Senator in the book All Your Worth: The Ultimate Lifetime Money Plan. In this budgeting method, 50 per cent of your income should go to your basic needs, 30 per cent to self-development projects like health, entertainment, networking, and family and friends’; and 20 per cent into savings and investments.
This is a saving formula that is radically designed to help you save and build up capital speedily. Starving and stacking was formulated by personal finance advisor Nick Vail. It involves living below your means and hiving off a significant percentage of your income until a particular financial goal is achieved. “Unlike weekly savings and top ups of say Sh100 to Sh500, the starving and stacking method involves heavy amounts of savings that could be as much as half your monthly income,” says personal finance coach Daniel Mogaka. Starving and stacking thrives where the saver has two incomes, or has a financial partner with whom they share financial obligations. This is where a spouse comes in handy! “When using starving and stacking as a couple, you can decide that you will spend the first 18 to 24 months living completely off on one partner’s income while saving 100 per cent of the other partner’s income,” says Vail.
If you have two incomes, you can dedicate part of, and, or the total of one income to meeting your needs and wants. You can then stack the total of the side income, and, or plus a portion of your main income away as savings. In Kenya, you will do well not to stack up this amount in a bank account which earns low to zero interest. “You will do well if you can invest it in a mutual fund that has more interest rewards,” says Kibet.
The interest should be above the inflation rate. This means that the interest should be around 8 to 10 per cent. Starving and stacking money does not require that you always earn a huge salary. It means that you must live below your current means. Automating your savings is one of the ways you can ensure that you do not lose track or give up midway. “Once you automate your finances, the stipulated amount will be automatically transferred into your savings account when your salary is processed,” says Koech.
Delink your checking, business, salary, and savings accounts so that you are never tempted to dig out the amounts you save. Mr. Vail also says that you can also automate your finances in such a way that the amount you save increases monthly, quarterly, or annually.
This is a group on Facebook that has a membership of over 400,000 people that provides savings options for beginners and advanced savers. The group is aimed at building a savings culture and maintaining wealth. According to the founder, and personal finance coach Felista Wangari, members set financial goals and save money on a weekly basis for 52 weeks. “Here, you will share and get helpful ideas, discuss challenges,” Felista says in the description. The group follows a savings calendar that runs for one year, with members required to save a specific amount of money every week based on their saving abilities. For example, beginners can be recommended to deposit or save Sh200 daily whereas more established savers can be recommended to save Sh1,500 weekly or Sh6,000 monthly. By the end of the year, these basic options will accumulate to between Sh72,800 and Sh78,000. If saved in a mutual fund earning about 10 per cent interest, the savings will have appreciated to between Sh80,008 and Sh85,800. Joining this group is free.
Saving through the money market fund will give you returns above the inflation rate. The MMF is secure, easy to withdraw from, and guarantees returns. However, you will need to do your due diligence as some funds have cost savers money. A money market fund that promises outrageously high returns is a very risky bet. “A fund that outperforms the others by large margins means its manager is taking on more risks,” says Michael David, a financial and investment coach at MoneySense. He points out that a fund that invests in commercial papers is the riskiest, followed by bank deposits. “The safest is that with the highest percentage of its fund invested in treasury bills,” he says.
A number of local banks have partnered with telecommunication firms such as Safaricom to host interest-earning savings accounts on mobile phones. Some of these include KCB M-Pesa, M-Shwari, Timiza, and MCoop Cash. On these apps or your M-Pesa platform, you will have the option of locking your savings for a period of months based on your goals. The beauty of these platforms is that you can start by saving from as little as Sh50 daily discreetly and without shame. The only challenge is that you will need to be disciplined not to withdraw the money due to the easy access.
