steps of saving
YOUR LONG-TERM FINANCIAL PLAN: Everybody knows that they should save, but the big question is always how to achieve this. Here are some steps to guide on the path to financial freedom; EMERGENCY FUND When emergencies happen, oftentimes we are left stranded, not having the money to cater for it, as it is an unplanned expense. But though they are never scheduled, we can still plan ahead for emergencies, and in this way we will be able to handle the situation better when it happens. We plan for this by starting a fund, and putting money towards it every other week. Any extra or unexpected money can also be put in this fund. This will then come in handy when you get an unplanned expense. It will also save you the process of having to use a credit card, or borrowing from your family and friends. It is the first step towards a safety net for yourself. GET RID OF DEBT Pay of all your debt using the snowball effect. This simply means that you start by choosing your smallest debt, and work on paying it off as fast as you can, while making the minimum payments on the larger ones. Once your smallest debt is cleared, you move on to the next smallest one. Using this method, you reduce the different debt sources, while at the same time reducing your overall debt. As your debt sources begin to reduce, you will stop feeling overwhelmed, and will be able to clear up everything in the long run. However, do note that this doesn’t include your mortgage, which you should always make constant payments towards. SAVE Have you finished paying off your debt??? Congratulations! Now it’s time to start a savings account that is the equivalent of 3 – 6 months’ worth of expenses. This means, if you spend ksh 3,000 a month in expenses, then the goal is to try and save ksh 18,000. This offers protection from things that could happen in the future, such as illness, job loss etc. This is a safety net that prevents you from going back to debt. RETIREMENT PLANNING Retirement planning comes next. No one said that this is easy, but nothing worthwhile is. I recommend saving 15% of gross income into a retirement plan. SET UP COLLEGE FUND When you get to a certain age, you probably start thinking about kids if you plan on having them. Assuming you have little or no debt besides your mortgage, you have saved some money for emergencies, and you have taken care of your future, then it is now time to plan for the babies. If you have them, start a college savings fund. Educational Saving Plans are great. PAY OFF MORTGAGE Pay off the mortgage early. This means any extra income you have, any money you have freed up from paying off your debts should now go towards your home. You could be completely debt free and there is nothing greater than that! SAVE MORE AND GIVE Build your wealth and give. You should have quite a nice savings account by now. You are debt free and therefore most of your income is yours. Accommodation makes up the biggest portion of your expense, so you have freed up enough money to give and save for yourself and your kids.