Personal Financial Planning with Raphael- Principles of savings

By August 9, 2019Investment 101, Research

Joe walked into the room and greeted Ade his friend, “O boy I hail o! you no dey even ask of person”

Ade, in a pensive mood, responded, “I just dey o.”

What’s up with you?” said Joe.

“Just worried about how to save for my financial goals and achieve set target Man! It’s just difficult to start up something.” Ade sounded very disturbed. “Each time I tried to save there is always something to spend the funds on and most times I can’t even explain what I spend the funds on and even windfall is not happening”, groaning Ade.

There are two key principles that could help Ade out- First, Ade needs to make it a habit to always have a budget. This would help provide a picture of how he spends every penny /Kobo and then he would be able to decide what he should spend his money on and what he should not. In creating a budget, there is a fixed and variable component. The fixed component is what you must spend on regardless of your situation that is you don’t have any control while the variable component is what you have control over. The trick is to always add the amount you intend to save to the fixed component of your budget. It could be through setting up a direct debit or a standing order with your bank. It goes with the saying that if you don’t see the money you don’t get to spend it.

The second principle is to pay yourself first. This should also be a habit. Make it a habit to always pay yourself 10 to 20% of every cashflow. Always spend what is left after paying yourself and not save what is left after spending. People say there are different demands for the money they earn e.g. external family demands as it always happens in Nigeria but guess what these demands will always be there. I this case everyone will spend whatever is left after saving. You need to understand that you own your goal or your dream and no one else. If you do well or not it is all about you.

Think about an individual that had a job paying N250,000 a month and suddenly lost the job and found another job that pays N100,000. The question is will he survive with the change in condition? The interesting answer to this question is that he will always survive. This speaks to the discipline that is always required when you have a financial goal and you need to save for it. The truth is that you will always survive with what is left when you set something aside. Therefore, savings never kills but helps build a future of financial independence and achieve your dream.

Define your goals today and begin to save or plan for them as we have spelt out in our earlier articles.