It’s not your salary that makes you rich, it’s your spending habits-
An unknown, wise person.
As a young student in the University of Lagos, it can sometimes feel like the earth opened its mouth and swallowed all the money in the world. One minute you are balling on campus, the next, it’s like: Is this my last supper? In this journey of having, spending and needing money, I have learnt that the most important part of getting rich isn’t making the money. It’s putting it away either through savings or investing.
As humans, we are perpetual consumers. We want the next best thing. The new shoes, bags, vacations etc. And then, there will always be bills to pay. Food, internet, clothes, toll gate fees, fuel for your car. The things you can’t live without! So how then do you save if you keep spending?
Here are a few tips that can help you keep account of your spending and ultimately, your savings.
Pay off debt
No matter what you’re making, if you have debt hanging over your head, it is never going to feel like you earn enough. Try to not get into debt in the first place. “Gbese” isn’t pretty in the least. In this part of the world, we thankfully don’t have student loans or credit card bills. But, if you have any debts, spread your debt paying over a period and make sure you pay promptly.
Create a budget
After you get your allowance/salary, what next? You should have a clear idea on what amount of your income goes to a certain expense. This is where budgeting comes in.
Forbes advises that you split your income using the 50-20-30 rule. 50% of your income should go into your living expenses and essentials. Which includes your rent, food and groceries, transportation for work, car fueling etc.
If you do not use up the 50%, you can adjust the percentage and save even more.
For us in Nigeria that pay our rent yearly, split the amount for rent into 12 months and set aside that amount every month for a year. That way, you don’t have to beg your aunt’s brother’s cousin for some money for rent.(refer to point 1.)
A bonus tip: Your rent should be about 20-25% of your entire income. Any more than that and you are spending too much. For example, if you earn 500k per month, that would be 6million in a year. Your rent shouldn’t exceed 1.2- 1.5million. If you’re thrifty like I am, you could pull that percentage down to about 17% and pay 1million only on rent.
(50-20-30 rule continued)
20% of your earnings should go into long term savings. If you also want to invest, this is where it should come from. Asides from wise investments, this money shouldn’t be touched at all.
The last 30% of your savings should go into flexible spending or emergency funds. This includes movies, an occasional night out etc. To be honest, this is where your short-term savings should be as well. You don’t need a night out with the girls every single week. So, you shouldn’t spend all this 30%. This should be money kept aside for emergencies. For example, hospital bills, family support etcetera. If all those emergencies don’t come up, save the money. It is a rule of thumb that you should have a few months income in savings. It will come in handy some other time.
Track your expenses
A plate of rice, plantain and sauce from Blackbell with a parfait from So fresh Ng would cost you about 4000. If you casually have that every day for 30 days, you just spent 120000 that you didn’t keep track of.
This habit is important and must be done precisely. Take account of everything you spend your money on. From the “grab and go” coffee and doughnuts. To toilet paper. Do this for two months and you’ll be surprised at where your money goes. Learn to control and manage your money. So that your money doesn’t control you. No matter how little you think you are earning now, learn to know what happens to it.
Now divide your expenses into three
Essentials, financial goals (aka savings) and flexible spending/emergency funds. Fix these spending into the 50-20-30 rule. If any of them is off balance, try to look at the things you don’t need and cut them off.
Now that you understand budget and tracking, what else? if you try to keep the same money for savings and spending in one account, you may end up spending it all. Saving automatically ensures that you don’t even have access to your locked/long term savings at all. You can use an app like Piggybank to save automatically. Just link your salary account to it and set the amount and date and it automatically takes the 20% away before you can see it.
Have multiple accounts
I know it is stress having to deal with one Nigerian bank, talk less of a few. But it is also important to keep your money in separate accounts. For example, the 30% should be in a separate account from the 50% meant for spending and essentials. Also, the payout for the 20% long term savings should be in another separate account.
Do things yourself
If you learn some survival skills like making homemade meals and making your own home decor, you find that you tend to cut cost in those areas.
Find a smart investment plan and let your money work for you. In the long run, it is so worth it.