As at September, my Emergency Fund is still my number one priority and gets all the ‘bonus’ money i get from time to time. Its now at a healthy 78.3% of my goal and i plan to have it fully funded by end of year so that i can channel money to other investment goals. My overall networth went up a notch to 14.37% of my “15X40” BHAG and being a long term goal am happy with the numbers so far. This goal has been broken down to a medium term goal of having a networth of Ksh. 4million by end of 2010 and this is at a respectable 53.8%. All’s well on that front.

On the stock’s front, i noticed that my portfolio had taken a hit in the months of July and August and clearly this had to do with the temporary upswing in the market which was then followed by general decline. As i intend to rely on the principle of Dollar Cost Averaging, i have treated this as a minor blip in the overall scheme of things. With regular purchases in the coming months and hopefully an upward swing in the market, i should be able to meet my target by December. As things stand now, i am at 71.7% of my goal which is to have a Ksh. 500,000 stock portfolio by end year.

To view my progress bars, visit my Progress Page.

“Men and women handle their personal finances much differently, research shows, with men more likely to keep a close eye on their spending and investments and to pay their bills on time. The data showed two-thirds of men but just one-third of women said they regularly pay their credit card balances in full, said Liz Davidson, chief executive of the company based in Manhattan Beach, California. Also, 90 percent of men said they pay their bills on time each month but only 74 percent of women said so, it said. It said 71 percent of men but 53 percent of women have a handle on their cash flow so they spend less than they earn each month. More than half of men but just a third of women said they have an emergency fund to pay their bills for a few months if they lose their job, it said. Forty percent of men but just 24 percent of women said they were confident their investments were allocated appropriately, while 73 percent of men but just 40 percent of women said they had a general knowledge of stocks, bonds and mutual funds.”

I would actually have said that women are more likely to pay off their credit card balances in full but obviously i was wrong. I find a lot of my female friends find money talk quite exasperating while men will talk about it for hours. Not to say however that the talk always ends up in wise financial decisions. However, lately a lot of women are becoming very keen on managing their finances and this can be evidenced by the large number of women-only investment groups. Impulse shopping i guess contributes a lot to spending more than you earn and this may afflict the womenfolk more than the men seeing as i can walk around an entire shop and actually find nothing worth buying..shoes and clothing included. I would be seriously tempted in an electronics shop but obviously you cant pick up anything worth Ksh. 1,500 like you would a shoe. I was also thrown a bit by the “Emergency Fund” findings. I could have sworn women are better are setting aside money for a rainy day!

According to Reuters, most of those answering the questionnaires earned between $60,000 and $75,000 and were assessing their own financial situations from January through April 2009. Do you think the findings would have been similar if the survey was conducted in Kenya?

Nonetheless, it is always gratifying to see a healthy bump in my networth each month. My BHAG is up to 12.1% which though a low number is a positive step towards achieving my “15×40” goal. My stocks are a nice surprise after the recent downward trends at the NSE and i have noticed some appreciation there. Definitely looks like my target of half a million stock portfolio by year end will be achieved since am at 78% at the moment.

I have thrown in any extra money i got last month into my Emergency Fund and this has grown the fund to a healthy 58.3% of my goal. Once I have this fund to tide me over for at least 6months, then i can channel my funds into more aggressive stock purchases or even real estate. For now i will continue throwing every extra cent i can get towards the fund.

To view my pretty progress bars, click on my Progress Page.

According to Fox News, the guy had amassed debts of upto $400million despite earning millions of dollars in the course of his career.

Yet after selling more than 61 million albums in the U.S. and having a decade-long attraction open at Disney theme parks, the “King of Pop” died Thursday at age 50 reportedly awash in about $400 million in debt, on the cusp of a final comeback after well over a decade of scandal.

When he ran into further financial problems, he agreed to a deal with Sony in 1995 to merge ATV with Sony’s library of songs and sold Sony music publishing rights for $95 million. Then in 2001, he used his half of the ATV assets as collateral to secure $200 million in loans from Bank of America. As his financial problems continued, Jackson began to borrow large sums of money, according to a 2002 lawsuit by Union Finance & Investment Corp. that sought $12 million in unpaid fees and expenses. One forensic accountant testified that the singer had an “ongoing cash crisis” and was spending $20 million to $30 million more per year than he earned. In March of last year, the singer faced foreclosure on Neverland. He also repeatedly failed to make mortgage payments on a house in Los Angeles that had been used for years by his family.

It sounds incredible that someone earning that kind of money can actually find himself in debt, Ksh. 3.2billion for that matter. But it merely reinforces the often repeated argument that it is really what you keep that matters and not what you earn. Mortgage payments? The guy had mortgage payments?

Usually the typical Kenyan goes through his/her twenties thinking “Am too young to worry too much over the lack of savings” and then find themselves in their mid-thirties, kids and mortgage to boot, and thinking “My paycheck is too stretched to be able to save anything”. Then on to the fifties when the kids are through with school and retirement looming large then the thinking changes to “I wonder how long my pension savings will last me before i have to depend on my kids”. Now this obviously is not the case for all Kenyans but describes a general path travelled by many especially those who depend on a paycheck all their lives.

In my own case I hardly gave a thought to savings through my twenties on the basis that I really couldnt be expected to save anything on the kind of money i was getting from my employer. Although the money was indeed not anything to write home about, I had few fixed expenses (rent and food) and I even managed to buy my first car on the same meagre paycheck. As i moved jobs my pay kept on rising but i saw no urgency in getting started on savings. Soon enough the big three-Oh came and passed and yet i still had no savings and no worries. However, it was beginning to dawn on me that my dream of being rich had a very real chance of going up in smoke unless i hit on a big business idea fast. Although i had no problems with a middle class lifestyle, i wanted a life of financial freedom. Thankfully, in my thirties i realised that, big business idea or not, i could still attain a life of financial abundance thanks to the time-tested concept of “getting rich slowly”. The more i read up on the subject the more convinced i got that indeed this was not only viable but could also be attained before i was too old to enjoy my money. Obviously, the key plank in the “get rich slowly’ school of thought is the idea of saving and investing regularly and i embraced the saving culture with zeal. Looking back, i wish i had started earlier but the question is, when is the right time to start saving?

An interesting piece on CNN Money shows a chart depicting the difference in networth between someone who starts socking away money at 25 and one who starts ten years later at 35. Each of the individuals saved a $400 monthly except that the guy who started at 25 saves the money upto age 35 then stops and leaves the money earning a 7% return till the age of 65. The other starts at age 34 and saves the same amount of money from age 35 to age 65, same 7% return. The first guy (lets call him “Early Start”) amazingly has a higher networth of USD 602,559 at age 65 compared to the other fellow (“Late Start”) who has USD 528,222 at the same age. Considering that Early Start only saved for 9 years and then let the power of compound interest do the rest, it is a very strong case for starting early.

Now in Kenya, most 25 year olds are just out of college and earning minimum wage. Add to this the fact that the priority for most at this age is to acquire some sort of “life” for themselves meaning purchasing a car, buying some furniture, paying back their HELB loans and for others supporting their parents and siblings. I found that it was easier to save when i had acquired most of the furnishings and furniture for my house plus a car as it reduced the pressure on me to “spend spend spend”. However, it would still be a good idea to contribute fully to one’s pension scheme at whatever age as the money is deducted directly before one receives their pay. In addition, one should try and save even the littlest amounts starting from the day they receive their first payslip.

I find the chart so inspiring. Is there a better time time to start than now? After all, they say that “Where there is a mountain to climb, dont think that waiting will make it smaller“

I would like to know how to go about saving, being a student in my final year in campus. This is because it gets difficult to save when the little cash am given is meant for my upkeep in a month and the same amount i want to save

First and foremost, I once again take the opportunity to reiterate the disclaimer contained in my “About” page and state that:

• I have no financial training or profess any expertise whatsoever
• I do not work in the field of finance or related trade
• My blog is merely a record of the things I have done to manage my finances
• The methods mentioned in this blog may not work for everyone
• The services of an expert should be sought where necessary

Now that we have that out of the way, I would like to thank Kui for writing in as the purpose of this blog is to share our experiences with money management and wealth creation, no matter our circumstances. Having been in Kui’s shoes a few years ago when I was also in my final year in campus, I can quite understand her particular set of circumstances. To be honest, am quite envious that Kui has managed to advance that far in her money management skills as to actually think of saving money while still a student. I can safely attest that I had no such thoughts during my live-and-let-live campus years and I think Kui will go far. I wish i had also spared a few minutes to advance my knowledge of personal finance at that age. Maybe I would have done a few things differently.

Now saving money presumes that one has some money that they can actually put away after meeting all their expenses. Such money is usually some sort of income whether from a salary or from a business. It would be a stretch to treat monetray support from parents as income but that is not to say that one cannot find a way to save even while on an allowance. It is all a factor of one’s living expenses and how one manages them. For many university students, having a TV in their room, an iPod or MP3 player, wearing the latest fashions or going out three or four times a week is a necessity and they will gladly shell out money for these expenses. It should not be assumed that all university students are barely meeting their most basic needs and can only afford a few meals and the most basic of clothing. Clearly, a student who chooses to forego the “luxuries” such as the iPods and latest sneakers can indeed have some money to set aside even if only as an Emergency Fund. That notwithstanding, I do know of many of my college mates who were actively buying stocks in the Nairobi Stock Exchange, although I, unfortunately, remained totally ignorant of the benefits of such activities at the time.

So in a nutshell, I would say that saving while surviving on an allowance from ones’ parents is a factor of how simply one chooses to live and, obviously, the level of support received from ones’ parents. That notwithstanding, Kui is a final year student and soon to be thrust into the world of employment and real responsibility. Presumably at this point, monetary support from Kui’s parents will cease and she will be responsible for her money and future wealth all by herself. I therefore wish to set down a few pointers that i have learnt along the way in the time since I was also a student like Kui. Hopefully these tips will serve Kui, and other twenty something year olds in good stead in the days ahead.

Tip #1: Lay a solid foundation now

You will probably never be as poor as you are in your twenties again. The lessons you will learn in the area of frugal living will serve you well if you decide to keep them up as you get into your first job and your first paycheck. The mistake that most make is to immediately get caught up in the trap of lifestyle inflation and increase their expenses as their income goes up. Make a decision to live as cheaply as you can for as long as you can. This will enable you pay off your student loans and accumulate savings early on in your career.

Tip #2: Learn to differentiate the Needs from the Wants

Most of us make the mistake of failing to distinguish our Wants from the things that we actually Need. As an example, food is a Need while Pizza is a Want. A TV may be a Need but a 37 inch plasma screen is definitely a Want. Use your income to meet your needs (food, rent, clothing etc) and keep your Wants in a wishlist until you can either afford them or save and pay cash for them.

Tip #3: Dont pay interest on depreciating assets

Upon employment, bank sales agents will bombard you with ‘affordable unsecured” loans to meet your every desire from furnishing your house to buying your first car. Remember that those things that you buy lose value the moment you possess them and continue to do so at an alarmingly fast rate. The brand new TV will be worth less than half its purchase value if you decide to dispose of it later. Take loans (if necessary) to invest in things that actually bring a return such as starting a business.

Tip #4: Always look for opportunities to boost your income

Your ability to create wealth will be very much determined by how much income you are able to rake in. Although you may earn very little early on in your career, always seek opportunities to increase your earning potential, e.g by going back to school to increase your skills or by starting a business that can bring in extra income. Even when in campus, many students engage in money making ventures e.g offering private tuition etc to bring in some much needed extra income.

Tip #5: Take advantage of the tax benefits in Pension schemes

This is a mistake i made early on by not joining a voluntary pension scheme offered by my employer since i thought i earned too little. This meant that i missed on the opportunities available to save on PAYE by failing to contribute. Many young people also withdraw and use their pension contributions when moving jobs. Dont do this! I like the RBA advert that has a 24 year old saying that she is “on the fast road to retirement” at only 24. This tells you that its never too early to begin saving for your old age.

Tip #6: Take advantage of the power of compound interest

Albert Einstein called compound interest one of the world’s greatest forces and for good reason. By starting small very early on in your career and letting compound interest do its magic, you could save a considerable amount of money during your career and even possibly retire early. Use this calculator to see how even small amounts saved over long periods of time can blossom to tidy sums in the long run. Experts advise that the younger you are, the greater the risks you can take so dont be afraid to take well calculated risks early on in your life. If you make mistakes along the way, you will have sufficient time to make them up. Investing in the stock exchange is usually considered a volatile and risky venture but in the long run, the returns outweigh most of the other investment options.

Tip #7: Have an emergency fund

Even with your minimal living expenses, it makes sense to have an emergency fund that can cater for those unforeseen expenses that are sure to come. These can cater for such expenses such as rent deposits that are the bane of many young people. Having such a fund will ave you from having to resort to expensive bank loans or worse, shylocks

Tip #8: Track your expenses

Although this applies to persons of any age or stage in their career, it is important for a young person to incalcate the practice of tracking their expenses from very early on. This exercise will show you what your mandatory expenses are and wenable you to see what is available to save and invest. Failure to do this will lead you broke and living from paycheck to paycheck no matter how much more you evenntually earn as your career progresses.

Tip #9: Dont try to keep up with the Joneses

For many young people, the period after leaving school involves a lot of conversations about “who works where” and ” who is now earning what”. As sure as the sun rises in the East and sets in the West, there always will be your peers earning more than you and others earning less than you. Trying to keep pace with the freespender from your class who got a job with the United Nations is a sure recipe for financial disaster. Develop your own financial plan and stick to it. The fruits of this will be there for all to see in due course.

Tip #10: Dont expect too much too quickly

A common mistake with many young people is to expect their careers and earnings to start high or progress quickly. Wanting to own a BMW is all well and good but it is important to remember that the people driving around in these beautiful beasts have worked long and hard at their careers for upwards of ten years to get to where they are. Work with the money that you have, however little. At the same time, work hard to increase your income and plan your career well. In the fullness of time, the things you desire will come to you

Most of all, i would advise young people to enjoy their youth as much as possible. Having fun and managing money responsibly are not mutually exclusive and one can enjoy the things of young (partying, hanging out with friends etc) and still manage to stay on the road to wealth. Do not deny yourself these things in the name of saving for retirement but remember, its never too early to start taking responsibility for your financial future

The True/False questions asked were:

1. If asked how much money you have in your bank account right now, you would know? T/F
2. You pay off all your credit card bills in full and on time? T/F
3. When you save money on one thing you stash it, instead of splurging on something else? T/F
4. You keep track of your savings and spending? T/F
5. You have a budget and stick to it? T/F
6. When you see something you like, you stop and think, do I really need this? T/F
7. You rarely purchase things you don’t use? T/F
8. Your monthly spending is less than your income? T/F
9. Your bank and credit card statements are never a surprise? T/F

If you answered 6 or more questions true then you are well on your way to riches, but if you answered more than 3 questions false then your finances need some attention.

Excellently captured! I would however have added a few questions of my own:

10. You keep an emergency fund to tide you over in case of unforeseen events such as sudden job loss? T/F
11. You constantly seek new ways to boost your income through salary raises or business ventures? T/F

These few questions, although not exhaustive will enable you to evaluate whether you are on the right path towards financial freedom. A year or two ago, i would have scored very poorly on this quiz. But due to the influence that reading personal finance blogs and books has had on me, I can now confidently say that I have a good chance of finding financial prosperity in the days ahead.

How did you fare on the quiz?

Basic Principle #1: Maximise your earnings

This can be either through employment or through a business. It goes without saying that if you do not make any effort to earn as much as you can over the course of your lifetime, you will never attain the financial abundance that you so desire. Even lottery winners make the effort to buy the ticket and no matter how luck one thinks he or she is, they never expect to win a lottery that they never even entered. For the rest of us who do not expect our riches to come from winning a jackpot, we must strive to boost our earning power over the course of our productive years. While you may earn what you think is a pittance immediately after college, you should make an effort to excel at work, go back to school to increase your knowledge and actively manage your career so that your earnings increase steadily over time. If you are engaged in business, you must seek to grow your turnover so that your earnings from the business grow over time.

Basic Principle #2: Spend Less Than You Earn

This is a controversial subject for most but is also the one principle without which you will never achieve true financial freedom. Just as a case in point, statistics show that within five years of retirement, an estimated 60% of former NBA players are broke despite earning millions of dollars during their playing career. From a personal perspective, i also found that, despite my salary growing several times over during the course of my career so far, i was no nearer financial freedom 7 or 8 years into my career than i was on the day i received my first paycheck. The reason behind this is that my expenses grew along with my earnings such that in the event of a job loss i would be as broke as a recent graduate. This is the foremost principle that the authors of the best-selling book “The Millionaire Next Door” attribute the wealth of all the millionaires interviewed.

Basic Principle #3: Create an emergency fund

While it is important to save and invest, it is also critical that one keeps a fund which they can draw into in the event of an emergency. This can be loss of a job, serious incapacitation, major sickness of a loved one (e.g kidney failure requiring dialysis) or such other emergency that has the capacity to do serious damage to one’s financial health. In the event of job loss (as happened recently at Zain and other companies due to the global recession or corporate restructuring), such a fund can enable one to live their life as before (with some minor adjustments) without having to pull kids out of school or moving neighborhoods. The exact amount of emergency savings that one should have is dependent on one’s circumstances, with experts advising that the fund should be equivalent to 3 – 6 months living expenses. I am currently building my emergency fund and hope to have six months living expenses stashed away safely by end of the year.

Basic Principle #4: Control Your Debt

In this era of credit cards and easily accessible non-secured loans, it is easy to succumb to the allure of an easy life fully financed by debt. A graduate straight from college working at their first job can easily secure loans to buy a car, furnish his house and buy all the latest gadgetry (think iPods, iPhones, plasma TVs, home theater systems etc) that his/her heart desires. This, in addition to HELB loans from the Higher Education Loans Board, already incurred while in college would leave the youngster barely having anything left over after servicing his debts. Such a person will mostly likely be heard complaining that life is too hard for one to save a single shilling let alone plan for retirement. While not all debt is bad, uncontrolled high interest debt used to buy items that provide temporary happiness should be avoided if one is to build a solid foundation for wealth.

Basic Principle #5: Invest regularly

If one was to regularly put away a portion of their earnings into investments such as stocks, unit trusts, bonds, etc from the time they begin working and continue to do so throughout their working life, they would build a firm financial footing that will allow them to retire early if they so desired, educate their children without suffering sleepless nights, handle life’s emergencies calmly as they come and also live their sunset years without being a burden to their offspring financially. Obviously the amount available for investment early on in one’s career is little but the important thing is to begin and then slowly increase the level of one’s investments as their earnings grow.

Basic Principle #6:Spend your time doing the things that are important to you.

It cannot be overemphasised that the pursuit of money should not form the cornerstone of one’s existence. Spending time with family, pursuing one’s hobbies and also giving back to society are as important as any of the other principles of financial freedom. It is no use pursuing wealth so that your family can live in comfort if your family disintegrates in the process due to lack of love, bonding and quality time in the home. If for example going on holiday is what makes you happy, then it is important to spend your money this way instead of denying yourself every cent yet feeling miserable at the same time. The important thing is to achieve a balance so that what you do today to make you happy does not leave you and your family miserable and broke a few years down the line.

I claim no expertise in the area of building blocks for a financially secure future as I have only also began practising these same financial principles myself. I continue to learn each day on other ways that i can better improve my financial foundation and i have found that by practicising the basic principles stated above, my life has improved dramatically leaving me happier than i have ever been, more in control of my money and financially secure enough to pursue the things that are most dear to me. Please bear in mind that the above list is not exhaustive but is a useful guideline for someone wishing to embark on a journey towards financial abundance.

Jennifer writes in to say that, like most Kenyans, it is very difficult to find that kind of money to sock away each money, what with elctricity, rent, fees and food to pay for. However, except for those barely making enough to make ends meet, most of us can find areas in our spending where with a little frugality we can cut back on expenses and save a little money for the future.

As an example, it is possible to cut back on some of the expenses below and save some money.

1. Airtime. By using sms a little more to communicate with friends and family instead of calling each time, it is possible to reduce your monthly mobile expenditure. Total savings: Ksh. 1,000
2. Electricity. Try better management of electricity utlisation at home and you could see a significant reduction in you monthly bill. Total savings: Ksh. 500
3. Shopping. By being more frugal during your visits to the supermarket, you can cut out some “Wants” without affecting your quality of life. Total savings: Ksh. 1,000
4. Eating Out. A lot of people spend a substantial amount each month eating out at fast food eateries especially on weekends with the kids and occassionaly a nice dinner treat. Try eating out less offten and use the savings to beef up your monthly savings. Your health and that of your family will definitely appreciate the fresh home-cooked meals. Total savings: Ksh. 2,000
5. Pay TV. Do you really need 60 TV stations when you only get home past 7pm each night and go to bed by 11pm? Is football that important to you? Try choosing a bouquet with fewer TV channels and read a book once in a while too. Total savings: Ksh. 3,500
6. Fuel: Despite the rising costs of fuel and the maddening Nairobi traffic, a lot of us still spend unnecessarily on fuel on short trips and through inefficient driving. Try walking when your destination is not too far or take a matatu once in a while. Total savings: Ksh. 1,000
7. Weekday Lunches. If you skipped lunch once in a while or carried a snack from home, you could make some good savings. Cutting back on that Ksh. 300 lunch at Kosewe’s a few times a month can net you some savings that will tide you over in future. If your spouse also did the same, you could double your savings. Total savings: Ksh. 2,000
8. Personal Care. While getting pampered at the salon is something to look forward to every weekend, it does quickly drain your purse at the current prices being charged in Nairobi. Cutting back on these grooming sessions and buying fewer cosmetic products can generate good savings for you. You can replace these with a massage from your partner at home. Total savings: Ksh. 2,000
9. Gym membership: Do you pay a monthly membership fee at your local gym then show up hardly 4 times a month due to lack of time or lack of willpower to go after a hard day at the office. Try paying for the membership per session instead of monthly so that you only pay for what you use. Total savings: Ksh. 3,000
10. Movies: With the current prices charged at the movies easily going beyound the Ksh. 1,000 mark for a night out at the movies for a couple, it is a good idea to stay home some weekends and watch DVDs instead or read a book. Total savings: Ksh. 1,000
11. Nights out. The biggest money guzzler for most Kenyans is the amount spent on Friday nights and over the weekend at their favorite entertainment spots. With prices for a Tusker going as high as Ksh. 200 in some places, it is not difficult to see that this is an easy place to find savings. Just by staying home on some days and bonding with your partner, you can save a bundle per month. Total savings: Ksh. 3,000.

TOTAL SAVINGS: Ksh. 20,000

Investing this amount at 5% interest over 27 years will see you retire a millionaire many times over. And savings can be found also through quitting smoking, spending less of clothes and toys etc depending on each person’s circumstances. And savings need not be Ksh. 20,000. Even a modest sum of Ksh. 5,000 invested over the same period will grow into a tidy sum of Ksh. 3.3million by the age of 60.

Do you think you can find areas to cut back on?