The Average Nigerian spends over 40 per cent of monthly earnings on food and beverage alone, according to a recent report by FBNQuest.
If we assume a salary of N100,000 for simplicity sake, that would mean Rose, our hypothetical average Nigerian has N60,000 left for transport, housing and utility bills, medicals, clothing, ‘’owanbe’’ and probably nothing tangible for savings at the end of the month.
You might probably face the same dilemma as Rose and since you are not going to be working all your life you have to save.
If you fear your income is already squeezed, do not worry. Here are a few tips on managing your finance:
You need a plan
The first thing to do is to draw a plan. Yes! Like in every other business in life you need to set up a goal and outline simple steps to achieving that target.
Drawing a financial plan is simple and it should start with calculating your annual income so you get can a realistic savings target to meet at the end of the year then working your budget backwards to accommodate that goal.
In setting a savings target, there is the 50/30/20 rule which advice spending 50 per cent of your monthly income on necessities, 30 per cent on luxury and saving 20 per cent. Even though the rule is not a ‘’one fits all ’’ you should strive to meet a 10-15 per cent minimum.
NB: if you have religious obligations, revise luxury downwards a bit but do not overly squeeze your luxury budget as it might come back to haunt you.
Create different wallets
Human psychology plays an important role in our financial lives. Do not trust yourself to always be rational as habits and impulses would spring surprises on you sometimes.
To ensure you stay on track, treat your income as eggs and get different baskets for your savings, necessities and luxury spending.
The basic idea is that when you have all your money in one plays, you might be led to believe that withdrawing a thousand naira would not derail you from your goal since the impact of that deduction on your account balance might be negligible.
However, when you have smaller pockets to spend from, each naira expended would be a larger proportion of that whole.
Importantly, it helps you stay focused and give Paul what is Paul’s.
Get help, automate your savings!
Things are easier said than done- you should agree with this universal truth if you have ever used the snooze button on your alarm. It is one thing to have a savings plan and another thing to actually save.
Although the list is much longer, applications that can help you save include Piggyvest, Kolopay, Esusu, and Cowrywise.
You should most especially go for the options that allow you to automate your savings so that the percentage you intend to put away is deducted by your mini bank as soon as you get paid salary.
NB: If you want more traditional means, you could try giving a standing instruction to your bank or get an old fashioned piggy bank.
Cash or Card Rule
Your payment option should factor in security as well as convenience. A lot of online platform offer discounts for payments made with card and that might present good bargain hunting opportunity- since you are getting the same value for less after all.
Since in Nigeria coins are not easy to come by, it might be difficult taking advantage of price discounts like N99.9, N47.50, N800.50 retail outlets like Shoprite often offer unless you pay with card.
Whenever you pay with cash make a conscious effort not to spend the change on frivolities.
Take your head out of the clouds
Even though online retailing is here to stay, you should endeavour to stretch your legs and sometimes go to the mall.
The reason is that you may find cheaper deals, get a basis for comparing prices offered for goods (and services) across different platforms and the cost of transacting might be significantly lower offline especially if the retailer is within your vicinity.
Another reason is for shopping offline every now and then is that some have argued that you may be more prone to spending spree online due to the convenience and artificial intelligence powered-advertising campaign you may find a difficult to resist online.
Cost to Benefit
This is a classical economics principle for justifying your expenses and it simple considers everything as an investment which should add more to you than it takes from you.
‘’How much am I spending and how much am I getting back whether in a material form or otherwise’’, ‘’ would this expense save me money and prevent a future liability in whatever form?’’
Even though it is not very likely you’d always introspect like this, it is good you consider this approach when you want to spend a significant part of your income.
NB: One trick is to weigh cost, for example, is finding out how much you make per hour or per day and gauge your expense in terms of efforts put into work e.g. a pizza is worth 5 hours of my labour.
Finally- Don’t Save, Invest!
Rose, our hypothetical average Nigerian, saved N200,000 naira in a Nigerian Bank in the year 2000 and she felt confident she had secured a great future for herself. Today the money has grown to around N400,000 because of a compounding interest but inflation rate has outpaced the growth in her wealth.
Keeping your money in a bank for a long time is not such a great idea especially when you consider the rate of interest offered on savings account and then the pace of inflation which would erode the value of money over time.
‘’ A naira today is worth two tomorrow ’’. Get an investment asset to put money in depending on your risk appetite.
Treasury bills and government bonds are always a safe bet but a whole lot of options exist today, including mobile savings applications that pay attractive interests on deposits.
NB: Keep a part of your savings liquid for emergencies.
Yes! Nothing goes as planned- Set up an emergency fund too
Life happens! Ensure you have an emergency fund to fall back on if something urgent arises.
Back to our 50/30/20 rule, reassess your spending on necessities so it is about 50 per cent of your income, take 20 for luxury, 10 for emergency fund and save 20.
If there is need to tweak the ratio in case of other obligations (charity and religious dues), you could try the 50/15/10/10/15 (necessity/luxury/emergency fund/ other obligation/savings) variant.
NB: Feel free to try out different ratios but don’t make a habit of changing the mix too frequently and importantly pegged savings at 10-15 per cent minimum.
