There's a lot of great advice out there to saving money. But
if it overwhelms you, start with just these two simple rules and you'll be on
your way to financial independence. When it comes to the way we think about
money, I've noticed there are two kinds of people: those who think that one hundred thousand naira (N100, 000) is a
lot of money, and those who think that ten thousand naira (N10,000) is a lot of money. I fall into the second
category.
But I'm not especially frugal. I have a fairly nice car, I
take a vacation every year, and it isn't too hard to convince me to drop a few naira on a great pair of shoes now and then. I've don't live on loans. But I've also managed my retirement savings, bought a house, and
live without debt — all on an average salary for where I live. What I am
sharing with you isn't extraordinary, but it does seem somewhat rare. That
said, I think most people can accomplish this fairly easily. All you have to do
is live and die by two simple rules (pay yourself first and practice mindful spending):
1. Pay Yourself First: "Pay
yourself first" is a very common piece of financial advice. It's simple
enough to follow, but that doesn't make it easy. If you can save N1,000 per month (that is invest N12, 000 in a year) at a 6 percent interest rate, you'll have approximately ten million naira (N10,000,000) in 30 years.
At
the very least, you'll have a great savings fund at the ready for whatever life
may bring. But how can you come up with that cash when you barely have any
money left between your salaries? The answer is to take that money off the top (deduct your savings before you start spending). And
yes, it'll sting a bit at first. I've made a habit of taking contributions to
my retirement and savings account right off the top of each salary on the
very day it hits my bank account. I try to cut pretty deep too - save as much as will not hurt me from every salary, leaving myself
just a little more than I need to pay for expenses (spend money only on what is necessary in any given period).
This works on two levels:
a. It forces me to really budget to
meet my basic expenses while keeping extra cash out of easy reach. I can still
retrieve the money from my savings account if I happen to need it, but because
I have to make a decision to transfer funds, they usually stay put. I allow
myself to maximally enjoy the resource at my disposal that is not meant for investment on whatever I like — if I don't spend it by the time my next salary comes, I roll that balance into savings too.
b. I also save any additional money I get outside my monthly salary. I think a raise, a tip for a doing a good job, a cash gift or bonus can go one of these two ways for me. It can raise my standard of living, or it
can raise your savings. Rather than creating more expenses to suck up these
extra naira, I live the same way day to day and tuck the extra money away for
something better (investment).
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