Imagine walking ten steps forward only to realize you have actually taken fifteen steps backwards. Unfortunately, many of us are doing exactly that with money in some way or the other. Even with other aspects of life that directly or indirectly impact our relationship with money. It may look like we have made some progress but we have actually regressed. It’s like entering a bus to travel to Mombasa only to realize that the bus you took went in the wrong direction and took you further away from Mombasa. Here are some of the ways we go backwards but continue believing we went forward.
You earn a bigger salary than you were earning three years ago. A bigger income is always great. However your expenses have ballooned proportionately to your income. So, say you were saving twenty percent of your income on a smaller salary. With the higher income, your savings did not increase and you are now saving five percent or nothing at all. Even worse, you may be spending more than you earn. I know more people who save two thousand shillings on a Kshs 10,000 income than I do those who save Kshs 20,000 on a Kshs 100,000 income. What nobody may have told you is that your size of income or where you spend it has absolutely no reflection on how wealthy you are. The size of your bank account or assets does. (Click to Tweet) So with the increased income, you moved to a more expensive house, bought a nicer car, drank a more expensive drink, got onto Cable TV, bought better shoes. These things are not bad to have, but just understand that financially, they don’t take you forward. Just as you were instantly aware of the nicer things in life that you could now afford, you should have also been aware of how much money you can invest.
You bought a house and are no longer renting. Everybody around you congratulated you. You were told a home gives you financial security. You subscribed to the notion that your home should be your biggest asset or your biggest investment. Sorry, it doesn’t work that way. You would be richer if that same money was in the bank earning interest. That house ceased to be an investment the minute you used it for a house that you moved it to. A house is a personal belonging, not an investment. You moved backwards financially. If you are paying a mortgage, you moved backwards even more because you now have a liability. The day you are not working or can’t work, the house will not put breakfast on your table. Had you bought a house that you sold later for a higher price or put a tenant in, you would be financially ahead. Again, I’m not saying a house is bad to have or that you shouldn’t strive to own one. Just don’t tick off the “I’m rich” box just yet because you own or have a home. You have to do a lot more than simply own a home, in order to do that.
You started a Chama with some of your friends. You wanted to be the next big thing. You make your monthly contributions diligently. You did not anticipate that because of lack of structures and execution, your money would be sitting in a non-interest earning account three years later. Or you took out a policy for your child’s education. Ten years later you realize it can’t quite cater for the fees you anticipated. Or you were simply averse to risk so you played safe and just invested in safe things. Low return, but safe. ‘Better safe than sorry’, you told yourself. You lent Kshs 100,000 to a friend and they paid you back the Kshs 100,000 a year later. All these examples are about how misunderstanding the time value of money can take you backwards. A shilling in three years cannot buy what a shilling can buy today. There is an opportunity cost to the money you kept in the Chama. Could you have done better in a different investment? This cost also applies to lending money to people. A year later you will not be able to buy with Kshs 100,000 what you can now. You forgot to plan for your child’s education using the amount education will cost at that time, not what it costs now. The biggest financial risk is taking no risk at all because of inflation. Low risk erodes the value of money because costs are rising faster than that return. If this is your strategy, you have to put quite a bit of cash down to keep up.
You took a shortcut to Mombasa only to realise that the road is blocked. Then you spend more time going back to the main road to resume the journey. Not all short cuts get you there faster. You acquire money illegally. It goes out the window just as quickly. Your dream car was too tempting. Easy come is usually easy go. Alternatively, you spend your life looking over your shoulder or controlled by the person who has this secret hanging over you. Was the money worth your sleep at night? You are now a slave to it. You take out a loan for this investment that is sure to double in year only for you to lose your money and be left servicing a loan. You thought you were wiser than those who have been doing investments consistently over time. You start that business purely to make money quickly. You caught the end of a seasoned entrepreneur’s story. The end, which has the money and fancy lifestyle. You missed out on the process they took to get there. You quit your job and went for it. Two years later the money has not been made as quickly as you thought and you give up then.
Take a critical look at your financial decisions. Have they really moved you backwards or forwards?
Come to the Centonomy Open Day this coming Saturday 21st May at the All Saints Cathedral, and take a gigantic step forward to take back control of your money, and grow it consistently. Know someone who you’d like to take this step forward with you? Share this post on Social Media using the buttons below, tag them, and bring them along on Saturday!
Waceke Nduati-Omanga runs programs on Personal Finance Management and Entrepreneurship.
Find her at waceken@centonomy.com| twitter @CekeNduati| Facebook.com/CekeNduati