Six Money lessons for 20 somethings and 30 somethings

The bitter truth about money as a topic is that it is never taught in schools and if it is, it is never not taught in depth. I would liken it to the sex topic. Sex as a topic is narrowly taught and the assumption is that it is part of life. Following the sexual related ailments that have plagued our world today, we have seen a shift of this mindset where schools have had no choice but to introduce the subject within their curriculum. But not for the threat in human existence would we have seen this change in mindset. Sex and the sex topic in those early days were considered a taboo, one whose discussion was for a selected few, parents and adults. Money as a topic has had a similar genealogy. It is never given an early start in an individual’s life yet it is the very most crucial part of life on a count of the five most crucial parts of life. Well, given our fate regarding the money topic, what would be the six most crucial money lessons for 20 somethings and 30 somethings?

Determine your earnings

Top of the list is, determine what you earn. What you earn is a multiple of an array of factors such as your skills, experience, social network, awareness, creativity, business acumen, investments and many more. What you consider as your earnings should be the net of net of what you incur to make those earnings. The emphasis on earnings should and always is to ensure that you develop multiple earnings. Developing multiple earnings is akin to filling a bucket of water using more than one water flow. The more the water flows, the lesser the time taken to fill up the bucket. The question however is, what are the most preferable earnings? For you to create multiple streams of earnings, it is preferable to opt for passive earnings such as an investment in a listed company. If you buy shares in a company like Stanbic or Baroda, you will be entitled to dividends in the event the company makes profits. Remember there are loss making companies and you might as well end up in losses, like it happened to Uganda Clays shareholders.

Savers are losers

My mentor once told me that investing is a slow boring process. It truly is a boring process! Once you have made your earnings, do you view them as a windfall and spend it all? Money is a slave and master of none. A portion of your earnings should be saved and reinvested. Once you reinvest a portion of your earnings, you make money your slave and hence the famous proverbial phrase ‘let the money work for you’. The more ‘money slaves’ working for you the wealthier you should consider yourself. They also say that savers are losers. It is for this reason that they become losers. Savers save their money against inflation. At the end of the day, money saved and not reinvested at a return higher than the inflation rate will be less valuable by the rate of inflation. On the minimum, you should save 10% of your income.

Budget Your Expenses

Having set aside the amount to reinvest, the next crucial element is to budget for what is left. The rule of the thumb is what you spend should never exceed 90% of your income. This threshold is derived for the 10% that you must set aside to be reinvested. A budget is a plan and lack of planning is always attributed to failure. As such it is key that you make a monthly budget but as well track your daily expenses so that you control what you spend daily in an effort to curb impulse expenses. With this expense tracker as well as your earnings, you should be in a position to prepare a personal income and expenditure statement at the end of every month. This should be an eye opener on which areas you might need to improve. 

Enjoy Life

Living an austere lifestyle or frugally does not mean that you should not enjoy life. You will agree with me, life would be horrible if there was no room to have fun.  As such, when budgeting there should be an element of entertainment. This element eliminates the feeling that the whole process is a difficult process. Well, there are times when you will definitely need to cut off several ‘luxuries’ in the event of a payback of debt or loans. In the end however, you should not become a prisoner of yourself.

Create an emergency fund

An emergency fund will come in handy in the event of a crisis. Given that you have invested your savings, it is without doubt that you will need an emergency fund. You could opt for a partly sum out of your monthly earnings, say Shs. 50,000 (USD 14) per month. This amount should be deposited on a savings account and only utilized in the event of an emergency.

Avoid debt and Loans

Before you sign off that loan document, you must answer some key questions. What do I intend to use these funds for? And, will the returns be able to pay back the loan installments?  It is a fact that debt can either be good or bad. Bad debt is one whose returns cannot afford to pay back the loan instalments. On the other hand, good debt is one that is capable of paying back the loan instalments. As such, car loans, school fees loans are all bad loans. To properly make use of the loan money, it is advisable that you employ it in an existing business operation. For a startup, it is advisable not to utilize borrowed funds. Mind you, borrowing rates from commercial banks have been in the excess of 25% this year due to the tough economic times.

To be an ardent follower of these six principles will take you time and effort. It is my hope that they will aid you in a turnaround of your financial story.