Money Management
November 11, 2024
You have been earning some money - and as it can only be, you’ve been spending it. To be honest, many expenses actually give you no choice, you have to apportion a good percentage of your hard-earned cash to recurrent expenditure even if it gives you no pleasure.
And then, there are discretionary expenditures - those that you can do without - but your jolly good self has to have a good time, live the so-called ‘soft life’ even if it’s at the very margins. Or, you just really want to improve your quality of life and need to upgrade your home or wardrobe for all the hard work you have been putting in to make sense.
Now, on top of all this, investment has been something you have constantly been thinking about. You know, that thing you need to do to quote and quote “multiply your money”. But you haven't really come around to figuring out what exactly that investment should be.
Enter, shambas, or Plotis if you like. I’d bet many people around you have at least mentioned how buying parcels of land can be a solid investment option and probably they actually have had some evidence to back their advice.
“I bought this 1/8 of an acre plot in Nakuru three years ago for Ksh100,000. I just sold it for Ksh600,000! Land always appreciates man!” a random Kenyan may tell you.
You are almost sold 100% until you look at the very many land fraud stories that have led to investors losing significant chunks of money after being sold non-existent land parcels.
Your mind is racing. ‘I need to find a secure way to make more out of my money, and I need it soon!’ you tell yourself. But actually, this is the moment to take a pause and realise that what you need is not a quick way to get returns from the money you have, but to actually get an education.
Understand all the investment options available to you and choose one that suits you best - that you understand all the risks and benefits involved before commiting.
To many beginners, investing can sound like a very complex, uphill task that there is little faith in oneself they can truly master the world of investment.
The truth is that investing doesn't have to be as scary as it sounds. And, you don’t really have to become the master of investing to make more out of the money you are earning.
You just need to become a committed learner and know that knowledge is acquired throughout life, circumstances will change, pandemics could usurp existing order and new opportunities are going to keep emerging. So, a career student you should be!
Yes, good old books come first in your journey to investing. The good thing is that they don’t have to be paper, if you are happier being able to search for keywords and jump to chapters that interest you best. You can purchase digital versions of investment books or look for free ones online.
Why books, though? Unlike say, blog articles, books will typically be structured to systematically dissect a subject with precision just like the compulsory text books you had the pleasure of reading in secondary school.
However, not all books are created equal. So, definitely angle for reputable books and also ensure they are within your skill level. You probably want to start with beginner-level books that are within the stage of your investment journey.
One thing that tends to work for many people is getting recommendations from friends and family as well as reading customer reviews to get a sense of what the book will deliver for you.
While Kenyans are generally said to have a poor reading culture, to understand investing and truly make some good money in the process, then you have to commit to learn. Well, since you are here already, you definitely do not mind reading a book or two if they can sharpen your investment skills.
There are several free, partially sponsored and paid online courses that can help you get started on investing. The good thing about online courses is that they can be good for those who prefer visual learning, many have real instructors you can engage with and may too are interactive - give you practical scenarios to practice your skills as you go.
Choose investing courses that allow you to proceed at your own pace and those that can help you identify your investment goals as well as help you come up with a plan for achieving them.
In addition to interactive investing courses that can help you get a feel of what investing in a certain area would look like, you can utilise digital investment simulators to further see if a certain kind of investment is good for you.
These are very popular for those interested in investing in stocks. Stock market simulators allow you to test the waters without putting any of your hard-earned cash at risk. Many stock investing platforms offer free stock market simulators otherwise called ‘paper money trading’ that help you practice.
Note that you may need to learn the basics of investing before downloading one of these apps to test your skills - it may be a little confusing if you have not learned the basics.
Since you have committed to mastering the art of investing, why not learn from actual real people who are several steps ahead of you in this journey?
With the basics out of the way through books and investment courses, it is probably time you joined and started engaging in an investment forum where you can learn more about advanced strategies, ask questions and get recommendations for further readings.
There are, in fact, social networks solely focused on investing such as Scutify and Stockwits that you can join and leverage on the wisdom of others.
But remember as a beginner, the most important starting point is structured learning best delivered through books or courses.
While generally you can learn literally anything from the internet, the inherent challenge is in identifying reputable internet sources for your investing education.
That’s why structured learning is preferable as well as recommendations from friends, colleagues, family and networks. The internet can be an auxiliary tool for when you want to quickly expound on a concept, of course also until you identify a reputable online publication.
With the basic resources you can get investment knowledge from out of the way, let’s take a dive into some of the steps you can consider as you start your investment journey.
Why debt is such a big issue in your investment journey is the possibility of piling up interest and penalties on debts that we would call ‘bad’. As we have discussed in a previous article, debt is not necessarily good or bad, the good or bad in debt is determined by what you use it for e.g. racking up credit card debt vs taking up mortgage for a rental property.
It is thus advisable to clear any ‘bad’ debt you have accumulated before seriously starting putting your money in investments. Getting in trouble with repayments, increasing interest rates or penalties can majorly derail your investment plan and possibly alter your lifestyle if significant amounts are held in investments and loan charges and repayments eat into your cash flow.
Also, as you angle towards investing, it is probably time to revisit your expenditure. Try to eliminate any unplanned spending and avoid common money traps - especially money decisions that are driven by emotions e.g. fear, envy, shame, guilt etc.
Keeping up with the latest trends - whether from peers or the environment generally, can be a huge impediment to wise spending. It is even more important to rein in such impulses now that you are thinking about investing because they do take a good load of money from your pocket that you could have invested.
The pandemic has rightly taught us the importance of keeping something tucked away for the proverbial rainy day.
An emergency fund will definitely give you a peace of mind not just when you are investing but generally in life knowing if something unexpected happens e.g. you lose your job, a recession or a health-related problem etc. you can always tap into it and get yourself out of a jam.
This can be as easy as opening a savings account - browse through available savings accounts in Kenya here - and saving a percentage of your income monthly. Automating this makes it even easier to be consistent.
Ideally, it is advisable to have at least 3 to six months of your monthly expenses saved up in case of emergencies - e.g. those that might cause you to lose regular income for an extended period of time. You can agree that this can help you get back on your feet faster.
READ ON: Learn more about the differences between savers and spenders and how to get the best of both worlds as you journey towards your financial goals.
Just like you wouldn’t want to jump into a wrestling ring without having learned the basics, you wouldn’t want to dive into investing without understanding the game.
You want to have taken some time to know what the basic goal of investing is and the process you will need to go through to achieve that goal.
Using the resources discussed in the first part of this article, you should be able to take those baby steps into the world of investing with a confidence much higher than a toddler’s.
It is important to understand the basic goal of investing as well as the basic process that you will use to reach that goal.
After spending a good deal of time reading through books, taking a short investing online course, listening to podcasts and engaging in investment forums, the next natural step you will find is creating an investment plan.
This should happen before you put any of your money at risk. This is the blueprint that outlines what you want to accomplish and how you are going to get there.
As we talked about the risk of keeping up with the trends, an investment plan should be as individualised as possible and include;
Creating an investment plan - guided by the knowledge you have gathered through your research, training or through an investment advisor - will give you good clarity as you start getting your wallet ready.
Investing can be a little scary to beginners, but with research and intentional learning, it does become as familiar as any other skill that you have learned over the years.
After all, why you are even interested in investing is probably because it is integral to your achieving the financial goals you have set for yourself - which means then the incentive to learn is already there.
Of course, nowadays there are several ways to go about it including simply depositing your money with an investment broker who then trades with your money and all you have to do is wait for your profits (or loss).
While this is a viable option for many, even then, understanding what your broker does, what markets are going which way etc. will help you make a better decision and you will have more confidence when making these choices.
Remember: investments involve taking risks, there are high and low risk investments but nevertheless, the money you put in an investment is always at risk. That is why you need a detailed investment plan that restricts you to risks that you can tolerate.
What has been your experience investing in Kenya so far? Or are you to start - we’d be glad to hear your stories and ideas.
Happy investing!
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