If you have done adulting for a while now, don’t you wish that finance for adults was an actual subject in school? It is crazy that we come into adulthood, into our first jobs, completely clueless about money and yet we are expected to know exactly what to do when we start earning. We are expected to know how to budget, how to invest, and multiply that money.
Today I thought it would be really important to just share some money tips that I would give my younger self.
Educate yourself about personal finance
So the first tip that I would give to any young adult is to educate yourself about money matters. Personal finance is not something most of us were taught in school. It is up to you to teach yourself how to budget, how to invest, and what you need to be on the lookout for in terms of investment. Stop expecting that this thing will actually come naturally. If you are lucky, you will learn early enough from your first mistakes and then things will eventually work out.
Investing in education will pay you the best return.
Know where your money is going
We work so hard for our money. We put in hours, we stand bosses we hate, and we beat traffic and the Nairobi cold to just earn this money. But then it’s so interesting that we pay little attention to how we spend the money that we’ve worked so hard to make. If you want to respect your hard-earned cash and make it work for you, then you need to have a budget. (Get yourself a done-for-you budget tracker today!)
A budget will help you track where your money is going and identify the loopholes that are in your finances. And that’s why you want to check on your budget and track your spending regularly so that you can adjust according and slowly, keep closing those loopholes for a healthier financial journey.
Live below your means
If all the money you earn goes into bills and expenses, then you won’t have any money left to either save, invest, or achieve your financial goals. There are three important things when it comes to your journey to financial freedom. You want to be able to make money, you want to be able to keep some of the money that you’re making, and if you to become wealthy, you must multiply the money that you’re keeping. But where are going to get money to multiply if you are spending everything you earn?
Living below your means needs self-control. It needs you to understand the concept of delayed gratification. Most of us are really struggling with impulse buying. When you practice delayed gratification, you understand that just because I don’t have this thing right now, doesn’t always mean I must buy it. As a young adult, you want to start practicing delayed gratification early enough because if you don’t, lifestyle creeps will really have you in a chokehold.
Always keep your expenses on the down low and live within your means, regardless of what everyone else thinks. Remember, the goal is to actually be wealthy in the long term, not just to look wealthy. What’s the point of looking wealthy when you are in debt, with no savings, no emergency funds, and no investment portfolio?
Stay out of bad debt
Here, the rule is simple: If you can’t afford it, don’t buy it. Unless it is something that is helping you to either increase your income or build wealth.
Bad debt is what we call consumer debt. This is money that you’re spending to supplement your budget. When you don’t budget and plan for your income you end up spending your money on unnecessary and unplanned items. And so before your next income comes in, you are taking a loan to cover your monthly expenses. You want to avoid this debt because it is frustrating and you don’t realize it until you are drowning in it.
Not only should you avoid bad debt, but you should also learn strategies on how you can leverage good debt. This you can do by looking into facilities where you can access some money either to expand your business or to invest.
Learn to pay yourself first
Before spending on anything else, a portion of every money you earn is yours to keep. What does that mean? It means that the moment your income comes you want to prioritize your savings and investment accounts. This is a habit you should start practicing as early as your first job. How you handle the KES 5,000 at this time is exactly how you’re going to behave when you earn KES500,000.
Start planning for retirement
Most young adults don’t take retirement planning seriously. They think it is a farfetched idea and comfort themselves that they’ll figure it out when they’re in their 35s or 40s. I hate to break it to you, with that mentality, you will reach retirement age with empty hands. And even if your employer is doing pension or NSSF for you, NSSF is not enough to comfortably retire.
To effectively plan for retirement you need to know your monthly expenses and project that amount into the 20, 25 years to come. This is why havving a budget is the basis of healthy personal finance. If you are not budgeting, you won’t be able to accurately track how much you’re currently spending within a year and thus, you won’t be able to accurately project how much you should be able to generate through passive income to support you in your retirement years.
It is important to not only understand how to file taxes but also how they work. Why is this an important topic? It is important because most of us will start investing, but do we understand taxes for investments? As long as you are making an income under the government you have to pay taxes. So, if it is employment income you pay PAYE. If it is investment income, you pay withholding tax. If it’s treasury bills and bonds, they are taxed at a particular rate other than the structural bonds.
You will probably want to start a side gig at some point, you want to actually be able to know how to file taxes for your business. Or maybe you are in content creation or you’re making your money digitally, you need to understand how that impacts your taxes. Do you need to pay VAT or digital service tax? You should find out because all this will really help you in getting to know how to calculate the real return on your investments. It will also help you to know how to quote for your services so that you can be able to include the expense of tax.
Guard your health
It might probably sound like a cliche but your health really is your wealth. Most of us are literally one illness away from bankruptcy. As a young adult, you want to prioritize your health and this are some of the things that you can do. The most important thing is to actually get medical insurance. If you don’t have one, at the bare minimum you should get NHIF. It is really easy to register and affordable at KES 500 per month.
On top of that, you also want to probably grow into investing into private medical covers that can cover most inpatient services like ICU. Medical insurance generally protects your savings and investments. If you are under one, you don’t have to liquidate my savings and investments to take care of a medical emergency. It is also important to eat right, drink your water, exercise and take care of your mental health. You really are what you take and what you consume. Actually taking care of your health is a real flex.
Get financial advisors or a financial coach
You don’t go through the trial and error method when you can get it right the first time with the guidance of a personal financial coach. A financial coach will help with medium to long-term financial planning. On top of your emergency funds and getting out of debt, you really need to plan for the future.
Every time I sit under someone who knows something I don’t know, I really learn a lot. I’ve come to appreciate the fact that there is no one with a monopoly of all information. So every time I’ve invested in talking to professionals, whether that be a lawyer or a financial advisor, or someone in the marriage space to talk to me about how their journey has been, there’s room for mentorship and there’s room for coaches.
The goal is to actually prioritize education that enriches you over entertainment because there’s no better time to do that than when you are young and haven’t made so many mistakes. With the same amount of money you spend on entertainment, you can invest in your growth by talking to professionals to help you come up with a good budget, come up with a long-term financial plan, and curate an investment and insurance portfolio that will really protect you in the long term.
Have fun with your money
When I say have fun, I don’t mean blow your money on fun. I mean change your money mindset and what you think about cutting costs, living below your means, saving, and investing. Saving is not punishment. Living below your means is not punishment. Sacrificing some things for the purposes of achieving your medium to long-term financial goals is actually not punishment. When you think of it as punishment, there is absolutely no way you will enjoy budgeting. And if you don’t budget, you won’t know where your money goes and you will end up taking loans and in the end, you won’t save.
Instead of looking at healthy financial habits as punishment, create a reward system. You didn’t get to buy ABC this month, instead, you took that money and invested it into your future. You will get to retire early, you get to enjoy financial freedom and all the benefits that come with it. Like you can choose whether to work or not. You can quit a toxic employer. You can travel the world. When you look at these things from the perspective of these other rewards, I will actually start enjoying these basic financial concepts.
It is rewarding, knowing that slowly by slowly you are building the financial future you want for yourself.