This article originally appeared on Money254. Money254 helps consumers and business owners to search, compare and apply for financial products in Kenya.
Sitting here today – in my early 30s – and almost a decade since my campus years, I can easily point out some of the questionable financial decisions I made.
If I could go back in time, taking a mobile money loan to take my crush to a fancy restaurant in Nairobi (where a single potato chopped into fine wedges cost me an arm and a leg), would be one of the many things I wouldn't do.
I am almost certain that I can’t be the only one who feels this way.
Research suggests that children form their financial habits as young as seven years old influenced throughout childhood by variables including social environment, parental influence, peer influence, experiential learning and others.
In our early 20s, it's fair to say that a good number of us made some pretty dubious decisions when it comes to how we spent money.
As they say, hindsight is 20/20 (to mean that it's easier to analyse and evaluate situations when looking back rather than when we're in the moment).
However, if I could write the 20-year-old version of myself a letter on key financial decisions I should have made during my college years, here are the 5 financial lessons I’d highlight in bold.
Beware of lucrative loan deals
Dear younger me, avoid the burning urge to take up unnecessary loans just because you can.
Don’t get me wrong, credit facilities have helped several entrepreneurs build their empires. However, that KSh 3,000 mobile money loan you took and spent on your crush is probably a very bad idea.
Owing to financial illiteracy, I used to burn through my money at record speed as I knew that mobile money lending platforms would be there to save the day. This then turned into a cycle where the following month I’d repay the debt and take another loan. As the debts kept piling up due to high-interest rates, saving and investing became a far-off dream and I plunged into perpetual financial distress.
Before you take up any kind of loan, have a clear plan on how you can make the money work for you, a plan to grow the money.
Plan for the future now
“Do not save what is left after spending; instead spend what is left after saving.” You know that famous billionaire called Warren Buffet? He said that. Trust him.
Start your retirement plans as soon as you read this. It may sound a bit cliché but oh man, it is so true and important.
Start with something comfortable (within your financial capability) – even 0.5% of your stipend can be directed towards this project. It’s okay to start small and work your way up, as they say, ‘something is better than nothing’. Your funds will increase to a higher contribution percentage before you know it.
To help you with this, create a vision for the life you want in the future. Then before making any purchase, pause and ask yourself whether it will get you closer to your vision.
The word “goals” in my younger years would have sounded so formal, I would have run away from it. Creating a vision gives you something broader to picture yourself in, without making it feel scary and too absolute.
Perhaps I would even go as far as to tell my younger self to create a vision board to help me figure out what I want in the future. There is a certain power that comes with visualising.
When it comes to investing for your retirement, consistency is the name of the game.
Learning to cook and save
Kindly stop eating out every day and just work on your cooking skills, you’ll thank me later.
I could have learned to cook sooner. I used to eat out a lot. Outside of the health reasons not to do this, I spent too much money on eating out than I do now on homemade meals.
This would not only boost my savings, but food would also be less of a burden on my wallet.
Save more while your financial responsibilities are at a minimum. By sacrificing the first 5 to 10 years, you provide yourself with options which will translate to financial freedom.
Learn self-control and discipline
Dear younger version of me, you don’t need a new pair of shoes every other week. Ignore the peer pressure blindly pushing you to keep up with the latest fashion trend (Luku) like your life depends on it.
The sooner you learn the fine art of delayed gratification, the sooner you’ll find it easy to keep your personal finances in order.
Although you can effortlessly buy an item on credit the minute you want it, it’s better to wait until you’ve actually saved up the money for the purchase.
This financial tip is crucial for creating a healthy credit history. If you don’t learn to manage your own money, other people will find ways to (mis)manage it for you down the line.
Instead of relying on others for financial advice, take charge and read a few basic books on personal finance.
Once equipped with this knowledge, don’t let anyone catch you off guard – whether it’s the girlfriend or your inner circle (mbogi) who want you to go out and blow tons of money with them every weekend.
Make money work for you – invest
Live within your financial lane, don’t spend what you don’t have.
Once you’ve gone through a few personal finance books, you’ll realise how important it is to make sure that you don’t exceed your income. The best way to do this is by budgeting.
Once you see how the cost of your daily mayai gonga (boiled eggs) adds up over the course of a month, you’ll realise that making small, manageable changes in your everyday expenses can have a huge impact on your financial situation.
Start by going over your list and challenging every expense. Decide what you really need, and what you don’t. Then, rein in your impulse buys. Before making any purchase, ask yourself if you really need it, how you will pay for it and if it can wait.
In addition, keeping your recurring monthly expenses as low as possible can save you significant money over time.
Understanding how money works is the first step toward making your money work for you.
As a bonus tip, make sure you always have money saved up for emergencies.
If you get into the habit of saving money and treating it as a non-negotiable monthly expense, pretty soon you’ll have more than just emergency money saved up. You’ll have retirement money, vacation money, or even money for a down payment on a home.
It also pays to take daily steps now to keep yourself healthy such as eating fruits and vegetables, maintaining a healthy weight, exercising, not smoking, avoiding excessive alcohol consumption, and driving defensively. All these behaviours can save you on medical bills down the road.
Most importantly, treat any financial mistakes you make as an opportunity to learn and grow.
Many youths in Kenya are neck-deep in debt despite their fair incomes, thanks to their poor money management skills. As a result, today’s youths are ever grappling with the effects of poor financial decision-making.
In Kenya’s Vision 2030, the government seeks to create a competitive and vibrant financial sector, by promoting a savings and investment culture in the nation.
Focusing on financial literacy education is one of the ways the government hopes to realise this objective.
So far, financial literacy education has been launched in the school curriculum. It aims to educate children on financial management and thus produce a financially literate workforce out of the school system.
According to an Organisation for Economic Co-operation and Development (OECD) 2020 report dubbed Advancing The Digital Financial Inclusion of Youth, the world youth population (15 to 24 years), currently stands at 1.2 billion, accounting for 16% of the global population.
In 2019, the population of Sub-Saharan Africa (which Kenya is a part of) was 1.1 billion, with 60% under the age of 24, a figure that is predicted to rise to 2.3 billion by 2050.
“Currently, almost half of the young people around the world do not have a basic bank account at a formal financial institution,” reads an excerpt from the report.
If you are in your 20s, 30s or 40s, it is definitely a no-brainer that you have either to take stock of how you have been handling your finances, or if you are especially in your early twenties, learn from the mistakes of others and set yourself up for a much healthier, successful financial future.