When the year 2020 began, no one could have imagined what was in store in the months to come. As usual, we had great plans in place but little did we know that a global pandemic was going to shut the whole world down.
The good news is that the past 12 months have been a wake-up call for many Kenyans as far as personal finances is concerned. COVID-19 caught all of us off guard, and from it we have picked some useful lessons for the future. Here are some of them:
An emergency fund is a MUST-HAVE!
The importance of an emergency fund cannot be over-emphasized. You may have heard this a thousand times but it holds: failing to plan is planning to fail. Unfortunately, not all people realize the need to plan for the un-known, the emergencies. Because of that, many live off the little they have left and some fall into debt which makes their financial situation even more difficult.
An emergency fund is a budget that you set aside for unexpected situations. These situations could be job loss, unexpected medical costs or other unforeseen expenses. Set aside at least 3 to 6 months’ worth of living expenses but if you can, aim for a year’s worth of expenses. It should cover rent, utilities, essential needs, and other important expenses. If you do not already have an emergency fund, start by setting up a monthly debit order that automatically allocates funds to a low cost, easily accessible investment account. You can begin by saving whatever you can afford with the aim to build it up to three to six months’ worth of living expenses.
Always work with a budget
Having a reliable job that provides for your monthly expenses can make one comfortable. Some could spend money without a proper plan in place which happens through impulse spending thus leading to a lack of accountability. 2020 saw many people lose jobs while others received pay-cuts from employers. Some businesses closed down while others had to downsize.
Living on a budget is a lot like adopting a healthy lifestyle. You will have to give up a few things but with the right mindset and plan it is possible to find a good balance that will make you live within your means. Make a list of your monthly payables and allocate a budget to each. While you’re at that, consider cutting some costs where you can, too. For instance, if you’re working from home, your budget for transport or fuel may have reduced. In addition to the money you save, you now have more to put to the emergency fund, investments and funding your goals. The best way to budget is to create a list of all your monthly expenditures and strictly stick to it while at the same time adjusting as circumstances change.
After the challenges faced in 2020, the importance of saving money became clearer to most of us and it is very simple; it makes your life more secure. Different people save for different reasons. We cannot predict the future, so, generally, many people decide to save and become financially secure in case of any unexpected happenings. Remember that a savings account should be different from an emergency fund and in order to make saving easier, have a clear goal or purpose for saving money.
Family Bank has a variety of savings accounts to choose from including Tujenge account that helps you build up on your savings, Mdosi Junior account for children below the age of 12 years old, Extra Cool Visionary account for young people between the ages of 12 and 18 years old and even a Chama account for your investment group.
Do not make rash financial decisions
The past 12 months have been nail biting. In times of crisis and volatility, it tends to be difficult to focus on your long-term financial goals because you are not in a good position to visualize how the economy, stock markets or even business might turn out. Therefore, it is important not to make rash financial decisions when things look risky. Economic uncertainty and global volatility across majority of markets left investors on the edge of their seats waiting for the final blow that would send global stock markets tumbling downhill. Before making a critical financial decision going forward, be sure to talk to an expert and ensure you conduct an extensive research.
This year ensure you are financially ready for whatever life throws at you next because financial security is key. The only way this can be possible is by learning from our past mistakes and by starting the financial wellness journey today!