The Sunday Mail
Dollars & Sense
We cannot consume everything we make and hope to build up wealth. The average person in Zimbabwe is likely not set up for life by rich family or friends but will have to make do from their own money.
It is clear then that if one spends every single dollar or cent they have, they will remain with nothing.
That which you make is what you must manage and multiply in the journey of wealth building. Saving is setting aside money or resources today for use tomorrow. It is based on delayed gratification, the same motivation that causes you to eat meat last when presented with a plate of sadza, green vegetables and stewed beef. You attack the sadza, veggies and soup with vigour, and interact with them more than the meat which many of us ‘save’ to eat last. Saving is the basis of growing wealth. In preparing the budget we alluded to in the last column, there will need to be a line for savings. The optimum one can save is at least 10 percent of their income. However, for one who is coming from saving nothing at all, selecting any amount at all and consistently saving it will yield greater reward over time than inconsistent and occasional saving of larger amounts. It can be done by moving things around in the usual budget to create the necessary room. This may mean a lifestyle adjustment, perhaps carrying food from home and saving the difference from buying daily. Delayed gratification acknowledges one’s right over the money, but chooses to allocate some as savings rather than spending it all in the instance. If anything, saving is just delaying spending money, so that should comfort those who feel they are “born spenders”. Save today so you can spend tomorrow! We can all learn to save. Everyone can save for something they want by simply determining what that item is, breaking it down into smaller amounts and putting those away over some time. You can start with a small item, say a particular book that costs $15, determine the time period you want to save for it over – possibly three months. That would mean setting aside $5 every month and purchase in the third month. It is small steps that gratify you and strengthen your resolve and enable you to do bigger projects in the future. Without being deliberate about saving, it will never happen. Saving requires remodelling the spending equation, where instead of: Income – Expenses = Saving, you use: Income – Saving = Expenses. What this simply means is that always remove the saving amount from your income each month before settling expenses. You can then live on what you will have left after saving. There should be no loss in saving when done right.
An important aspect is where to save, particularly so in an environment where inflation is a real consideration. It is important to know that for saving to work you must place the money where it is not easily accessible to its’ greatest threat – you! That is why it is not wise to keep money randomly in the house under the mattress as you will likely end up spending it, if, say, your mother in law arrives unannounced and you have no meat in the freezer.
Obviously in a household money can also be misplaced, stolen, lost in fire or eaten by rats. Putting coins in a tin or piggy bank is a very basic way of saving which works alright for small items and is a fine way of teaching children to start saving. The digital equivalent is putting money in one’s bank, or mobile money account as most telecommunications companies offer that option. In both instances , you cannot preserve value or earn any/much interest. As such, one may want to consider the more viable alternatives of converting into a currency that can maintain such value or using a savings club. The design of many savings clubs, popularly known as ‘ma round’, is now such that the collected amounts are further lent to others for some interest, hence you can preserve or increase the value of your saving. Yet another option is that of purchasing unit trusts monthly in the short term, which is in one to three years, then as some point cashing out to invest. Short-term deposits towards buying a particular item, called layby, can work well as a saving mechanism in some situations, better than incurring consumer debt.
We have a responsibility to ourselves and our future generations to teach the value of saving and the dangers of consumerism. Recent research shows that the average resident Zimbabwean does not save money at all. Those that do may use informal channels more than formal channels but any start and any mechanism is better than none. Determine to strengthen your own economy and start this by going back to the basics of saving. Pursue financial literacy, for empirical evidence confirms that it is directly linked to savings decisions for both rural and urban individuals.
Finally, whilst saving is useful for acquiring desired life goods, services like school, or experiences like holidays, the important part of learning this discipline is that once savings accumulate they can be used to invest – growing money. Without something to start with / capital, you cannot speak of investing at all, and as many of us will not have this handed to us, we can build it up by saving.
The immediate call to action is to begin to save and do so in a way that preserves value, avoiding the experiences and products many fell victim to in the times past. Regardless the economic situation, basics of managing money will not go away, saving and investing included. There are always options and asset allocations that work well in any environment. We will further build on and unpack this in the next column.
Kudzai M Mubaiwa is a financial wellness trainer and author of the personal finance book “Take Charge of Your Personal Finance”. She also podcasts on mari.co.zw. Contact her on [email protected] or twitter @kedukudzi