Financial freedom usually means having enough savings, financial investments, and cash on hand to afford the kind of life we desire for ourselves and our families.
Financial Independence – Who doesn’t like the sound of that? But start thinking about what it takes and you might be tempted to bury your head under the covers and hit snooze. But then again it doesn’t have to be that way.
Granting the specifics of each individual’s finances are different, one thing’s for certain: Almost every person is striving for financial independence. And taking the steps to build a savings plan is one way to achieve it.
While we’ve been told to save money for emergencies, the effect of the pandemic really emphasized the need to allocate money for when the going gets tough. Even if you came out of the lockdown unscathed financial-wise, it should still be on our agendas to save as much as we can if we are privileged enough to do it because we don’t know what or when the next crisis will be – hopefully 2021 will be better.
The truth is, it’s going to take more than just skipping breakfast and having brunch — but it’s far from an impossible mission.
Here are five steps to take as you get started saving money.
1. Draw a BUDGET
To determine out how much you can save, you’ve got to take a decent look at your income and expenses. If you don’t have one previously, now is the time to come up with a budget.
The budgetary allocation depends on the person, so start by prioritizing your expenses. Calculate your daily expenses so you can distinguish your spending.
Don’t worry, creating a budget doesn’t have to be complex. For a quick-and-easy starting point, try the 50/30/20 plan.
What exactly is a 50/30/20 budget?
A 50/30/20 budget (or 50/30/20 rule) is one that divides all your expenses into three categories: needs, wants, and savings/debt. Here’s the breakdown of how to apportion up your monthly income:
· 50 percent goes to needs
· 30 percent to wants
· 20 percent to savings and debt repayment
For example, there’s the 50-30-20 method. 50% of your monthly salary goes to nonessentials and daily expenses, 30% goes to rent, and 20% goes to your savings. You can be more specific than this if it helps. There’s no set rule for everyone as we have different lifestyles and salaries so go with what you think is the right allocation for you.
How detailed you get with your budget is entirely up to you. But no matter what budgeting methods you follow, the point is to know what’s coming in, what’s going out, and what’s left over.
I will share a detailed post on budgets in my next post on Saving in 2021.
2. Track your daily expenses
One way to make sure you don’t overspend or collapse the allocations you have made on your budget is by tracking your daily expenses.
By recording the money that goes in and out of your bank account or wallet, you can make sure you’re on the right track. You can track it on Microsoft Excel or Google Sheets, or use an app called Spendee (I personally use this and it has been of great help).
It is also easier if your just record them in a notebook. What is of more importance is that you can see how you are spending money because it’ll make you more conscious of what’s left of your salary. Mind you January’s salary will delay LOL!
3. The Coins Challenge – SuSu Boxes
I am very certain every one of us have seen the reappearance of Susu boxes in town. Social media has been splashed with photos and posts of people breaking their boxes at the end of the year or when the boxes have been filled up, many termed is as December Money.
One way to save money is to treat it as a game to make it more fun. In the coin challenge, you store away every coin or small currency note that you get. You can also choose your own denominations. Maybe start with 50 pesewas and work your way up. It might be a small amount now but if you keep on doing it, the amount will pile up. By December you’ll be smiling.
4. Define and Prioritize your savings goals
The majority of people have a lot of things they want to save for and you are no exception. It’s easier to achieve your goals if you divide them into short, mid and long-term savings goals and make them easier to visualize.
· Short-term goals: These are things you’re working toward for the next year or so. They might include an emergency fund, payments toward rent, car insurance or purchase of personal giftings like phones, accessories or clothing. Married or in a relationship your goal could be an anniversary weekend getaway, or a gift for your partner.
· Mid-term goals: Think of your mid-term goals as the expenses that land within a 3-5-year window. Things like purchasing a car, saving a down payment on a house, fully furnishing a room, preparing for marriage or paying off a debt are common mid-range goals.
· Long-term goals: For most people, this typically includes the big one: retirement. But you may have other long-term things you’re saving up for, too, like starting a business or paying for your child’s college tuition.
It’s even easier to visualize your goals if you can keep them separate from each other. That might mean keeping them in different accounts — for instance, some of your goals might be best suited for an investment account or Fixed Deposit.
Once you’ve written up your savings goals, decide which ones are most important to you. The results may surprise you, and, if you’re in a relationship, will probably require some compromise.
Once you give it some thought, you may realize a new phone is further down the list than, say, a preparing to formalize your relationship – Marriage.
And with your priorities straightened out, you’re probably in good shape to crunch numbers.
Give each of your priorities (besides retirement, which we will talk about later) an ideal cedi amount and deadline. If you take the total amount for each one and divide that by the number of months it will take to achieve it, you’ll end up with a general amount to save each month toward each goal.
You’ll likely need to adjust your timeline or cedi amount according to how much you can afford to save.
5. Stay positive and realistic
One thing you should note as we come to an end is – You should not expect to end up with a perfect plan the first time you run this exercise. It will be a little disorganised and you will likely find that you cannot set aside as much as you want for every goal right away. But keep at it and revisit and reprioritize as your situations change.
Play around with lowering your target amounts and adjusting target dates. Find creative ways to increase your income (2021 is the year of side hustles) or reduce necessary expenses. Keep track of where your money is going, so you can spot any unnecessary expenses or places where you can afford to save a little.
Don’t forget that once you achieve one savings goal, that monthly amount is freed and can be put towards the other goals on your list. These starter steps are a good way to kickstart your savings strategy — just keep an eye on your goals and you will be that much closer to checking them off one by one.
If you are in a gainful employment and your employers are paying your statutory pension benefits (this is 18.5% where 5.5% is deducted from your salary and 13% contributed by your employer to SSNIT and an approved pensions fund manager) you can opt for the new Tier 3 Scheme – The Third Tier which includes all Provident Funds and all other Pension Funds outside Tiers I and II is a voluntary scheme.
The Pensions Act allows every Ghanaian worker to save up to 16.5% of their income into a Tier 3 Personal Pension Scheme without paying any income taxes on the savings. This is one of the many advantages that Tier 3 schemes have over other savings products such as savings accounts, fixed deposits or mutual funds.
Personally I will recommend PETRA Trust as a Trusted Corporate Trustee – Check out more on The Power of the Tier 3 Benefit on https://www.petratrust.com/wp-content/uploads/2017/12/The-Power-of-the-Tier-3-Tax-Benefit-fin2.pdf – This post is in no way sponsored or paid for by PETRA TRUST.
Keeping track of your budget and savings goals can be a whole lot easier with a little help! There are several great apps and websites out there that will track your spending and savings for free – so you can keep tabs on each area of your budget and where every single cedi is actually going.
You can also make it a friendly competition, maybe with your spouse, family member, work colleague or close friend! When you’re young, saving may not be super cool, but when you finally recognize the fact that you’re an adult, I promise it will be a lot cooler to have money in the bank than a bunch of Instagram photos of everything you wasted all your money on.