Saving Money Tips: 5 basic rules to save money and retire rich

Save Money
It is best to save a fixed amount each period. PHOTO/FILE
Everybody wants to save some money. But getting started is normally the hardest part. Here are five ways to save money for the proverbial rainy day.

1.) Eliminate your debts. This is the fist thing to do if you are serious about saving money. The sooner you eliminate debt, the less interest you will pay – and the freed money can be re-purposed to savings. If possible, try consolidating your debts to save yourself from paying too much interest.

However, even as you work towards getting out of debt, be sure to create an emergency fund (money to sustain you 3-6 months if you lose your job). In fact this should take precedence over debt elimination.

2.) Set short-term and long-term saving goals. Setting short term goals such as buying a camera is quite easy. All you need to do is to determine how much the camera costs and figuring out how much you need to save every month to raise the funds.

For long-term goals such as retirement, you will need to do thorough planning – figuring out how much money you will need to live comfortable 30 years or so after you retire.

3.) Calculate the amount of money you need to save per day, week, month or pay-check to achieve each of your saving goals. Based on the price of the item you want to buy, figure out the amount you need to start saving now. Be as realistic as possible.

It is best to save a fixed amount each period. For example, if you want to buy an item going for Sh30,000 in six months, you will need to save Sh5,000 per month for six months. However, if your monthly income is Sh7,000, it might not be a realistic goal, and you need to adjust your time-frame to come up with a more reasonable amount.

4.) Create a realistic budget. Once you have succeeded to balance your income with your spending and saving goals, write down a realistic budget to live on.

Write down every shilling you spend from house rent to your student loan. This way you will be able to control your spending especially for expenses which keep fluctuating such as entertainment.

5.) Pay yourself first. Saving is your first priority and you should therefore deposit a percentage of your earnings (say 10%) into your interest earning account as soon you get your pay check. If your income is Sh20,000, deposit Sh2,000 into your account. This is not a hard thing to do and over the years you will have accumulated a huge sum of money.

If you have a problem paying yourself first, you can ask your employer to deduct savings from your salary, and direct the money into your savings account. You can also set up an automatic transfer from your salary account to your savings account.