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9 ways to manage finances and avoid a cash crunch

By Kenneth Muoki | November 3rd 2015

A few years ago, I got the opportunity to visit Lagos, Nigeria. With a lot of anxiety, I landed at Murtala Muhammed Airport. To my surprise, it was in bad shape and could easily be mistaken for a bus park.

But aside from that, the other thing that caught my eye in Nigeria is the Third Mainland Bridge (or officially, the Ibrahim Babangida Bridge), which is approximately 12 kilometres long and was opened in 1990.

The bridge connects Lagos Island to the mainland, and was the longest bridge in Africa until 1996 when the 6th October Bridge in Cairo, Egypt, was opened.

Kenya’s latest economic troubles have brought back memories of the Third Mainland Bridge, and there are a couple of lessons we can learn from our economy’s crisis to manage personal finances.

It is clear that more money doesn’t mean a better life; it’s how you manage the little you have that matters. As a nation, we need to be strategic about our spending, with serious cost-benefit analyses done before taxpayers’ funds are committed to any project. Remember the outcry before the implementation of the Standard Gauge Railway’s Mombasa–Nairobi phase, when we learned it was to cost the taxpayer Sh327 billion? It was not a bad investment, but questions were raised around the value for money, and if competitive bidding was carried out.

Also, Nigeria was able to build what was one of Africa’s longest bridge in the 90s; Kenya is still unable to build a Mombasa–Likoni bridge. I know there are ship challenges, but the distance is about a kilometre.

So how do we make sure we don’t find ourselves in the financial bind the country is in, where it has a lot of urgent things to do, but not enough money to pay for them?

1. Track your monthly spending. Many people do not know how much they spend each month on food, clothing, housing or entertainment. Whether you are paying with cash, a debit or credit card, or mobile money, total your expenditure at the end of the month to gain a better picture of how you’re spending your income. Are you getting value for money?

2. Develop a budget you can follow. Using the data you’ve compiled by tracking your monthly expenses, develop a realistic budget so that it’s easier live with. Track how well you follow it each month, and live within your means to avoid being saddled with debts that cripple your development.

3. Prioritise savings. A Rainy Day Fund is important when unforeseen expenses arise. Be sure to put part of your monthly income — ideally 10 per cent of it — into a savings account.

4. Pay your bills on time to avoid late charges. Set reminders for when each bill is due to avoid costly penalties, which can also damage your credit score.

5. Review your credit report. The details of your credit report can have an enormous impact on your financial future. Ensure loans are used wisely and not wasted. Your three-digit credit score tells lenders and businesses how well you manage your credit and your finances. Scores range between 500 and 850. The higher the number, the better the rating and the better chance you have of obtaining loans at a lower rate or more flexible terms. You can purchase your credit score through any of the nationwide credit reference bureaus.

6. Eliminate credit card debt. Credit cards can make it easy to pile on debt, and once this adds up faster than you can pay it off, you’re likely to be living beyond your means. Stop using the credit cards and pay off existing balances – the sooner you do, the less you’ll pay in interest.

7. Take advantage of free money. If your employer offers a contribution match for retirement savings or savings accounts, be sure you’re contributing enough to obtain the maximum match amount. Otherwise, you’re missing out on an opportunity for free money. Maximising your contributions can also lower your taxable income.

8. Assess your insurance policies. Insurance is an important tool for protecting yourself against financial hardships, and the premiums you pay can be one of your top household expenses. Talk to your provider to be sure you have the appropriate level of protection. This way, you’re not paying too much for coverage.

9. Use legitimate financial institutions. Millions of people do not rely on traditional banks or financial institutions to manage their money. But whichever avenue you choose, make sure you’re clear about the fees you will have to pay.

The writer is a finance and audit expert. [email protected]

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