How to increase your net worth and reduce expenses

Recently, we have all been consumed by the increased taxation and expensive cost of living. How can you beat that? By ANNMARY MUMBI


Let’s face it; the cost of living is on an all-time high, at least in Kenya, and chances are high your income hasn’t adjusted upward. So what can you do to ease the financial strain?

1.    Institute no-spend days

You can start with one day a week. Any day of the weekend. This may seem difficult at first but when you get through one such day, it becomes a challenge you want to tackle. Pick a day and walk wherever you have to go, eat what is in your fridge, make homemade snacks for the children, wear what is in your closet and do not touch your money or credit card. Doing this during the weekends, where spending seems to spiral out of control, will keep your budget on the straight and narrow and leave you more money to spend or save.

  2.    Before purchasing electronics or big purchases, look at total costs

Maybe you have been considering buying a washing machine.  Without one, you have been calling the Mama fua weekly to do the laundry and pay her Sh500 per session.  A good washing machine costs about Sh 30, 000(on the cheaper side) and the running costs include water and electricity. So decide what cost is comfortable for you. Would you rather pay for the laundry service or get a machine?  

Do you have the capacity to pay off a Sh12 Million mortgage over 20 years or pay the Sh15,000 rent for next 10 years as you save up for land and home construction in 15 years? Think through the purchases and never buy on impulse or from peer pressure.

3.    Switch to cash only

Psychologists and money minds profess that it is easier for people to spend non-tangible money than it is to spend money whose value is in their hands. That means that if you make your purchases using mobile money and credit cards, you will definitely make purchases that you wouldn’t have otherwise made if you had the cash in hand.

4.    Use shopping tricks

·       Avoid items on eye level in the supermarkets

·       Return 5 items when at the counter. This will especially work when you are replenishing your household items. Almost always, you will have picked up items that are appealing to you while standing at the aisle but ones that you do not really need.

·       Always have a shopping list

·       Do not shop when hungry


5.    Calculate your net worth and increase it annually

Find out what you are worth (if married, do this with spouse) by calculating the total value of your assets and subtracting the total debts (all loans). That is your financial position.  If you were to ensure that that number grows annually, then you will manage to maintain your living standards and live comfortably into retirement.

6. Employed? Manage yourself like a business

Everybody wants to be an entreprenuer but not everyone has the grit or stomach for it. So what can you do? Keep your job, but manage yourself like you would a business. Make profits every month, and reinvest these profits. That simply means that no month should go by where you don’t retain money for investment. Just like in a business, you should have minimal running costs and should project growth in net worth. Growth could mean that every year, you are able to make more savings than the previous year. That each year, you are making more income (pay hikes or increased revenue streams). Like by the famous mantra by Jay Z, ‘‘I am not a businessman; I am a business, man’’ so should you be.

7.    Be a two-income family

In today’s world, it is dangerous to depend on one person in a family unit to provide all financial needs. What happens if the bread winner dies or loses their source of income? If your spouse is unemployed, it is best to think of what he/she can do to get some income. And over time, this new income stream should be such that it can take care of the family’s expenses comfortably.

8.    Realise that cash is the worst investment you can make

We have been told time and again that saving is a great thing to do. That is very true. But, in the face of inflation, the cash lying dormant in an account loses value. Sh300, 000 in the year 1990 cannot afford you the same lifestyle as in 2018, but a piece of land worth that much has quadrupled in value since them.

So what can you do? Have an emergency fund, and then save separately for investments that will grow your money. And as a rule, always diversify your investments.

9.    Review your liabilities

What do you own that doesn’t increase your revenue but requires upkeep? Can you ditch it? If yes, do that. Liabilities also include credit card debt, loan repayments, mortgage etc. First, work on eliminating or reducing the high interest loans. Any money saved from this effort should then go towards investments.