We all make mistakes, it’s how we recover that makes the difference -- and of course, how we learn from them and purpose not to carry them into the future. January, in the period of scarcity after a bumper season, is a great time to review our money mistakes.
Believe it or not, January is yet to end: we have about two more weeks to go. “Two tortuous weeks,” says Jael, who is the sole breadwinner to her two children.
Jael, by her own admission, is currently “surviving by the mercies of God.” Just last week, she and her children nearly slept hungry. “I had to borrow from a mobile loan provider to last another week or so,” she says.
The month of January has come to be regarded long and fraught with over-the-top budget demands. Creative Kenyans have euphemistically termed it
‘Njaanuary’. It is the month kids go back to school -- and require school fees, money for school supplies and some pocket money as well.
January is also the month that comes after December: a month of festivities when pockets empty to Christmas tunes. Salaries in December are paid much earlier giving families a false sense of abundance. “You get two salaries in one month,” Jael says.
A lot -- if not all -- the money get spent during the festivities leaving families worse for wear. Between now and the next Christmas, the foible human brain would have forgotten and the cycle would repeat.
In December Jael pulled all stops to enjoy a well-deserved break from work. “Perhaps I spent more than I should have,” she reminisces. She recognises that the difficulties she is facing now could have been avoided by making the right financial choices.
Of course being overzealous with money in December is not the only financial mistake the average person makes in a year. The following is a compilation of more.
Not planning for lean times
Jael is not the only parent who let the money flow with merrymaking. Majority of Kenyans did let down their guard on expenditure. From three nights at the beach to a week in Maasai Mara, there were plenty of attractive holiday offers last December. “End of year festivities are the only time my family and I think of a getaway,” Jael says. “When those offers come I am usually quick to pick a few.” Leisure travels are not bad once in a while. But several outings at a time can be costly.
To start with, December is not the best month to visit exotic places because demand is high and so are costs. Rope in the extravagance that goes with tourism and you find yourself spending more than you should. In December, there is a tendency for one to be a spendthrift much like an epidemic. Many also share in the collective mistake of failing to set money aside for use in January. In reality, January is just a month like any other: we are the ones who overspend in December.
Life without a budget
A financial budget is a guideline that helps you understand what you need to spend on and what you want to spend on. Without a budget we are swayed by whims and short-term pleasure; until the money is spent and we realise that there is much to be done before the next paycheck. A typical budget must specify what the family’s needs are. Needs are those things that cause great discomfort when the family cannot get supply. Needs should not be confused with wants - things that appeal to our emotions and we can do without. According to Jennifer Karina, an author on marriage and family, life without a budget is like running with a blindfold on. “Chances of making mistakes are very high,” she says. “Without a budget, you risk living beyond your means.” Which brings us to the next mistake.
Living beyond your means
Joanne Mwangi, Chief Executive Officer and founder of Professional Marketing Services (PMS), is known for the success she has achieved running the business. What many people don’t know is that her achievements have come from strict discipline and ethics on running her life that she merely extrapolated into business. Joanne believes in being frugal: spending just enough to get what you need.
“You should not spend if you don’t have the money,” she said in an earlier interview. Early in her career - working at a media company. Joanne noted that many working class folks were afraid of not fitting in. “We have situations where people want to live in certain types of houses or drive certain types of cars because they want to be identified as belonging to a certain class,” she says.
Some people would even take loans to match up to expectations. And when the loans pile up forcing one to default auctioneers rarely extend much grace. This is a classic example of living beyond one’s means. If you cannot afford it (with your own money) you probably don’t need it and should not have it.
Life without health insurance
Health is wealth, so I have heard. If true then we should try and invest in our health: primarily by eating healthy food and keeping off bad lifestyle choices like drinking too much and being promiscuous. Sometimes though we get sick and need treatment in spite of choosing the healthy way of life.
In such times we spend money on healthcare. And healthcare is costly in Kenya - way costlier than a trip to Mars. How, you may ask. Consider this: last April, 38-year-old Irene Musumba suffered a heart attack, was taken to hospital, spent four months in the ICU, managed to come out of danger and was discharged from the hospital with a bill reading Sh24 million. She was diagnosed with lupus.
Irene, a graduate of computer technology, worked and was running her own company prior to falling ill. All the money she had made working could never amount to the Sh24 million the hospital was asking for. In other words, unless you are a billionaire, no one has the capability of funding healthcare from his or her pocket.
Health insurance is always a good place to start when cushioning your family against such emergencies. And if you cannot afford private health insurance you should at least get insured with the national insurer, NHIF, which attracts affordable premiums.
Failing to file tax returns
It is the duty of every earning citizen to file tax returns by the 30th day of June every year. This is a patriotic obligation entrenched in law. Failure to file returns attracts penalties: monetary in value. The Kenya Revenue Authority (KRA), the body in charge of tax collection, explicitly points out that taxpayers who fail to file their returns will accrue charges of Sh 20,000 for every day that counts.
Late filing of tax returns attracts a penalty of 5 per cent of the tax due or Sh 20, 000 – whichever is higher. Also, late payment of taxes leads to a penalty of 20 per cent of the outstanding tax. I don’t know about you but Sh20,000 is a lot of money to be losing. Ask yourself: what can I do with Sh20,000? And by the way, you can file your returns now: you should not wait until June 30 when every procrastinating Kenyan will be lining up at KRA offices.
Taking loans you do not need
Frida Owinga is a business breakthrough coach at Passion Profit, a business she founded. Frida believes that loans are monies we ask for to make more money – or increase asset value. Ideally, a loan should be able to repay itself, she says. It is not wise to use loan money for recurrent house expenditure, Frida points out.
“If you are taking loans to finance your life it means you are living beyond your means and that is not healthy,” she says. When loanees default they are placed in the black book at the Credit Reference Bureau (CRB). One is blacklisted after failing to pay borrowed money by at least 90 days.
Appearing in the CRB wouldn’t be a compliment as it blocks one from accessing any credit facilities in future – when you may actually be in need of one. Credit cards are a form of loans that burden more than they help one grow assets.
Giving bad loans
We all exist within communities of friendship and family. We are bound to ask for loans from friends and them from us. What happens when friends fail to pay loans? This is exactly what happened to Jameela.
“When a friend asks for a loan it always feels like an obligation: first because of the close relationship and second because all of us need help once in a while,” Jameela says.
When the time for repayment came, her friend paid just half of the money. Yet Jameela was equally in a bad place and needed the money urgently.
“I had to borrow from other quarters,” she says. Jameela was hurt, of course. And their relationship lost its shine. Jameela gave a bad loan.
According to Frida Owinga, friendship cannot be based on loans and vice versa.
“If all you do with your friends is loan each other so that you can have money for quick fixes then that friendship is not worth it,” she says.
A loan is a loan, says Frida, and should not be pegged on friendship. Before giving a loan to a friend Frida advises that one should ask what the money is for and when it will be paid back.
Giving loans cannot be a measure of friendship.
Letting your spouse handle financial decisions by themselves
The spouse that earns often has a monopoly on cash decisions. “If the husband is the sole breadwinner then he has got the power to pronounce financial decisions,” says Jennifer Karina. This, she says, is not abnormal.
But there should be consensus among couples regarding how the money is used – whether both are earning or only one is earning. “This is part of accountability within the union: so that there is trust and openness,” Karina says. When a spouse is averse to financial decisions it makes it easier for their partner to make mistakes that may have long-term repercussions for the family.
Bad financial management, says Karina, is one of the reasons marriages fail. Do not find yourself in a situation where you believe mortgage has been paid only to find out later that the house is being repossessed.
The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of Evewoman.co.ke