Six things you should not do with your salary

By Dennis Kariuki | Sep 20, 2017
Kenyan Currency. (Photo: Courtesy)

The art of personal financial management is about budgeting, spending and saving financial resources over time. It begins with a financial plan, which helps you see the bigger picture, and set long and short-term goals for financial freedom.

If you are an employee, then one of your major cash inflows is your salary. This means that the financial decisions you make will determine how much your pay cheque will do for you. The following are six pitfalls to avoid.

1. Buy an investment that sounds too good to be true

We are all on the lookout for good investment opportunities. However, you should apply caution before committing your hard-earned money to an investment that you do not understand, or that sounds too good to be true. Often, these investments are illiquid or could end up being an expensive mistake. They say that not all that glitters is gold. Exercise caution or consult experts when investing to avoid making mistakes and to protect your income.

2. Spend your entire salary

One of the principles of building wealth is living within your means. Spending your entire pay cheque is detrimental to your future financial security.

When you are still earning a salary, saving and investing should be your priorities so that you can accumulate wealth. Your goal is to get enough to help you live comfortably in retirement and meet any unexpected needs.

If everything you earn goes towards consumption, you have no chance to develop and make progress towards financial stability. Therefore, no matter how much you earn, make saving a priority.

3. Gamble and game

How lucky can I be? Many of us have at some point had this wild question run through their minds, and the answer always inclines to, “I could be the lucky one this time”.

Your luck is definitely not the issue here – it is what you are putting on the line. If it is your hard-earned salary, then alarm bells should ring in your mind. Putting your money in gaming is likely to throw your financial plan off-balance. Your salary should be put towards avenues that can generate future returns with some level of certainty.

4. Loan it to friends and family you don’t trust

We all have people in our circles whom we care about, from family to friends and colleagues. Should any of them need a lift out of a cash-strained situation, we step up and extend a hand by lending them money. However, there lies the possibility of losing your money in bad debts.

Your salary is a key cash inflow, and it should be channelled towards improving your standards of living. As much as you may want to offer friends and family financial assistance, it should not strain you and leave you hanging out to dry. Think hard before you loan out cash because if you don’t get paid back, it could strain your relationships.

5. Spend on unnecessary items

We all fall victim to impulse buying in keeping up with trends to maintain our lifestyles in the short-term. However, the smartest outcome from your income can only be achieved when you set your goals right and only buy what you need.

It requires a lot of self-discipline to keep your eye on the ball and focus on what is important. Never spend your money on things you don’t need because, eventually, you will let them go and it will have cost you capital that you would have channelled towards ventures that are more profitable. Spend only on necessities, not mere wants.

6. Spending before paying your debts

Debts range from student and business loans, to soft loans from friends. Debts are part of our financial lives, so managing them is important.

Don’t get into the habit of spending your salary before settling your debts, as this will strain your progress from attaining financial freedom. In addition, debt attracts an interest expense, which makes repaying it more expensive the longer you hold on to it. To live a financially secure life, pay off your debts and maintain a good credit record for future financing. One way to ensure your debts are paid on time is to use standing orders.

In conclusion, your salary is important as it defines what you can do towards financial security. Practicing freedom with responsibility is the key to ensuring you spend your pay in an optimum, controlled and resourceful way.

The writer is an investment analyst at Cytonn Investments. 

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