By Babajide Komolafe
“Sir, I earn N100,000 as monthly salary, but can’t even save a dime; instead, I get broke before the end of the month. I know I handle family responsibilities like school fees, feeding etc, but I need to save. Please what can I do? Please help out.”
The above request is from a regular follower of this column. There are many people in similar situations. They recognise the need to save but their income is quite low and the bills are overwhelming. How can someone in such a challenging situation save?
As we have emphasised in earlier articles, saving is more about habit. It has little to do with the size of your income. When something becomes a habit, you do it on impulse. You make whatever sacrifice is necessary to do it.
And the best way to develop a savings habit is to start small. This means you start with an amount that you can easily save. In this case, the salary earner can start by saving N1,000 every month. This is just 0.1 per cent of the income.
The next thing is to create a system that will make the savings automatic and also difficult to easily access and spend the savings. There are several ways to achieve this. This could be achieved via Esusu (group savings), membership of a cooperative, a money market mutual fund investment account.
Since the salary is paid via bank account, visit your bank and set up a Direct Debit to the bank account of the mutual fund account or the cooperative account or the account of the person coordinating the Esusu. Direct Debit means you tell your bank that immediately your account is credited with your salary, the bank should transfer the amount you choose to save (i.e N1,000 in this case) to the bank account of where you want to save the money. This makes the savings automatic and to an extent, beyond your control.
In one year, you would have saved N12,000. But most importantly, you would have become used to saving. You would also have gotten used to not spending all your salary. When this is combined with the psychological effect of having some money kept aside, you would be encouraged to increase your savings to N2,000 per month.
In the world of investment, no amount of money is small. Small amounts of money saved regularly over 10 years, are like little drops of water that will eventually become a pool of water. So, it is more about consistency which requires discipline. In 10 years, that monthly savings of N1,000 in an investment with annual compound interest of 10% will become N193,842.