Aggrey Jonathan K Bett

To create a plan

The creation of income and assets is not a one-step journey. It would help if you had a plan (guideline or roadmap) to light the way and time to grow the income. A plan is a step-by-step method you create and follow daily to generate income, control expenses, and save and invest in creating wealth to fund the various short-, medium and long-term goals, including retirement income. To make a plan, you must define the desired lifestyles, sources of income, expenses for current needs and wants, desired goals, necessary savings and investments to pursue to create and multiply money to meet the aims. Building assets takes time, and you need to start early. If you wish to save for your child’s university fund, you start saving when the child is in Primary school, not a year before she goes to university.
To multiply money

One of the main reasons for saving and investing is that the money you generate is a definite amount, which can increase by investing. It can multiply many times if you save part or the whole of this money in an interest-earning bank deposit. Money is naturally worth more when you receive it because of the potential to earn interest and grow if invested. Look at it this way. If you have US$20 today that you can spare, you could buy yourself a nice lunch in a cosy restaurant or some drinks in a bar, ending that money. Alternatively, if you keep the money safe at home for a year, you will have the amount, but its value will not command the same amount of goods as it did at the beginning of the year due to the corrosive effects of inflation.

However, if you save this amount in an interest-earning investment, the amount can grow and multiply many times. Look at what happens to edible seeds like maize (corn). If you eat the seeds, that is the end of those seeds. If you instead sow some kernels, you will give them the power to germinate, grow and produce more grains you can later eat and sell. To beat the impact of inflation, you have to target an interest rate higher than the stated target inflation rate in the country. Other ways of multiplying money are starting a profitable business or investing in dividend-paying shares, interest-earning Treasury bonds or assets that generate income or capital gains.
To guard against inflation effects

Another reason for saving and investing money is to protect it from inflation. When money is held in an interest-bearing bank account or in an investment that pays interest or dividends, it will grow by the amount of interest each year. If the rate of its growth is equal to the rate of inflation, the money will maintain its value. If the earnings rate is lower than the inflation rate, the earnings will lose value and command fewer baskets of goods each year. Inflation is the steady increase of prices of goods and services over time. To beat the impact of inflation, you have to target an interest rate higher than the stated target inflation rate in the country.

To create multiple sources of income

Investing money well can grow and earn regular earnings that become another income stream added to your primary income source, like a salary. If, for example, you have saved and managed to have US$50,000 stashed somewhere, earning an interest rate of 3%, the earnings are a gross income of US$1,500 per year or US$125 per month. If you have four investments, each earning US$125 per month, you can make a total of US$375 per month in addition to your other primary source of income. Wealth management gurus such as Warren Buffet advise that one should have at least seven varied income streams at any one time if one desires to be financially independent and wealthy.

To create peace of mind

Most people do not earn much, and saving seems ridiculous to them. However, everyone has to start somewhere, and if you work at it by saving at least 10% of your monthly earnings, your financial situation will likely improve over time. Saving money is incredibly important and is worth the effort. Having some savings gives you peace of mind, knowing that you have a realistic chance of taking care of the unknown.

To create an emergency fund

We hope emergencies will not happen, but we all know they do. Emergency expenses include major car breakdowns, house repairs, unexpected health costs, item replacements, and funeral expenses. As you age, lifestyle diseases like blood pressure, blood sugar, and teeth, eye, joint, hip and knee problems develop. When these come up, you need savings or medical insurance to treat them. These emergencies can be expensive, and we all know we will likely encounter some trouble occasionally. So it would be best if you prepared rather than potentially become another victim of an emergency and be reduced to borrowing or begging for help. You need to have some money stashed away somewhere for emergencies.

To be financially prepared for them, an individual or a household should have at least six months of monthly expenses.

To buy a Home

Most people dream of buying a home; not all of us can do so without a loan from a bank. To acquire a home loan from a bank, you may be required to put in a down payment of up to 20% of the home’s purchase price and possibly another 20% for the transaction and closing costs. Savings to raise these amounts will set you firmly on a path to having your own home.

To buy a Car

A car is, at times, a necessity that you have to have. However, not many people can afford these things outright without a loan. You may need to raise 5-10% of the car’s purchase price to have a loan. In a situation like this, the best thing is to have savings and the more the down payment you can muster, the lower the repayment instalments of the loan. You might even negotiate a lower interest rate when your down payment is substantial.

For retirement income

Retirement seems farfetched when you are young, but it comes sooner. Far as it may seem, it is a good idea to consider how you will pay for your living in retirement. There will come a time when your salary job will end. After you have had salary jobs, consulting, inventing, innovating, or operating businesses and earning income from one or some or all of these sources, all these will, sooner or later, for one reason or another, come to a stop. To continue earning income, you must have saved and invested in assets that can provide income in your retirement without much of your involvement in making and maintaining the income. If you want to retire from active work earlier than 65, you must also plan for this.

For Children Education

Education does not come cheap; as has been said, if you think education is costly, you should try ignorance. When your children are younger, their education is relatively affordable because of government subsidies, and you do not feel the cost. Once the children get to high school and college, the cost becomes very heavy, and you begin to wish you had saved for this. It is, therefore, necessary to put money aside for children’s high school and college education if you would like to avoid stress when this time comes. In today’s ever-changing technology, you may also need to go back to college to retool yourself occasionally, lest you become obsolete before the legal retirement age. Self-retooling requires savings, too.
For larger investments

For instance, you must accumulate substantial funds to invest in more significant and profitable investments like real estate. Assembling big money calls for saving slowly and regularly until you have a sizable amount you can profitably invest in assets to generate more money. Savings are the basis and the foundation for significant investments.

Savings induce investments

When an individual has some savings, he will have confidence that he can take care of unexpected expenses if they come up. This confidence may encourage him to consider significant investments. With savings, an individual tends to be more active in scouting and weighing various investment options to generate additional income. You would not do this when you have no savings.

To feel rational

Every normal human being is rational in behaviour and tries to maximize their satisfaction with minimum spending. This behaviour leads them to save a part of their income. Once they save money, they feel happy that they are rational and doing what their peers do.

To leave behind an Estate

It is easy to forget that family members will need help during non-productive years or after your demise. Your spouse, for example, may require income to live on during such an absence. Your offspring may be and should be able to fend for themselves. However, it would not hurt if you could save and leave something behind that they can use to supplement their incomes. Economic opportunities vary from generation to generation, and your offspring may not have the same options that you effortlessly had during your time. In such circumstances, your savings and investments would come in handy.