6 Smart Money Moves For Every Payday
Every payday brings with it both a feeling of relief and an opportunity to secure your financial future. With the right plan and strategic decisions, each paycheck can become a means to wealth accumulation and financial independence.
Are you an average African employee who finds yourself living from paycheck to paycheck, with little or no savings? Well, you’re not alone. According to the 2019 African Development Bank report, around 74.5% of the African workforce holds salary-based jobs, and a sizable portion faces similar financial struggles.
But what if you could make your salary work extra hard for you?
It’s high time you started handling your paychecks more strategically. Below are 6 smart money moves to make every payday, ensuring that your journey toward financial freedom becomes a reality:
1. Make a Budget
Every financial journey begins with a budget. It’s as simple as documenting your income and tracking your expenses. This takes into account every major and minor spending, from rent or mortgage repayments, utility bills, food, and transport, to occasional splurges.
So, once that paycheck comes in, take the time to sit down and outline where and how your money should be spent. Not only does this help you manage your money better, but it also discourages impulsive purchases and encourages discipline.
Every payday, create or review your budget. How do you do that, you ask?
Let’s break it down:
- Understand your income: Note down how much you make after tax deductions. For the average African employee, this is usually a monthly salary. If you have any side hustles or passive income streams, include those as well. Remember, every Naira, Cedi, Shilling, or Rand counts.
- Note your expenses: These are things like rent or mortgage payments, utility bills, groceries, transport, and other costs of living. You may also have occasional expenses like school fees or car maintenance charges. It’s essential to track all these outflows in your budget. Als, ensure you are using a low-cost payment platform to avoid spending more on transaction charges.
- Set financial goals: Goals could range from paying off debts, saving for a vacation or home, investing in a business, among others. When you set goals, you can allocate parts of your income towards these goals every payday.
- Allocate income: Once you’ve laid out your income, expenses, and goals, you can begin allocating your money. This means designating a specific amount for each category.
- Adjust and review: Life happens, and you might need to adjust your budget from time to time. That’s okay. The key is to keep track and make modifications as necessary.
Creating a budget might seem complicated at first, but with practice, it becomes second nature. And guess what? There are several budgeting apps and resources available to help you out. With a well-planned budget, you’re creating a successful financial journey for yourself.
2. Build An Emergency Fund
If you haven’t already started, creating an emergency fund is a critical step and one of the smartest moves you can make every payday. An emergency fund is a financial buffer that can shield you from unexpected expenses or income loss. Here’s a quick guide on how you can begin building yours:
- Set a Goal: First, you need to figure out how much you would ideally require to cover your living expenses for a period of about three to six months. This amount is the goal for your emergency fund.
- Begin Small: It might seem daunting to save up for a few months’ worth of expenses, especially if you’re just getting started. However, remember, every little bit counts. Begin with whatever amount you can set aside comfortably, even if it’s a small percentage of your monthly income.
- Regular Contributions: Make it a point to add to your emergency fund consistently. You can consider setting up automatic transfers to ensure you never forget.
Note: Your emergency fund should be separate from your regular savings account to avoid the temptation of dipping into it for non-emergencies. A high-yield savings account might be a good option for storing these funds, as it grows your savings over time.
3. Pay Off Debts
If you’re in debt, you can never be truly financially free. So with every paycheck, make it a priority to pay off a portion of your debts. This doesn’t mean you have to clear everything at once. Instead, set up a feasible repayment plan that allows you to chip away at your debts without crippling your daily finances.
4. Start Making Investments
So, you’ve created a budget, built an emergency fund, and been paying your debts on time. Great job! Now, let’s talk about growing your wealth.
Making investments should always feature prominently on your payday to-do list. A wise and consistently disciplined investment practice can be the pathway to financial independence.
When we talk about investments, we’re generally referring to the act of buying assets that have the potential to grow in value over time. However, it can feel quite complex and intimidating, especially if you’re new to the financial world.
But don’t worry, we’ll simplify it and help you understand how you can start investing wisely.
- Understand your risk profile: Before you dip your toes into investing, it’s essential to understand your risk tolerance. Consider your age, income, financial goals, and ability to withstand losses. If you’re young and not relying on your investments for income, you could afford to take more significant risks with your investments.
- Start small: One common misconception about investing is that it requires a large sum of money. But that’s not the case. Starting small can yield big over time thanks to the power of compounding. You might want to consider buying shares of companies listed on the stock market, or mutual funds where minimum amounts can often be quite low.
- Diversify: Diversification is key to managing risk while investing. This means spreading your investments across different types of assets (like shares, bonds, and property) to reduce the impact of any single investment going badly.
You don’t have to go at it alone. There are numerous investment platforms and financial advisors in virtually all African countries that can offer guidance based on your income and risk profile. Remember, investing aims to produce wealth in the long run, so don’t be discouraged by short-term market fluctuations.
5. Save For Retirement
You may see retirement as a distant reality, especially if you’re in your early working years. But here’s the thing, the earlier you begin, the more comfortable your retirement years will be.
In Africa, the concept of retirement savings isn’t widespread, but you have the opportunity to break the cycle and prepare for your future today. So, let’s explore what you should be doing every payday to ensure a better tomorrow.
- Open a Retirement Savings Account: Your first step is to open a retirement savings account, which is an account that allows your money to grow tax-free over time. This type of account varies from country to country in Africa, so it’s vital to research available options in your region. For instance, in South Africa, Retirement Annuity Funds (RA) are commonly used, while Kenya offers Retirement Benefits Authority (RBA) regulated schemes.
- Set up Automatic Contributions: The key to building your retirement fund is consistency. Once your account is established, consider setting up automatic contributions directly from your salary. Even the smallest amount helps. By making this a habit, you’re harnessing the power of compound interest, which will maximize your savings in the long run.
- Ensure Diversification: Don’t put all your eggs in one basket. Ensure your retirement fund is diversified; that means investing in different types of assets like stocks, bonds, real estate, and more. This can help mitigate the risk and offer more stable returns over time.
- Regularly review your Retirement Plan: Lastly, always keep an eye on your retirement fund. It’s recommended to review your plan annually at the very least. This will allow you to adjust your contributions, reallocate your assets, and ensure you’re on track to meet your retirement goals.
Looking ahead, it’s never too early to start saving for retirement. Secure your future financially by setting up a retirement plan. Even if it means starting with small amounts, it is sure to compound and grow significantly over the years.
6. Create Multiple Income Streams
If you’re like most people, your monthly paycheck is your primary source of income. But here’s a smart money move for you to consider this payday – creating multiple income streams.
And here’s why:
Diversifying your income not only provides an additional layer of financial security, but also gives you more flexibility and options on how you can spend, save, and grow your money. Imagine having extra income apart from your regular paycheck. The possibilities are endless.
Now, you might be wondering, “How exactly do I create multiple income streams?” Not to worry, here are some strategies to consider:
- Freelance Work: Use your skills and expertise to earn extra money on the side. Websites like Upwork or Fiverr are great platforms to get started.
- Side Business: Are you passionate about running a business? Baking, fashion design, event planning, tutoring? Turn your hobbies into a lucrative business.
- Rental Income: If you have an extra property or room, consider renting it out. With platforms like Airbnb, it’s easier than ever.
- Invest in Stocks: As we previously discussed, part of your salary can go into stock investments, which can bring significant returns if well managed.
- Peer-To-Peer Lending: Platforms like Branch and Tala allow you to lend out money and earn interest in return.
Remember, the goal here is not necessarily to replace your current job, but to build resilience against the uncertainty of the job market and improve your chip stack to deal with unexpected expenses.
Making smart, regular decisions about your money might seem challenging, but these deliberate steps can provide financial security and freedom. So, on your next payday, remember to not just earn but also make your money work for you long-term.
Finally, remember that the road to financial freedom is a marathon, not a sprint. It takes consistency, discipline, and a good understanding of these smart money moves with each payday. So, start today, use these tips, and watch yourself progress along the path of financial wellness.