The Importance of Money Management
We all want money to provide ourselves with shelter, food and to send our children to school. But the way we spend money on products and services needs a revisit to determine their importance. To ensure the correct use of money, whether young or elderly, we should consider to educate ourselves on the importance of money and how money works before deciding on our living financial plan. This financial plan is worth nothing if it is not implemented and monitored accordingly.
In our financial plan, we have to decide on how much money to allocate to present enjoyment and also for the future enjoyment or spending. I perfectly understand the difficulties of suspending the present rewards that our money can buy us for future rewards, but trust me - if you make provisions for the future, you will have a stress-free retirement. For most of you who believe and seem to practise the saying that:
Although lives are threatened by the aforementioned world problems, one has to measure the probability of them happening and consider the world’s efforts to reduce these threats. A good example is presented by the government of Namibia’s effort in improving the citizens’ wellbeing in terms of increase access to clean water, births attended by skilled heath professional, anti-retroviral therapy and immunisation coverage. These government efforts, together with the apparent changes in the citizens of country, are noticeable through the Namibian life expectancy, which has increased from 53 years in 1990 to 60 years of 2000.
In our financial plan, we have to decide on how much money to allocate to present enjoyment and also for the future enjoyment or spending. I perfectly understand the difficulties of suspending the present rewards that our money can buy us for future rewards, but trust me - if you make provisions for the future, you will have a stress-free retirement. For most of you who believe and seem to practise the saying that:
“You take care of the present and let the future takes care of itself”will strongly disagree with the idea of deferring current spending to the future. The supporters of the above quote tend to argue around the issues of living. The concern is that no one is certain of their livings because lives are threatened by the world’s problems such as diseases, pollution and wars, to mention a few.
Although lives are threatened by the aforementioned world problems, one has to measure the probability of them happening and consider the world’s efforts to reduce these threats. A good example is presented by the government of Namibia’s effort in improving the citizens’ wellbeing in terms of increase access to clean water, births attended by skilled heath professional, anti-retroviral therapy and immunisation coverage. These government efforts, together with the apparent changes in the citizens of country, are noticeable through the Namibian life expectancy, which has increased from 53 years in 1990 to 60 years of 2000.
Why Saving is Important
With the indication of the government’s efforts to improve the living standard of its citizens and continuous global innovations to reduce world challenges, I strongly believe that life expectancy will continue to grow and I highly advise my fellow citizens to watch their spending habits and start putting money aside (saving) for their retirement. A lot of people might think putting money aside is not necessary as their employment pension (pay-out), government pension allocation (grant) and the support of their children will be sufficient to sustain their living in the future. If you are thinking this way, with the exception of those citizens who desire to downgrade their living standards in retirement for the dependence on government support, you should perhaps look at your current standard of living and make some projection of how much you will need when you retire to maintain your current standard of living, which is hard to determine before you spend all your money as you earn it.
Basic Financial Steps by Warren Ingram
Before you consider saving for your financial independence, you might consider the following basic steps recommended by Warren Ingram in his book “Becoming your own financial advisor”:
1 Have a realistic budget and stick to it.
2 Be free of bad debt at all times – you accumulate these debts when you use debt to buy things that will be consumed or will not appreciate in value over time.
3 Building an emergency fund that you can use in the event of a financial emergency – not only does this keep you away from incurring debts from facilities such as banks and cash loans, but it will also help you enjoy the same living standard in the event of a job loss while you are searching for your desired next employment. To build an emergency fund, you should determine your average current monthly expenses and slowly allocate money to the fund until the money in the fund covers six months of expenses. For example, if your monthly expenses are N$10,000, you should save in the fund until it reaches N$60,000 (6x N$10,000). You should save this money in an interest-bearing fund such as money market fund offered by both local commercial banks and management companies registered by NAMFISA, or a 32-day account offered by commercial banks. Before you decide to place your money with either a commercial bank or management company, please do pay extra attention to their fees, as high fees will reduce the interest earned by your money. You should avoid paying high fees at all costs. As an investor, you should shop around and ask as many questions as possible for your understanding of the financial product offered by the aforementioned financial services provider. For the list of approved NAMFISA management companies (unit trust companies), see the list on the NAMFISA website: http://www.namfisa.com.na/. Money saved in a money market fund is accessible within 24 hours while 32-day accounts require one to give a 32 days’ notice to the banks for the release of the money.
4 Reduce and eventually eradicate all debt – all the debt that you have incurred that doesn’t appreciate in value should be eradicated (such as clothes and furniture accounts).
5 Build your investment portfolio – when your emergency fund is taken care of as described above, you can now start to invest your money for growth, as you are rest assured that in the event of an emergency you will not liquate your investment portfolio. “Investment portfolio” refers to a collection of investments in various securities or investment instruments. For information on how to build an investment portfolio, watch the next consumer bulletin.
By Mr Gabriel Indombo
1 Have a realistic budget and stick to it.
2 Be free of bad debt at all times – you accumulate these debts when you use debt to buy things that will be consumed or will not appreciate in value over time.
3 Building an emergency fund that you can use in the event of a financial emergency – not only does this keep you away from incurring debts from facilities such as banks and cash loans, but it will also help you enjoy the same living standard in the event of a job loss while you are searching for your desired next employment. To build an emergency fund, you should determine your average current monthly expenses and slowly allocate money to the fund until the money in the fund covers six months of expenses. For example, if your monthly expenses are N$10,000, you should save in the fund until it reaches N$60,000 (6x N$10,000). You should save this money in an interest-bearing fund such as money market fund offered by both local commercial banks and management companies registered by NAMFISA, or a 32-day account offered by commercial banks. Before you decide to place your money with either a commercial bank or management company, please do pay extra attention to their fees, as high fees will reduce the interest earned by your money. You should avoid paying high fees at all costs. As an investor, you should shop around and ask as many questions as possible for your understanding of the financial product offered by the aforementioned financial services provider. For the list of approved NAMFISA management companies (unit trust companies), see the list on the NAMFISA website: http://www.namfisa.com.na/. Money saved in a money market fund is accessible within 24 hours while 32-day accounts require one to give a 32 days’ notice to the banks for the release of the money.
4 Reduce and eventually eradicate all debt – all the debt that you have incurred that doesn’t appreciate in value should be eradicated (such as clothes and furniture accounts).
5 Build your investment portfolio – when your emergency fund is taken care of as described above, you can now start to invest your money for growth, as you are rest assured that in the event of an emergency you will not liquate your investment portfolio. “Investment portfolio” refers to a collection of investments in various securities or investment instruments. For information on how to build an investment portfolio, watch the next consumer bulletin.
By Mr Gabriel Indombo