Involve your spouse in financial decision making

Guest post by Young

Getting your spouse involved in the management of family finances may be tough for some individuals, but this has its own benefits.

Marriage counsellors say it is important to carry your spouse along when making financial decisions in a family. In our article last week on ‘Involving family members in saving money,’ it was stated that your ability to save is vital, but involving your family in the process is more beneficial. According to experts, financial security in a family doesn't come easy, but requires adequate planning and strict adherence to saving. This, however, can only be meticulously achieved when you involve your spouse in the management of your family finances.

Experts say in most situations, there is an individual in the family who likes doing all that pertains to numbers and payments. This fellow pays the bills, manages the spending or cash flow, looks for great deals and works on spreadsheets, leaving his or her spouse out of the activities. But experts note that even though this individual is doing all of these things, there is still another money manager in the family. “No one person can do all the money arithmetic in a home, you have to involve your spouse and you will be surprised at his or her input,” says a marriage counsellor, Mrs. Anozie Love.

She notes that your spouse might not be as involved in the day to day management of your family’s finances, and explains that this is because in many cases your spouse doesn't have knowledge of how much money is in the family’s bank account. Experts note that most times, the spouse just knows how much he or she can spend on entertainment or clothes for the month and maybe a few other budget categories at his or her disposal.

According to experts, this is a dangerous approach to family finances. “No one knows what might happen to the Chief Finance Officer of the family and if something costly happens to him or her, what will the spouse do?” Anozie asks. She further asks how would the spouse step in and manage everything if something drastic happens to the CFO? Experts therefore say it is important for both spouses to manage their resources as this has great benefits. Below are simple steps on how you can involve your spouse in financial decision making, according to experts:

Budget together monthly

This is a very important in a home, experts say. They note that spouses should budget their money together each month as this will boost their savings and will trim unnecessary expenses when shrewdly done. Even though you have fixed spending in place, there are still planning decisions to be made each month for discretionary spending, marriage counsellors say. One thing you must understand is that your spouse doesn't have to be necessarily involved in the day to day finances at the level of detail as you may have, but should have knowledge of the resources and how they’re being used. When this is done, he or she will appreciate it if undertaken for mutually gainful reasons.

Review expenses together occasionally

According to experts, it is also important you review expenses incurred by the family occasionally. This could be on a weekly or biweekly basis. Professionals say while the monthly meeting is important, so is a weekly meeting about money. They note that all that this requires is a review of spending for the major budget categories and a discussion around new significant expenses needed for the month. It could be seen as a status meeting for both spouses. You may not know how much you are saving for your family by doing this until your spouse is not around. If you want to take it to the next step, you can write down the balances of the major budget categories for your spouse so he or she knows the overall state of the spending plan. “This also has a way of unifying the family, especially the couples,” Anozie adds.

Switch bill-paying duties

Let your spouse pay some of the bills. If your spouse usually is not the one who pays the bill, allow him or her give it a try for some time, but be willing to offer help if necessary. Experts say this will give your spouse a better understanding and appreciation of how important it is to be involved in the decision making process of your family’s finances. Allow your spouse to pay some of the monthly bills, but don’t overload the person who doesn't normally do this work for the family. You may give him or her a few key bills to manage, as this is a great way to involve the person and for your spouse to feel fulfilled being a good financial steward that contributes to the family.

Solve the maths together

This should not be left to one person. Engage your spouse in the maths. Allow him or her to try and calculate how the family would thrive on a limited sum for a week or month. If your spouse still can’t see the importance of his or her participation in the financial decision making, sit down together and look at your budget or create a budget if there is none. When the numbers are right there in front of your eyes, it’s easier to be involved in the family finances. He or she will be forced to make inputs, provided you are both in good terms at the time of working on the family budget.

The Good Book Says

Can two walk together, except they be agreed? (Amos 3:3, KJV). Two are better than one, because they have a good return for their work: (Ecclesiastes 4:9, NIV). Think about these wise words.

In the next post, we shall look at ‘the pros and cons of stocks versus real estate’.

Will you get me out of the rat race? Final Part

Continued from part 2

Hosea 4: 6 “My people are destroyed for lack of knowledge.”

Flashback: James had finally managed to set aside a minimum of 8k per month for savings and investment. We had agreed that he’ll think through and have several options which we would consider.

On one Saturday morning, I passed by my friend’s place and as usual picked him up. We drove to Kitengela. I took him round several schemes we had subdivided and sold plots. We later drove on to Kiserian via Isinya and settled on a joint called Whistling thorns approximately 10km from Kiserian along Pipeline road.

When we sat down, my friend was curious on how I had made serious in roads in real estate. I expected that question bearing in mind what he had just witnessed. I told him that investing must start in the mind. You must see possibilities where others see obstacles. “What about the massive capital needed for such projects?” He asked.

I told him when you have passion for something, then that will override those limitations, capital included. After all, which financier will decline to give you credit if you have a viable project? Did you know that banks make money not from deposits but loans? A strange thing that people forget is that bank takes money from savers and gives it to those who want credit. What do you make of that? Isn't it that the saver does not know what to do with the money but that guy who knows how to leverage on credit knows what exactly to do with other people’s money? In business they call it OPM (Other People’s Money); this is the highest level of investment and as soon as you reach this level, capital is never a limitation.

I cheekily reminded him of the trip to Syokimau and his verdict that we’d get conned by the Land buying Company. I actually bought that 100k plot and 3 years later sold it for 600k. I went and got some loan from my Sacco of 500k, and then my employer gave me some end of contract gratuity of 400k. In total I had 1.5M and that bought me an acre and half in Kitengela. Notice that upon subdivision, the resultant plots were 12. The plots were sold at an average of 300k each and the turn-around time was just 7 months. The total proceeds were 3.6M and all expenses were almost 300k. A profit of 1.8M (100%) at first attempt was quite a good deal. Think about the 3.6M as the seed for reinvesting and repeat the process.

He thought it sounded very simple. “But who said you need a complicated plan to make a million” I asked him. However, I insisted that the hardest bit is to crack the market and convince people to buy whatever you are selling. Anyway, I cut the story short and reminded him we had some matters we needed to deal with from his end.

I therefore wanted him to tell me what he had in mind regarding the 8k per month cash. He had the following options:

1. Saving the in a bank for future investment
2. Saving in a Sacco so as to acquire cheap credit and acquire assets.
3. Buy some stocks

I wanted to know from him why he wanted to save because saving on its own can never make you rich. You may have noticed that I have been mentioning saving / investing. We shall replace / with ‘and’. So you must save and invest.

I went further and advised him that what should guide what his does with the 8k per month is his investment goals, short term and long term. In other words he had to set realistic targets which will guide him on what to do with whatever coin he could set aside for investment. Then, this 8k per month must be looked at as a seed that must at some point produce fruits. Look at it this way, is it wise to save and then think of what to do with the money or it is wiser to plan what you want to do and then save and invest with that in mind?

This got him thinking. At least he tried though I threw him off balance. I further told him that option 1 is not really an option. Why save money in bank where inflation, bank charges will keep diminishing its value and with minimal interest.

Option 2 is not bad especially if it is aimed at accessing cheap credit in future. Option 3 is also OK but there is need to understand which counters you put your money in probably to the extent of analysing the books of the companies. I am not a stocks guru but I bet there are many around if you seek.

I also gave him another very interesting option. I reminded him of that company that had taken us to Syokimau and they had a very attractive option of acquisition of plots in 36 months. In other words he could afford a plot worth 300k if the payments are staggered within a period of 36 months coz the instalments are KES 8,333. Better still he could join a Sacco and contribute say 4k as shares and 4k towards purchase of a plot. There are many Saccos doing that of late. He went for the later and immediately started paying for some plot in Kitengela. By the way, soon after he got a pay raise and was able to contribute much more as shares and fast track the plot payment. The option was attractive because it meant say 1 year down the line he could acquire another property after getting cheap credit from his Sacco. I also encouraged him to set aside just a small amount to buy a few counters at least to learn some important lessons. I reiterated to him the importance of having relevant knowledge before he puts in his money.

I also mentioned to him the importance of keeping track of his growth via a net worth statement. It is as simple as they come, just listing assets on one column and liabilities on another column. In the case where liabilities outweigh the assets, problem galore because it simply means if you sold all your assets and paid all your liabilities, you’d end up with nothing plus of course a debt. If they balance then you actually owns nothing. Finally in a case where the assets outweigh the liabilities, it means you are OK. However, investing must be geared at continually increasing the asset column.

Later in another of our many meeting he mentioned to me some of his short term and long term plans which included:

1. Purchase of as many plots as possible; at least two per annum (For this one, we will call him a speculator).
2. Doing a residential house for his family (this will only save him the rent and lift the psychological barrier of being a tenant);
3. Several flats in the future (for this one we he’ll have grasped the concept of investing for purposes of cash flow);
4. A holiday resort (this may be self-actualization, am not sure).

I told my friend that it was amazing that he had such dreams and told him everything is possible if you believe and work towards your dream. I was keen to know how he intended to achieve the above. His answer was quite interesting. “You keep insisting that I must build my asset column” He said. “I am therefore targeting to grow my net worth by at least 70% per annum and to achieve that I will keep buying plots, a bit of stocks and am also thinking about import of finishing items from China”, he concluded. That to me was quite amazing. I told him that it is possible to make money in so many sectors but the most important thing is to have the relevant info; what I keep calling financial education. I therefore did not want to get into details of his plans because to me he had already acquired the basics that would propel him towards his dreams.

I reminded him the importance of giving information to others who need it, being charitable and encouraging people. After all, there is so much abundance for all of us. Saint Luke put it aptly in Chapter 6 verse 38: “Give and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you." This concept applies across board, whether a staunch Christian, a pagan, a Muslim or a Hindu, or anyone else.

My parting shot was a story about the eagle. Notice how it teaches its eaglets to fly. It’ll fly to great heights and release the young one in the air. The eaglet will of course start coming down and soon realize that it is heading to its death, its natural reaction is to attempt to fly. It discovers that actually it can fly on its own. James being the sharp mind he is understood that it was time for me to let him go into the world full of sharks, but I knew he was armed to the tooth to deal with all that comes his way. After all, I had to let him take grow and mature. I hoped and prayed that one day one time, he’ll change and be living testimony that a turn-around is possible.

Fast forward to the present: James fast tracked payment of his first plot and cleared 1.5 years later. I knew as soon as he tasted the sweetness of speculation, I’ll not even need to tell him to buy some more plots. At present he owns 3 plots (Kitengela, Ruiru and Membley) and wants to build a residential house in one of them located at Membley. I hope when it is done he’ll invite me for the house warming. I am sure to have time to remind him of that other house warming 3 years ago that catapulted him into the great re-awakening.

Take note a valuable lesson: James had to contract (through reducing on spending by simplifying his life) before expanding (acquiring assets). I knew at this point that something beyond reality was driving him. He is now a very energetic young man bubbling with loads of positive thought and always looking forward to acquiring assets.

I hope this true story has inspired people to move out of the rat race. It is important to note that there is only one person who can get you out of the rat race, yourself.

Next topic will be on why his first business flopped before it was even 6 months old.

Will you get me out of the rat race: Part 2

Flashback: James, my good friend was to religiously jot down his daily expenses so that we properly analyse his spending habits.

I made a conscious decision not to contact James so that I gauge his desire to achieve financial independence. Exactly a week before the two months elapsed, he called me and he sounded very enthusiastic. It seems he had some interesting info for me.

I had devised a strategy to make him understand the need to manage his expenditure. On the material day we were to meet, I requested to pick him and we did a drive along Kangundo road all the way to Kamulu. I took him to meet another great friend called Musyoka at his home just a few meters off Kangundo road. This fellow Musyoka has worked as a messenger for one of the UN bodies for as long as I knew him. Musyoka is calm and collected and talks very little rarely giving away any info. He however took us round his homestead and James could not help but notice a very nice Massionette built on a 5 acre piece of land and behind it some green houses and further down he had some very healthy dairy cattle (around 30 of them) goats, and sheep (around 100). Musyoka also had around 800 layers and a few ducks. Towards the end of the farm was a fully equipped borehole and some huge raised tanks. After going round the farm we were given a cup of tea and soon after we left the farm as Musyoka was headed for a church meeting. We decided to get into Mwalimu farm and drove all the way up to some place where there are some waterfalls.

Seated on a rock and enjoying the breeze, I recounted how I ended up knowing Musyoka several years ago after I went looking for land in Kamulu. I learnt valuable lessons from him by way of just observing him. Being a messenger and having achieved so much was astounding to say the least. He was a man of meticulous plans laid down in very specific details. Musyoka not only owns the 5 acre farm he lives in but several other tracks of land off Kangundo road. James could not believe it especially the messenger part. This was a classic case of man in control of his life despite meagre earnings, a man who had carefully planned his finances and achieved enormous success. I was just setting the right tone for James before taking him to task on the assignment we agreed he’d carry out.

So I told him to take me through the findings of the analysis of his expenditure. This is what he had to say:

“I embarked on the exercise and religiously accounted for every shilling that left my hands. Surprisingly, over and above the obvious expenses I noted that I actually spend my cash on so many items that I was shocked at some of them. Remember I had told you about the following expenses: Helb Loan 5k, car loan 6k, unsecured loan repayment 7k, rent 13, electricity & water1k, school fees 3k and shopping 8k.

The other expenses which are an average for the two months that I confirmed were quite eye opening: car fuel 3k, soft loans from friends 4k, extra food purchase at home: 2k, gas 3k, house help 3k, daily lunch in the office 2k, relatives 3k, transport to work whenever not using car 2k, wife’s errand and other personal expenses 3k, clothing for family 2k, entertainment 3k and other miscellaneous 2k. In other words, my expenses add up to 75k and mind you I earn a net of 58k. In essence there is a deficit of 17k or thereabout every month. How I managed to survive like this only God knows. I know you are about to tell me that I live beyond my means. To demonstrate how serious I have become I have decided to do a budget that fits the 58k that I earn and here it is:”

Helb Loan                              3k (I intend to renegotiate the 5k this with my employer and HELB)

Car Loan                                4k (I hope to renegotiate with employer for period extension)

Unsecured Loan                  7k

Rent                                        13k

Elec and Water                     1k

School Fees                          3k

Shopping                               6k

Car fuel                                  2k

Soft loans                              2k (until I clear all of them)

Extra food                              2k

Gas                                        3k

Office Lunch                         1k

Relas                                     1k

Fare                                        1.5k

House help                           3k

Entertainment                       1k

Wife personal                       2.5k

Clothing                                 1.5k

Misc.                                       1k

Total:                                      58.5k

I could clearly see that my good friend had acquired a burning desire to get things right. The positives I lauded in his budget were as below:

1.             Reducing the debt (albeit slowly).

2.             Living within his means (albeit consuming all his net).

3.             A comprehensive budget that covered nearly 100% spending.

However, I also pointed out a significant missing item which was car insurance and maintenance. I went ahead to propose the following steps to further improve it:

1.             It was a hard sell but I advised James I never saw the need of him having a car at that point in time. The jalopy was quite old and despite consuming fuel and maintenance (which the budget omitted), it was courtesy of a loan. It was the type that would easily demand you employ a permanent mechanic due to frequent failures. Take note that if this jalopy is sold even for a mere 300k, the amount can offset the car loan balance and eliminate the loan repayment expense as well as fuel; would that amount to killing 3 birds with one stone despite the inconvenience of life without a car? I however promised him that with improved finances, he’ll buy a car at a later date.

2.             Wouldn't the balance arising out of the car sale repay the expensive unsecured loan? This gets painful coz he was to repay a loan which the fruits he never enjoyed. And by the way, he was due to explain to me what happened to the business that flopped. That is a lesson for another day.

After much cajoling, he agreed to sell the car though this happened 3 months later. For those 3 months he was forced to go by his budget; after all he owned it.

James saw the sense in what he was doing and after the car sale, his budget was as below:

Helb Loan                              3k

Rent                                        13k

Elec and Water                     1k

School Fees                          3k

Shopping                               6k

Car fuel                                   2k

Soft loans                               2k

Extra food                               2k

Gas                                         3k

Office Lunch                          1k

Relas                                      1k

Fare                                         3k

House-help                            3k

Entertainment                       1k

Wife personal                        2.5k

Clothing                                  1.5k

Misc.                                        2k

Saving / investment              8k

Total:                                       58k

When we met after the car sale, he looked jovial and bubbling with a bit of energy and did not display any annoyance arising from using the matatus or route 11. Of course I had a reason to celebrate. After all, I saw an item that generated quite some discussion. The saving / investment item of 8k was something that in a small and big way showed that James had overcome a very big hurdle. I could not believe it when he asked me what to do with that 8k. I threw the question back to him and asked him what he thought was a good thing to do??

At this point please note that James had already dealt with several little foxes namely:

1.             He certainly had a grip of his expenses.

2.             He was certainly living below his means and had dealt with troublesome debts.

3.             He was now saving / investing 8k per month.

4.             Any future pay rise I’d bet my small toe that it’d go towards further investments.

Those who know about budgets will tell you, the budget is nowhere near a perfect one but at least James was getting somewhere.

By the way, even his drinking was no longer targeted at drowning his sorrows but to entertain himself.

However he still had no clear financial goals and no set targets. His net worth was now near zero (at least he was almost crossing towards the positive net worth).

Next chapter will be on what he decided regarding the 8k per month available for saving / investing, how he set goals, short and long term. I also taught him how to calculate his net worth. With the 8k, he seemed aimed at paying himself first. A turn around for him but he still has a long way to go. I wondered whether he had started enjoying his job but I decided I’ll ask him that much later. From deep inside my heart, I wished him well in his journey of a thousand miles that he’d only taken the first few steps. I hoped that he’ll enjoy the walk and live to tell a story.

Advice: The best thing about investing while young is being able to make mistakes that will not kill you financially. Great and successful business people, show early signs even while in school. Did u know that Njenga Karume used to sell books to his mates? He could source for them at a cheaper price and sell at a price lower that the school canteen.

Back then when we were in High school, we used to buy a full loaf at 14 bob, cut it into 4 pieces and sell each at 5 bob. It was therefore easy to survive despite getting very kidogo pocket money.

People also underestimate the power of investment clubs. I joined one when we were bachelors 6 year ago. The club was converted into a real estate company and we now sell plots and also build units for sale. The future looks really bright for our group.

In the next post, we shall see what practical investment options my friend came upwith.

Will you get me out of the rat race: Part 1

Guest post by Samuel G. Njenga

I have a friend called James whom we met in Campus and shared a room for four years. James has a sharp mind and actually studied at Alliance High School. He was extremely good in anything science and was quite a fountain of knowledge. I remember one time he made me understand Schrödinger equation; some crazy equation in quantum mechanics. He also was a local grandmaster in chess and taught me how to play the game. I only beat him once in the four years we played numerous matches; and I guess he was sleepy. He was lucky to get a job as a systems developer a month after clearing our undergraduate. His employer wanted some more developers and James invited me over and soon we were crunching codes together for a meagre 20k pay. Back then we had loads of passion for the job and we could work overnight and on weekends in the name of making the codes work mostly at the expense of our social lives.

Despite his sharp mind in as far as formal education is concerned, I had started noticing some fundamental flaws in how he was dealing with money issues. He used to borrow me cash and rarely would we reach month end before he asked for a few coins. I once advised him that we join a Sacco but he said whatever we were earning then was too little. One day I convinced him that we go view some plots that were being sold in Syokimau by a land buying company. Back then the area was sparsely populated and you could even see some gazelles and antelopes and the plots were going for a paltry 100k, approximately 2 km from Mombasa road. He returned a verdict that the area is too remote and in any case we could easily get conned by the sellers. I bought one which I later resold for 600k. After 8 months of developing software, I got another job with a bigger corporate and soon after we lost contact with James.

Fast forward: The next time I saw James was 5 years later (2009) when we met at a house warming bash for a former classmate in Campus. When I saw him he looked much older and with a small pot belly. He was now a married man with two kids. While we were enjoying the meat, drinks were served and I noted he was happily taking some Tusker. That was quite strange because the James I knew was a CU member and he never used to partake of the Ruaraka waters. When I asked him what happened, he coyly said that problems engulfed him and he normally drowns his sorrows by partaking of that stuff; that way he forgets his problems a little bit. I was curious to know what his problems were and I knew after taking several bottles, he would open up. I long stopped taking beer and James would never stop teasing me that the reason I stopped was to get rich. By the end of the evening, I had noted that James was in deep financial crisis and a mountain of debts (his own words) had engulfed him. I knew that this long lost friend needed help. I therefore, proposed to him that we meet over coffee in a few days since he was already drunk and soon after he was not even coherent in his speech. When guests started leaving, I jokingly told him to stop taking more beer because he needed to drive himself to his place. He laughed aloud and informed me that his jalopy let him down and refused to start so he had used a matatu. I offered to drop him at his place and my parting words were we link up three days after and discuss his crisis further.

We finally met over coffee and he set the ball rolling. In front of me was a dear friend, who had never moved from his first job, was extremely frustrated by his boss and was no longer enjoying what he does. He recounted how he has had numerous pay rises to take him from the 20k as a fresh graduate to 80k, within a period of 6 years. And so I asked him in his own words what his problem was.

He said “Joshua (the boss) has given me those pay rises but interestingly I did not feel them as the cost of living seemed to have consumed them. In fact am living worse off than I did when I first got employed. An analysis of my pay check is quite interesting. I earn a gross pay of 80k. The obvious deduction is PAYE (pay as you eat of 22,000), then of course the statutory deductions (NSSF and NHIF), they also deduct HELB loan (5k), car loan(6k), a deduction of 7k of an unsecured loan that I took and attempted a side business that collapsed soon as after starting. The loan balance stands at 150k. This leaves me with a net income of 39,400 which is approx. 50% of the gross pay. Once I receive the net pay in my account I immediately pay my rent (13,000) & electricity & water (1000), school fees for my kid (3000 per month), then we do family shopping (8,000). The rest I fuel my car, repay some soft loans from friends and deal with any miscellaneous expenses within the month. Of late even fuelling my car has been a burden so I am forced to use it occasionally on weekends. As you realize, I have no allocation for entertainment because there is simply no money. I also have to deal with relatives who keep asking me for money (they educated me) as well as my in-laws who are not doing so well financially. Neither do I save any coin, in fact am forced to borrow before end of the month sometimes to deal with basic expenses. I wish I’d be able to save some money maybe in a Sacco and I’d want to do my masters. I also would wish to buy a plot for future development of the family home. I also need to have some cash for future school fees for my kids (one is already in school and the other is almost).My wife would have assisted me but she is not employed. How do I get out of my predicament and achieve financial freedom?? Please help me”

A careful analysis of this fellow indicated that he was clearly in the rat race though he was willing to get out of the mess. This is an above average Kenyan going by his earnings. He failed to catch the little foxes, and they have ended up ruining his vineyard (Songs of Solomon 2:15). With a little bit of adjustments here and there, this fellow can get out of the mess and progress up to a point where he achieves financial freedom. Some if not most of us can identify with him and his shortcomings.

I probed James a little bit and I found out that he had the following glaring flaws:

1.            He never had a clear budget and he had no grip of his expenses beyond the obvious ones. Like I noted he even forgot they buy gas, the have a house help, he eats lunch while at work, he takes beer that he buys etc.

2.             He was certainly living beyond his means evidenced by growing mountain of debts.

3.             He had no financial goals and plans.

4.             He was not saving / investing even a dime.

5.             He was no longer enjoying his job. Lost all passion.

6.             He was escaping from realities and drinking himself silly.

7.             His expenses kept rising with higher pay, so he had a bigger problem than money.

So we agreed we will embark on a road to financial freedom and he was willing to play his part. We agreed that the easiest thing he must first do is to understand his spending, because therein was one of the little fox that he had to deal with. A very simple exercise we identified was to religiously jot down his expenses at the end of each day irrespective of how small they were. The exercise was to be done for two months. The importance of the exercise was to identify the holes in his pocket that he thought he had. 

The next lesson will focus on what the expenses tracking for the twomonths revealed. It was quite a discovery for him.