This archive report was first published on 22 July 2019.
5 Common Financial Mistakes and How to Avoid Them ¶
Published on July 22, 2019
Mobile loans, high rent, cryptocurrencies, investment fads, and Sacco guarantees are common financial pitfalls that can lead to financial ruin. However, by understanding the risks and taking proactive steps, you can avoid these mistakes and secure your financial future.
One of the most significant financial mistakes is taking unplanned mobile app loans. These loans, offered by Tala, Branch, and M-Shwari, are easy to get but come with high interest charges, ranging from 7.5 to 15 percent per month. This translates to between 70 and 180 percent per year. To avoid this trap, plan your monthly income to meet all expenses, and avoid taking loans for consumption. Instead, borrow for investment, which can grow and pay back the loan.
Another common mistake is paying too much for house rent. If you're using more than 50 percent of your income to pay rent, it's too much. Your rent should ideally be a maximum of 15 percent of your income to ensure you have enough left for savings and investments. To avoid this, research and compare prices of rental units, consider living with parents or housemates, and split rent costs.
Cryptocurrencies, like bitcoin, are another financial risk. Many Kenyans have invested in them without understanding how they work, and this can lead to losing money with no legal recourse. To avoid this, do thorough research before investing in any cryptocurrency, and only invest in local cryptocurrencies linked to organizations you can hold accountable.
Rushing into investment fads is also a common mistake. People often remember the quail debacle, but it's far from the only one. To avoid this, employ counter-cyclical investing, which means avoiding the herd, and seek professional advice before investing.
Finally, guaranteeing Sacco loans can be a costly mistake. When you guarantee a loan, you take on someone else's debt, which can happen if the person disappears or dies. To avoid this, only guarantee people you know and trust, and only guarantee amounts you can pay in case they default.
