This archive report was first published on 2 October 2019.
Breaking Bad Spending Habits for Financial Success ¶
According to Daniel Mainga, general manager at Minet Kenya's pension division, poor spending habits can be detrimental to reaching financial goals. In an interview with Hustle, Mainga shares valuable insights on how to identify and change bad spending habits.
Mainga emphasizes the importance of having a budget, which serves as a plan for spending. Without a budget, individuals may resort to impulse buying, driven by emotions such as stress or happiness. To control the urge to make impulse purchases, Mainga suggests considering the consequences of near-future purchases.
Researching before spending is also crucial in controlling bad spending habits. By comparing market prices and budgeting for specifics, individuals can prioritize their spending and focus on the things that are most important to them. A budget helps protect the money being saved and ensures that individuals are reaching their financial goals.
Mainga also stresses the importance of avoiding and controlling spending triggers. He advises individuals to purchase items only because they need them, not because other people are buying them. Identifying emotional and psychological triggers that cause overspending can help individuals remove the temptation and opportunity to overspend.
Tracking expenses is also essential in managing spending habits. By keeping track of expenses, individuals can account for every shilling spent and make adjustments to cut back in areas where necessary. Mainga suggests setting up a standing order with the bank to transfer funds to a savings vehicle immediately income hits the account.
Mainga also recommends creating a savings plan to avoid overspending. He suggests budgeting for money, saving first before spending, identifying a savings vehicle, and setting short and long-term goals. For short-term goals, vehicles such as money markets or fixed deposits can ensure funds earn interest while saving for long-term investments.
Separating wants from needs is also crucial in managing spending habits. Mainga suggests using the 50/30/20 budget rule, where 50% of after-tax income is spent on needs, 30% on wants, and 20% on savings. This rule allows individuals to spend 30% of their take-home pay on things they want, but it's essential to separate needs from wants early to be more aware of how money is being spent.
Finally, Mainga emphasizes the importance of rewarding oneself, but this should feature in the budget. He advises individuals to plan to reward themselves and make it a part of their budget.
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