The imperative of saving - the why and the how

By Lanre Oyetade

Let me start by saying that every individual who became rich through his efforts at hard work and industry passed through the procedure of saving as a means of pooling resources, whether he started small or big - every one of them. I often hear people say they earn too little to save and I tell them that savings is NOT a matter of ability but one of habit.

Habit, not ability
If you earn N10,000 a month and fail to save, the probability is that you will not save when you start earning N100,000 per month; for the principle is simply that your expenditure will grow with your income - the more you earn, the more you ‘need’ to spend. Let’s say you were earning N10,000 a month and living in a single room with your family and your children in an average school, wearing just manageable clothing.

The probability is that when you start earning N30,000 monthly, you would naturally no longer want to maintain the same living standard but rather would like to ‘step up’ in life by say, moving your family into a room and parlour apartment, putting your children in better schools and giving them better food and clothing. All these would make your expenditure also rise; if not controlled, even beyond your rise in income. This is what is referred to as Parkinson’s Law. So, if you had not inculcated the habit of saving with a N10,000 income, you may not be able to do so even with N100,000 per month. It is all a matter of habit and not one of ability.

An apt experience
Let me recount an apt experience I had in the mid 80s here. I was working in an eatery as a cashier and was about the most highly paid staff at N160 per month. But due to rising input costs and dwindling sales, the management called a meeting with the staff where it said it had to slash everyone’s pay in two if the company was not to lay off staff. That meant everyone then started earning just half of what they were formerly earning. For instance, I started earning N80.

The instructive thing here was that even though things were expectedly tough for us all, we pulled through and NO ONE resigned on account of the pay slash! We all continued with life. When I look back at that period now, I can’t help but wonder what I would have said had someone asked me to be saving half of my pay just before the slash. The lesson here is that we can really do with less than we earn. It is a matter of discipline, budgeting, prioritisation and cutting our coats according to our clothes. We really can commit some part of our income to savings. It is just a matter of habit, not one of ability.

Create multiple streams of income
The flip side of the coin is that if we really believe that our income is inadequate, then it is high time we practised the principle of multiple streams of income (as treated later) by creatively sourcing income from other sources, either related or unrelated to our current income source. Although this is a more tasking alternative, in the long run, it is a much better one than eating our entire ‘seed’ and saving none for tomorrow’s harvest, for no wise farmer does.

And there are several ways we can save, starting from the conventional savings, current and deposit accounts with banks, the esusu or traditional rotational contribution schemes, in insurance schemes, with cooperative societies, through investment clubs, in stocks, and through so many other means.

Save first, then spend the rest
But it has been very rightly said that the best way to plan your finances is to first take out your savings and then spend the rest rather than trying to do the saving after spending. And in this light, it is my opinion that the best way you can ‘force’ yourself into the habit of saving is to put a system in place whereby your savings will be deducted straight from your income source. Such systems include the workplace cooperative societies, and standing orders to your accounts department or bank to deduct a certain portion of your income into a savings or investment plan.

And what portion of your income to save? There is no hard and fast rule here but it is strongly advised that you save nothing less than 20 per cent or a fifth of your total income per period. That way, you can both be sure of putting off the shackles of poverty and preserving your wealth.