Daniel Mainye

I went through a twitter thread for @MarigaThoithi (Read Here) where people share their single worst financial decisions. I could relate with a lot of them since I have made some bad financial decisions as well but important is the lessons I have learnt. They say money is the source of all evils but whoever makes the decision defines the source. What process and principles we use to make these financial decisions is equally important.

Do not lend more than you are comfortable losing

In 2015 just before I started my MBA, a relative and his friend approached me to finance an LPO. I had saved 400k that was to go into paying the deposit for my tuition fees. Since I had a month to go before I pay the deposit and the fact that 1 month is all they needed before they refund I decided to extend the loan. It was to be repaid with a 20% interest in November of 2014. Just to let you know this has never been fully paid till today and how I managed to pay for school fees remains a miracle. It is okay to support family and friends but remember to not expect the money to come back. So if you are faced with such a situation ask yourself “Will I be okay if this money never gets refunded?” If the answer is no, please walk away politely.

Do not invest in what you do not understand

One of the comments on the twitter thread got be cracking up. @elvisgromyko says “Overheard some senior financial advisors saying you buy shares when they are at their lowest price…went to the bank and emptied my 25k, bought Kenya Airways shares at Ksh 6. The next month they went down to Ksh 4. Nowadays I hear the plane sound and I think it is my money they are burning”. Investment is a personal thing and you need to take time to understand what you are getting into. Do not go by what a friend is saying or the old investment prank as I call it: “I have invested and I have made a lot of money so you need to join”. I once invested my emergency fund in a friend’s business when I was promised some lucrative return. It worked fine for a while till his business went under and I was left with illiquid assets that I could not sell. So, first, get a reliable financial advisor who will understand your financial goals and walk with you and not a salesperson that will come selling a product without even understanding what you need. You can read more on my article “Investing 101 and spotting scams”. Secondly, do your due diligence and arrive at the decision yourself. That way you understand the risks and returns.

Do not lend more than you are comfortable losing

Love is blind but it is not deaf or dumb

Relationships are a good thing but they cannot be blamed for the crazy financial decisions. We blame every part of our body for inhibiting the brain from making the right decision such as paying school fees for him or her and when they graduate you are dumped or taking a loan to spoil your partner with a trip to some coastal beach only to come back and be dumped. Am no expert in love as I have my share of experience with bad relationships but financial matters in relationships can be a make or break. Relationships are about two people and cannot be one-sided. Stefanie Rodriguez advises “It’s honourable for you to offer your help, but being as you’re not married yet in most of the cases you don’t have an obligation to take loans for pleasure or to finance the other partners' lifestyle. If he or she is not asking for help but is accepting your paying for their bills without taking an active step toward truly paying for it themselves then have that discussion with them and come up with a financial plan together that helps them get fully on their feet.” Again remember my rule number 1 above, do not lend more than you are comfortable to lose.

Set aside at least 6 months of pay as an emergency fund

While it’s not always easy, you may need to sacrifice in other spending areas to have access to extra income that can go toward your emergency fund. This may require taking a hard look at your money habits so you can identify where you may be overspending. When I started my career I had this distractive self-talk: “Let me enjoy this money from my new job and start saving after one year. When the year ended and pay rise was given, I moved from buying “chapo-madondo (a local delicacy) on the street to buying chapo-madondo in a hotel). This is called income elasticity. The fact remained I was not setting any money aside just upgrading lifestyle. I lived the life of YOLO (you only live once). You could say I went through a chicken lifecycle where at end month I ate chicken, mid of the month I was eating chicken products such as eggs and a week to payday I was surviving on chicken feed such as “Sukuma Wiki” (kale) because I was broke. When I started asking myself what financial goals I wanted to achieve, things changed. Buying a 100k phone today to impress someone instead of saving to put a down payment for the plot of land you want to build on brings perspective.

Before you make a financial decision: ask for outside opinions and help, try not to get overwhelmed with financial decisions and don’t succumb to herd mentality. You can make smart and generous financial decisions. And you know what? Those decisions will affect every other area of your life. The truth of the matter is that our health affects our finances, our finances affect our relationships, our relationships affect our job performance, and so forth. Aim to improve your finances. Other areas of your life are sure to benefit as well.

Photo by Adeolu Eletu on Unsplash