“I want money to work for me”

Good planning for retirement requires that an employee starts thinking about it as soon as they are employed. Illustration | Joseph Ngari  DAILY NATION

By WACEKE NDUATI OMANGA

 

In Summary

• What exactly does it mean to have money working for you? Waceke Nduati Omanga explains

Whenever I ask people what they want from their money, most parrot, as if on cue, “I want money to work for me.” Most probably you also want money to work for you too, but what exactly does this mean and what does it take to actually have money working for you?

This is what I will be explaining today. Let us examine the rationale behind this phrase using a shop assistant to illustrate

1You cannot have money working for you if you don’t know where it is in the first place. Now imagine running a shop where you never know where the assistant you employed is during working hours. Would that work? I don’t think so. Well, that is how many of us deal with our money.

We want it to work for us but we do not know where it is most of the time. If you are reading this but you know exactly where your money goes almost to the shilling, this does not apply to you.

However if you don’t, it probably means your money is not working for you as effectively as it could. Back to our shop assistant, if you knew where she was and where she spent her time, you would be better placed to guide her and assign duties in a way that would be more beneficial to the shop.

When you pretty much do not know where your money is going, it doesn’t matter how many investment opportunities are thrown your way. You will not be able to allocate resources and participate.

The other side of this equation is knowing what your actual financial status is. In your shop, you cannot order new stock unless you know how much stock you have left.

You also have to take stock of your money; what exactly do you own (pension accounts, savings, shares, Sacco savings, chama contributions, etc.) and what exactly do you owe (loans, credit cards, car loan, etc.).

With this information you will know what needs to be moved around or accelerated to make money work for you. Many of us have insurance policies and investments that we have not checked up on in a while.

We do not even know what their value is or whether we are in profit or loss. Get in the know about your financial status so you can move forward.

2You cannot have money working for you if you do not know about money. Would you employ the shop assistant without some background information on her? Well, how much do you really know about money?

Do you know what makes it grow, what keeps it safe or what makes it earn interest? Investing is not hard, it is just that we have not taken the time to learn about it. Have you taken time to learn about that particular business that you are interested in starting?

Remember that learning is a process and not a one-time event. You may have been up-to-date with the shares of a company you want to invest in four years back but if you have not kept up, a lot has probably changed since then.

No relationship grows without investing time on it. So spend time with your money, keeping track of where it is, and learning about it. For example if you are interested in property, it may be a good idea to start spending part of your weekends looking around and doing some on-the-ground research.

3Money is working for you when you have the ability to multiply it. Knowing what money is, where money is and where it goes is a very powerful thing. You can say money is working for you when your Sh100 can become Sh500, and your Sh500 can generate an income of Sh50 every month.

To be able to do this you need to know where that Sh100 is in the first place. Then you apply knowledge to know what to do with the Sh100. When you can multiply money, the principle of compound returns starts working in your favour.

It is no longer just about the money you invested, but the fact that the returns earned will continue earning their own returns. For example if you can put aside Sh150 a day, in a year your collective savings would be Sh54, 750.

If your savings can earn just five per cent per year, at the end of five years you would have over Sh300, 000. Apart from just your Sh150 a day (for the five years), the interest you are earning is also earning interest.