Transport, food, enjoyment, aish! Personal finance as a student
“It’s not about becoming rich now, it’s about building a good habit for the future.”
Just like time, money can be a precious and rare thing for a student. You may have some every now and then, but it is likely that you will often have little of it, and the little you have is thinly spread out over the various things you want to or need to do. However, just like with time, money can be used efficiently, and we can transfer it from one time period to another. If you have a free afternoon but know that the day before a CAT will be a busy day for you, you can “transfer” the free time and get some stuff done now so that you are free to study on the eve of the CAT. Similarly, you can transfer money from when you have a lot (saving today) for when you have a little (redeeming savings on a rainy day).
Of course, savings are just the tip of the iceberg. As a young person, it can be particularly difficult to get personal finance tips outside of “save”, but it is possible to do a lot that doesn’t include saving in the spirit of making the little money you have as a student more “efficient”.
Firstly, buy used, and avoid buying where you don’t need to (don’t steal, please). It is not entirely difficult to find affordable second-hand bags, shoes, books or even clothes for a fraction of what they may cost when new. Electronics, too, can be found second-hand, although the risk here is apparent. There are also situations when buying can be cut down or avoided altogether. Many people (or their cousins/friends who didn’t end up doing math-related courses) have a perfectly functional calculator lying around from high school while half-unused biro pens are almost ubiquitous, making the buying of these things largely avoidable. It is also possible to rent coursework books and novels from the library instead of buying them. Another interesting “hack” is to buy few good clothes that easily match allowing you to dress quite well with a smaller, more affordable closet.
Be constantly aware of your income. Whether it’s from a business, pocket money or a job, always know how much is going into your pocket and budget for how much is due to go out. Learn to clearly differentiate between fixed and variable costs. I know the pain of looking at MPESA transaction history and feeling your heart being ripped out from your chest. As painful as that can be, being aware of your transactions is crucial as you budget. Fixed costs are those that are the same every month, barring price changes. There is a minimum that you will spend on transport, food etc. in a month and it is important to be aware of that. Variable costs include fluctuations in fixed costs - you might buy more non-essential food one month or move around more in another, outside of your usual commute(s) - and costs that you can’t accurately measure from month to month – enjoyment, shopping, supporting your friend’s small business etc. Once you understand what you can spend, you can set a pre-determined level of what you should spend. This sort of planning is effective in allowing you to avoid debt, which can easily become a significant and persistent problem in one’s financial life.
Live like a student. This is vague, right? But in this case, I’d like to specifically refer to your best days – a day after getting some money in your pocket when you’re feeling nice and thrifty. In these moments, it is important to note from your history that you survived on little and can continue to do so. While it is wonderful to treat yourself every now and then, it can be good to avoid a monthly boom-bust cycle and develop some lifestyle stability. And in any case, the less you spend, the more you save, and this becomes a great habit to develop early on as we’ll speak about in the next paragraph.
Invest. With most widely ‘advertised’ risk free investments giving returns of about 5% to 10%, it can be an unappealing option since you can only save so much and 10% of what you can save over a year as a student can be negligible, but it is good to note that these are long term investments. Yes, that 10% per year may be nothing today, but if you keep adding to it and don’t withdraw, you may develop a habit, which is one of the most important parts of saving/investing. If you have 5000/= saved after a year, it may be easy to succumb to defeatism and withdraw it all and spend it ,which you could, life is for living, but to persevere and save and invest even 10/= rewires your brain in those moments and allows you to develop a stronger and stronger habit and by the time you, hopefully, begin to earn a meaningful income, the culture has been developed internally. It’s not about becoming rich now, it’s about building a good habit.
It should be noted that with regards to investing, it could be very beneficial to invest in something risky (with a significant probability of loss) for the prospect of higher returns. In this case, it is important to note the main guiding principle of risky investing: only put in money that you are willing to lose.
University is a time where it can be said we learn to be adults in the societal/industrial/capitalistic sense of the word. This definition is often reduced to the stuff we learn in class. However, the habits we pick up in university are often perpetuated well into our adult life. Personal finance habits are key among these.
Anslem Mwangi
SUFFESA Editorial.