In Kenya, there is plenty of get-rich-quick schemes; the latest is crypto Worldcoin, which the government has suspended. Despite numerous cases of people losing millions, the schemes keep on thriving. But do not be fooled by their promises of easy wealth—schemes like these hide giant risks, and most investors lose money.
Instead, spend your time learning how to build wealth, which requires you to make an investing plan and adopt a long-term mindset.
The journey to your financial wellness starts with budgeting and identifying an amount to save monthly.
Where are you going to put your savings? This is critical.
Investing is putting the money you save to work, increasing your wealth. An investment is anything you acquire for future income or benefit. Investments increase by generating income (interest or dividends) or growing (appreciating) in value. Income earned from your investments and any appreciation in the value of your investments increase your wealth.
There is an art to choosing ways to invest your savings. Good investments will make money; bad investments will cost money. Do your homework. Gather as much information as you can. Seek advice from licensed or registered advisers.
Licensed and well-managed Saccos can be a good avenue for growing your wealth. By saving in a Sacco, you can take advantage of Compound Interest, which helps you build wealth faster. Your Sacco savings earn interest at the end of the year. Interest is paid on previously earned interest as well as on the original deposit or investment.
Understanding the Risk-Return Relationship
When you are saving and investing, the amount of expected return is based on the amount of risk you take with your money. Generally, the higher the expected return, the higher the risk of losing money. For less risk, an investor will expect a smaller return.
For example, a savings account at a financial institution is fully insured, but the return is much lower than an investment in a stock that is not insured. However, the money you invest in a stock may be lost or the value reduced if the investment doesn’t perform as expected.
Nonetheless, building wealth is a journey. You have to take risks here and there. Start with making a financial plan. That means taking the time to identify your goals and game out how you can accomplish them. Building wealth begins with a vision and a plan.
You can build wealth from nothing. It requires taking a deep look at your current situation. Evaluate your spending and income for the last several years. Where can you ruthlessly cut your spending? How can you increase your income? Depending on where you’re starting from, this may seem impossible and require out-of-the-box thinking.
Starting early is better. You can start building wealth in your 20s. It may not seem like it, but your 20s are one of the easiest times of your life to build wealth. Your income isn’t significant, but your financial responsibilities are lower. Ideally, you don’t have children or other dependents to care for yet and all the extra expenses that come with them.
If you can manage to avoid lifestyle creep and maintain a low standard of living in your 20s, you can invest the rest of your income.
So here is the secret: to build wealth, you must invest the difference between your income and expenses. Or get adopted by a billionaire. The latter is less likely to happen, so while you wait to run into an oil tycoon with no offspring, it’s best to focus on decreasing your expenses while increasing your income.
