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1. ManagingPersonal Finance for wealth creation, savings and investments By Dr Frederick K. Chelule (Ph.D;D.Min) Training Consultant

2. “You can confront the future now and save for your retirement or face the music when you retire” The Choice is Yours.

3. Remember/be warned: IF YOU FAIL TO PLAN, YOU PLAN TO FAIL! or IF YOU FAIL TO PLAN, OTHERS WILL PLAN FOR YOU.

4. Do not consume the seed ( your current earnings), plant it and later consume its fruits • Direct your money where it should go now so that you do not ask later in life where it went.

5. Wealth …. • “The more one earns the wealthier one is ” .. True or false?? Wealth is a function of SAVINGS not EARNINGS

6. Why plan your finances? • To ensure you have a nest egg when out of a job/emergency • To continue with the same standard of living before and during retirement/at old age. • Peace of mind • Financial freedom - get out of the rat race

7. Introduction to Personal Financial Management • Personal Financial Management is mandatory in today’s world. It provides the means of keeping track of personal expenses, personal debt and subsequently helps the calculation of a person's net worth financially. • The following are some of the tools used for personal financial management: Income and Expense sheet: its preparation is the key to personal financial management.

8. Introduction to Personal Financial Management • It comprises of the following elements: 1. Calculation of income level:  • This is the sum of the post tax income or disposable income, wife or husband's income, investment income, rental income and other sources of income.

9. Introduction to Personal Financial Management • 2. Calculation of expenses. These include: • Expenses on grocery, medical help, house help, laundry, basic amenities, phones, transportation and household expenses. • Lifestyle expenses include expenses on books, newspaper, clothing, personal care, entertainment, travel, holiday, eating out, and club or gym membership.

10. Introduction to Personal Financial Management • Fixed expenses include expenses on house rent, children's fees, home loan, auto loan installments, other loan installments and insurance premium. • Household gadgets, festivals, family obligations and the like are included under the miscellaneous expenses. 

11. Introduction to Personal Financial Management • Person's financial net worth: • Net worth is calculated by the difference of assets and liabilities. Assets include house, land, farm house, bonds , insurance, fixed deposits, mutual funds, small savings, provident fund, amount in the savings account, amount in current account, cash in hand and other investments.

12. Introduction to Personal Financial Management • Liabilities include housing loan, auto loan, personal loan, consumer loan, other borrowings, unpaid bills, credit card outstanding and other liabilities. • A positive net worth would allow further future personal financial plans.

13. Introduction to Personal Financial Management. Asset: anything having commercial or exchange value that is owned by a business, institution or individual. Appreciating assets are those that generally increase in value (e.g. real estate, stock or bond). Depreciating assets are those that generally decrease in value over time (e.g. car ).

14. Introduction to Personal Financial Management. • Club Account: A type of savings account a customer “joins” to save money for a special reason, such as holidays or family vacations. Club accounts usually require the customer to make regular deposits. • Diversification: Spreading the risk of loss by investing in a variety of savings and investment options. • Dividends: Part of a company’s profits it gives back to shareholders that own stock in the company/SACCO.

15. Introduction to Personal Financial Management. • Inflation: Inflation is the rise in prices of goods and services. It happens when there is too much spending relative to the supply of goods on the market. • Interest: The cost of borrowing money, or the price the lender charges the borrower for the use of the lender’s money. Interest is also paid on deposits because they are, in effect, loans to the bank.

16. Introduction to Personal Financial Management. • Investment: A savings option purchased for future income or financial benefit. • Liquidity: Refers to ease with which an asset (something of value) can be turned into cash without losing its value. For example, cash is the most liquid.

17. Introduction to Personal Financial Management. • Risk versus Return: This refers to the tradeoff between risk and return. The more risk an investor takes in an investment, the higher the expected return on that investment. There is also a higher risk of possibly losing the entire amount invested. • Stocks: Shares owned in a company. The price of stocks may vary depending on how well the company performs. The value of the investment may increase or decrease.

18. Personal Financial Priorities? • Income earning ? • Saving ? • Investment? • Spending? • Borrowing? • Doing nothing financially

19. Success tips to Personal Financial Management. • Although making resolutions to improve your financial situation is a good thing to do at any time of year, many people find it easier at the beginning of a new year. Regardless of when you begin, the basics remain the same. • Here are my top keys to getting ahead financially: • To save and invest you need personal discipline, sacrifice and commitment.

20. Success tips to Personal Financial Management. • Teach children about money management to prevent them from doing any irrelevant spending. • Spend less on entertainment. By doing this one can lower bad debt as well as increase his credit rating.

21. Success tips to Personal Financial Management. • Read Proverbs 21:17- A man who loves pleasure becomes poor; wine and luxury are not a way to riches. • Don't use money to make yourself feel good. • That type of high is fleeting. Instead, do things that promote self-respect and creativity so you don't have to seek those feelings through spending money. • Decide where your money should go now, so that you do not later in life, wonder where it has gone.

22. Success tips to Personal Financial Management. • Get Paid What You're Worth and Spend Less Than You Earn • It sounds simplistic, but many people struggle with this first basic rule. • Being underpaid even a thousand shillings a year can have a significant cumulative effect over the course of your working life.

23. Success tips to Personal Financial Management. • Make sure you know what your job is worth in the marketplace, by conducting an evaluation of your skills, productivity, job tasks, contribution to the company, and the going rate, both inside and outside the company, for what you do.

24. Success tips to Personal Financial Management. • Stick to a Budget • Budgeting. It's not a four-letter word. How can you know where your money is going if you don't budget? How can you set spending and saving goals if you don't know where your money is going? You need a budget whether you make thousands or hundreds of thousands of shillings a year.

25. BUDGETING • Live within your means - don’t spend more than you earn. • Live below your means- ensure what you expend is far less than what you earn. This is the best personal financial management policy.

26. BUDGETING • Do not live above your means, for that will mean you are spending more than what you earn • Make a list of all your income streams and daily expenses

27. BUDGETING • Expenses - group as necessary and discretionary • Find ways to cut down your discretionary expenses • Monthly budget - prepare and work with one that suits you • Consider your family needs when preparing a budget (2 incomes, common expenses)

28. ALSO • Arm yourself with financial knowledge - seminars, books, media, experienced financial planner • Diversify: put some money into other investments apart from savings and pension plan • Do you have dependents? - Get life insurance • Write a will – keep your hard earned money within the family • Periodically assess your portfolio - adjust for changes in income, expenses, responsibilities, risk profile, etc

29. MANAGE YOUR DEBT

30. Personal debt management. • Another vital aspect of personal financial management is Personal Debt Management: • In order to keep track of pending payments and avoid falling into the debt trap, a number of aspects need to be considered. • In case of auto loan, housing loan, personal loan and other loans one should keep account of the loan amount, the repayment period, monthly installment, interest reset frequency and the amount of loan already paid.

31. WHY DO WE GO INTO DEBT? • We spend more than we earn • We want to have what the neighbor /colleague/friend has • The lure of easily attainable loans • We borrow to pay back other loans Good Debt • Debt for investment e.g. business, buying shares (can be risky though) • Mortgage (though you should aim to pay quickly) Bad Debt • Debt for consumables/pleasure/luxuries

32. GET OUT OF DEBT AS FAST AS YOU CAN!!!!HOW?

33. Managing Debt • Plan before you borrow; and when you borrow for investment, not consumables unless it is mandatory • Maximum 1/3 of net pay in loan repayments • Thou shalt not covet - don’t borrow for things you desire but don’t need • Avoid borrowing on consumption items - car, holiday, furniture, etc

34. Managing Debt • Write a list of all your debts and prioritise payments - pay interest bearing debt first • Pay your loans as fast as possible - the longer term the loan, the more you pay the better for you. • Avoid credit card debt - it is the most expensive; and ATM?

35. Managing Debt • Avoid a ‘saviour’ mentality - you can’t save everyone. Save yourself and your family first!!! • Family and friends - cheapest and most understanding of creditors but DO NOT EXPLOIT THEM! ;- Record your expenses daily and plan on where to cut down

36. Managing Debt • Create a budget that suits you and stick to it • Are you an impulsive shopper? - Keep your credit card and ATM card at home • School fees - pay in monthly installments • Use the tips on achieving financial security • Building vs. mortgage

37. Managing Debt NB • In your monthly earnings : • Pay yourself 20 % of your earnings • Use 30 % of it for expenditures • 20% for debts • 10% for tithes • 20% for charity/community support.

38. Seven Biggest Money Mistakes – Avoid! Most Common Roadblocks on the Road to Building Wealth Avoid these seven money mistakes and increase your chances of successfully accumulating wealth. • Many Kenyans will never reach their dreams of building wealth, being financially secure, and being able to retire in comfort. The reason is most often a combination of these seven biggest money mistakes.

39. Seven Biggest Money Mistakes – Avoid! 1. Having a Thirty-year Mortgage • Where do you find the money to build wealth? Try looking at your mortgage. Millions of people think nothing of paying for their home over 30 years, even though the average homeowner ends up paying two-and-a-half times the purchase price of the home by stretching the payments out this long. Having a 15-year mortgage instead of a 30-year mortgage can save you large sums of money and help you build wealth.

40. Seven Biggest Money Mistakes – Avoid! 2. Giving Control of Your Money to Someone Else • If you're not involved in your day-to-day family finances, you're putting yourself at risk. • If you're married and you let your spouse handle all the financial matters without giving your input, you're at risk if your spouse dies or becomes seriously ill or if you divorce. • Know the details of your family's finances, investments, debts, retirement savings, etc.

41. Seven Biggest Money Mistakes – Avoid! • Don't turn your investments and financial affairs over to a broker or financial consultant without keeping abreast of what is being done with your money and being involved in investment decisions. Never give total control of your money to someone else.

42. Seven Biggest Money Mistakes – Avoid! 3. Not Controlling Spending Leaks • The reason so many people in Kenya are in so much debt is because they dribble their money away in small, barely noticeable amounts. • Like drops of water dribbling through the hole in the dike, the loss is barely noticeable, but over time the hole in the dike gets bigger and bigger. • By the time the water is gushing through, the damage is done.

43. Seven Biggest Money Mistakes – Avoid! • The same is true with spending leaks. It's a lot easier to plug a small hole than to ignore the drips and look over your shoulder later and see a huge tidal wave of water coming your way in the form of unmanageable debt. • If you're ever going to accumulate wealth, you must control spending leaks.

44. Seven Biggest Money Mistakes – Avoid! 4. Not Setting Goals • If you don't know where you're headed and how you plan to get there, you'll probably never arrive. • To accumulate wealth, you need a plan. • To be motivated to save money, you need something specific to save for. • To succeed in accumulating wealth, write your goals down and visualize them, whether they're a relaxing retirement, a mortgage-free home, or an unforgettable vacation.

45. Seven Biggest Money Mistakes – Avoid! 5. Incurring Too Much Debt • If you're spending all your money paying interest on credit cards and installment debt, you won't have enough left for savings. • When you buy on credit and don't pay the balance off at the end of the month, you end up paying much more for your purchases. A KSH.12000 big-screen TV can end up costing you KSH.25000, but you'll never know it because the true cost is hidden in your credit card payments. • Pay cash and stay away from credit card debt if you want to accumulate wealth.

46. Seven Biggest Money Mistakes – Avoid! 6. Cashing Out Retirement Funds • Many people end up cashing out their pension balances when they change jobs. Still others take out loans against their pension balances, permanently reducing the amount of earnings they would have accumulated.

47. Seven Biggest Money Mistakes – Avoid! 7. Not Saving Enough for Retirement or Starting Too Late • When you're in your 20s and 30s, it's easy to think you have all the time in the world to accumulate wealth and save for retirement. • The truth is, you'll have to save a lot less if you start now and give your earnings time to compound. • If you're over 40 and you're behind on your retirement savings, you'll have to save much larger sums to ever catch up to where you should be. • Start saving early, and save at least 20% of your income, and you'll be well on your way to accumulating wealth.

48. Ten Rules Of Poverty – you should avoid them • Never wake up early • Never plan how to spend your money • Don’t think of saving until you have real big money • Don’t engage in activities usually reserved for the “uneducated” • Don’t think of starting a business until an angel comes from heaven and gives you capital.

49. Ten Rules of Poverty- you should avoid them 6. Complain about everything except your own attitude 7. Spend more than you earn 8. Compete in Dressing and other popular items. 9. Buy a second hand machine that costs more than three times your gross monthly pay 10. Give your children everything they ask for since you are a loving parent Source: The East African

50. Personal values and money management make save spend grow Core Personal values