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Savings and investing for the future could be difficult but it is a necessary daunting task, no matter how much or how little money you make. If you are a low-income earner, it can be extremely hard for you to achieve this. But you may gain headway if you consider the approach highlighted among the options discussed below.
In yesterday’s article on the theme, I highlighted some methods of saving(s) and options for investing your money set aside for tomorrow.
Best Investment options for Salaried Person - Tax Savings - Rohit Thakur [Hindi]
Today, I intend to elaborate more on the accessibility and suitability of investment options with practical approaches/tactics you may consider/employ to preserve and grow your savings conservatively in relation to your objective and income bracket.
The feedback to yesterday’s article was not only encouraging, it challenged us in here to focus on these subject, which had hitherto been largely ignored or expediently presented as a fait accompli.
If anything at all, my colleagues and I know that this is a reality that confronts the majority and we cannot begin to talk of a retail financial market until we tackle head on these issues.
In doing so, we equally recognise the learning imperatives therein and hope that you will make it a much more engaging exchange by sending to us your feedbacks and experiences for shared knowledge.
Confronting the Reality
In moving beyond the reality painted and experienced by most, there are practical options open to Low-income, Medium-income and High-income earners.
To properly contextualise the stratification we have in mind, find below a guide that helps you determine your social status at this time or/and your investment premise.
For the avoidance of doubt and perhaps to better explain the rationale/cost components of what informed this classification, kindly find below a best-estimate table of how we arrived at this classification.
This should prove unsettling for some and debatable for others, but then it remains a guide and you can share your experience(s) with us.
Suffice to say however, it would appear obvious that for each man, the reality is different and these figures therefore serve merely as a guide for the purposes of this article.
Beyond the Reality
You would have noticed in the table above that there was no direct provision for savings or investments.
This write-up assumes that the related costs/expenses which could include school fees, travels and other preferences; would in itself form an objective/drive for such undertakings.
Following from the previous write-up, you will need to develop a huge dose of self discipline to undertake what you never had a formal education or parental guidance on – given the absence/lack of money management training in our schools and proper guidance from parents/guidance.
That is easier said than done however.
Yet, evidence abounds of persons who have managed to cross over from these stereotypical class groupings by living within a set limit/plan in order to invest in vehicles that created the path for the elevation of self/family – property, investment products and most importantly, in themselves via attitudinal changes, additional education or skills acquisition and lifestyle changes.
I know it will sound to you like a cliché but a huge dose of financial discipline is required and it starts with you stopping unnecessary spending (driven by societal pressures), having a strong focus on the end game through proper planning and budgeting for which there are formal training courses available apart from life hard lessons.
Thinking of Options?
While you are reconsidering your current reality and your position vis-a-vis the life lessons shared above, here are a few options you may take in as well to encourage you to see that there is a light at the end of the tunnel.
1. Up-Front-Deductions: Take 10%-up-front of your annual income and invest it at once, wisely.
To achieve this, you may need to take a very low or no interest loan from your employer or your cooperative society.
This is the easiest way to obey the golden rule of paying-yourself-first and putting aside a tenth of your monthly income as discussed in the previous write-up.
For this purpose, No-interest-loan would be most suitable; something quite common with staff loans, esusu groups, Islamic cooperative societies/Islamic Micro finance banks and community based credit groups.
It is strongly advised that you however attach the repayment plan to your salary account while you invest this money.
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As we advice always, you would have to seek expert advice on how to share this lump-sum into different investment options/investment vehicles that meets your risk profile and savings/investment goals. DO NOT put all your eggs in one basket no matter how solid the basket looks.
Remember, you did not make the basket yourself, someone else did.
However, if you cannot secure a No-Interest-Loan, you need to do it the old-way, start deducting and making monthly contributions from your pay. Like all great achievements, the starting point may be discomforting, but you would get used to it soon.
2. If you are considering stocks, please invest in dividend/bonus paying stocks only.
If you are considering stocks, you must bear in mind that you can always lose your money, just as you can always make money from the stock market.
As a low-income earner, it should be clear enough that it would be imprudent to lose your life-savings and put your family at risk. You must therefore NOT take unnecessary risk(s) in the stock market.
Investment options for low income earners
Remember that the aim/goal is to save and grow the fund. Buy only into the stocks that pay regular bonus or dividend.
These set of stocks would of course grow and preserve your savings over a long period of time. The little money I invested in GTB for my daughter had grown significantly above 100% in just 3yrs.
As a guide, most of the top quoted stocks in the banking sector do pay dividend and/or bonus regularly.
Perhaps now you understand why they are considered the prize (value) stocks of the market. You can check out the performances of these stocks at www.theanalystng.com
3. If you are considering fixed income instruments, please patronise T-bills not any type of bond(s)
Except for Federal Government (FGN) bonds, other bonds carry certain degrees of unknown risks that you and your investment managers may not be adequately aware of.
It is therefore advisable to engage in Treasury Bills (T-Bills) that are more liquid and very much available for low-income earners. Just like FGN bonds, it is a risk free investment and suitable for risk-averse investors like you.
The investment duration for T-Bills ranges from 91days, 182days to 365days with a yield range of 14% to 15% at the moment.
Unlike bonds, the impact of inflation is minimal due to its short duration feature.
The benefits of compounding interest when you reinvest the interest part of your T-Bills make it more suitable for the purpose of growing your savings.
4.If you are thinking of diversification, mutual funds are ideal but perhaps not recommended for low-income earners.
Mutual funds as a form of investment option/vehicle are not technically suitable for low-income earners as the dividend and price appreciation expected from the fund are not guaranteed.
In this sense, you may lose part of your savings to market fluctuations while you are also exposed to unavoidable risks that may emanate from wrong investment decisions made by the fund managers. The experience with fund managers to date does not support any other thing you might have read in investment books and articles online.