Money Saving Tips: Start Saving Beyond The Rainy Day

The financial expert contributing to Naij.com, explains why it is highly important to have back-up funds not only for the proverbial rainy days, but also for creating a basis for investment and building wealth, and offers a strategy on saving money.
One of the most common pieces of financial advice is the oft repeated expression, “saving for the rainy day”. The origins of this idiom can be traced back to the 16th century making it more than five hundred years old, yet it shows no signs of losing relevance in financial lexicon.
In simple terms, saving for the rainy day refers to the wise practice of keeping something aside for emergencies, unforeseen circumstances that could occur in the future. This admonition presupposes that the future is fraught with good and bad times, fat and lean seasons. In order not to be caught off guard, one needs these savings to be put to use in tough times.

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In other words, one should not spend all that one makes especially in times of plenty.
Nowadays most financial analysts refer to these savings as the “emergency fund,” a pool of funds stored in a separate account, comprising of no less than six months of living expenses that is kept aside for unforeseen circumstances. Examples of emergencies could be sickness or disability, job loss, death of a loved one etc. It is expected that these will come in handy to help one cope with the financial pressure associated with these periods.
I strongly urge you to start taking steps to create an emergency fund for yourself right away. Take out a portion of your income on a monthly and regular basis and keep it away for emergencies. This should amount to 10% of your monthly inflows. Keep it in a high-yield savings account and only draw the money in case of an emergency. Once the situation has passed, ensure to put plans in motion to replenish your emergency fund.
There are so many other things that are outside the realm of emergencies that you will need the money for in the future. These needs or wants may require substantial sums which you will also have to plan and save towards. For example if you want to build a house, or take advantage of a promising business opportunity, funds are required. Since this expenditure is not based on tough situations you also required keeping aside another pool of funds.
You need money to make money. Money must be put to work hard for you in order to produce more money. Just like the farmer does not eat all his harvest with a view to keeping part of it for the next planting season, so does the individual who desires wealth. Some money seeds are kept aside, apart from those meant for emergencies, and for meeting current needs and expenses. These money seeds are then planted in the soil of money-making activities to produce wealth.
It is thus a very wise strategy for another 10 to 20% of one’s regular income to be kept aside for this purpose in another savings account. This leaves around 70% for the individual to live on. I know from personal experience that doing this can be quite challenging, but what is the alternative? Spending all that one makes is a recipe for everlasting poverty and penury in these times. Becoming rich takes discipline, the type that comes from undertaking this and other efforts to rescue oneself from the rat race.
Saving against emergencies and saving for future investment opportunities are just two of the reasons why we all need to save. This is why it goes beyond saving for the rainy day. In fact, a more appropriate statement might be “to save for rainy and sunny days”. The former signifies tough times while the latter signifies good times, when you can use the monies saved to create further good times.
Many of us miss the mark by erroneously believing that money is meant to be spent. The pressure to acquire all the finer things in life and live large is the main driver for many people. This makes people do anything to keep spending and spending even to the point of borrowing to finance their lifestyles. Money rather is meant to be multiplied instead. It is a tool meant to be put to work by you to produce more wealth.
The importance of having savings for wealth-building cannot be over-emphasized, as funds saved are the raw material to be used in creating further wealth. How can you leverage on opportunity without funding? Most of the financial successes we see today started small, using their savings, building trust and credibility, growing incomes before being entrusted with other people’s money and going on to build great fortune. Great wealth starts on the altar of small beginnings.
Imbibing and cultivating a savings culture is as simple as contacting your banker today and placing a standing order that a certain percentage of your earnings are transferred to another account which you would do well to restrict access to. It makes good economic sense to open two accounts – one for each savings purpose, while you do all you can to live on the rest.
Don’t get too comfortable with your current earnings. Strive to increase earnings so that you will have more to save.
Remember that money spent on emergencies and living expenses once gone can never be put to use again, while money invested can keep yielding more and more if the investment is done wisely. Start today to build your wealth from the ground up by saving for both rainy and sunny days!
Kenneth Doghudje is currently the managing director of GfK RT Nigeria, the West-African subsidiary of the fifth largest market research agency in the world. He promotes Moneytalk and creates money lessons videos on his Youtube channel.