Are you saving enough money?

Your savings rate is the greatest determinant of whether you’ll achieve Financial Independence or not.

The savings rate is the proportion of the money you save as a percentage of your total income or salary. For example if you earn ugx 2 million and you save 200,000 shs then your savings rate is 10% (0.2/2*100%).

This is money you put aside for emergencies or for investments.
The literature advises a savings rate of at least ten percent.
But I would recommend anything from 20% or more as an appropriate savings rate.

Of course, it all depends on your financial goals and also your current circumstances.

For instance, you may have a negative savings rate if you are currently unemployed.

Or your savings rate may actually be zero because of so many demands on your money.

There are primarily two ways to increase your savings rate.

You can increase your income or you can reduce your expenses.

In the short run, it’s much easier to reduce your expenses.

The first step in reducing your expenses is to analyse all your costs and see if you can plug any leaks.

Once you find the leaks, then you can plug those holes.

The other option is to find ways to actually increase your income.

You can get a better paying job.
You can upgrade your skills so that you can command more pay.
You can change careers.
You can also start a side hustle.

Increasing your income, may take a while, of course.
But it is definitely possible.

The bottom line is that you have to bring something more to the market to be compensated better.

In fact there’s a law of compensation which states that the amount of money you earn is in direct proportion to the need for what you do, how good you are at it and the difficulty of replacing you.

One other way to improve your savings rate is to reduce the debt costs, and you can do this by paying down your loans or renegotiating them, so that you can get better interest rates.

The money you save should be invested prudently. A portion of it should be invested in short-term money markets to serve as your emergency fund.

And the rest should be allocated to more long-term investments, like business, land, rentals and things like that.

If you do this over a long period of your career let’s say 10, 20, 30 years you’ll end up with a considerable retirement nest egg.

So, I would urge you to calculate and track your savings rate on a monthly basis because it is the greatest determinant of your financial well-being.

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