Cultivating Good Savings, Spending Habits

Cultivating the habit of savings is a very important one; this habit can help you in many aspects of life.

A good saver can save out funds for business; a good saver is debt free; a good saver has already made a right and bold step to financial freedom and a good saver can reach certain goals that can’t be ordinarily attained with the limited revenues he gets.

According to www.financialgazette.co.zw, cultivating a savings culture is always ideal, but it’s never easy. Savings entails starving yourself off certain wants and pleasures, and that takes a lot of discipline. Many people want to save, many people wish they could save, but just a few save at the end of the day.

Cultivating good savings culture will definitely affect your spending habit as well.

There are certain ways you can cultivate a savings culture.

1. Assess your financial health

The first major step to savings is assessing your financial health; this would help you know the direction you’re headed and how to get there. You need to have a clear picture of your income and expenses; you need to know what takes the bulk of your money, and also try to ascertain whether you’re spending more than you earn. When you have this figured out then you can move to the next step.

2. Have a budget

Having a budget would help guide you on what you ought to spend your money on and what you shouldn’t. With a budget, you would know your needs and wants and have a clear picture of how to cut down on spending on your wants. Wanting to satisfy your wants would make you unable to save. A budget would help you plan better, save better and cut down unnecessary expenses.

3. Keep track of your spending

Your spending habits would determine if you would be a successful saver or not. Keep track of your daily lifestyle and what you spend your money on. After assessing where your money goes, look for ways you can minimise how much you spend.

4. Have a target

The best way to save is having a target; saving without a target might not keep you motivated, but saving for a target keeps you motivated and focused. Have a realistic goal and save towards it.

5. Be debt free

Try as much as possible to live a life free of debts. Manage your finances judiciously and avoid having to collect loans. Live according to your budget; this would help you in the long run.

6. Save for emergencies

Emergencies happen all the time; this is something we have no control over. The best way to handle emergency is to save, so you won’t be left out of the dark. Set about five per cent of your income monthly to save for emergencies, so you wouldn’t be left in the dark when the situation arises. Your emergency savings should be different from your normal savings.

7. Pretend you are paying off a loan

The best way to frame your mind-set towards savings is to pretend you’re paying off a debt. Continue making the monthly payments into your savings account. Even after you reach your set goal, never stop this habit.

8. Set your mind towards saving

Having your mind geared towards saving would help you save better. Also, if you notice you still have money left at the end of the month, rather than spend it unwisely, the best bet is to save it. This would help you reach your goal faster.

9. Set a fixed percentage

The best way to save is by setting a fixed percentage to be saved monthly. This way, when your income increases, your savings would increase as well.

10. Try to avoid gathering and friends that would give your saving a setback

Friends are important, but when you have friends that won’t let you save, it’s best to minimise the way you see them. Gatherings and friends that prompt you to spend money won’t only kill your savings but might even push you to spend above your earnings. www.elcrema.com

Four Ways to Maintain Proper Savings Culture

Most good savers have a good understanding of their expenses, know how to control them, are good at saving money, and know how to resist upgrading. Successful people usually follow four steps to prepare for and complete their goals. Let’s look at each step and how we can apply it on and off the long distance trails of life.

Know your expenses

First, you must know your annual expenses. Add up the amount you spend every year on all your major expenses, such as rent/mortgage, telephone, clothes, education, utilities, entertainment, transportation, fitness centre, and booze. There are software programs (e.g., Quicken and MS Money) that help you figure out your annual expenses, and for the frugal, there are free financial web sites (e.g., Finance Yahoo! and MSN Money) as well. The super frugal can get by with just a pencil and paper! It doesn’t matter what method you use, and you don’t need an MBA or a CPA to figure this out. Just get a rough idea. Are you spending N3m a year?; N5m a year?; N10m a year?; N20m a year?; or just N200,000 a year?

Continue to save despite the odds

Armed with that number, you can determine when it’s safe to summit. The more cash you have stowed away, the better you will weather downturns. How much cash is enough? The last recession in Nigeria lasted for 15 months. Therefore, saving a year’s worth of expenses will provide a sufficient buffer to weather nearly any recession. Once you have that level of protection, you can confidently adopt upgrades, as long as you maintain that one-year buffer. You can summit without fear. As a result, you will have the freedom to do what you love. Best of all, you’ll finally get to buy that deluxe barbeque set that your wife has been resisting.

If you live below your means and you control your desire to upgrade, you probably won’t notice recessions. Even if you are laid off, you won’t have to change your way of life. If you’re used to eating out twice a week, driving a Lexus, and schmoozing at the golf club, then you can still do that because you’ve saved a year’s worth of expenses. Although this will chew into your savings, you won’t have to tighten your belt (or at least far less than those who were overextended).

On the other hand, those who constantly push the envelope of upgrades and live on credit will have to retrench their way of life significantly. The process of cutting back is depressing for anyone. That’s why living beyond your means is so risky – you’re bound to get disappointed.

Resisting upgrades

Most of us don’t have a year’s worth of expenses saved. We feel pretty good if we have a month! Getting a year’s worth of expenses saved requires resisting every tempting upgrade until your life becomes highly inconvenient without it.

Always calculate nominal costs

Get into the habit of calculating the nominal costs of a reoccurring expense before committing to it. Figure out how much the subscription will cost you over a year, or even five to 20 years. When the next salesman tells you, “Hey, it’s only N500 a day!” remind yourself that it’s N182,500 a year, and ask yourself if that extra N182,500 at the end of the year would be nice to have in the bank. Or you can suggest to the salesman that if it’s only a N500 a day, then why not just give it away?

Understanding Dormant Bank Account

YOUR bank account becomes dormant if you don’t use it to perform any transaction for two years. Such transactions include withdrawal of cash at a branch or Automated Teller Machine (ATM), payment by cheque, transfer of funds through Internet banking, mobile banking or ATMs, receiving dividend on shares or the interest of your fixed deposit in your savings account.

Causes of Dormant account

According to data from the Nigeria Interbank Settlement System (NIBSS), there are 36.7 million dormant bank accounts in Nigeria as at December 31st  2017. The factors responsible for this huge number include illness and death. Also, ownership of multiple bank accounts has led to abandonment of some of the bank accounts that eventually became dormant.

What happens to dormant bank accounts?

The contents of a dormant account remain in place two years after you perform the last transaction. If you do not perform transactions in your account for an extended period and your bank has tried and failed to contact you over the required period of time the bank will qualify the account has dormant.

A dormant account can also generate debt. This is because it is still subject to fees, maintenance charges and other charges the bank may levy while you were using the account. If your account does not yield interest, such fees or charges can erase the balance of your account over time or even put your account in the red. In the case of savings and other interest-earning accounts, the fees can yield proceeds, depending on the starting balance. The fees and charges will continue to be debited from your account.

How to claim a dormant fund

According to guidelines issued by the Central Bank of Nigeria (CBN) in October 2015, on banks’ management of dormant accounts, the apex bank stated: “Three months to dormancy, the bank shall notify the account holder of the status of the account. For individual accounts that the bank cannot reach the account holder during the three (3) months period, it shall contact the next-of-kin to assist in locating the account holder(s). “This will be done within one month after the account has been declared dormant. For corporate accounts, the bank shall contact the directors of the entity or seek information from the Corporate Affairs Commission on the Directors.”

When you have been notified by your bank on the dormancy of your account, the next thing you should do is to first get in touch with your bank. They will check your account’s status and track down your funds.

The best way you can prevent an account from being dormant is to either keep using it for transactions or to close it yourself manually.

Source: Vanguard Newspaper

Hire Purchase

In business one requires different types of resources varying from simple tools to big machineries, men power, land, finance etc. The tools and machinery and such assets may be needed for a temporary period or a very long period. One may have adequate finance to purchase those or may borrow finance for fulfilling the need. But some may neither have adequate finance nor are in the position of borrowing the sum. What alternative is left to them? They can acquire the asset on rent, on credit, on installment or can go for hire purchase. They simply need to enter into an agreement.

Hire Purchase System

Hire purchaser takes the possession as soon as an initial installment of the price is paid but the ownership is obtained only after all the agreed number of subsequent installments are paid. However in case of default, the vendor can take back the possession of goods. It is also relevant to state that the sums paid by the hire purchaser, prior to the repossession of goods by the hire vendor, are treated as hire charges for using the property and the same are never refundable. The installments include interest and depreciation charges.

A hire purchase agreement differs from a credit-sale agreement and sale by installment because under these transactions ownership passes on signing the contract. Under this method, the purchaser does not need to spend the entire amount in one go or borrow a large amount of money, rather can procure the right for the immediate use of an asset. It is a financial facility that permits the use of asset in return of regular payments without transferring the ownership. In addition, the hirer acquires the right to buy the asset, after the use of an asset for a particular period on paying a small or nominal amount of money.

The acquisition of asset, specifically the expensive capital asset, calls for careful financial planning. There is no point making outright cash payment, but prudent to adopt the ways of spreading the cost over a period of time to match or coincide with that of generation of revenue by business. The hire purchase system is believed to be the most common source of finance for investment in capital assets.   

The assets that are suitably financed through this method are like:

• Tools
• Plants and machinery
• Cars
• Commercial vehicles
• Agricultural equipment
• Computers including software packages
• Office equipment, etc.

The system of hire purchase is governed by the Hire Purchase Act 1965.  This Act defines a hire purchase as "an agreement under which goods are let on hire and the hirer has an option to purchase them in accordance with the terms and conditions laid in the agreement”. The agreement defines very clearly and specifically the terms and conditions to be followed by the hirer and the owner:

1. The owner of the goods would pass them to the person who would pay an agreed sum of amount in cash or by cheque as specified or agreed upon, in the specified number of periodic installments;
2. The ownership of such goods would pass to such person only after the payment of last installment by the hirer in the manner as agreed upon;
3. The hirer has the right to terminate the agreement at any time before the transfer of such property.

Terms used in Hire Purchase Agreement

There are many terms that are used in hire purchase transactions and accounting, but only few are explained here.

1. Hirer: Also known as hire purchaser, the one who purchase goods under hire purchase agreement
2. Hire Vendor: The person who sells goods under hire purchase agreement.
3. Cash price: It is actual price of goods charged under normal cash sale or the price at which the goods may be purchased by hirer for cash.
4. Down payment: Down payment means an initial payment payable by the hirer at the time of entering into a hire purchase agreement.
5. Hire purchase price: The total amount payable under the terms of hire purchase agreement in the form of down payment and installments. In other words, the total of down payment and installments is called hire-purchase price. Hire purchase price = Down Payment + Installments. Since, installments are spread over a longer period, the seller charges interest and it is included in the aforesaid installments.  Hence installments include payment towards cash price financed and interest on the amount financed. Hire-purchase price = Cash Price + Interest
6. Hire purchase charges: Hire purchase charges are the difference between hire purchase price and cash price.  These charges are known as interest.

Calculation of Interest

The hire purchase price consists of (a) payment towards cash price, and (b) the interest.  The interest is charged on the unpaid cash price, which decreases with every installment paid.  Hence the amount of cash price and interest is not the same even in equal installment for the simple reason that on every next installment, charge for interest decreases and payment for principal increases.

Issues to look out for in a hire purchase (HP) agreement

Hire purchase (HP) is a way of buying equipment without having to pay for your purchase in one go. Payments of capital and interest are typically spread over three to five years. However before you go ahead and sign on the dotted line it is worth asking a few questions.

Before you sign any agreement, you need to know:

• How long will the agreement run for? How many installments will you be committed to paying?
• Are all the installments the same size, or - for example - are you paying less initially but a large payment (a 'balloon payment') at the end of the term?
• What does the installment payment cover, exactly? For example, does it cover servicing, or consumables?
• Who has responsibility for insuring the equipment? If you, is the cost of insurance included in your payments, or do you have to arrange that separately?
• Is there a usage (e.g. 'cost per copy') charge, and if so, what exactly is it? Will it be based on your actual or your estimated use? (Be careful: it is easy to be landed with a very expensive contract because of confusion over usage charges.)
• If the payments cover the use of consumables (for example, toner for photocopiers), exactly what consumables will be delivered, and when? What are the delivery charges, if any?
• Who has responsibility for keeping the equipment safe?
• What happens if it does not work properly?
• What happens at the end of the agreement? Does the equipment belong to you? If not, can you extend the agreement, and if so, is this at a reduced rate? Alternatively, do you have to give notice to end the deal?
• What is the tax position? (If you are buying the equipment, you should be able to claim capital allowances; if you are leasing it, you should be able to set the lease payments against your taxable profits).
• What is the position on VAT?
• Do you have to show your financial liability on your balance sheet?
• What happens if you cannot keep up the payments?

Using HP to purchase items for your business is like taking out a loan secured on the equipment. Always compare the cost of hire purchase with that of other finance, such as a bank loan.