Founder 360 Magazine (December 2017). The Street-Wise Edition

FOUNDER 360° MAGAZINE ISSUE 002 DECEMBER 2017

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FOUNDER 360° MAGAZINE ISSUE 002 DECEMBER 2017

EDITORIAL

L E T T E R T H E

F R O M

E D I T O R

IT'S TIME FOR AN APPRAISAL

The year is almost coming to an end. And among other things that you will need to take stock of is your financial position.

VOtieno Vallency F Otieno Editor-in-Chief

Whether you are an entrepreneur or an aspiring one, your financial health going into 2018 will largely depend on your how wise you are in handling every penny that passes through your hands.

How much have you gained in the past 11 months? How much loan have you accrued? Were you able to kick-start that dream business you have always wanted to? What kind of spending habits have you assimilated into your lifestyle?

Founder360° mission is to inspire aspiring entrepreneurs to start, build and grow successful businesses; but we also understand that your financial health will determine if indeed you will be able to start your own business. Whether you are in an 8-5 job or simply a student, it’s very important you’re your lifelong goals are in line with your financial habits. It is as simple as this; you can make any

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investment when you don’t have the extra dime to do so.

This mini-issue tackles the basics of financial management from some of the ways you can get out of debt to some of the hidden charges your bank does not tell you. We go one on one with Joram Mwinamo, a consultant who takes us give us his personal tips on personal finance to the basics of creating a working personal budget. The main highlight of this issue is highlighting some of the underlining reasons why many people are broke and what they can do about it.

Let’s dig in.

Editor in Chief

FOUNDER 360째 MAGAZINE ISSUE 002 DECEMBER 2017

CONTENTS

CONTENTS

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A RT I C L E S

02 04 06 10 12 14

Letter from the Editor Finances Cover Story Growth Strategies Banking Events

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E D I TO R I A L T E A M Founder 360째 Team Articles by Valency Otieno | Founder 360째 Team Emmanuel Kyama Design by Kiruthi, Esq Photography by

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Founder360째 Step by Step Guide to Creating a Personal Budget A personal budget is an itemized financial planning tool of expected income and expenses for a defined period of time, mostly monthly.

10 Harsh Reasons Why You Are Broke and What to Do About It Being broke can be temporary and so it is not the same as being poor, but if not handled early, then it will lead to poverty.

5 Tactics You Can Use to Get Out of Debt on Your Own Becoming debt-free is not an easy road, neither is it an unavoidable route if indeed you want to take control of their lives and their futures.

FINANCIAL MANAGEMENT

FOUNDER FOUNDER 360° 360° MAGAZINE MAGAZINE ISSUE ISSUE 002 002 DECEMBER DECEMBER 2017 2017

THE FOUNDER 360 STEP

BY STEP GUIDE TO CREATING A PERSONAL BUDGET

A personal budget is an itemized financial planning tool of expected income and expenses for a defined period of time, mostly monthly. A budget will show you how much money you expect to bring in against all of your expected expenditure. A budget is basically a tool you use to plan your financial goals.

Creating a budget is a not fun process; it’s a downright scary and overwhelming but very unavoidable process for anyone who seeks to build wealth and save for retirement.

There are many apps that can provide a guideline on how to create a personal budget, whatever method you choose, you should be able to take charge and control of your finances each month. If you are able to manage your own personal finances, then you will succeed in managing your business’ too.

The following steps will help you create a budget that works for you:

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FINANCIAL MANAGEMENT

BUDGET 1 2

Take Note of Your Net Income

The first step in creating a budget that works is to take note of the amount of money coming in. How much money do you make per month? Whatever amount you put should be your net income – after deducting taxes and pension. If you are employed in Kenya, then this is done for you by your employer and additional deductions include social security and health insurance. The Net income is basically your take-home pay. If you are self-employed or working as a freelancer, then you do the necessary deductions as indicated above.

Take Note of all Your expenses

Write down a list of all your monthly expenses. Start by listing all the fixed and regular monthly expense like rent or mortgage, utilities, cable tv and insurance.

Add any other recurring expense that you might have on this list.

Next list is the non-fixed or variable expenses. These are the expenses that change from month to month. These are gas, entertainment, groceries or even loans.

Separate these two categories in your spreadsheet.

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Take Note of all Your expenses It is very important to review your budget on a regular basis. Along the journey, you can receive additional income like a bonus or face an emergency that will need you to commit financially on a monthly basis. Whatever the reason, make sure your financial goals are also reflected in your lifestyle.

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Plan and adjust Once you have compiled your total income and total expenses, the end result should show you if you are in negative or positive.

If you are on a positive cash flow, then you can always redirect part of the excess to paying off a loan or to your emergency fund.

If you are on a negative, then it means that your expenses are higher than your income and then some changes have to be made.

Readjusting your expense will mean that you have to further categorize your variable expenses into needs and wants. There are those things that you don’t necessarily need, especially the entertainment- you can skip going to watch a movie and watch one at home. Remember that every cent saved from this process will help stabilize your budget.

In extreme cases, you can also adjust your fixed expenses. For example, if you are living in a rental, then you can as well go to a lower priced house. .

FOUNDER 360° MAGAZINE ISSUE 002 DECEMBER 2017

COVER STORY

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n the event of a catastrophe such a sickness or job loss, many people wouldn’t be able to cover their bills. And this

is because they are simply broke.

In addition, many people always find out that they hardly have any cash left before end month.

Broke means that you can only cover your needs but you don’t enough money to save or even pay down debts.

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COVER STORY

can do when you have negative cash flow – Adjust your fixed expenses on the downside. But even after this process, you barely seem to have enough left; you need to make more money.

Getting a raise from your boss might be the most viable method to achieve this but starting a side hustle that will boost your income and lift you off from the snout of poverty. Start a side hustle of your passion and skillsets and do not require tons of cash to start like.

There are many business ideas you can easily start now. – Find some here.

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YOU HAVE A PILE OF DEBTS This is one of the major reasons our respondents gave that contributed to being broke. Debts cannot only hold your future financial plans hostage but can also paralyze your monthly income. Whether taken for right reasons or not, many people are caught up in an never ending debt cycle that involves a large percentage of their salary redirected to paying down loans hence remaining with hardly enough to direct to their needs and wants. As a result, they opt into taking more loans to meet these needs.

Being broke can be temporary and so it is not the same as being poor, but if not handled early, then it will lead to poverty. Have you ever asked yourself why you are always broke by the middle of the month? Could it be you are overspending what you don’t have?

We interviewed several people from a variety of backgrounds including the employed and the freelancing on the reasons most of them are always broke and what they are trying to do to break that cycle.

1. YOU DON’T MAKE ENOUGH MONEY This is obvious but the real truth, you are broke simply because you are barely making enough to meet your all your expenses.

In our article Founder360° Step

by Step Guide to Creating a Personal Budget we highlighted what kind of adjustments you

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The first step is creating a budget that prioritizes debt payments. This is the first step in managing your debts and avoiding being broke. If you have more than one debt, then negotiate with all your debt collectors for a flexible payment schedule. We have also handled this particular topic in another article in this issue dubbed “5 Tactics You Can Use to Get Out of Debt on Your Own”

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YOU ARE NOT SAVING Most Kenyans live from paycheque to paycheque with barely anything to save. According to the government, Kenyans only commit at least 12% of their income as savings with a majority retiring in poverty. Without saving, it’s impossible to have an emergency fund that will cushion you when you are broke. And in cases of job losses and health issues, no amount of cutting back will protect you against.

Make saving a priority in your life. Saving is a culture that will need to be cultivated every month. To make it easy, do it automatically by directing your employer to deduct an amount every month to another account or alternatively, you can set up a standing order with your bank.

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YOU HAVE AN EXPENSIVE LIFESTYLE With malls sprouting on every corner of this country, consumerism has become the norm, especially with young people. Most are meticulously trying to fit in the social lifestyle of their peers without enough disposable income to match the kind of cars, phones or houses they would want to.

And with this, they resort to borrowing loans from banks or mobile loans platforms to gratify their appetite hence falling into piles of debt leaving them in a perilous state.

Overspending strips you the ability to save or invest and exposes you

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COVER STORY

to debt and being broke. There’s no easy way to cure this ailment other than creating a budget and living within your means. Tame your spending appetite and practice delayed gratification if you want to have a healthy financial life. Find friends who can positively influence into positive financial management and duck away from the socially

There’s a popular proverb that says “Don’t count your chicks before they hatch.” This is very true for some of you with your finances. Taking an overdraft or a loan because you are expecting a bonus from your employer or your aunty abroad promised to send you some cash is never a wise decision however much convenient it seems. Life happens

relationship with money. Know how to differentiate between your needs and wants; what is not important but urgent and what is important but not urgent.

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YOU LACK FINANCIAL LITERACY The Bible says that “My people are destroyed for lack of knowledge:” – Hosea 4:6. And this is true for most people. Many lack financial awareness despite holding a degree or two. And the lack thereof is costing many people a lot of avoidable mistakes that is taking them down the drain.

BUILDING WEALTH IS A GRADUAL PROCESS THAT TAKES TIME AND HARD WORK. expensive ones.

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YOU DON’T HAVE A PLAN It has been said a countless number of times, failing to plan is planning to fail. Lack of planning is one of the biggest reasons people become broke and poor.

When you don’t plan or write down your goals, you will fail to track your spending hence broke will knock at your door.

Goal setting is a great way to manage your finances and build wealth. The best planning activity you can do is to create a monthly budget that works and builds wealth for you. Budgeting and sticking to the budget will help you curb your spending habits on variable expenses, automate your fixed monthly bills and build your savings account.

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YOU SPEND BEFORE YOU MAKE

and that bonus may not come through at that time or at all leaving you in unjustified debts and interests to pay.

Spend what you have now and within your means and whatever bonus that might come in the future, it becomes a plus for you.

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YOU HAVE UNDESIRABLE SHOPPING HABITS One of the reasons people become fat broke is because they have very bad habits. One of them is spending “cheap” – yes cheap; buying household stuff separately is way more expensive than getting them in bulk. Others spend more money buying depreciating assets like cars and other fancy stuff while other fail to manage their purchasing appetite hence erratic shopping sprees.

You have to change your attitude towards spending. Seek wisdom when it comes to establishing a

There’s no two way about this.

Ignorance will not earn you a shilling. Financial literacy according to Investopedia.com is the convergence of financial, credit and debt management and the knowledge that is necessary to make financially responsible decisions - decisions that are integral to our everyday lives.

This is the minimum effort anyone can do for themselves. Get to understand the basic financial principles. Find out the best savings platforms; find the costs of banking and loans before you go in and most importantly about your retirement life. Read books on personal financial management and use google to research more on this topic.

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YOU ARE LAZY There’s no substitute for hard work. Laziness will cost you a lot of money. When you fail to cook at home and choose to buy dinner from a restaurant every

FOUNDER 360° MAGAZINE ISSUE 002 DECEMBER 2017

COVER STORY

now and then, you are expenses become high. Getting into get rich quick schemes like a lottery and betting as a shortcut into building wealth is a sure big sign of severe laziness. There is no shortcut to becoming rich or creating wealth and anything worth having requires a lot of hard work.

The only cure for this none other than pouring in hours of hard work; you have to understand that building wealth is a gradual process that takes time and hard work. If you desire to make extra cash side of your 8 – 5 job, then you have to do that after 5 pm and on weekends and there is no shortcut to that. Instead of waiting for some magic to usher you into financial freedom, you have to go out and get what you want.

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10. YOU ARE SLAVED BY BRANDS Some people are enslaved by high-end brands when they are shopping shoes, clothes etc. simply because they want to pass a message that they are classy.

The quest for brand recognition in everything that you shop costs you much more money because most of these brands are overly expensive. Your spending is driven by people’s expectations of you.

Sometimes going for the lesser known and cheaper brand will save you tons of money. This is not to say that you cannot treat yourself once in a while but become a slave for the need to impress is perilous for your financial health.

Being broke is a temporary state that you can overcome. Which of the above 10 reason fits you?

What are you doing about it? Fix it now and stop being broke and if not poverty will usher itself in your life sooner than later.

FOUNDER 360° MAGAZINE ISSUE 002 DECEMBER 2017

GROWTH STRATEGY

G R O W T H

S T R A T E G I E S

5 TACTICS YOU CAN USE TO GET OUT OF DEBT ON YOUR OWN Debt paralyzes you and inhibits your ability to make progress in every aspect of your life. It suppresses all your financial plans on the ground.

Worse is when you are living from paycheck to paycheck and a series of unfortunate events strikes, a sudden job loss, a serious illness or an untimely emergency happens.

Such times make you aware that a healthy financial debt-free lifestyle is precious. Taking charge of your finances is the most that one can do for themselves irrespective of whether you an entrepreneur or an aspiring entrepreneur.

Becoming debt-free is not an easy road, neither is it an unavoidable route if indeed you want to take control of their lives and their futures.

Here are the most practical tactics and ways anyone can take towards becoming debt free.

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Tactic One: Create a Budget When you fail to plan, you plan to fail. You cannot get out of debt lest you figure out your expenses. And this involves planning how you are going to spend your income on writing down a strict budget. A budget will allow you map out your financial plan in whatever period you would like.

The budget will help you separate your needs and wants. Basic needs include rent and utilities, transport costs, food, and clothing. Anything else is a want. A budget will also allow you to prioritize the loans to be paid early enough.

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Tactic two: Live a Frugal Life Living above your means is the number one reason why you are indebted. If you want to start your debt free journey, you‘ll have to cut your expenses aggressively and redirect them into loan repayments and setting up an emergency fund.

Living a frugal life means that you will need to slash the non-essential expenses like Pay Tv, reduce on outside dinners and lunch and carry packed lunch at work and anything else you can actually survive without.

Doing this will give you an opportunity to create another pool of free cash flow that can always be redirected to paying your debts faster.

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DEBT 3

Tactic three: Start a Side Hustle Having an additional source of income will amplify your efforts towards becoming debt free. In our previous article, we highlighted some of the business you can easily start now by leveraging your skill set and talents. Photography, blogging, accounting, tutoring are among some of the businesses you can start on the side that will boost your effort by creating additional cash towards debt repayments.

You can also visit sites like Kuhustle.com where you will find ways of making extra cash as a freelancer.

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Tactic five: Change Your Behaviour

Tactic four: Negotiate your Debt

Negotiating your debts allows you to come up with a flexible payment schedule that will not injure your day to day life. You can always negotiate with your debt collector to either make lower payments per every payment or flexible installments or even the interest rates.

Why did you go into debt in the first place? For you to become debt free there has to be a change in your attitude which affects your behaviour. You have to learn how to spend what you already have before earning more. If you don’t know to spend Kshs 10,000, Kshs 50,000 will not be of help. Don’t buy things you can’t afford because ultimately, you will fall into debt. Spend less than you earn and live within your means. This process will need you to put a lot of sacrifices and practicing delayed gratification.

Bonus tip:

Becoming debt free is usually an ongoing process and you can always hasten your debt payments by making it a habit to put all bonuses (any money that is not your monthly income) towards your debt.

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Hidden

5 HIDDEN CHARGES YOU NEED TO KNOW AND YOUR BANK DOES NOT TELL YOU

BANKING

FOUNDER 360° MAGAZINE ISSUE 002 DECEMBER 2017

Opening a bank account signifies the renaissance of a new era in your life. Whatever the reason, it is a sign of an existing cash flow in your life. Getting a bank is easy and free in this day and age. And it is possible to also open an account that will not attract any monthly fees as the bank clerk will expound.

But there are some hidden charges that the bank will not tell you lest they are queried. These charges are never detailed on the opening account form that you fill. They are also not easily noticeable but they cost you more in the long-run.

Being aware of such charges will help you keep track of your banking costs and save you a lot of cash that you can redirect to other causes.

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BANKING

Here are some of the charges that your bank won’t necessarily tell you:

1. STANDING ORDER FEES A standing order is a way of setting up a regular or fixed payment from your bank account to another account for a specific period of time. Your payments will entail of money set at an amount chosen by you.

Every time the transfer takes place, a fee is automatically charged. The fee usually ranges from Kshs 150 to Kshs 300 depending on whether the transfer is to the same bank or a different one.

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TRANSACTION FEES Every time you withdraw from you the ATM or from the bank’s counter, there’s usually a fee that is paid per transaction. This is one fee that almost everyone knows but don’t understand its magnitude.

Withdrawal from the ATM usually ranges from Kshs 20-35 depending on the bank and it is exclusive of excise duty per transaction while counter withdrawals range from Kshs 150 - 300 per transaction.

Because ATM is the most convenient way for anyone to access their cash, it is the most popular and costly one because of the number of transactions one does per month. You can always calculate how many times you visit the ATM every month and analyze your outlays.

3. LOAN FEES When you take a loan from a bank, several charges are usually imposed on you that will ultimately affect what your total loan repayment amount. Most of these charges are pegged as a percentage of the principal loan. Some of these charges which ar the third party include: (Information below is from the KBA portal)

• Legal Fees: The amount indicated is charged by

the appointed external Lawyers according to the Advocates (Remuneration) (Amendment) Order, 2014 (as varied or amended). It does not include VAT and disbursements as these will be clear after the Lawyers have completed their work.

• Insurance: The amount indicated above is charged by the Insurer on the basis of the Option selected by the borrower for the period of the Facility. Insurance includes Mortgage Protection, Credit Life Insurance, Fire Insurance, Property Insurance and Car Insurance, where applicable.

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• Government Levies: This means Excise Duty at 10% of the Application / Processing / Initiation/ Arrangement/ Commitment Fees charged. The estimate provided in this calculator does not include VAT and other Government Levies.

• Stamp Duty: This is a Government Levy on sale of

property charged typically between 1% and 4% of the value of the property.

• Valuation Fees: The amount indicated is charged

by the appointed Valuers according to the Land Valuers Licensing (Remuneration) Notice 2013 (as varied or amended). It does not include VAT and Disbursements as these will be clear after the valuation work is complete.

• Security Registration Fee: The amount is payable to the Government Registry where the Security will be registered and has not been indicated within this online APR calculator.

The above is in addition to the interest rate component and the associated bank fees like processing and negotiating fees. When taking a loan, always inquire from the loan officer on the breakdown of the Total Cost of Credit.

4. FOREIGN ACCOUNT CURRENCY FEES Operating a foreign account has its own costs.

These are most incurred when depositing or withdrawing. A percentage charge of around 0.25% to 0.50% is charged on the overall transaction amount depending on the amount too.

5. LATE PAYMENT FEES You are normally charged a late fee any time you default on loan or credit card payments. This has a domino effect on your credit score, as well as the health of your overall credit.

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An interest is usually charged off the installment due that month in case of a loan. With credit cards, a percentage penalty fee of up to 6% is charged on the due amount.

percentage penalty fee on late payment for credit cards

FOUNDER 360° MAGAZINE ISSUE 002 DECEMBER 2017

EVENTS

UPCOMING EVENTS HIGHLIGHTS THRIVE - AN ENTREPRENEURS MEET UP In this session you will hear from two season entrepreneurs, Reuben Coulter of www.tbnetwork.org and Wale Akinyemi of www.powertalks. biz on how to get the right people and the money factor in growing your business.

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DATE: January 5th, 2018

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TIME: 8:30 AM – 12:00 PM

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LOCATION: Nairobi Garage - Pine Tree Plaza, Nairobi

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ENTRY: SME-Kshs. 10,000/- Table, Banner and pitch at the Networking Café •

Member-Free

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Non Members-1,500/-

FOUNDER 360° MAGAZINE ISSUE 002 DECEMBER 2017

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