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Sunday, August 9, 2020

Ken Muchina: You won’t create any wealth by saving via Merry Go Round

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Saving methods: Never save for the sake of saving. Savings that bring no additional return aren’t productive. Merry Go Round Chama – where members periodically contribute an amount that doesn’t earn a return, but which is then passed to one of them – come to mind. Although they are deeply entrenched in our society, they should be improved to become tools wealth creation. Your methods should have certain characteristics that make them effective. For instance, they should never expose you to risks you can’t afford, should earn returns that ideally are higher than the rate of inflation, and should be transparent.

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Money mistakes: Over time, I have come to realize that the biggest mistake you can make with money is failing to understand how money functions. For instance, failing to plan and exercise personal discipline with your money is akin to abusing it; it will inevitably lead to poor usage of money. In the same vein, many who are trying to build wealth will tend to have unrealistic expectations on their investments’ returns. Before you invest, have a clear understanding of exactly how much return your investment will bring compared to other options on the table.

Debts: Unfortunately, debt is a misunderstood financing option. Many people tend to fear debts, but they are very important in the growth of wealth. The trick with getting the full benefits of debt lies in utilizing it judiciously. For example, do not borrow in order to fund consumption. When you take up debt, it should be to fund activities that will produce more income. Similarly, never make the mistake of borrowing more than you can sustain; this kind of debt will choke you up!

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Making money in business vs employment: At some point, you’ll face the pressure to quit employment and venture into business because entrepreneurship is billed as the ultimate money-maker. But not everyone is cut out to be an entrepreneur. In the same vein, there are people who aren’t cut out to be in employment; who prefer the excitement of creating new concepts, jobs, wealth and the accompanying uncertainty that come with running businesses. Yet, both have immense space to make money either in employment or entrepreneurship. If you opt to stay in employment, find rewarding ways of creating passive incomes through planning and investing part of your salary.

This feature was first published in the Saturday Magazine.

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