Mistakes we make in saving for business

Trade minister Amelia Kyambadde in gomesi with members of Kyankwanzi Sacco in Kyankwanzi District recently. Experts believe saving in groups such as Saccos is a sure way of realising one’s financial dreams. FILE PHOTO

What you need to know:

Many individuals wonder what happens to attempts they make at saving money for all sorts of reasons because most times they fail. But as Eronie Kamukama discovers from a cross section of people, saving is discipline.

After working at a printing press for several years, 65-year old Fred ‘Okello’ Ssalongo, a cobbler along Colville Street in Kampala, realised he needed to earn from his private business.
Mr Okello is hesitant to disclose how much he was earning at the time, but says as meager as his salary was, he decided to put aside some money to start his own business.

Personal experience
“When I would receive salary, I would first pay bills, buy myself a shirt and save Shs5,000 every month for the business,” he narrates.
By 2001, his plan to start a shoe shining business using his savings had hatched. His saving strategy worked because 15 years later, the business that has expanded to include shoe mending, is still profitable.
However, according to Mr Ronald Mukasa, a business development manager at Enterprise Uganda, as much as that strategy worked for Mr Okello, it is one of the major mistakes made by people who save to start a business.
“The problem is that people save after they have spent and save the excess money,” he says.
It seems idealistic to save before paying one’s landlord, but Mr Mukasa says, if an employee is given two alternatives: To be dismissed from the job or to earn half their salary, many people will most likely take the latter option.
“One accepts to take half a salary because their manager says so but they are not willing to deliberately save 20 per cent of it under normal circumstances,” he says.
Also, contrary to standard practices, many people argue that they will start saving for the business once they get a salary rise.

When does saving begin?
Mr Richard Ntulume, a financial consultant at KSK Associates in Kampala, says saving begins as soon as one starts to earn income.
“It starts as soon as you have a job, salary or an income source, or even a retirement fund,” he adds.
Another mistake is made in relation to how much to save and this is partly because people think one has to have a hefty salary to save successfully.
Mr Okello notes there is no such a thing as “my salary is too small for me to save.”
Mr Mukasa concurs with him and says most people pay rent, fuel the car, pay servants, buy clothes and take out part of what remains as savings.
“This is fundamentally one of the biggest mistakes as people do not look at saving as a first priority yet this should come up first before you even decide on what to save for,” he explains.
Mr Mukasa refers saving to paying oneself a salary and explains that the amount to save must come first before one spends their income.
Mr Mark Ochieng, an accountant-turned-farmer at Agrosol Farm Limited in Wakiso District, says the mistake people make is having the “do-it-yourself” mentality.
“People think they can save on their own but it is better if they can have a culture of coming together in groups and save their little money,” he says.
In addition, Mr Ochieng faults people for the tools they use to save their money. He appreciates the use of accounts but argues that saving money in a personal savings account or mobile money account makes it easily accessible especially in times of crises.

Purpose
Mr Matayo Uwimana, a hawker along Speke Road in Kampala, has been in the business for 10 years and says it is irrational to get profit and fail to save a part of it.
Mr Uwimana says: “For every profit made, I save part of it so that I can, at some point, plough it back into the business. This has helped to sustain my business.”
Knowing the purpose of saving is vital and most people save to either spend the money in the future or to invest it in a business.
According to Mr Mukasa, it is better to save for investment than for consumption.
“You have to make sure a substantial amount of your money is saved and invested so that it multiplies. This has to be a deliberate plan,” he notes.
One of the biggest challenges is that throughout the saving process, people remain uncertain on what they are specifically saving for. They also lack the discipline to ensure they achieve the target for which they are saving.
“You should not save up for a mobile money business and then you end up buying dresses and television sets,” Mr Mukasa advises.
It is completely noble to save for consumption but one needs to make sure they have a fair balance between saving for consumption and saving for investment.

Better tools
Mr Ochieng recommends the use of tools that restrict one from accessing money for reasons besides the goal for saving.
“It is important to use more restrictive accounts like the fixed deposit account where the banks do not allow you to withdraw the money at your time of convenience,” he says.
Mr Mukasa says in order to maintain saving as a first priority, it is imperative to seriously take control of one’s finances.
“People need to appreciate that saving is a lifestyle choice that one decides on.”
He adds: “Fit within your salary scale. You have to learn to live on half of your salary and once you are in the business, do not make a profit of Shs10, 000 and spend Shs15, 000.”
He further advises that once one has made mistakes, it is essential to take responsibility and rectify the faults.

Best ways to save

Advice. According to US Small Business Administration, an online platform on How to save money to start a business, the first step is creating a savings plan. List every Shilling and review your current expenses.
Then differentiate your needs from your wants and central to this, is controlling one’s spending habits.
Make it your practice to pay only for what you use. Ask yourself if you need to pay for the most expensive DSTv package yet you hardly watch your television.
Manage your cell phone usage by reviewing the phone bill and finding out whether all calls and texts sent are worth it.
Buy supplies in bulk when it is necessary especially for those items you frequently use. You will realise that buying a packet of 12 toilet rolls at Shs10, 000 is cheaper than buying one roll at Shs1,200.
Create a budget for each need and focus on it as soon as you have reviewed your expenses, and eliminated unnecessary payments.
Keep track of the budget and you will find it easy to stick to it.

WHAT SAVING IS

Gail Vax Oxdale on MoneySense, an online platform, says saving is what you do in the long-term to have money for another chapter of your life. She explains: “Whether for retirement, business, education, this saving is all done with an eye to providing an income if a time comes when you won’t have an income, or to produce an income.” It helps you reach your financial goals and provides financial security.