To Save or Invest?

Est: 3 Minutes Read

For many young people, this is always going to be a gamble on what you should or shouldn’t do. You could save your money with a bank or a SACCO society with low-interest rates and enjoy it after many years or you could invest your money in a profitable business that will pay off after a few years and enable you to enjoy all your hard work much sooner.

The truth is, it’s not as black and white as it would seem. I think different people and different circumstances demand people to use their money differently. For example, if you’re a middle-class citizen and have a small family, it might be a little difficult for you to take huge risks investing your money in some risque new venture; as we all know, high risk is always associated with a high reward, if it succeeds. Another example is the 24/25-year-old graduate who’s just starting out in life, gets a decent income per month and has no one depending on them. This kind of person has nothing to lose and if they invested in a high-risk endeavour and things went sideways, at least they’re the only ones who would suffer.

Let’s take an example of a young man in their prime and ideally having no dependents. They earn about 700 USD, which is reasonable and achievable in Kenya. If they decided to save the recommended 20% of their salary (about 140 USD), it would take them around 59 years to make their first 100,000 USD. Even if they decided to live extremely frugally and saved up to 50% of their salary, it would still take them about 23 years to get to 100,000 USD. This reasoning, of course, doesn’t take into account things like emergencies that may drain your savings or salary increases that may increase your savings, but I think you get the point. It’s going to be a long time before their savings become substantial enough to matter. Even then, they would have traded their time for money, and a small amount of it if you ask me.

If the same guy were to invest in a business, let’s say something like a website. They’re putting in the 140 USD every month for about 2 years, which is about the amount of time an average website will take to become profitable. After those two years, they’ve sunk in 3,360 USD. Now, this is a great risk considering that this person will most likely not have a substantial amount of savings to their name, for use in emergencies, unless they’re extremely disciplined. The risk, however, is worth the reward. If they manage to launch a successful website, they could be making about 300 USD in profit per month, almost double the amount they invested monthly. So it will take them half the time to recoup their investment. Even if this person decides not to invest in any other avenues, you can see how much further ahead they will be compared to someone who decided to save obediently. With this model, ignoring any improvements in the business, it will take them about 27 years to make their first 100,000 USD.  This is less than half the time it would take you to get there through the savings route. Of course, we’ve ignored that the business will continue growing and bringing in more revenue each month. So this figure could very easily come down to 7 – 15 years.

If you were to ask me, I would vouch for investing. Granted, it isn’t always easy, and you will most likely try your hand at a couple of businesses before you find one that works; it will, however, be worth the effort in the long run.

This is especially prudent for young boys and girls who are just leaving high school. In my opinion, this is the best time to start testing out business and investments. At this age, you can take almost an unlimited amount of risk because, at the end of the day, you’ll still have a place to stay, food to eat and all the basic needs. If you attend campus, this would be the best time to actualize what you learned in the years prior, around your third and fourth year. If not, around 21/22 is the best time to start specializing in whatever it is you’ve set your mind on. This will enable you to still have the cushion of your parents or guardians while still building something for yourself so that when you finally hit 23/24 and you want to move out, your projects have started becoming profitable and you can have the luxury of getting a job if you like or working on it full time.

There you have it, those are my two cents on the topic. Bear in mind, however, I’m not an expert on the topic. These are subjective views that I’ve come up with from my own experience and observing other people’s experiences over the years. This should be taken with a grain of salt.

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