How To Build A Savings Plan In Nigeria

Building a savings plan is essential for achieving financial stability and ensuring that you can handle unexpected expenses, invest in your future, or accomplish specific financial goals, such as buying a house or starting a business. In Nigeria, where economic fluctuations, inflation, and income instability can make it challenging to save, having a well-thought-out savings plan is particularly crucial.

This blog post will guide you through the steps required to build an effective savings plan in Nigeria, helping you manage your finances and meet your financial goals.

Why You Need a Savings Plan

Before diving into the steps of building a savings plan, it's important to understand why saving is essential:

1. Financial Security: Savings provide a cushion in case of emergencies, such as medical expenses, job loss, or unexpected bills. In Nigeria, where many people do not have access to comprehensive social security, having personal savings can be a lifesaver.

2. Future Investments: Whether you want to buy a house, start a business, or invest in education, saving money helps you build the capital required to achieve these long-term goals.

3. Achieving Personal Goals: A savings plan enables you to work towards personal milestones, such as going on vacation, purchasing a car, or planning a wedding, without relying on loans or credit.

4. Beating Inflation: The Nigerian economy is prone to inflation, which erodes the value of your money. Saving consistently and investing smartly can help preserve the value of your savings and potentially outpace inflation.

Step-by-Step Guide to Building a Savings Plan in Nigeria

1. Assess Your Financial Situation

Before you begin saving, you need to have a clear understanding of your current financial situation. This involves analyzing your income, expenses, and existing debts. A thorough financial assessment will allow you to determine how much you can realistically set aside for savings.

To do this, follow these steps:

• Track Your Income: Identify all sources of income, including your salary, side hustles, freelance work, and any other streams of revenue.
• List Your Expenses: Write down all your monthly expenses, including rent, utilities, groceries, transportation, and discretionary spending (entertainment, dining out, etc.).
• Identify Debt Obligations: If you have outstanding debts, such as loans or credit card balances, note them down and prioritize paying them off to reduce financial strain.

Once you have a clear picture of your income and expenses, you can determine how much money you have left to allocate to savings each month.

2. Set Clear Savings Goals

Having clear savings goals will keep you motivated and help you focus on what you’re trying to achieve. Your savings goals should be specific, measurable, and time-bound. Some common savings goals include:

• Emergency Fund: Building an emergency fund is one of the most important savings goals. It ensures you have money set aside for unexpected expenses. Experts recommend saving at least 3 to 6 months' worth of living expenses in an emergency fund.

• Short-Term Goals: These are goals you want to achieve within the next 1 to 3 years. Examples include saving for a vacation, home renovation, or purchasing a new gadget.

• Long-Term Goals: These goals are set for 3 years or more into the future. They might include buying a house, starting a business, or retirement savings.

By setting specific goals, such as "Save ₦1,000,000 for a house down payment in 3 years," you’ll have a clearer target to work toward.

3. Create a Budget

Once you’ve assessed your financial situation and set savings goals, the next step is to create a budget. A budget is a plan for how you’ll allocate your income, including how much you’ll save each month.

Here’s how to create a budget:

• List Your Fixed and Variable Expenses: Fixed expenses are those that stay the same each month, such as rent or loan payments. Variable expenses, like groceries and entertainment, can fluctuate from month to month.

• Allocate Money for Savings First: A popular budgeting strategy is the "Pay Yourself First" approach. This means you prioritize saving by setting aside a portion of your income before spending on other things. For example, you might decide to save 20% of your income before covering your expenses.

• Use the 50/30/20 Rule: One common budgeting framework is the 50/30/20 rule, where 50% of your income goes to essential needs (e.g., housing, utilities, food), 30% to wants (e.g., entertainment, dining out), and 20% to savings and debt repayment. You can adjust the percentages to fit your financial situation.

4. Choose a Savings Method

In Nigeria, there are several options for saving your money. Choosing the right method depends on your financial goals and how easily you want to access your savings. Here are some common savings options:

• Traditional Savings Account: A regular savings account with a commercial bank is a popular and accessible option. While the interest rates on these accounts are generally low, they are secure and allow you to access your money whenever you need it.

• Fixed Deposit Account: If you’re looking for higher returns and are willing to lock away your savings for a specific period, a fixed deposit account may be a good option. These accounts offer higher interest rates but usually require you to leave the money untouched for a set term.

• Piggyvest or Cowrywise: These are digital savings platforms that offer flexible savings plans with higher interest rates compared to traditional bank accounts. They also have features like "safe-lock" to prevent early withdrawals, helping you stay disciplined.

• Cooperative Societies: Many Nigerians participate in savings cooperatives or ajo systems, where members contribute to a pool and take turns withdrawing lump sums. This informal savings method can be useful for meeting short-term goals.

5. Automate Your Savings

To stay consistent with your savings, consider automating the process. Automation ensures that you save regularly without having to manually transfer money each time.

Most banks in Nigeria offer standing orders, allowing you to automatically transfer a specific amount from your checking account to your savings account at regular intervals (e.g., weekly or monthly). Digital savings platforms like Piggyvest and Cowrywise also allow you to set automatic savings schedules.

By automating your savings, you reduce the temptation to spend the money on other things.

6. Reduce Unnecessary Expenses

To maximize your savings, you need to identify areas where you can cut back on spending. This doesn’t mean living a life of extreme frugality, but rather being mindful of where your money is going.

Here are some ways to reduce unnecessary expenses:

• Cut Down on Luxuries: Limit how often you dine out, purchase new clothes, or buy luxury items. Instead, set a monthly limit for discretionary spending.

• Track Your Subscriptions: Cancel any unused or unnecessary subscriptions, such as streaming services or gym memberships.

• Use Discounts and Coupons: Take advantage of discounts, promotions, and coupons when shopping for groceries or household items.

By minimizing unnecessary expenses, you free up more money to put towards your savings.

7. Monitor Your Progress and Adjust as Needed

Building a savings plan isn’t a "set it and forget it" process. It’s essential to regularly review your progress to ensure you’re on track to meet your goals.

Every few months, assess your savings and budget to determine whether you need to make adjustments. If you receive a salary increase, for instance, you might decide to increase the amount you’re saving each month. Alternatively, if unexpected expenses arise, you may need to temporarily reduce your savings.

The key is to stay flexible and make adjustments as your financial situation evolves.

8. Stay Committed and Disciplined

Saving money is not always easy, especially when you’re faced with daily expenses or unexpected financial challenges. However, building a savings plan requires discipline and long-term commitment. Keep your financial goals in mind, and remind yourself of the benefits of having a solid savings plan.

You can stay motivated by:

• Celebrating Milestones: When you reach a savings milestone, reward yourself (within reason) to stay motivated.
• Visualizing Your Goals: Create a vision board or set reminders of why you’re saving. For example, if you’re saving for a house, keep a picture of your dream home where you can see it regularly.

9. Consider Investment Options

Once you’ve built a solid savings foundation, consider growing your wealth by investing. While savings accounts are safe, their returns are often minimal, especially when compared to inflation. By investing in stocks, bonds, real estate, or mutual funds, you can potentially earn higher returns on your money.

Before investing, make sure you’ve done your research and consult with a financial advisor if necessary.

Conclusion

Building a savings plan in Nigeria requires careful planning, discipline, and consistency. By following the steps outlined in this guide—assessing your finances, setting clear goals, budgeting, choosing the right savings method, automating your savings, reducing unnecessary expenses, and staying committed—you can create a savings plan that helps you achieve your financial dreams.

Remember, saving is a long-term journey, and the earlier you start, the more you can build financial security and freedom for the future. Stay disciplined, track your progress, and adapt your plan as needed to fit your changing circumstances.