Daily Financial Tips

Where do you save your hard earned money?

With the rapidly rising inflation rate which stands at 8.3% by now, where to save your hard earned money is a concern. Most people prefer saving money in homebanks and commercial banks where it earns zero interest rate as opposed to saving in a sacco, money market funds and various investment schemes.

For one to be on the safer side, it is advisable to save where the compounded interest rate is higher than the prevailing inflation rate.

Recent research has also showed that wealthy Kenyans are saving in dollars as opposed to Kenya shilling due to its depreciative value. Kenya shilling has been depreciating against the dollar since the onset of the COVID-19 pandemic.

In a nutshell, save where you earn something on top of your savings.

Why do you hold money?

According to Keynes, people hold money for three motives.These are:

1. Transaction motive
The transactions motive for demanding money arises from the fact that most transactions involve an exchange of money.

2. Precautionary motive
People often demand money as a precaution against an uncertain future. Unexpected expenses, such as medical or car repair bills, often require immediate payment. The need to have money available in such situations is referred to as the precautionary motive for demanding money.

3. Speculative motive
The speculative motive for demanding money arises in situations where holding money is perceived to be less risky than the alternative of lending the money or investing it in some other asset.

However, not all people subscribe to this concept. The amount held for each motive might vary depending on the level of income, interest rates, and inflation as well as uncertainty about the future. It's always advisable to set aside some money on each motive so that you can be leveraged when the need arises.

It doesn't matter how much you keep but ensure you have something in each of the three baskets. This will enable you to understand why you hold a particular sum of money and why you shouldn't utilize it anyhow.