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Five Things To Keep In Mind About Personal Finance

Personal finance

Personal Finance

Managing personal finance is a long-term commitment that can confuse even the most seasoned financial veteran. The issue is over time even a well-thought-out plan can run out of steam due to circumstances out of our hands.

Personal finance covers both short-term and long-term goals pertaining to your financial goals. Personal finance skills are essential regardless of your age or income. If you need to learn how to manage your finances you have come to the right place

Personal Finance

Personal finance is a broad term that covers money management, savings, and investment. Personal finance can be summed up as the knowledge of how to plan your financials by understanding personal cash flow and coming up with a solid plan to manage it to meet your financial goals.

Why is it important to manage your personal financials

To avoid being in a constant financial crisis mode. When you don’t have your financials in order, any small emergency will turn into a crisis. 

During the coronavirus pandemic, the entire economy shut down for months forcing governments to intervene, if they could afford it. The majority lost their jobs and without a social safety net in Kenya, you were expected to float on your own. It was a painful experience that left the majority of the populace at the mercy of government handouts that rarely came. 

Those who had savings faired well, especially those who were willing to cut back on expenses and focus on important needs.

This is why personal finance is important. Having a good grasp of money and how to manage it can lead to a better quality of life.

Personal finance is a broad field and covers a lot of topics. We are going to look at five of the most important that you should keep in mind.


Debt is often underestimated when people evaluate how important it is going to be in their financial plans. Debt plays a crucial role in huge purchases we undertake in life. Debt is used to finance land purchases, house construction, vehicle purchase, and education.

So the question is how do you manage your debt? How much debt can your income finance?

Debt has a cost just like any other good you purchase. This is the interest you pay on the loan. When budgeting for a debt, you should understand its cost in form of interest and how long you will pay for it. The outcome of these calculations will give you the true cost of the debt.

How you use your debt will define its place in your personal finance statement. 

Most large loans will have a predefined use; like a mortgage which can be used to finance a house purchase, or a car loan for a vehicle. Why you make this purchase is important since they may help in repaying the loan or force you to bankruptcy. A good loan leaves you with an asset after you have finished your payments

Credit is not a loan. Credit doesn’t have any predefined use. They are short-term 1 to 12 months compared to loans which have 5 to 10 years repayment plans.


Income is the source of revenue for your personal finance. You can have more than one source of income. The amount of income you bring in will be the source of all your personal spending and savings. Your gross income will take care of your taxes and deductions. After deduction, you are left with net income to budget for your needs and wants. We recommend the 80/20 rule to help you in your budgeting.

Income can have different sources. This include:

  • Wages
  • Dividend
  • Rental income
  • Salary

It is important to note that your income will determine your liquidity. Most of your savings can’t be accessed all the time otherwise they stop being savings accounts. Your income budget should take care of emergencies.


Savings are what you keep after you have taken care of your personal expenses. Saving is armed to cover large expenses and emergencies. Savings offer opportunity cost since it’s idle money. Liquidity can be traded through borrowing. It has good returns through interest if you are willing to loan your savings through an intermediary like a bank.

Banks offer access to money markets by functioning as an intermediary between the saver and the borrower.

Various institutions offer consumer savings in Kenya. This includes:

  • Saving Banks
  • Deposit-taking Saccos
  • Mutual Saving banks
  • Credit co-operatives

Do your research on institutions near you and see which has the best returns on their savings account. 

Note that savings should not be treated as investments. Savings are for covering emergencies in the long term while investments are for long-term increases in personal wealth.


Investing involves purchasing assets on the premise that they will appreciate in value and increase the value of your investment.

Investing is aimed at increasing the value of an individual’s wealth by speculating on the future growth of the asset. Investing unlike savings carries a risk due to exposure to market volatility and can register a loss on your investment.

Investing can be quite complex and can take a while before one is good at it. Moreover, it is important that you educate yourself on the simple functioning of the markets to get a good idea of how the market behaves.

There are several forms of investment currently in the Kenyan market. Some of them include:

  • Bonds 
  • Stocks
  • Commodities and derivatives
  • Mutual funds
  • Index Funds
  • Exchange-traded funds

Investments carry huge risks because they tend to have huge returns for those that make them. It’s important to understand the industry you are investing in to see if it has future growth potential.


Nobody can survive in the modern world without spending. Most of our income goes to personal expenditures that just can’t be avoided. Spending can get out of control if not well managed.

Spending is the outflow of cash from income. The bulk of income goes to spending including basic needs like housing, food, and clothing.

Spending should fit into your budget. By planning your spending you can finance your purchases without any need of borrowing which comes with an extra cost. Plan to live within your means to minimize unnecessary spending.

Spending decisions are always dictated by income. This means you have to make choices on what you spend and the utility you will get out of the purchase.

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