Warning: These 9 Mistakes Will Destroy You while working full time, saving and still investing

It was back in 2007, that a young man with a job that was flourishing realized a business concept that might change his life – investing in shares. He grew up like most people watching television and reading stories in newspapers about this kind of business.

When Safaricom (Kenya's biggest telecom operator) floated his IPO, he realized that his opportunity was his. He received an interest rate of 15 per cent every year in a Ksh.1 million loan from a local bank. Safaricom stocks were at Ksh.5 at that time and managed to buy 190,000 stocks in that capacity.

In regard to the future, he was almost convinced that he would be a multimillionaire within five years because the share price would shoot Ksh.25 apiece as most of his fellow investors predicted. The global financial meltdown in 2008, followed by post-election violence in 2008, shocked him a few months down the road (PEV). The stock prices fell to less than Ksh.2.50–a scenario that panicked a young man.

Things didn't seem good, and it surely didn't seem a good idea that a loan was to be returned, waiting a little longer in the future. He quickly sold his shares for Ksh.2.10, exited the circa, and used the money to pay off a portion of the remaining debt.

In addition, he had to forego a percentage of his income for 60 months in order to completely repay the loan.

To make matters worse, as he was still trying to navigate his way out of the muddy seas of debt, things looked up for Safaricom on the exchange, with the share price rising all the way to Ksh.21.00. If only he could have waited a few more years!

Stories like this one are not uncommon; the rest, however, choose to suffer in silence rather than flaunt their failings for all to see.

Certainly, despite working hard, saving diligently, and even investing, an increasing number of salaried people with seemingly good lives and an educated background are gradually sinking into poverty.

But why does this happen?

Let us look at why people who are educated and paid are sometimes impoverished, despite all they need to excel in life.

(1) The desire to hit two birds with a single stone

With a job to do, a boss to please and pay, wage earners are unable to say their comfortable lifestyles from 8 am to 5 pm. So they recruit and commission the affairs of the so-called second company from their family members or village partners. And the problem is therein.

It's too indolent and too unambitious for the first guy to recruit, so they shot him. The second guy they employ is a family member who obviously doesn't have the passion and the skill to handle the company so they fire him again after they realize they're dead.

The third and last person (or, if you can, the mortician) is frequently one of the previous mates or an old friend who is dishonest in spite of being emotional. The formerly emaciated chap milks dry the company and escapes before you know that (not back to the village but to start his own venture using money and experience stolen from the unsuspecting boss.)

In the end, one has no choice but to close the company, count losses and repay a loan without receiving a return value.

(2) Investing in Research That Isn't Necessary

Tell a hired man to pursue his heart - he'll answer you boldly that his sole passion is to drink and dance hard all weekend at one of Thika Road's seedy bars.

Tell them to do some research on the current economic trends; they will tell you they don't have time because they spend most of the day working for their employers.

As a result, people live a life that is unnecessary, devoid of self-awareness and facts. Because since they spend most of their time on Facebook typing "Amen," the only way they know to invest is by shoddy means.

Some start hardware because word on the street is that the nation is only startled by the reality on the ground by a "built boom" in the country. Some buy thousands of broiler chicken and only lose their whole brood because they are new to them without understanding the best practices from such a company.

(3) Abhorring Dirty Work

How dare you order a whole industry boss to shuffle tomatoes from door to door? Only the pipe of the ex-Japanese Toyota, which he purchased on credit, could be made muddy by the moderately paid office chaps. You detest to lift heavily.

As a result, even when it comes to investing, they seek out ways that demand the least amount of work in order to generate disproportionate profits. Their distaste of odd jobs is what drives them to manage their businesses remotely, which has similar implications to the ones mentioned in point 1 above.

(4) Failure To See Reality

A salaried person's life cycle begins at school, where he or she is indoctrinated and forced to memorise arbitrary formulas and ideas. After 20 years of education, they graduate, tarmac for a few years, and then find work. And therein lies a further issue.

5) Behaving as though they had just discovered the existence of loans

The majority of people live above their budget and so do not save much. So, even if they learn about a possibly viable business concept, such as buying Safaricom shares, as in the example above, their sole option is to seek up 60-month loans.

Because since they have a monthly salary, which most bankers love, they are readily financed. They had no idea that long-term savings are the best way to buy stocks and that bootstrapping is the best way to grow a small business.

Business loans are best used to expand an existing business rather than to build one from the ground up!

(6) Investing out of fear of losing a job rather than out of passion

Employees are always concerned that their employer will turn on them. They have an inkling that one day they will be unemployed and bankrupt – they just don't know when.

So they join the “be your own boss” fad, not because they are excited about it, but because they are afraid of the unknown. In the past, fewer than 20% of companies that began with a fear motivation survived to see their second birthday.

(7) Getting Things Going in a Big Way

It is because they live in a rat race that the salaried class tends to suffer from young-age lifestyle illnesses. They compete for the best schools for their children. They praise their cars and finance costly ceremonies in the name of standardization.

This isn't the problem, however. They try to take 'big ways' in the business world, in addition to living a 'big life.' So Juma wants to start a replacement parts company. He rents an immense office on the front and back. Employ a receiver, custodian, cashier, shopkeeper and ten other staff.

Go on and import the latest furniture from the office. Creates an unnecessarily costly website.

And, because his business experiences have taught him that "presentation is everything," he presses ahead and commissions a grand launch. All of this is paid for with a loan that can be repaid in 48 months.

What Juma is unaware of is that his small firm has other, more pressing priorities to do. While such image-building strategies can be beneficial, they may not have a substantial impact on the company's bottom line.

What really matters in the early stages of a company is its ability to provide value to consumers while making the best use of available resources. At this time of development, glitz and grandeur virtually usually do more harm than good.

(8) They Put Money Into Questionable Land Deals

If they are not tied to a 35-year mortgage on an expensive, substandard flat in Mlolongo or Ruaka, the well-educated men spend most of their time untangling themselves from questionable property agreements.

It's either that or they get into one of those over-hyped Green Home Kilimo deals where you buy a plot and a greenhouse for Ksh.350,000 and expect to earn Ksh.500,000 per year from the comfort of your sofa. Or they are too preoccupied with purchasing cheap plots in the middle of nowhere to engage with a search at Government offices or the ownership deed. They only realise afterwards that they purchased hot air.

9) Inability to wait

Nothing puts your patience to the test like a small business. And, in general, the majority of working people are not as patient as they believe. They can only keep an idea for two years before abandoning it if it does not materialise.

The only reason they start a company is to "see" whether it will successfully replace their salary. When they see none of the like is going to happen, they gather their belongings and leave.

Have you ever heard of the apparel company FUBU? Just keep in mind that the man behind it had to live for 9 years without making a decent return.

Instead of reinvesting earnings to expand the company, they suckle out all profits like ruthless pests, leaving the once bright business in shambles.

The Last Word

The reason we all get up early in the morning to go to work is so that we can build a better future for ourselves. But what happens when our own ill-informed choices endanger that very future?

If you are a full-time worker with aspirations to invest now or in the future (or even if you have a running business), I hope you will be aware of these 10 poverty-breeding practices and be cautious of the kind of choices you make in the future.