Do not Eat Your SACCO Dividends

We are in that season of the year again when many of the SACCO members are about to witness the return on the labour of their savings. For many people, whether in formal or informal employment, SACCO savings is their only form of structured investment.

Unfortunately, many folks use the dividends each year and the cycle is repeated until retirement. There are many reasons why this is not the appropriate approach to managing your SACCO dividends. I share five reasons in today’s article:

1. Annual dividends are the children of your savings – thus, when you eat your dividends each year, you are essentially eating the children your SACCO savings have given birth to. Through this habit, you deny yourself the grandchildren and great-grandchildren from your regular savings;
2. By eating your dividends each year you rob yourself of the power of compounding – incomes from your savings if ploughed back into the same savings or divested into other higher-yielding returns will grow exponentially. Simply put, they grow at an increasing rate of return each year because the children, grandchildren and great-grandchildren when re-invested back start giving birth to their children in addition to the original savings;
3. Eating your dividends each year erodes the right habit and mindset towards savings and investing -ideally, what you sacrifice into your savings should be forgotten and removed from your regular income planning. This is because dividends from your savings help you connect to the wonders of money working for you. Each time you withdraw your dividends and spend it, you never get to see this side of the story. You remain permanently hooked to the consumption side of the equation;
4. A transactional approach to SACCO dividends blinds your eyes from other products of the SACCO -many SACCOs now offer more products other than loans. They thus provide a legitimate and friendlier avenue to other forms of savings like fixed deposits, education products and long-term annuities. Eating annual dividends hooks you to the basic services of the SACCO namely various types of loans and co-guaranteeing one another. It thus denies you a chance to unlock the enormous potential there in those other products. For instance, by re-investing your savings, you can easily create a pool of adequate savings to guarantee your loans instead of going through the headache of looking for guarantors every time you seek a loan from SACCO;
5. Eating your SACCO savings robs you of the advantage of time – the ultimate power of savings & investments is in the long term. Each year that passes is an opportunity for your money to continue the good work of working for you. Without you knowing, one year eventually turns into 5, then 10, then 25 and sooner rather than later you find yourself on retirement with nothing much in your reserves. The habit of re-investing your dividends will preserve your principal amount and grow your interest into real wealth over time if diligently done. This is the true measure of developing personal resilience towards long-term returns and eventually wealth.