Secrets from a tiny book on how you can join the millionaires' club

Kenyans' favourite investment is land. [iStockphoto]

Many years ago in a South African airport, I came across a tiny book called The ten distinctions between millionaires and the middle class by Keith Cameron Smith.

I flipped through the book and dismissed it as a polemic write-up on finance. Later as I sat in the plane, I started thinking about the book and it occurred to me that sometimes, the greatest ideas are actually very simple. I bought ten copies of that book and sent it to all my young relatives to read.

One of the distinctions between the middle class and millionaires is that millionaires invest while the middle class saves. This is true but you must save first before you can invest. There is a two-stage process, first, save and then invest. There is no shortcut unless you have inherited that money. If you have inherited, then you don't need to continue reading this.

Many people have asked me, "How do I save when I don't even make enough money?" They assume that saving is putting away "surplus money". Nothing could be further from the truth. Saving is starting an investment. You must make provisions for savings. It is not surplus funds because we do not have surplus funds.

The more you make the more you will spend. To save, you have to look at saving as a necessary expense. Just like you put aside money to pay rent and for school fees, you also have to put aside a certain amount for savings. The best way to look at this is to start with a minimum of 10 per cent of whatever you earn and when you get a windfall, bonus or pull off a good hustle, put aside some of that money and say I have invested it in savings.

Keep that money in a deposit in the bank where your ATM card can't reach. Don't make saving an obsession and forget to live a good life. But never forget that money has a way of drying up and be prepared for those days.

The second stage is to try to achieve the equivalent of at least six months' pay safely tucked away in a bank deposit. As your income increases, your cash deposits should also match your six months equivalent. And that's the end of cash hoarding. The next stage is investing any extra money that you make. If you keep any more cash than that, you become one of the uninformed ones who finance other people's investments - you save and they invest your money for profit.

Investment is what will make you rich over time, not saving. Investment is making your money work for you instead of working for other people. Investment is thinking long-term while saving is short-term.

First, you have to define your investment objectives. The best investment you can make is to buy a house. When most people think of buying a house, they look at the price of a house and think they possibly cannot afford it. Don't look at the price, look at the mortgage payment and think about how you will make sure you make enough to pay it. If you cannot afford it alone, then buy together with your partner or sibling.

Kenyans' favourite investment is land. We have an obsession with land. Land is not a good investment unless you put it to work by either building a home or farming and if both are not on the immediate horizon, then seriously reconsider putting money in an idle asset. There are many other asset classes that will give you better returns.

Learn to invest. The best investment you can make is in yourself. Spend on your education and if you cannot go to college, at least take diploma courses. There are many different variations of investment. You must learn that all investments have risks and returns and you must learn what risk you can afford to take. This does not mean you should not take any risk. Life is all about taking acceptable risk.

Smith was right, millionaires invest. Start by investing in some savings from this month. Be that millionaire soon.