Chachanomics' Financial Advice Published in Saturday Nation 18/06/22
I Save Sh.500 Net Daily from My Boda Boda Job. Help Me Invest to Acquire Assets
Hello,
My name is Ben. I am single. I am a boda boda rider based in
Migori Town. On average, I save 500 bob a day after my daily expenses. I also
earn 6400 bob every month from transporting school children. I use 6000bob to
pay chama every month as merry go round, and the chama offers table banking
loan 3X your shares. Currently my shares stand at 12000 bob.
I am also currently installing a vertical vegetable garden on a 50X50 plot I have leased to help boost my income. And I have a debt of 20,000 bob. Kindly guide me on how to plan and invest the money I make so as to achieve financial stability, assets, and business capital in the next 10 to 20 years.
RESPONSE
On a positive note,
your saving habit (putting aside Sh.500 daily) is admirable and will go along
way in helping you achieve your financial goals over time. Equally, the idea of
starting an income generating enterprise is progressive and timely in boosting
your income.
From your financial narrative, however, you have certain
challenges that need to be addressed. For instance, you do not track your money
and that is why key expense items such as food, rent, utilities, and medical
are missing. The total amount you earn from your boda boda business is also not
clearly stated except the Sh.6,400 you get every month from transporting
children to and from school. This implies that a lot of money could be going
into waste. On the other hand, it is not clear what you used the debt for -
whether to start the vegetable garden or something else.
To plan and invest your money prudently, you need to adopt three
fundamental strategies.
1. Tracking your money. Try to account for
every shilling you earn and spend. From the information given, it is not clear
how much you earn in a month save for the money you get from transporting
children because it is perhaps paid once in a month. You need to have a clear
record on how much goes into various vote-heads/expense items such as food,
rent, utilities, grooming etc. This breakdown of expenditure will help you draw
a meaningful budget for the succeeding months. Once you learn how to track your
money, you will not only be able to account for every shilling but you will
also be able to take control of your money by reducing unnecessary wastage.
To be able to budget well, you can use the 50/30/20 guideline.
This means that 50% of your total income should be used for most essential
needs such as food, rent, medical care, utilities etc. 30% can be channelled to
wants like airtime, bundles, clothing, black tax, entertainment etc. 20% should
be spent for savings for investment in a Chama, Sacco, and boosting your
business among others.
2. Set SMARTER financial goals. The goals do not need just to be SMART (Specific, Measurable,
Achievable, Realistic and Time-bound) but should be SMARTER whereby 'E' stands
for Evaluation and 'R' for Results. This implies that the financial goals
should be reviewed from time to time in order to produce the desired outcomes.
You need to set clear short-term goals (3 - 12 months), medium-term (2 - 5
years) and long-term (5 years and and above). Such goals will specify how much
you need to earn, save, and invest within a given period. For example, you may
write your goals as follows:
i. "I'll set up a
vegetable garden on my 50 by 50 plot using Sh. 20,000 debt from my Chama by the
end of 2022."
ii. "I'll expand the agribusiness by leasing an additional
plot using extra income/savings from my business in 2023.
iii. "In five years, I'll expand my agribusiness by buying
a plot and diversify my business by rearing chicken for commercial
purposes."
3. Diversify your investment. Besides
the agribusiness, you can channel your savings to a Money Market Fund manager
which will acts as your emergency fund to cushion you against unexpected
happenings. For example, your daily savings of Sh.500 will total Sh.15,000 a
month and accumulate to Sh.180,000 in a year, 376,200 in two years and
Sh.590,058 in three years at 9.0 per cent per year. To reap optimum benefits,
you need to save consistently without sporadic withdrawals. On the other hand,
you should endeavour to learn about other profitable asset classes such as
government securities and stocks that can earn you passive income as you work
hard on your agribusiness and transit from being a boda boda rider.
The merry-go-round aspect of your Chama is not very helpful as
the money does not grow in any way. Instead of only saving in a Chama, you can
scan a number of Saccos in Migori town that support small or medium enterprises
and choose one to which you can channel the Sh.6,000 used for the Chama
merry-go-round. In a year, you will have accumulated Sh.72,000 and Sh.216,000
in three years. The Sacco deposits will acts as collateral that guarantees a
loan three times your total deposits at a given time and earn you lucrative
dividends at 10 per cent. The dividends can be ploughed back for more gains.
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