Chachanomics Financial Advice Published on 17th Sep. 2022 in Saturday Nation Personal Finance Column

Reader's Question

"My name is Vincent. I earn a net salary of $1,120 which after conversion is Sh130,000 . I do get allowance of car mileage of Sh30,000. My expenses include: car loan which I do regret Sh60,000, house rent Sh25,000, transport Sh10,000, parents Sh10,000, shopping Sh10,000, internet subscription Sh2,500, utilities like water and electricity Sh5,000. I'm always broke. Kindly advise on how I can start saving for my future. I was planning to build a house in my rural areas and find a space in Nairobi where I can put up my house to stop renting (possibly Syokimau). I need help and kindly advise which currency I should be saving, USD or Ksh. Sometimes, I get gigs to do as a photographer and whatever. I get it saved though I end up using it."

Expert Advice

From your financial breakdown, your total income is Sh160,000 (summation of net income plus car allowance). Your total expenditure is Sh122,500 and a whopping Sh37,500 is unaccounted for. This points to a bigger underlying problem of financial wastage and mismanagement. Your car is regrettably your biggest liability consuming Sh70,000 (37.5% of your income).

To salvage your financial situation, focus on the strategies outlined below.

1. Reduce your expenditures

Try to live within your means by reviewing your expenditures as follows:

i) Rent. Cut it down from Sh25,000 to around Sh20,000 by shifting to a cheaper house and save Sh5,000.

ii) Transport. Reduce it by half and save Sh5,000. Adopt alternative means of monetising your car to generate additional cash flow such car-pooling, doing car-boot sales or enrol in a taxi business like Uber. That way, it will cease being a liability and become a profitable asset.

iii) Parents. Hold a candid conversation with your parents and reduce the money sent to them by half and save Sh5,000.

iv) Shopping. Once you do bulky shopping lasting a month and weekly purchase of perishables, you may save about Sh3,000.

v) Utilities. Cut down on enormous consumption of water and electricity by Sh2,500. Find out what really consumes a lot of water and the specific electric appliances consuming more power.

You will remain with a disposable income of Sh20,500. Besides reviewing your expenditure, you need to budget and track your money so that you can account for every shilling and be able to recover the undocumented Sh37,500. In total, you will be left with a disposable income of Sh58,000 which can be prudently used to establish a investment saving kitty and repay your car loan.

2. Set SMARTER financial goals

Prudent financial planning requires that you set robust short-term (3-12 months), medium-term (2-5 years) and long-term (above years) saving and investing goals. Building a house in Nairobi (Syokimau) or in the rural areas should be part of your medium-term plan. Do not just build a house to save from paying rent per se but build rentable houses or units for you to earn passive income.

3. Establish a saving and investing strategy

Save for a purpose (emergency, investment and retirement), invest with a plan (earn more passive income) and satisfy you risk appetite. For instance, for one year channel Sh10,000 to a money market fund (MMF) earning at least 9% compound interest per annum which will give you Sh120,900, send Sh10,5000 to a Sacco making it Sh126,000, increase car loan repayment by Sh30,000 and use the remaining balance to boost your passion business. It will take you about ten and half months (by August 2023) to clear your loan instead of 18 months (by May 2024).

In September 2023, once the loan is cleared you will remain with a surplus of Sh90,000 a year, boost your saving in MMF will by Sh18,000 (20%) making it Sh28,000 a month, and increase your Sacco deposits by Sh45,000 (50%) making it Sh55,500, use 10% (Sh9,000) amounting to Sh16,500 of the money to boost your gig photography and 20% (Sh18,000) for general upkeep. By September 2025 (three years), you have saved Sh845,881 in MMF (exclusive of 2% annual management fee and 15% withholding tax) and Sh1,458,000 cumulative Sacco deposits. Using the 3X multiplier, you will qualify for a loan of Sh4,374,000 which you can use to buy a plot, build a house or buy one off-plan. You can alternatively use proceeds from a side hustle to gradually build rental units.

If you earn in dollars, you need to save in dollars to cushion you against market turbulences affecting the Kenyan shilling. Automate your savings (use a standing order or direct debit) to various saving and investing accounts like MMF, and Sacco.

4. Build your gig photography business

Invest the remaining balance of your disposable income of Sh7,500 plus Sh9,000 additional fund to improve your photography skills. Network with various people, attend various entertainment engagements, develop a website, market your business and learn on how to improve your side hustle for better returns which will boost your savings. Acquire financial education so as to adopt sound financial discipline, debt management skills, prudent saving and investing habits.


https://nation.africa/kenya/life-and-style/saturday-magazine/how-do-i-save-enough-to-buy-a-plot-and-put-up-a-house-in-syokimau--3951176

Comments

Post a Comment

Popular posts from this blog

The Importance of Writing a Will

Why Should I Write a Will? Writing a will is a very sensitive, emotive and controversial subject especially in the African context. People view discussions about writing a will or death as a bad omen similar to inviting death into our lives.  Many people ask certain fundamental questions such as: 1. Is it necessary to write a will?  2. How will my family benefit from my will in case I write one?  3. What is required for one to write a will?  These and many other confounding questions reveal that many people don't know what a will is all about. You have heard or witnessed numerous cases of children, siblings or wives fighting over the property of the deceased.  This article will focus on the meaning of a will,  myths and facts about writing a will,  and what is required to write a will.  1. What is a will? A will is a legal document with a set of instructions that specify who should inherit what asset in the event of your demise.  2. What makes people not to write a will? i. It is c
Read more

Chachanomics' Advice Published in Saturday Nation on 17th Dec. 2022

Should I use Sh1.25 million to build my house or start a business? My name is Kennedy. I am married with two children. My wife is a trained P1 teacher working at a private primary school. We live in Nyandarua. I am employed on a permanent & pensionable terms with a net salary is Sh36,000 and my expenses are as follows: school fees 6,500, wife 2000, househelp 4000,, shopping 6500, food 3000. I don't pay rent as  I have set up temporary house on my plot. I also have savings of 240k at a Sacco. I want to take a loan of Sh1.25 million and the following projects are running through my mind: 1). Build a 3 bedroomed house worth Sh2.5 million that I have bought materials of approximately Sh370,000 for I sourced thses funds through my monthly salary for the past two years. These materials are at my plot where I live and intend to build a permanent house. I'm dead set against building the house through loans and as such, I was thinking of building the said house using my monthly sala
Read more

Financial Tips: What Are Mutual Funds?

One of the dependable ways of creating passive income is through building a sustainable portfolio income of paper assets – investments literally on pieces of paper that define ownership of assets such as shares, mutual funds, stocks and government securities. This article examines mutual funds as part of the paper assets. Mutual funds comprise a pool of funds collected from investors for the purpose of investing in securities like stocks, bonds, money market instruments etc. Also called unit trusts because one buys a fraction or unit costing kshs. 100 or multiple units. They are operated by professional fund managers who invest the funds’ capital to produce capital gains based on market trends.   Mutual fund providers in Kenya include Britam, Old Mutual, Zimele, CIC, UAP, Amana etc. Interests per annum varies according to market forces – for instance 5 - 12%. They are run professionally by experts who give small investors access to diversified portfolio. They are open-ended and affo
Read more