Help me raise Sh1.2 million to buy a plot, build in 24 months?

My name is Josh. I earn Sh60,000 each month. I spend as follows per month: rent of Sh9,000, shopping Sh2,500 per month, grocery of Sh1,500, fuel Sh12,000, electricity bill Sh1,000, miscellaneous Sh3500, savings Sh30,000 in a bank. I have just finished paying my car loan. I have been five months free from debt and have saved Sh120,000. My dream is to buy a piece of land and build a 2-bedroom house. The total cost of land is Sh600,000 and the cost of building is Sh600,000. I, therefore, need Sh1.2 million to finish up my dream project. How can I achieve this without going into debt again? Is it possible to achieve this in 24 months?

Benjamin Cheruiyot – the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm

I commend you for keeping basic costs low. At Sh9,000, your rent cost is only 15 percent of your net earnings, against the recommended maximum of 20 percent of earnings. My only concern is the high amount of fuel costs. At Sh12,000 monthly, you’re spending 20 percent of your total earnings on fuel alone. Unless your job involves frequent mobility at your expense, you could explore public transport sometimes to cut fuel costs. If it’s a lot of weekend travel, you may need to seek alternative travel options. You might also want to turn your vehicle into an income-generating asset rather than a liability— taxi-hailing services, carpooling, and weekend car-boot sales. 

With such an aggressive personal development target of purchasing land and building within two years, you need every shilling to reduce the wait and ensure you work within the timeline you desire. However, saving 50 per cent of your net earnings is a remarkable fete. You need to find avenues that avail great utilisation of the compounding power of interests. 

Ideally, savings and investments of up to 50 percent of net earnings will grow your net worth. As you have taken the bank account route, saving Sh30,000 will add up to Sh720,000 after two years. This will amount to Sh840,000 in your account. Bank savings do not earn meaningful interest. You should move your savings to short-term options that generate “above inflation” return rates. These are money market funds, treasury bills that return interests between 10 to 11 percent per annum, and high-yield savings accounts with yields of 15 percebt per annum. A Sacco account with a reputable and licensed Sacco will also offer interests of 10 per cent and above annually.

You do not have any emergency savings. It is recommended that you have an emergency fund worth at least six months of your monthly expenses. In your case, that is at least Sh180,000. 

Even before you commercialise your vehicle, basic fuel savings of Sh1,000 weekly will avail Sh4,000 monthly. These can be put in a money market fund account. An MMF is a collective investment scheme that typically invests in short-term instruments like fixed deposits, treasury bills and short-term treasury bonds. Its features are easy access to savings and daily earnings of interest. It is ideal as a parking lot for cash needed for future use. Savings of Sh4,000 will amount to at least Sh52,000 at 10 percent annual interest rate.

While saving bank saving will only realise Sh840,000 by March 2025, you will have a deficit of Sh360,000. Even then, inflationary costs will raise this to about Sh1.35 million. Transferring the Sh120,000 to a money market fund account and saving Sh30,000 monthly in a fund with annualised returns of 10 percent will yield Sh520,000 in the first year. By the end of the second year, this will amount to Sh880,000 with interests of Sh70,000. The accumulated amount will be Sh950,000. The balance of S400,000 can be sourced as a loan from your bank with monthly repayments of Sh14,000 in 36 months.

While you can execute the project to some extent through savings only, delayed completion will cost you more in time and convenience. To effectively achieve this without a loan, you may need to extend the timeline by another nine months. This may be advisable to avoid incurring interest from loans. 

Despite your reservations towards taking a loan, SACCOs are a great avenue. Saving Sh30,000 monthly in a SACCO will amount to Sh720,000 in two years. Net interest on deposits will amount to Sh105,000. With Sh825,000 you would qualify for a loan up to 3X the amount. Your repayment ability will determine the amount you can comfortably borrow. 

As you look towards the realisation of this plot and house project, also consider other family goals like education insurance for your children. Your income should be a springboard to financial stability in the near future.

If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.