I am single and make Sh63,000. How do I save to buy a plot and build a home within 5 years?

My name is Edward, a father of one. I am 28 with a baby mama. My goal is to buy land and build in the next five years. I currently earn a basic pay of Sh33,000 which I spend as follows; rent Sh5,500, electricity & subscriptions Sh4,500, food and groceries Sh6,000, Upkeep (1yr old son, my parents and younger siblings) Sh5,000, sacco savings Sh2,000 (5,000 shares and 5,000 savings), personal care and alcohol Sh10,000. My current employer has a flexible work schedule and allows me to work from home. This allows me run a side hustle that gives me Sh30,000 monthly that goes directly to my other savings account. This account has Sh115,000. I occasionally get random expenses such as school fees for my siblings and clothes that affect my budget. I desire to buy land and build a beautiful home in 5 years. How can I manage this?

Robert Ochieng’, the founder and investment advisor at Abojani Investments

To make progress from where you are now, convert your goals and aspirations into a solid financial plan. Your budget is clearly spelt out but little is allocated for savings and investments. It is recommended that you save at least 20 per cent of your gross earnings. In your case, this should be above Sh6,600. You have allocated over 30 percent to personal care and alcohol. Spending a third of your earnings on entertainment is wrong. You need to practice moderation. Cut down the ‘personal care budget to Sh6,000 and increase the Sacco savings to Sh6,000.

From your side hustle earnings, you have been able to save Sh115,000 in about four months. That is commendable. Considering your 5-year target to achieve your short-term goals of owning a plot and a house, you are looking at a budget in excess of Sh3 million. A plot within commutable distance to the city can cost you at least Sh. 1.5 million. A modest 2-bedroom house will cost Sh1.5 million. Adjust your budget to Sh4 million to be on the safe side in 5 years. To achieve this, you need to protect your cash from ever-rising inflation. You can explore putting your savings in money market fund accounts or treasury bills. 

With money market funds, your savings earn interests that are credited monthly and you benefit from compounding interest. The other advantage is the ease of access. Your side hustle earnings can be allocated as follows: Sh5,000 to an ordinary bank account for random expenses, Sh5,000 can be added to a money market fund (in addition to the Sh115,000 you already have). This will go towards setting up a six-month worth emergency fund. At Sh30,000 you will target Sh180,000. This will take you at least a year to attain. The balance of Sh20,000 can be put in a separate money market fund account purposely for the real estate project. At Sh20,000 monthly, this will accumulate to Sh1.5 million in five years (inclusive of Sh300,000 in compounded interests at nine percent per annum). This will barely be enough to purchase a plot. Your Sacco savings at Sh6,000 monthly will add up to Sh460,000 (inclusive of Sh100,000 in annual interest at 10 percent per annum). Most Saccos give loans at 3X your deposits. You will qualify for at least Sh. 1.38 million. With a target of Sh4 million to execute the project, you will be short of Sh1.12 million. However, this will enable you to purchase a plot at about Sh1.8 million. The balance of Sh1 million can at least put up a foundation and lift the structure off the ground as you build at your own pace. 

Over five years, you must strive to increase your income. This will come in handy when servicing your development loan. Within five years, you should also consider taking up an education insurance policy for your child to cushion in future. You should also have your child enlisted as a beneficiary in any health insurance package such as NHIF.

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