I spend Sh11,000 on my church monthly. How do I pay off a bank loan and save for a house?

My name is Elizabeth. I am a mother of two children aged six and two. I earn Sh80,000 per month. My monthly budget is Sh10,000 for rent, food and grocery Sh20,000, Tithe Sh8,000, Sunday offering Sh2,000 per month, and Annual church project Sh1,000 per month. Sacco share contribution Sh3,500, merry-go-round Sh4,000, TV, water and power Sh5,000, school fees Sh13k per term, day care Sh3,000 per month. I have monthly bank loan repayments of Sh16,800 for a loan set to end in November this year. My dream is to start saving with a target of Sh4 million to buy a plot and build a three-bedroom bungalow. How can I achieve this dream?

Alex Kibebe is the founder of Rubiani Wealth Management Ltd and an investment consultant and business development coach.

Let’s first review your budget. You earn an income of Sh80,000 and set aside Sh4,500 monthly for your child’s school fees. Your total monthly expenditure is Sh78,800 leaving you with Sh1,200 extra cash each month.

In order for you to own your home within reasonable time, I would advise you to focus all your savings towards fulfilling this goal. To achieve this, pull out of your merry-go-round and reduce your Sacco contribution to the minimum. If your Sacco minimum contribution is Sh500, then you will have freed Sh3,000. Now reduce your church contribution by Sh1,000 either by discontinuing the annual church project contribution or reducing your weekly offering to Sh250 to get Sh1,000 monthly. Now, if you reduce your monthly food and grocery budget by Sh1,800 and add up the Sh1,200 extra monthly cash, you will have freed up Sh11,000.

I would advise you to purchase the land through investing as opposed to taking a loan and instead using debt to fund the construction of your home. This way, you will not spend much time repaying two loans. To achieve this, invest the Sh11,000 in a Money Market Fund account monthly. You can research the available Fund Managers to identify an ideal Money Market Fund to invest in. Once you have paid off your bank loan in November, top up your Money Market contribution with the freed-up Sh16,800 to a total monthly investment of Sh27,800. If you keep your contribution consistent for another two years to November 2025, your Money Market fund will be at about Sh820,000. You can use these funds to buy land. If the piece of land that you want to buy is more expensive, then keep investing for some extra months until you can afford it.

Once you have purchased the land, you now need to raise funds to build your house. I would advise you to save in both a SACCO and Money Market account. Your SACCO savings will enable you to borrow a loan and the Money Market investment will enable you to raise the balance of the funds needed to complete your home. You, therefore, need to calculate how to split your savings so as to raise the needed funds optimally. From my calculations, I would advise you to invest Sh18,500 (of the Sh27,800 available to invest) to your Money Market account and top up your SACCO contributions by Sh9,300 to Sh9,800. If you keep these savings for four years, your Money Market fund will be at about Sh1,020,000 and your SACCO savings will be at least Sh567,000.

Now, take a SACCO loan of Sh1,700,000 (three times your savings) and top up the Sh1,020,000 in your Money Market account to have a fund of Sh2,720,000 to build your house. A SACCO loan of Sh1,700,000 with an interest rate of 12% and a repayment period of five years will have a monthly repayment of Sh37,815.56. You can fund this with the Sh27,800 that was available for investment plus Sh10,000 from rent savings. 

It is also noticeable that despite your strained budget, you have an allocation of Sh8,000 per month in tithe payments to your church. This amount to Sh384,000 per the four years within which your home building project would start. Evaluate at a personal level the benefits of slashing them down or redirecting them altogether as a means to improving your financial and investment position.

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