I am newly married and earn 50k. How do I build a one-bedroom home for my family?

My name is Lenny. I am 30. I work in an MFI with a net of Sh50,000. I am newly married and am thinking of relocating to a more spacious house at Sh7,000 rent from Sh5,000. I am servicing a loan of Sh650,000 which I took to buy a plot. My current balance is Sh480,000. My installments were Sh14,000 monthly but I'm currently in arrears of Sh33,000. I pay at least Sh7,000 monthly. I receive my payment via M-Pesa and start spending immediately. I save at least Sh8,000 in a Sacco. My savings are currently at Sh100,000 in shares. My plan was to get a loan and build a small one-bedroom house at Sh150,000 on my plot then relocate to cut on rent. I also have a ‘Plan B’ of investing in leased agricultural land using my savings and building my house in 2023. Which of these plans is the best and how can I improve my financial position?

Robert Ochieng’, Investment and Financial Advisor at Abojani Investments

Your decision to move houses is okay since you need a bigger space for your new family. Rent should be kept below 20 percent of net pay. The Sh7,000 is only 14 percent of your take-home pay. Your loan repayment schedule should be adhered to for faster settlement of the loan. At Sh14,000 monthly, you should complete repayment in three years. Getting into loan arrears and halving monthly installments will delay completion and incur lots of interest. 

Your plans to build on your plot may not be advisable now since you lack the finances to fund the construction. It wouldn't make sense to use limited funds to put up a one-bedroom house now. Plan your finances so that in three years' time, you are able to accumulate enough savings in your SACCO, say Sh250,000. This will afford you a Sh750,000 loan (using the 3X loan multiplier) that you can borrow to finance the construction of a two-bedroom family house which you can expand later as your family grows. 

Saving Sh250,000 over three years requires monthly savings of Sh7,000. Your Sh50,000 salary can be budgeted to accommodate this plan as follows: rent Sh7,000, food and shopping Sh10,000, transport, airtime Sh3,000, Clothing, entertainment Sh4,000, SACCO savings Sh7,000, emergency fund Sh5,000. The emergency fund savings should be invested in a money market fund where interests accrue daily and where access is possible between 2-3 days. Saving Sh5,000 in an MMF will grow to Sh65,000 in the first year (inclusive of 10 percent annual interests). These would easily grow to Sh200,000 in three years as interests are automatically reinvested. Your savings and investments can grow even faster with support from some income and budgetary responsibilities from your spouse.

Change your pay point from M-Pesa to bank or SACCO. M-Pesa is a near-cash facility and chances of financial impropriety are high. Payment via bank or SACCO will enable you to make regular fixed loan repayments or direct debit instructions to savings and investments and build you a good credit profile. Your wish to dabble in agriculture should be well informed. Certain areas of agribusiness require advanced training or expertise for maximum efficiency and returns. 

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.