I earn Sh55,000 net; how do I repay a bank loan and save Sh3 million?

I want to save to buy 1 acre of land at Sh1.5 million and build a house for Sh1.5 million. How can I manage my budget to achieve this?

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I am Keter with a net salary of Sh55,000. My breakdown is as follows: Bank loan repayment Sh30,000, Sacco Sh5,000, Sacco saving 3,000, Take home Sh18,000. I have extra income from the family business of Sh50,000 a month. I will be clearing my KCB loan by September next year. Monthly expenses are as follows: Rent Sh8,000, Shopping Sh8,000, Milk Sh3,000, School fees Sh70,000 per term, Parents Sh5,000, Transport Sh3,000, Miscellaneous Sh5,000. How can I save to buy 1 acre of land at Sh1.5 million and build a house for Sh1.5 million?

Alex Kibebe, the founder of Rubiani Wealth Management Ltd, an investment consultant and business development coach, says:

Your total monthly income is Sh105,000. Given that your annual school fees expense is Sh210,000, I would expect that you put aside Sh20,000 every month towards paying school fees. If this is the case, your total monthly expenses is Sh90,000 leaving you with a balance of Sh15,000. Fund the purchase of land through investing and then take a loan to finance building the house so as to accomplish both goals in the shortest time.

To do this, you will need to invest the Sh15,000. You can either invest in a Money Market Fund currently paying an average interest rate of 11 percent, or a Bond Fund that is yielding an average return of 13 percent. You can also consider investing in a Dollar Fund to hedge against the weakening Kenya shilling. The average interest rate on Dollar Funds is low (3.5 percent) but if the Kenya shilling weakens further, the value of your fund will have grown at a much higher rate. You can start investing with as little as Sh1,000 in an MMF or Bond Fund and with as little as USD 100 (Sh14,500) in a Dollar Fund. You will need to do some research to identify the ideal fund manager and fund to invest in.

If you invest in a fund with a net return of nine percent per annum, your investment will be at about Sh188,000 by September 2024. At this time, you will have settled your bank loan. Now, top up your investments with the freed funds so that your monthly investment will be Sh45,000. If you invest for another two years or thereabout, your total investment should get to your targeted Sh1.5 million to purchase the piece of land.

Once you have bought the piece of land, you will now need to fund the construction of your house. To raise Sh1.5 million, you will need to have shares of Sh500,000 or more with your Sacco. If your Sacco savings are less than this amount, you can redirect your investment funds to the Sacco. Once you have attained Sacco shares of Sh500,000, take a loan of Sh1.5 million to fund building your home. At an interest rate of 12 percent per year and a repayment period of five years, your monthly loan repayment should come to Sh33,400. Use the funds that you were previously investing to repay this loan. You can continue investing the balance (Sh12,600) in your preferred fund so as to raise funds to meet other investment goals.

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.