My name is Daniel. 27. I am employed and earning a net salary of Sh25,500 per month.
Out of this, I have a welfare group where I contribute Sh500 per month. I also have an investment chama where I contribute Sh3,000 per month. Rent and water and electricity take Sh8,750. Entertainment takes Sh1,863 and transport Sh3,000. The rest of the money goes to family upkeep.
I am married with a kid aged five who is in school.
I opened a small business for my wife that didn’t perform well and we had to shut it with losses of Sh100,000.
I would like to own my own home by the age of 35. What do I need to do?
Rhina Namsia, the founder and chief executive officer of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory:
You need to create a foundation first out of the current income that you have. This means creating a base such as an emergency fund and an education fund for your child. Having a proper financial analysis of your finances and a future plan will aid in this.
If you deduct, welfare, investment chama, personal savings, rent and utilities, and transport, which are Sh500, Sh3,000, Sh3,000; Sh8,750; Sh1,863 and Sh3,000 respectively, you remain with Sh5,387. This is money that you say is for upkeep. Use the 50/30/20 rule where 50 per cent of your income should go to your needs, 30 per cent to your wants and the 20 per cent to your savings and investments.
However, because nothing is cast in stone, flip this rule, and have 30 percent as savings and investments and 20 percent as wants.
The breakdown of Sh25,500 comes to an allocation of: Sh12,750 to needs, Sh7,600 to savings and investing and Sh5,100 to wants. From your budget, your wants total to Sh11,750 (rent, water, electricity and transport), your wants are Sh1,863 (entertainment) and savings and chama investments are Sh6,000.
From the 50/30/20 rule we set, we then have your budget deficit/excess allocation as follows: if your wants are only Sh1,863, and its allocation is Sh5,100, then you have a balance of Sh3,237. Save this money towards your child’s education.
Build your emergency fund that can cover your rent and transport expenses for at least one year. In your case, your monthly expenses come to a total of Sh11,750 per month. Multiply this by 12 months to get Sh141,000 worth of rent and transport expenses assuming everything remains constant.
Open a money market account and redirect the personal savings of Sh3,000 you have been saving towards Emergency funding. This is money that will aid you on a rainy day. Keep saving until you attain this goal of Sh141,000. To attain your dream of owning a home in eight years, you will have to increase your income levels as what you currently have cannot help you attain that in that time. You will do that by exploring the following options:
Get a loan from your investment chama. Find out how much loan you can get and have your wife start off another business that is not so capital intensive such as mitumba which can cost as low as Sh20,000. This will create a second income stream that will help in offsetting other household bills. You need multiple income streams to get to your dream faster.
Does your chama have long-term investment goals? If not, suggest buying plots or building house units as members. Save at least Sh5,000 of the money that remains after your allocations into a Sacco. In seven years, you will have Sh420,000 (5,000 x 12 x 7yrs) minus dividends and will be eligible for a Sh1,260,000 loan which you can use to acquire a property such as a plot. Down the line, you need to find a better paying job or negotiate for better pay that will boost your net earnings.
Help me transit from boda boda to something better
I am Michael. I earn around Sh50,000 in a month from my boda boda job.
I save regularly in different Saccos. My cumulative savings in three Saccos is Sh160,000. I have a loan of Sh15,000. I have a money market fund which I don’t feel helps me much. I have a 10-year savings policy which will mature in September 2022 and give me a gross total of Sh250,000. How can I grow these savings and transit myself from boda boda to a better occupation?
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money:
Although you feel that the money market fund does not help much, you should not be tempted to over-withdraw or scrap it as this will expose you in the event of an emergency.
Ensure that the fund earns a compound interest which is over the current inflation rate of 7.1 percent. Your minimum should be 9.0 percent.
Have a budget for your money: Recording your daily income from your boda and what you spend on various items will help you to cut back on unnecessary expenses and pay off the loan you have to release more money for saving or investment. Buy a small booklet or use your phone’s notebook to record what you earn and spend daily, do weekly and monthly calculations in order to draw a financial statement of the total income and expenses for a month. Use the 50/20/30 rule (which can be adjusted as per your financial goals) as a guide.
Passive income business: Consider using proceeds of Sh250,000 from the policy which will mature in September to boost your boda boda business. Buy two more motorcycles to expand your business and employ two riders to operate them. You will be investing your hard-earned money in a business you understand well rather than venturing into a new start-up which you are yet to identify. In a day, you will collect at least a net profit of Sh600 to Sh800 from the two bobodas. This amount translates to between Sh18,000 and Sh24,000 per month. The two bodas will give you between Sh216,000 and Sh288,000 per year. If this money is saved in a Sacco paying dividends of 10 percent, you will earn an extra Sh21,600 to Sh28,800 per year.
There are also businesses you can do your due diligence about, like selling spare parts for motorcycles, tuk tuks and vehicles; buying a plot and building rentable houses or training to trade in stocks and government securities.
If you have any money problems, send us an email via [email protected] and leave your number for contact. Money questions will be answered on this page.