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I earn Sh30,000 plus commissions. How can I save enough for a car, plot, and build in the next two years without a loan?
What you need to know:
What you need to know:
- My goal is to buy a piece of land in Bungoma at Sh300,000 and build a Sh1 million house for my mom, then buy a Sh600,000 car within the next two years
- How do I achieve these goals within the next two years without taking a loan?
My name is Ezekiel Wafula. I am 28 and unmarried. My net salary is Sh30,000. Besides my salary, I earn commissions every month depending on the targets I achieve. At times I get up to Sh 100,000 and other times I get nothing. In April, I made Sh70,000 net in commissions. I have a standing order of Sh12,000 that is deducted whether I've earned commissions or not. Last month, I saved Sh50,000 from the entire amount I earned. I stay in a Sh12,000 one-bedroom house. I spend Sh1,000 on transport per week. I withdrew Sh10,000 from my salary account which I used to shop for my mother. My salary account has a balance of Sh20,000. My fixed savings account has a total of Sh430,000. I have not done my house shopping and have a mobile loan of Sh12,000. I also need to channel Sh10,000 to a separate fixed account meant for a business my friend and I intend to start. Last October, I joined a Sacco and have so far contributed Sh12,000 (Sh2,000 mandatory monthly). My goal is to buy a piece of land in Bungoma at Sh300,000 and build a Sh1 million house for my mom, then buy a Sh600,000 car within the next two years. How do I achieve these goals within the next two years without taking a loan? I fear loans.
Felista Wangari runs the 52 Weeks Savings Challenge personal finance group on Facebook
Felista Wangari, runs the 52 Weeks Savings Challenge personal finance group on Facebook. PHOTO|POOL
You need a combination of saving and investments to achieve your goals without taking a loan. You already have Sh430,000 in savings. You need an extra Sh1,470,000 to make your goals a reality. To raise this balance without taking a loan, you would need to save and invest Sh61,250 every month for the next 24 months. At an average compound interest rate of 10 per cent, that would give you Sh1,694,622 in two years. Use the savings you already have to buy the land this year as it may have appreciated in two years. If the seller of the land is willing, you can also pay a percentage cost and pay the rest in smaller installments. If you buy the land, to achieve the remaining goals, you would need to be saving Sh66,667 per month.
Goal 1: Buy land at Sh300,000 in two years
You would need to save Sh12,500 a month towards this goal. If you are saving in a money market fund with an average interest rate of say 10 per cent, you will have about Sh345,841 in savings.
Goal 2: Build a house at Sh1 million in two years
You would need to save Sh41,667 every month towards this goal. If you are saving in a money market fund with an average interest rate of say 10 per cent, you will have about Sh1,152,813 in savings.
Goal 3: Buy a car at Sh600,000 in two years
You need to save Sh25,000 every month. If you are saving in a place like a money market fund, with say an average interest rate of 10 per cent, you will have about Sh691,682 in savings in the two years.
Rina Hicks, director at Faida Investment Bank and Author of the Money-Wise: Create Grow & Preserve Wealth.
Rina Hicks, director at Faida Investment Bank and Author of the Money-Wise: Create Grow & Preserve Wealth. PHOTO|POOL
Two years is quite a short time to achieve the three goals. You need to take radical steps. The first step is to live off the Sh30,000 you are paid monthly. This will allow you to save 100 per cent of the commissions you earn. The ability to achieve your goals in two years without taking a loan will depend on how much commissions you earn.
You need to put away Sh70,833 every month for the next 24 months. This will give you Sh1.7 million. Out of the Sh430,000 you have saved, you can dig out Sh200,000 and top it on the Sh1.7 million. From the balance of Sh230,000, you will need to create an emergency fund to cushion yourself from getting into debt.
Save through an account that will earn you interest. This will also ensure that with interest, the total amount saved will be higher at the end of the two years. (In a savings account that pays an interest of 8 per cent, Sh1.7 million will give you an extra Sh136,000 in two years).
Evaluate what helped you achieve Sh70,000 in commission and capitalise on it. From the net salary of 30,000, Sh15,000 should be for your monthly expenses, Sh9,000 for saving, and Sh6,000 for wants. To curve out more savings, you may consider slashing your rent money. It is also important that you keep off mobile loans. Their rates are very expensive.
Paul Muhami, financial and business advisor at SME Resource Centre
Paul Muhami, financial and business advisor at SME Resource Centre. PHOTO|POOL
Your net salary is Sh30,000 and is consumed by expenses. Assuming that your salary remains constant for the next two years, the only way out is to increase the amount and consistency of your commissions and to cut on some of the expenses. Since you don't have a family, move to a more affordable rental house. Given that your savings are at Sh430,000 and you need Sh1.9 million by mid-2023, you will need a minimum fixed saving of Sh60,000 monthly, holding all factors constant. Your monthly standing order will give you Sh288,000 within the next two years to make you total Sh718,000. If you are earning an interest of 8 per cent on savings, you will get an additional Sh57,440. The rental savings of Sh5,000 will create Sh120,000 for your goal. If you earn the same interest on saving, you will get an additional Sh9,600. This will give you a total of Sh905,000. Your deficit will be Sh995,000. You will need to fix this deficit with your commissions of at least Sh41,460 every month. This means that every commission, big or small, must go towards bridging this deficit.
You then need to ask yourself: where do most of your commission come from? In most cases, 80 percent of our results come from only 20 percent of our activity or clients. Identify your 20 per cent stronghold and be aggressive in what you sell and how you get referrals from them. Don't wait until you get the full amount in 2023 to start settling the goals. You can start by buying land this year to reap its appreciation.
If you have any money problems, send us an email on [email protected] or [email protected]
