I earn Sh50,000, how do I afford a Sh3 million home in five years?
A sound financial plan incorporates every stage from career establishment, family, wealth accumulation, and wealth protection.
What you need to know:
- Apart from the loan repayment and parent sustenance, you need to evaluate your girlfriend’s upkeep and entertainment.
- It can also help you set up an emergency fund that would provide a cushion against difficult situations.
My name is Patrick. I am an entry-level bank teller earning about Sh50,000 in Nakuru County. My monthly budget is as follows:
Loan servicing Sh13,500 (Repayment period was 12 months. Balance is now Sh130,000), Helb loan repayment 4,100 (Repayment period of 18 months), Rent 10,500, Water 1,000, Electricity 2,000, Mother’s monthly stipend 3,000, Girlfriend’s monthly upkeep 6,000, Savings 5,000, Transport 3,000, Miscellaneous expenses and entertainment Sh6,000.
I own a plot of land in Lanet, Nakuru, where I plan to settle. My dream is to build a house worth between Sh2million and Sh4 million on this plot in the next five years. How can I achieve this based on my earnings and budget?
Benjamin Cheruiyot – Engagement Lead at Abojani Investments (personal finance and investments advisory firm)
Your total expenses amount to Sh54,100, which is slightly above your monthly income. You are probably getting into debt or have another income source. You save 10 per cent of your income which is a good effort, but you should strive to increase this to 20 per cent.
Using the 50:30:20 budgeting rule, your expenses allocation is as follows: 50 per cent to basics against a target of Sh25,000 (rent 10,500, water Sh1,000, electricity Sh2,000, transport Sh3,000, Helb Sh4,100). 30 per cent to wants against a target Sh15,000 (loan Sh13,500, mother Sh3,000, girlfriend Sh6,000, miscellaneous and entertainment Sh6,000). 20 per cent to savings and investments against a target of Sh10,000, and savings of Sh5,000.
You are definitely overspending on wants. Apart from the loan repayment and parent sustenance, you need to evaluate your girlfriend’s upkeep and entertainment. These add up to Sh12,000 that would rather boost to your savings and investments.
You are also spending more than you earn probably due to these allocations. Only spend on “upskilling” a woman you desire to marry and raise a family with.
That would be an investment in human resource for powerful combined incomes in the future. A monthly savings target of Sh10,000 would help meet part of your medium term goal without incurring much loan interest. It can also help you set up an emergency fund that would provide a cushion against difficult situations that may threaten your financial stability. Being without one is akin to standing in financial quicksand.
An appropriate savings and investment vehicle is a money market fund as it provides ready access, safety, and growth. You can never go wrong with trusted, reputable brands. Saving Sh10,000 monthly in an Sacco or MMF would amount to Sh800,000 in five years. This includes net returns of 10 per cent per annum. If using a Sacco BOSA account, you should strive to reinvest the interests for compounding effect on your principal amounts.
As you seek to build a house valued at between Sh2 and Sh4 million on an already acquired plot, you need to do more within five years. A Sh2.5 million loan is out of the range of your current income. Even if your net pay would rise to Sh75,000, a monthly repayment of Sh40,000 over six years would put too much pressure on your financial health. Barring any unforeseen circumstances, you should aim at funding 50 per cent of projected construction costs.
Since your loan will be fully repaid in a year, channel the Sh13,000 towards savings. At a modest return rate of 10 per cent you should be able to accumulate Sh1.5 million in five years. This amount will lift a three-bedroom structure to the roofing stage. You can then decide on paced finishing (to your taste) and even live in at a later stage to cut on rental costs.
This would be a good option unlike getting into another huge loan. In all you do, remember that parenthood is always nine months away. A sound financial plan incorporates every stage from career establishment, family, wealth accumulation, and wealth protection. Consider life and property insurance too.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column.
