I have Sh500,000; how do I buy a new car and build a house?
The cost of acquiring second-hand vehicles, including locally used ones is also on the rise.
What you need to know:
- It is commendable that you have saved Sh500,000. This money should not be in a current account sitting idle.
- It should be in an account that is earning some interest to keep resisting devaluation in the face of rising inflation.
My name is Peter. I am 64 years old and working at a private institution. I get a net pay of Sh80,000 per month. In addition, I get Sh60,000 per month from my house rentals.
I have two children in school, one in a secondary school where I pay at least Sh100,000 per year and another in the University where I pay Sh30,000 per month for both fees and accommodation as well as for her personal needs.
I want to buy a car worth one million shillings by March next year. Already I have saved Sh500,000. Kindly advise me on how to achieve this and how to start construction of a house which will cost two million Kenya shillings by August next year.
Jackson Mwaura, a financial consultant and securities and investments analyst
From your breakdown, you have a target goal of Sh2.5 million for the 2024 year, with half a million shillings due in about four months. Your total income is Sh140,000 per month. Your main listed expenses are educational and a total of Sh38,333 per month for the two children. This leaves you with approximately Sh101,667.
You need to be clear on how you spend this Sh101,667. This will show what expenses take what amount, what amount is dedicated towards savings and investments, and if any, what amounts are non-accounted for.
At your age, investing in your retirement should be a critical focus for you. This means that out of your budget breakdown for the Sh101,667, there ought to be allocations for passive investment instruments that will give you regular income in the years ahead. These include savings into vehicles such as Treasury Bonds (infrastructure bonds) that are currently paying off interests of as high as 17 to 18 per cent.
It is commendable that you have saved Sh500,000. This money should not be in a current account sitting idle. It should be in an account that is earning some interest to keep resisting devaluation in the face of rising inflation. These accounts include dividends-earning Sacco accounts, money market funds, or even fixed deposits (though fixed deposits earn lesser interest compared to the two).
By shifting these savings to an interest-earning instrument, you will have earned some more coins when it falls due for spending in March next year. This makes the Money Market Fund ideal for your situation since it provides easier access on top of earning compounded interest.
However, when shopping for an MMF, be careful not to fall for unregulated scams that promise returns that defy market logic.
Since you have set your budget for a car at Sh1 million, you need to determine what model you are looking to buy and for what purposes, considering the rising costs of running a private vehicle.
It is important to remember that this will be a depreciating asset unless it is a model that can be converted for income generation services such as pickup transportation or part-time taxi services.
At the same time, the cost of acquiring second-hand vehicles, including locally used ones is also on the rise. This means that at Sh1 million, you will get a locally used unit unless you go for the more fuel-efficient small vehicles such as the Nissan Note, Honda Fit, and Mazda Demio. A second-hand import Toyota Vitz has already crossed the Sh1 million mark.
On constructing your house, you need to first determine the reason why, especially since you already have income-generating rentals. Is it a village retirement home for sentimental value -but which you might not use?
If it is purely for sentimental value, and you are not renting at the moment, you might want to first check if you can expand your current rentals for more income generation. For instance, if you have existing space, at your rentals compound, you could redirect the income you generate from rentals to expand your units using the incremental housing concept where you build and rent out one additional unit at a time. You start with the construction of the core structure and then keep on adding more rooms in phases as you accumulate more resources.
You also need to get a valuation for the plot where you want to construct the house, and an actual bill of quantities for the intended house design to determine if there is any value for money in it for you.
As indicated above, at 64, you are on the fast lane towards retirement, and the next decade will be financially critical in determining the type of retirement you will have financially. You might want to avoid long-term debt at this juncture, particularly bad debt (debt that doesn’t generate income).
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.
