I’m 26, single and have a Sh140,000 monthly salary for one year job. I don’t know how to save or invest

My name is John. I’m 26. I have a contract job for one year with a net income of Sh140,000 monthly. I spend Sh10,000 on rent, Sh3,000 on transport, Sh3,000 on airtime and bundles, Sh4,000 towards my sibling's upkeep in college, and Sh6,000 on my parents. My monthly expenditure on house shopping is Sh15,000, and a maximum of Sh5,000 for entertainment. I save the rest of the money in my bank account. I don't touch it at all after my monthly pay. I don't have debts. I don't have a family of my own either. I have done this for the past three months now. How can I best put my income to use? I intend to use the savings at the end of the contract as capital for a business.

Benjamin Cheruiyot – the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm

It is commendable that you have kept your expenses low and also save. As you have nine months to the end of your contract, you need to exercise more caution on any misspending as you think about the business you would like to start.

Business startups require adequate groundwork – understanding the dynamics of the market, skills and attitudes necessary for deployment in the intended activity and the patience to build it to a thriving enterprise. Do you possess these qualities? It is imperative that you do not put money into a venture you have not thought out well. You would best be suited for ventures around your skills and expertise. At your age, I strongly suggest that you build your skills and career first before jumping from employment to entrepreneurship.

You are still in the learning phase of real-life investments and skills development. Upgrading your knowledge and skills can put you in a good position to land another job that can propel your finances to greater heights. With higher skills, you might realise that you are better within employment than business, especially since you have the advantage of age on your side.

Having dependents can limit your ambitions which may come with risks of financial losses. You should empower your parents to start income-generating activities that they can manage. Your siblings will be through with college and you can budget and keep what they will need in an interest-earning account that you can periodically draw from – preferably a money market fund account. You may need to check on your shopping costs – as you do not have a family – Sh15,000 is on the higher side.

For goals beyond a year, you are better off saving via an interest-earning account and especially one that is devoid of a contract and allows you easy withdrawal. A good example is a money market fund. Savings of Sh94,000 in a money market fund can accumulate to over Sh1,200,000 at 10 per cent annual interest, net of withholding tax. This way, your money works for you as you wait to deploy it to active use through entrepreneurship.

Evaluate alternative investments that are safe but have meaningful returns. These may include treasury and infrastructure bonds. With Sh1 million investment in an infrastructure bond paying 14 percent annual interest, you will receive Sh70,000 every six months for the duration of the bond. Bond interest rates are rising and are expected to cross 15 percent in June. These payouts can pay your rent or meet your parents’ and siblings’ needs. Whereas you can invest in bonds starting with Sh100,000, investing nearly all of your annual earnings will leave you with little legroom to manoeuvre unless you get a contract extension or a new equally well-paying job. You could also invest in high-yield NSE-listed dividend stocks. Some, like BAT and Standard Chartered Bank, have dividend yields of 14 percent and above, subject to share price fluctuations. You can also cash in on capital gains.

The bottom line of your financial brief is aggressive savings and investments to cater for the “unknown” after your contract expires. Even if you have done your homework on a choice business startup, you need enough emergency funds to ward off any personal or business risks.

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.