My husband died recently, how do I invest his savings?

My name is Patricia. I’m 30. My spouse recently passed away. I’m employed with a small salary of Sh40,000. My spouse was doing very well and managed to handle the major bills and construct a house valued currently at approx. Sh10 to Sh12 million. I was only compensated Sh6 million from his company and an additional Sh1 million from two education policies he had taken up for the children.

We have one child in school, while the younger one is one year old. The Sacco also doubled his savings and they came to about Sh800,000. There is also an additional Sh2 million in the account he used to run his business, though I plan to use Sh1.2 million to get a car as I wait for the grant where I will be compensated for his car for about Sh700,000.

On the side, I run a small business that gives me around Sh30,000 to Sh60,000 every month. Kindly advise me on how to invest this money to ensure I can take care of our children.

Benjamin Cheruiyot - Engagement Lead at Abojani Investments, a personal finance and investments advisory firm.

In total, you received (or have access to) Sh10.5 million. This is a decent amount of money by any standards. You did not mention if you are living in the newly built house or renting elsewhere. If renting, you can opt to lease the house for rental income. This could fetch anything from Sh70,000 per month depending on the location. This should pay your current rent and also cover other bills. 

Your salary and business bring in about Sh90,000. Can you scale up your business to increase monthly earnings to Sh100,000? Look at the opportunities available. Education planning entails working with an expert to project education costs for your two children up to college or university. You want to be certain that the lump sum cash you have will be enough to fund their education. Your living costs are better covered by your salary and business income.

As you seek to purchase a personal use car valued at Sh1.2 million, you can use part of the lump sum cash to finance this without incurring interests unnecessarily. You should also bear the current costs of second-hand vehicles in mind and the operational costs of running a motor vehicle at the prevailing fuel market.

Contrast your desire to acquire a vehicle with the need for it. Is it necessary at the moment or can you push this goal down the line and put your money in an investment elsewhere such as Sacco? And if you must acquire the vehicle, can you commercialise it from liability to income-generating asset by doing economic activities to support your business?

Note too, currently, in the imported second-hand vehicles, Sh1.2 million will buy you a Toyota Vitz.

How can you allocate the remaining Sh9.3 million to investments that can guarantee your children's education, their well-being, as well as your financial independence and possible freedom? You should spread this in different investment vehicles to avoid loss of purchasing power. Inflationary risks can expose your cash to losses of up to 40 percent in the medium term if you keep it in a savings account at zero interest.

You may consider the following:

a) Sh2 million in a money market fund account. With MMFs earning between 10-15 percent per annum, this will earn you Sh17, 000 monthly at an average net return of 12 percent. You may draw from it to fund short or medium-term goals.

b) Sh3 million in a government infrastructure bond earning 18 percent per annum. This will earn you Sh270, 000 every six months until the end of the investment period (tenor). You can reinvest the coupon payments in your business or money market fund.

c) Real Estate: Sh4.3 million could get you a studio apartment for a monthly rental income between Sh25, 000 to Sh35, 000. You could also opt to purchase a plot at Sh1.5 million in a developing location and spend the balance of Sh2.8 million to put up a two-bedroom house for rent. Either of these options will be appreciated in the long-term and contribute to your asset growth.

In total, expected monthly earnings will amount to around Sh92,000 or Sh1.1 million annually. This is an annual return of 11.8 per cent on your Sh9.3 million investment. With an annual inflation rate at around 7 per cent, this won’t be a bad portfolio. Reinvesting interests and rental income should push this higher above the 12 per cent per annum threshold.

Lastly, have adequate and comprehensive medical insurance for yourself and your children. When going for educational and medical insurance coverage, be careful with the fine print. Do your due diligence on which insurer you put your money on and the returns on investment you are likely to get upon maturity of your education policy.

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.