My name is George. I am 45 years old. I work in Nairobi. I am married with four children, two of whom are in secondary school. I have just started work and have not received my first salary yet.
I have been working and living in Nairobi for ten years, but I have not saved anything, even though I have built a house and paid my children’s fees.
I can earn Sh20,000 a month from my side hustle and the starting salary for my new job will be Sh47,000. This will rise to Sh63,000 in three years. At the moment, my total debt is about Sh100,000. How do I manage this debt, invest and secure my future?
Dominic Karanja, a financial and investment consultant, says:
At 45, you’re in the wealth consolidation phase of your life. This phase usually comes after you’ve built a solid financial foundation with steady income and savings. It focuses on strategic growth and protection, shifting from aggressive accumulation to securing and optimising your existing wealth.
The wealth consolidation phase is an ongoing process, requiring regular reviews and adjustments to your financial plan to adapt to changing circumstances and meeting long-term goals.
Your current monthly income is Sh67,000, of which Sh47,000 is from your salary and Sh20,000 from your side hustle. You also have a debt of Sh100,000. To manage your finances effectively and achieve your financial goals, it’s essential to create a detailed financial plan and a budget.
Budgeting is key to managing personal finances and achieving your goals. Start by tracking all your income sources, including your salary, side hustle, and any other potential income, and monitor every expense for a month.
Categorise these expenses into needs and wants, where needs are essential for basic survival and daily functioning and wants are non-essential but enhance your quality of life.
Think about using the 50:30:20 budgeting guideline: allocate 50 percent of your monthly income to essential expenses, 30 percent to discretionary spending, and 20 percent to savings and investments.
Look for areas where you can reduce spending. Stay adaptable and revise your budget as your financial situation changes. Use a budgeting app or spreadsheet to keep track of your income and expenses.
Focus on creating an emergency fund that can cover at least six months of your living expenses to handle unexpected costs. Establish a clear target amount for this emergency fund.
Look for ways to boost your side hustle income by upskilling or taking on additional projects. Aim for promotions or salary increases by performing well in your new job.
While continuing to prioritise your children’s education, strive to balance this with your other financial goals. Consider starting an education fund for your children to alleviate future financial pressure. Strive for a balance between work, family, and leisure to maintain overall well-being. Maintain adequate health insurance coverage for you and your family.
Debt repayment
You should develop a debt repayment strategy by creating a detailed plan for paying off each debt.
Use the debt avalanche method, where you make minimum payments on all your debts and then apply any additional funds to the debt with the highest interest rate first.
Consider consolidating or refinancing your debt if that will lead to lower interest rates. Allocate as much of your income and side hustle earnings as possible towards debt repayment.
It’s crucial to understand the interest rates, repayment terms, and total outstanding balances for all your debts. It is recommended that you commit at least a third of your net income towards loan repayments.
Retirement savings
As you approach retirement, it is important to focus on saving for it.
Building up your retirement savings will help you enjoy a comfortable life after you retire and offer tax advantages. Set clear retirement goals and estimate the amount of money you’ll need.
Generally, it’s recommended to aim for 70 percent to 80 percent of your pre-retirement income to maintain a comfortable lifestyle after retirement. Determine how much you need to save and develop a plan to reach that target. Start contributing to a retirement savings plan as soon as possible.
Research various investment options and understand their associated risks and returns. Diversify your investments across different asset classes based on your current financial situation to spread risk.
Keeping up to date with economic conditions and investment opportunities is crucial for making wise financial choices. Consider your risk tolerance and financial goals when choosing investments.
Joining a Sacco can be beneficial for long-term savings and affordable loans. If you prefer lower risk, consider putting some funds in a money market fund, because it guarantees returns, preserves capital, allows for portfolio growth through regular savings, and offers easy access to your funds.
Alternatively, short and medium-term investments like treasury bills, treasury bonds, and commercial paper are viable options. Treasury bills require a minimum investment of Sh100,000, while treasury bonds and infrastructure bonds require at least Sh50,000 and Sh100,000, respectively.
Government securities have maintained increased returns, with 91-day treasury bills averaging an interest rate above 16.0215 percent and the latest 10-year treasury bond offering a 16.00 percent coupon rate. If you are willing to take on more risk and invest long-term, consider investing in stocks.
Real estate investment offers a way to generate passive income, but it demands a significant amount of capital and a long-term commitment.
Consult a financial advisor to help create a personalised financial plan aligned with your goals. Attend financial literacy workshops or webinars.
Remember, financial planning is an ongoing process. Review your budget, investment portfolio and retirement goals regularly to make any necessary adjustments.
If you have any questions about money, email us at [email protected] and leave your contact number. Money questions will be answered in this column.
