My name is Travis and I am 35 years old. I am employed and earn a net salary of Sh103,000 per month. I have a family. My monthly budget is as follows: Rent and water Sh28,000, school fees per term for two children Sh45,000, transport Sh8,000, family activities and emergencies Sh10,000, harambees and support groups Sh5,000, miscellaneous expenses Sh8,000 (can sometimes go up to Sh12,000) and savings Sh7,000.
I started saving in June 2024. I do not have huge loans that I am repaying except for short-term loans of Sh80,000 that I am repaying in the next four months. It has been difficult to save enough money to start a major project. I want to buy a car soon as my family grows and maybe a piece of land in the next five years. Help me to achieve these two goals.
Alex Kibebe, Founder of Rubiani Wealth Management Ltd and an investment consultant and business development coach
The first thing you need to do is to define your goals more clearly so that you can make your savings more targeted.
For your goal of owning a car, determine the price range. Let’s say you want a second-hand car worth about Sh600,000.
As for the land, you need to decide what you want to do with it. Is it for speculation, to build a house or to generate rental income? This will help you identify the right location and budget.
For planning purposes, we will assume that you intend to purchase the land to build your home. We will use an estimate of Sh900,000 for the land price.
Next, we will evaluate how you can save and invest to achieve these goals. From the information you have provided, your total monthly expenses come to Sh74,000 and you are currently saving Sh7,000, leaving you with Sh22,000.
This surplus is likely being used to pay off your loans, which will clear in four months. Now, to meet your goals within your set timelines, I suggest increasing your current savings to Sh10,000 even as you continue to pay off the loan.
You can do this by reducing Sh1,000 each from your contributions to harambees, family activities expense and the miscellaneous allowance.
Once you have increased your savings to Sh10,000, I recommend that you place these funds in a Sacco. Identify and save with one that offers development loans. This will help you build up shares so that when the time comes, you can borrow funds to build your house. To maintain consistency in your saving, I would advise you to set up an automated deduction of this contribution at source.
After paying off your current loans, invest the Sh22,000 you will have freed up in a money market fund (MMF). Research different fund managers and identify an ideal one with a track record of good returns.
To maintain discipline, consider setting up a bank standing order for the investment. If you invest in the MMF for two years at the current net annual interest rate of about 13 percent, your total investment should grow to approximately Sh600,000. This would enable you to buy the car.
To purchase the land within your target of five years, continue investing the Sh22,000 monthly in the MMF for a further three years. By then, your fund should grow to around Sh950,000, allowing you to buy the land as planned.
Assuming that you have been contributing Sh10,000 per month to your Sacco within this period and that you reinvest the dividends earned (approximating 10 percent per year), your shares could be worth around Sh780,000.
At this point, you can apply for a development loan of Sh2,000,000 from your Sacco to build your house.
If you get the loan at an interest rate of 12 percent and a repayment period of eight years, your monthly repayments would be Sh32,506.
To manage this, you can redirect the Sh22,000 you have been investing in the MMF and the Sh10,000 going into the Sacco towards this loan repayment.
Once you have built your house and moved in, you will be saving on rent and you can use this freed-up money of about Sh28,000 to invest towards fulfilling other goals such as saving for your children’s higher education and building a passive income for your retirement.
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.
