My name is Daisy. I am married with two school going children in Grade Six and Four. My husband earns a net of between Sh120,000 and Sh150,000. He takes care of much of the household budget including rent because we are yet to buy or build our own home. We live in the Nairobi metropolitan area.
I earn around Sh57,000 net and the monthly expenses I cater for are as follows: House-girl Sh7,000, two merry-go-round chamas Sh3,000 each, airtime Sh2,000, clothes Sh4,000, beauty products and salon Sh7,000, my mother Sh5,000, transport Sh4,200. I have always desired to own property. I have asked around and prices of plots in my area are around Sh600,000 per 40X80 plot.
How can I acquire one and build rental houses and how long will this take me? I would also like to get into dairy or pyrethrum farming near my mum’s rural home in Nakuru county, but I am not sure how to get started or whether this will be a good venture.
Josephine Murage, an investment banker and personal finance consultant
From your breakdown, you have a combined household net income of at least Sh177,000 with potential for a net income of Sh207,000. Individually, your net income of around Sh57,000 after statutory deductions ends up as Sh21,800 after taking out your listed monthly expenses of Sh35,200.
You have not accounted for this amount, which points at poor budgeting. It also suggests that beyond the general expenses you have listed, you could be spending more miscellaneously.
You need to establish where this money is going by tracking each of your monthly expenses. It is worth noting that within one year, this unaccounted-for figure amounts to Sh261,600, which is 43.6 per cent of the total budget you need to acquire one of the Sh600,000 plots you are targeting.
Immediately you are done with tracking where this amount is going, you will need to get out of the merry-go-round chamas where you are contributing Sh6,000.
Withdraw after honouring all your pending obligations. Merry-go-round chamas, as much as they have social value and appear to be a good starting point for a novice saver, do not grow money.
There is no interest gained from them and over time, your money is lost to inflation. This money can be better invested in a Money Market Fund (MMF) as your emergency fund which you currently do not have.
When invested in an MMF – which is low risk – your money will benefit from daily compounding of interest earned. You will also have quick access should you need to use the funds.
Looking at your other expenses, there are areas you might want to trim. One of the traps of over-dependence on a higher-earning spouse is the risk of badly spending your own money because of the assurance that your household will be catered for regardless.
This seems to be the trap you’re falling into based on the allocations you have for your expenses. The best principle is to budget as if you are wholly dependent on your own payslip.
This maximises the amount you set aside for savings and investments, ultimately to the benefit of your family. For instance, you have an allocation of Sh7,000 for a house girl.
Find out if there is an actual need within your household for this expense and whether it is something that you can do without. You also have a Sh11,000 allocation for clothes, beauty and salon.
Is this a monthly expense or are there instances where this expense can be lowered? For example, do you buy new clothes every month? Can you trim out Sh4,000 of these expenses? Your expenses also contain a monthly black tax of Sh5,000.
Whereas it is important to support parents and siblings, it would be better if you encouraged them towards their own financial independence.
For instance, sit with them and evaluate what little economic activity, such as commercial poultry farming or dairy farming, they can start in the village.
Over time, this could prove to be a more fulfilling option for them than the current monthly stipend of Sh5,000 – unless current circumstances do not allow them to engage economically.
Depending on the outcome and the experience gained, you will be better placed to determine whether to invest in larger-scale dairy or pyrethrum farming.
By making these adjustments, you will have salvaged a total of Sh38,800, with Sh6,000 going into the MMF. This means that besides your MMF – which will now be your emergency fund – you will have Sh32,800 for savings with the goal of investments. Within 24 months, this will amount to Sh787,000 which will be enough to afford the plot you are targeting without taking a loan.
For maximum benefits, save this money in a Sacco account earning you dividends of at least a minimum of 11 per cent. Your money will grow to around Sh900,000.
Once you acquire the plot on cash terms, consider getting financing for the rental houses. Saccos are now partnering with real estate investors to finance rentals.
This means that you should also be clear on whether the Sacco you join has this programme when doing your due diligence. Besides targeting real estate, you might also want to compare your expected returns with the current investment alternatives such as infrastructure bonds in the market.
Although your intention is to own property under your name, I would encourage you not to be secret about it. It is better to be aligned financially with your spouse.
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