I earn Sh150,000 monthly after tax. I pay rent in a two-bedroom house at Sh35,000. This money is not part of the Sh150,000 that I earn after tax. How can I save to build rental houses or which investment should I put money in to earn me good returns 10 years from now? I have three pieces of land in Nanyuki, each measuring 50×100. I have six plots at Oleitepes but I have not yet put anything there.
Currently, I have a house that I am building in my village, of which I have built up to lintels and paused. I started saving on MMF and I have reached Sh10,000. I have a merry-go-round of Sh12,000 a month, another one of Sh6,880, and another of Sh5,000 a month. I am also in a chama group where we are contributing money to buy a piece of land in December 2024.
Dominic Karanja, a financial planning and investments consultant
Consider yourself among the lucky Kenyans because out of the projected population of 52 million, the salaried workers who take home more than Sh100,000 are just 371,894 according to Kenya National Bureau of Statistics.
You need to divide your goals into short-term, intermediate-term, and long-term categories. Short-term financial goals can be achieved in a relatively short period, usually within one year, intermediate-term financial goals take one to five years to achieve, and long-term financial goals usually take more than five years.
A detailed financial plan and a budget would facilitate the proper management of your finances. Keep track of every coin coming in and out using budgeting applications or spreadsheets and carefully identify ways you can cut your expenses.
Apply the 50:30:20 budgeting rule where your after-tax income is divided as follows: 50 per cent into needs, 30 per cent into wants, and 20 per cent for saving and investment. Create an emergency fund to cover at least six months of your living expenses for unexpected expenses.
Consider your risk tolerance and invest in the best assets that fit your financial goals. I would encourage you to consider diversification in various classes of assets so that you minimise risks.
Also, check on your investment portfolio from time to time for possible realignment. Part of your short-term goal should be to finish the construction of the village home.
Consider apportioning a fixed amount of your monthly income towards completion in the next one year. This will relieve future cash flow since expenses will decrease once the house construction is done. The house can be turned into a rental property.
With promising opportunities in tourism and agriculture, Nanyuki is one of the fastest-growing areas, hence providing an opportunity to economically leverage your plots.
If the plots are in a prime area there is a long-term income potential if you develop them for rental purposes. Because of the considerable building costs, it would be advisable to begin with one plot and then utilise an incremental approach where you can build two or three units first, then expand as the rental income increases.
You may consider borrowing against your existing properties to achieve the goal of developing the properties, but take this step only if there is a clear vision for repayments from the projected rental income.
Given the rising popularity of areas neighbouring Nairobi city, the plots in Oleitepes may appreciate over time. This makes them valuable assets to hold for long-term gains or to consider developing in the future.
Another option is leasing the land out short-term for agriculture or business, allowing you to earn passive income without a large initial investment.
Continue participating in the chama group as planned for the land purchase in December 2024. Real estate often outperforms inflation in Kenya, so building your Nanyuki rentals, developing Oleitepes plots over time, and your new chama land project will support wealth accumulation through property.
While merry-go-rounds can be a useful tool for short-term savings goals, they are not typically considered a long-term investment strategy, and they often lack the potential for significant financial growth.
I would urge you to reduce the amount of money you have committed to merry-go-rounds and consider investing that amount in other income-generating avenues.
Contribute more to your Money Market Funds (MMFs) because it will provide you with a balance between flexibility and liquidity. An MMF offers stable, secure returns with full preservation of capital and easy access to the funds if needed.
Also, consider treasury bills, treasury bonds, and commercial papers, which are equally good options for short to medium-term investments. The minimum investment in treasury bills is Sh100,000, treasury bonds Sh50,000, and infrastructure bonds Sh100,000.
If you have a longer-term investment strategy and if you are willing to take more risks, then stocks become an equally lucrative avenue of investment.
Similarly, membership in a Sacco is useful in that it will give you a structured avenue through which to save and acquire loans at lower interest rates.
Consider consulting a financial advisor to help you create a detailed investment plan tailored to your goals and risk tolerance and continuously educate yourself about investment opportunities and market trends.
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.
