My name is Travis, I am 35 years old. I work 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, haraambee and support groups Sh5,000, miscellaneous expenses Sh8,000 (sometimes can go up to Sh12,000) and savings Sh7,000.
I started saving in June 2024. I don’t have huge loans to pay off except for a short term loan of 80,000 shillings which I will pay off in the next four months. It has been difficult to save enough money to start a big business. I want to buy a car soon as my family grows and maybe a piece of land in the next five years. Help me achieve these two goals.
Alex Kibibi, Founder of Rubiani Wealth Management Limited, Investment Advisor and Business Development Coach
The first thing you should do is define your goals more clearly so you can make your savings more targeted.
To determine your goal of owning a car, determine the price range. Let’s say you want a used car worth around 600,000 shillings.
As for the land, you need to decide what you want to do with it. Do you want to invest in it, build a house, or generate rental income? This will help you determine the right location and budget.
For planning purposes, we will assume that you intend to purchase land to build your house. 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 are 74,000 shillings, and you are currently saving 7,000 shillings, leaving you with 22,000 shillings.
This surplus will most likely be used to pay off your loans, which will be repaid in four months. Now, to achieve your goals within the timelines you have set, I suggest increasing your current savings to Sh10,000 even as you continue to repay the loan.
You can do this by deducting Sh1,000 each from your contributions to Al-Haramain, family activity expenses and miscellaneous allowances.
Once you have built up your savings to Sh10,000, I would advise you to put this money into an investment fund. Identify a fund that offers development loans and save with one of them. This will help you build equity so that when the time comes, you can borrow money to build your home. To maintain consistency in your savings, I would advise you to set up an automatic deduction of this contribution at source.
After paying off your current loans, invest the 22,000 shillings you will save in a money market fund. Research different fund managers and identify the ideal one with a track record of good returns.
To maintain discipline, consider setting up a standing order at the bank to invest. 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 about Sh600,000. This will enable you to buy the car.
To buy land within your five-year target, continue investing Sh22,000 per month in the MMF for another three years. By then, your fund should grow to about Sh950,000, allowing you to buy land as planned.
Assuming you have been contributing Sh10,000 per month to your provident fund during this period and reinvesting the dividends earned (about 10 percent per annum), your shares could be worth about Sh780,000.
At this stage, you can apply for a development loan of Shs 2,000,000 from your Sacco Association to build your house.
If you take out the loan at an interest rate of 12 percent and a repayment period of eight years, your monthly payments will be Sh32,506.
To manage this, you can redirect the Sh22,000 you invested in the IMF and the Sh10,000 you go to the provident fund towards repaying this loan.
Once you build and move into your home, you will save on rent and can use this freed up money of about Sh28,000 to invest in other goals such as saving for your children’s higher education and building a passive income for your retirement.
If you have any financial issues, email us at (email protected) and leave your contact number. Financial questions will be answered in this column.