I earn Sh150,000 a month after tax. I pay rent for a two-bedroom house at Sh35,000. This money is not part of the Sh150,000 I earn after tax. How can I save to build rental homes or what investment should I make that will give me good returns 10 years from now? I have three plots of land in Nanyuki, each measuring 50×100. I have six plots in Oleitepes but haven’t put anything there yet.
I currently have a house to build in my village, which I built up to the thresholds and paused. I started saving on MMF and reached Sh10,000. I have a merry-go-round worth Sh12,000 a month, another one worth Sh6,880, and another one worth Sh5,000 a month. I am also a member of Shama group where we contribute money to buy a plot of land in December 2024.
Dominic Karanja, Financial Planning and Investments Consultant
Count yourself among the lucky Kenyans because out of a projected population of 52 million, salaried workers earning more than Sh100,000 number only 371,894 according to the Kenya National Bureau of Statistics.
You need to divide your goals into short-term, medium-term, and long-term categories. Short-term financial goals can be achieved in a relatively short period, usually within one year, medium-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 budget will facilitate proper management of your money. Track every coin that goes in and out using budgeting apps 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 percent into needs, 30 percent into wants, and 20 percent into saving and investing. Create an emergency fund to cover at least six months of your living expenses to cover unexpected expenses.
Consider your risk tolerance and invest in the assets that best suit your financial goals. I would encourage you to consider diversification into different asset classes so that you can reduce your risk.
Also check your investment portfolio from time to time for possible reorganization. Part of your short-term goal should be to finish building your village house.
Consider setting aside a fixed amount of your monthly income until you finish it the following year. This will ease future cash flow as expenses will decrease once the house is completed. The house can be converted into a rental property.
With promising opportunities in tourism and agriculture, Nanyuki is one of the fastest growing areas and thus offers an opportunity to economically benefit from your plots of land.
If the plots are located in a prime area, there is potential for long-term income if you develop them for rental purposes. Due to the significant construction costs, it is recommended to start with a single plot of land and then use a phased approach where you build two or three units first, then expand as rental income increases.
You may consider borrowing against your existing properties to achieve the goal of property development, but only take this step if there is a clear vision of repayment from projected rental income.
As the areas surrounding Nairobi are becoming increasingly popular, the value of plots in Olitibes may rise over time. This makes them valuable assets that can be held for long-term gains or considered developing in the future.
Another option is to rent out the land on a short-term basis for farming or business, allowing you to earn passive income without a large initial investment.
Continue to participate in the Chama Group as planned for the land purchase in December 2024. Real estate often outperforms the inflation rate in Kenya, so building Nanyuki rentals, developing Olitibes plots over time, and your new Chama land project will support wealth accumulation through… Real estate.
While merry-go-rounds can be a useful tool for achieving short-term savings goals, they are not typically considered a long-term investment strategy, and often lack the potential to generate 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 (MMF) as they will provide you with a balance of flexibility and liquidity. MMF offers stable and secure returns with full capital preservation and easy access to funds if needed.
Also consider Treasury bills, Treasury bonds, and commercial paper, which are also good options for short- and 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 long-term investment strategy, and if you are willing to take more risks, stocks become an equally profitable investment vehicle.
Likewise, membership in Sacco is beneficial because it will give you a structured way through which you can save and access 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 to continually educate yourself about investment opportunities and market trends.
If you have any financial problems, send us an email to (email protected) and leave your contact number. Financial questions will be answered in this column.