My name is George, I am 45 years old, I work in Nairobi, I am married with four children, two of them are in high school, I just started working and I have not received my first salary yet.
I have been working and living in Nairobi for ten years, but I have not saved anything, even though I have built a house and paid my children’s fees.
I can earn 20,000 shillings per month from my side business and my basic salary for my new business will be 47,000 shillings. This will increase to 63,000 shillings in three years. Currently, my total debt is about 100,000 shillings. How do I manage this debt, invest it and secure my future?
Dominic Karanja, financial and investment advisor, says:
At age 45, you are in the wealth consolidation phase of your life. This phase typically comes after you have built a solid financial foundation with steady income and savings. It focuses on strategic growth and protection, shifting from aggressive accumulation to securing and enhancing your current wealth.
The wealth consolidation phase is an ongoing process, requiring regular reviews and adjustments to your financial plan to adapt to changing circumstances and achieve long-term goals.
Your current monthly income is 67,000 shillings, of which 47,000 shillings is from your salary and 20,000 shillings is from your side business. You also have a debt of 100,000 shillings. To manage your money effectively and achieve your financial goals, it is essential to create a detailed financial plan and budget.
Budgeting is essential to managing your personal finances and achieving your goals. Start by tracking all of your income sources, including your salary, your side job, and any other potential income, and monitor all of your expenses for a month.
Categorize these expenses into needs and wants, where needs are necessary for basic survival and daily functioning, and wants are non-essential but enhance your quality of life.
Consider using the 50:30:20 budgeting principle: allocate 50 percent of your monthly income to essential expenses, 30 percent to discretionary spending, and 20 percent to savings and investments.
Look for areas where you can cut back. Be adaptable and review your budget as your financial situation changes. Use a budgeting app or spreadsheet to track your income and expenses.
Focus on building an emergency fund that can cover your living expenses for at least six months to deal with unexpected costs. Set a clear target amount for this emergency fund.
Look for ways to supplement your side hustle income by improving your skills or taking on additional projects. Aim for promotions or a pay raise by performing well in your new job.
While continuing to prioritize your children’s education, work hard to balance it with your other financial goals. Consider setting up an education fund for your children to ease financial stress in the future. Work hard to balance work, family, and leisure to maintain overall well-being. Maintain adequate health insurance coverage for you and your family.
Debt repayment
You should develop a debt repayment strategy by creating a detailed plan to pay off each debt.
Use the debt consolidation method, where you make the minimum payments on all your debts and then apply any extra money to the debt with the highest interest rate first.
Consider consolidating or refinancing your debt if it will lower interest rates. Dedicate as much of your income and side business earnings as possible to paying down debt.
It is essential that you understand the interest rates, repayment terms, and total outstanding balances for all your debts. It is recommended that you allocate at least one-third of your net income to repay loans.
Retirement Savings
As you approach retirement, it’s important to focus on saving for it.
Building your retirement savings will help you live a comfortable life after retirement and provide you with tax benefits. Set clear retirement goals and estimate how much you will need.
In general, it is recommended to set aside 70% to 80% of your pre-retirement income to maintain a comfortable lifestyle after retirement. Determine how much you need to save and make a plan to reach that goal. Start contributing to a retirement savings plan as soon as possible.
Research different investment options and understand the risks and returns associated with them. Diversify your investments across different asset classes based on your current financial situation to spread the risk.
Keeping up with economic conditions and investment opportunities is critical to making wise financial choices. Consider your risk tolerance and financial goals when choosing investments.
Joining an investment association can be helpful for long-term savings and affordable loans. If you prefer low risk, consider putting some money into a money market fund, as it guarantees returns, preserves capital, allows your portfolio to grow through regular savings, and provides easy access to your money.
Alternatively, short and medium-term investments such as treasury bills, treasury bonds and commercial paper are viable options. T-bills require a minimum investment of Sh100,000, while treasury bonds and infrastructure bonds require a minimum investment of Sh50,000 and Sh100,000 respectively.
Government securities have maintained increasing returns, with the average coupon rate on the 91-day Treasury note at over 16.0215% and the average coupon rate on the most recent 10-year Treasury note at 16.00%. If you are willing to take on more risk and invest for the long term, consider investing in stocks.
Real estate investing provides a means of generating passive income, but it requires a significant amount of capital and a long-term commitment.
Consult a financial advisor to help you create a personalized financial plan that aligns with your goals. Attend workshops or webinars on financial literacy.
Remember that financial planning is an ongoing process. Review your budget, investment portfolio, and retirement goals regularly to make any necessary adjustments.
If you have any questions about money, email us at (email protected) and leave your phone number. Money-related questions will be answered in this column.
