My name is Kristie. I was recently declared redundant and received some Sh3.5 million. I was lucky to then get a freelance gig with the same employer. I have three children who are all in school. I also have a business on the side that generates around Sh3,000 per day. My husband is in business, but his earnings vary. We both have an MMF account where we save Sh5,000 per month. We are in our own home along Kangundo Road and also own a parcel of land in Kajiado. We grow subsistence crops but are seeking to make more income from farming. We are both in our early 40s and would like to start planning for our retirement. Our needs currently are as follows: Re-invest in an education policy we had contributed to for two years and paused. Monthly contribution was Sh10,000. Upgrade our car. It is an old one that consumes a lot of fuel and recently has incurred lots of old car problems with constant mechanical issues. Boost our shares. We have a CDSC account, add one piece of land, finish building our house, open up another business venture and save for our retirement. How do we invest the Sh3.5 million to achieve these goals and maximise returns on investment?
Dominic Karanja, a financial planning and investments consultant
You have a solid financial foundation, including a home, land, a business, and some savings. Transitioning from employment to freelance work requires careful planning to meet both current needs and future goals. Given the multiple objectives, the Sh3.5 million must be allocated strategically. Achieving all goals simultaneously with this amount while maximising returns is challenging, so prioritisation is necessary. Allocate funds to assets that either generate income or appreciate in value. Mitigate risk by diversifying across various investments such as businesses, stocks, and property. Consider inflation when planning for long-term objectives like education and retirement. Be aware of the tax implications of various investments (such as capital gains tax on shares, tax benefits of retirement schemes). Organise your goals as follows.
Short-term (zero to one year): Resume the education policy, build an emergency fund, replace your car, and stabilise your freelance income. Mid-term (one to five years): Invest in a new business, complete your house, and buy additional land. Long-term (more than five years): Plan for retirement and secure full education funding for your children.
Create a detailed budget that includes both your freelance earnings and your husband's variable income. Review all household expenses thoroughly to identify potential cost-saving measures without affecting the essential quality of life. Work with your husband to understand his business operations and find ways to stabilise or increase his income. Aim to establish an emergency fund of Sh500,000 to Sh700,000, sufficient to cover six to 12 months of essential expenses in a Money Market Fund (MMF) or a high-yield savings account. This reserve will serve as a financial safety net for unexpected needs. Additionally, obtain private health insurance for the family. Continue the current Sh5,000 monthly MMF savings, and increase that amount gradually.
Reinstating the education policy secures funds for your children's education. It may be prudent to make a lump-sum payment to account for any missed contributions. However, it is essential to verify with the insurer whether this option is permissible, along with any potential penalties or incentives involved. Resume the policy with monthly contributions of Sh10,000, by preparing an advance sum of Sh120,000 to cover the first year. Additionally, allocate another Sh120,000 to ensure the second year's contributions are secured, thereby mitigating the risk of future interruptions.
Set a practical budget for buying a car, ranging from Sh800,000 to Sh1.2 million. A newer, fuel-efficient model can reduce ongoing maintenance and fuel costs. Look for a reliable, well-maintained used car that meets your family’s needs. Prioritise reliability and efficiency.
Allocate Sh500,000 to Sh700,000 for your CDSC account. Diversify your investments in reliable blue-chip stocks, focusing on those paying dividends. Consult a trusted stockbroker or financial advisor to align investments with your risk tolerance and goals. Instead of investing all at once, spread contributions over several months to mitigate market fluctuations. Reinvest dividends to benefit from compound growth.
Enhancing your house will increase its value and save future construction costs. Set aside around Sh500,000 for this. Get detailed estimates to determine the exact financial needs. If the allocated amount is not sufficient, prioritise key areas and phase the construction. Consider spreading the work over time and investing part of the funds elsewhere. Use income from farming or other business ventures to support this goal. Set a fixed monthly savings target from your combined income. Focus on essential spaces like the kitchen, bathrooms, and bedrooms to make the home livable.
Transition from subsistence farming to a commercial enterprise. Consider options like greenhouse and focus on high-value crops or livestock that grow well in Kajiado and have strong market demand. Set aside a modest amount (Sh100,000–200,000) or reinvest part of your daily business income into quality seeds or breeds, irrigation (if feasible and affordable), essential farming tools, and training in commercial agriculture. Additionally, consider investing in value addition such as packaging or selling directly to consumers and establish relationships with dependable buyers or explore direct-to-market channels.
The goals of acquiring additional land and initiating a new business venture should be pursued after addressing immediate priorities, such as education, vehicle upgrades, and completing your residence. When evaluating potential land acquisitions, prioritise locations with significant growth prospects and ensure that title deeds are secure and verifiable. For the new business endeavour, develop a comprehensive business plan that incorporates detailed market analysis, estimated start-up costs and returns.
Invest in a registered retirement benefits scheme to enjoy tax benefits. Contribute Sh15,000 monthly for compound growth. Review your finances regularly to monitor progress, adjust your budget, and refine investments. Consult a financial planner for personalised advice.
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