The secret to financial security and wealth accumulation is risk and debt management.
I’m a teacher working with the Teachers Service Commission within the Nairobi metropolitan area. I have been employed for the past four years but I have nothing to show for it apart from meeting my nuclear family obligations. I rent and, in most months, after all expenses, I am left with Sh5,000 or less.
My monthly salary has been Sh67,000. I have two children. My wife works as a nurse but I don’t rely on her money. I have 25 more years before I retire and I am afraid that if the current trend continues, I might end up with only the name ‘Mwalimu’ but no money. I would like to start saving and investing before it is too late. I have a dormant Sacco account that I would like to start putting in Sh20,000 per month.
My target is to raise Sh2 million with which I can acquire or lease land and build mabati rental houses. I have a chama loan of 450,000 that I took last year to buy two high-breed dairy cows and ended up getting conned. I have repaid Sh150,000 of this loan and defaulted on the remainder.
I would also like to earn the equivalent of my salary as passive income either through rentals, Sacco dividends or bonds when I retire in 25 years. I also don’t want to remain just a basic classroom teacher. I would like to be a principal before I retire which means I might have to go back to school and upgrade my Bachelor’s to a Master’s. How do I achieve all this within 25 years? How do I secure my future? - Amos
Benjamin Cheruiyot is the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm
Generally, a young person should take on more aggressive risks because they have more time to recover from any temporary setback. Your ability to take risks is informed by your resource capacity. Given your limited resource base, you need a solid investment plan where you can direct your disposable cash when you complete the loan repayment.
At 35, you still have enough time to actualise your investment and retirement goals by 60. Take advantage of the compounding power of time to make the most of future income and investment returns. With Sh67,000 net salary, you may not save much besides the Sh5,000 you are currently left with. This is because you shoulder all household expenses. Unless you share some expenses with your wife, meeting your personal goals will take a long time.
The 50:30:20 budgeting method may not work for you. You could customise this to 60:30:10 so your expenses look as follows: 60 per cent to needs (Sh40,200): Rent 20,000, food and shopping 10,000 Transport 5,000 electricity and water 3500 Airtime/Internet 1,700. 30 per cent to savings and investments (Sh20,100), Sacco Sh10,000, Chama debt repayment Sh10,100. 10 per cent to wants (Sh6,700): Clothing 2,500, entertainment 2,500, social causes 1,700.
The model budget above can allow for more savings as you do not buy clothes every month. It can also help you achieve short, medium, and long-term goals. Fast-track plans to repay the Sh300,000 chama loan you defaulted. This will foster good relationships with other members and assure you of social capital that you can rely on. With Sh10,100 monthly, you could settle this in about three years.
Without your wife's support, you may not save Sh20,000 in your Sacco. Saving Sh10,000 in a Sacco will earn you interests and dividends, and also accumulate to more than Sh420,000 in three years. With most Saccos allowing up to 4X your deposits on loan, you can access Sh1.7 million to purchase a plot and build rentals in the outskirts of the city.
Apart from Sacco deposits, you could "moonlight" your teaching services by offering tuition to neighbourhood learners. You may save such proceeds in a money market fund. Funds are invested in fixed-income securities like treasury bills and medium-term bonds, fixed deposits, and other cash instruments. Interests are credited to member accounts either daily or monthly. It is recommended that you exercise discipline to avoid frequent withdrawal, thus allowing your money to grow.
It is unfortunate that you attempted to venture into dairy farming without due diligence. A dairy project requires putting up structures, stocking feeds, and ensuring good water supply, and there's a ready market for milk as a licensed seller. You may want to consult an expert on this.
Create plans for home ownership, have adequate medical insurance for your young family, and a scholar's plan for your children. Be open to learning what works for you. Aim to improve your professional skills to position yourself for any promotion chances. Advancing to a Master's degree is an investment that will yield returns through additional salary credits and position you for upward career mobility.
The secret to financial security and wealth accumulation is risk and debt management, which entails being adequately insured, paying off short-term loans and living within your means by establishing a budget and adhering to it. You need to redefine your objectives to make a budget that is specific, measurable, achievable, realistic and time-bound). Your objective of buying land, building rental houses, earning passive income, and scaling the teaching ladder needs an aggressive investment approach.
Some investments that you can try gradually include stocks. Invest in companies with demonstrated earning power and meaningful dividends over the years to minimise chances of capital loss. Also consider fixed income instruments such as treasury bills and bonds, or unit trusts that are ideal for cash management, such as money market funds that help accumulate money for short and medium-term goals. You will enjoy daily compounding interests and can easily withdraw.
Your financial situation can ease if your spouse starts pulling some weight. As a nurse, she pockets upwards of Sh45,000 monthly. When it comes to achieving financial independence as a couple, the mantra of ‘His money is Ours; Her money is hers’ does not always work. You need to sit down and talk. If there are difficulties doing this, consult a family therapist, and lay your financial situations, ambitions and responsibilities and expenses that each of you should take up relative to your earning power, on the table. Time and chance are on your side; maximise them.
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