I am 26 and earn Sh32,000; how do I open salon business for my new wife this year and own a home by age 35?

My name is Peter, 26. I live in Webuye. I am employed and earn a net salary of Sh32,500 per month. I have a wife and a newborn baby. My wife was employed at a salon and cosmetics business in our town. She left this job three months ago to prepare for our baby who is now three weeks old.

 Out of my salary, I use Sh7,000 to pay rent for a one-bedroom house, electricity tokens 800, water 600, food and house shopping has now increased to Sh15,000, GoTv 1,450, my mother 3,000. The rest of the money goes to miscellaneous expenses and savings. I have so far saved about Sh46,000 in a bank savings account. I would like to own my own home by the age of 35. I would also like to open a salon and cosmetics business for my wife by December. What do I need to do to achieve these goals?

Emmanuel Mbogholi is a Partner at SFAI Kenya – a strategy, accounting and tax practice helping entrepreneurs grow their businesses

To achieve your goals of home ownership and setting up a business for your wife, you’ll need a well-thought out financial plan. To begin with, you need to set up an emergency fund. This is aimed at having at least three to six months’ worth of critical living expenses which in your case comes to Sh140,400, assuming a monthly spend of Sh23,400 excluding TV subscription and family support.

 I would advise you to use the Sh46,000 bank savings to kick this fund off. You can channel this amount to a Money Market Fund (MMF) which will earn you a decent return as interest compared to the bank savings account while still ensuring accessibility to the funds.

A quick research should lead you to one of the various firms licensed to operate MMF’s. Consider the interest the firm is paying and ensure you settle on one where your money will grow above the rate of inflation, which currently is at 6.6 per cent. Assuming you apply the 50:30:20 budgeting technique, you will continue to direct Sh6,500 towards your emergency fund which will give you 14 months to accumulate adequate savings to cater for any unplanned expenses.

Secondly, you will need to reign in on your spending based on the budget allocations. For example, you will need to keep your basic needs such as rent, groceries and shopping at no more than Sh16,250 which is 50 per cent of your income. This will call for you as a family to discuss areas where you can cut back or reallocate funds in alignment with your goals. You will also need to keep your non-critical spending at no more than 20 per cent of your income or Sh9,750.

Once you control your spending, you can focus on increasing your savings by further cutting back on expenses or exploring additional sources of income.

To do the latter, you will need to analyse your skills and research on how best to either get a better paying job or start a side business such as an online job. Be sure to weigh the gains of each against the risks especially as you are already employed and would not want to engage in an activity which will take time away from your work.

The idea to set up a salon and cosmetics business for your wife is a good one as it leverages on her experience and probably also her skills and interest. Tread carefully though.

Carry out comprehensive market research to determine the gaps in other competing businesses of the same nature. This will ensure your wife’s business is unique, leading to faster growth.

Also, determine whether she has the required skills to run a business, as this time she will be the owner and not an employee. If she doesn’t, consider signing her up for a short entrepreneurship course to build her capacity.

If your goal is to start the business by December, you will need a comprehensive business plan to give you an insight into the capital needed, projected income she will make and the most appropriate marketing strategy to implement. My research shows that a business of this nature requires between Sh100,000 and Sh500,000 depending on the location and equipment you begin with. If we take the lower figure, you will need to set aside at least Sh8,300 per month from this month (January) for startup capital.

Alternatively, consider joining a Sacco where you can save Sh3,000 per month starting this month, and take a loan in December at three times your shares, which should give you about Sh108,000. Should you wish to begin with a larger amount, it will mean increasing the amount you save.

Another consideration you need to make is planning for your newborn. Ensure you have adequate healthcare and education savings and are able to meet other child-related costs. As far as your home ownership goal goes, you will need to begin saving specifically towards this.

Research shows that to build a modest two-bedroom house in rural Kenya will set you back between Sh500,000 and  Sh2,500,000 excluding the cost of land. Exact cost will vary depending on the location, building materials specification, size of the house and design. Begin by getting an architect to draw for you a house plan based on your desired design.

Thereafter, get a quantity surveyor to prepare a bill of quantities for an accurate budget estimate. Given your timeline of nine years to achieve this and taking the higher estimate of Sh2,500,000, you will need to begin putting aside about Sh23,000 every month towards this goal. Alternatively, begin saving about Sh8,000 in a Sacco per month towards the goal in order to have adequate shares that will help you secure a loan for the same construction amount.

Your income should have increased within this period based on career growth or the business investment you plan to make. This higher disposable income will allow you to make the necessary investments that will earn you a higher return for your savings such as T-Bills, Bonds, or even Unit Trusts.

Besides these goals, I propose you also begin planning for retirement. When doing this, invest in more long-term avenues such as company shares and real estate.

All in all, periodically review your financial goals, maintain the discipline to live within your budget, and adjust your plan as needed in order to stay on track and adapt to any life changes such as loss or increase of income, business profits or losses, growth of your family among others.

If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column.