My name is Josiah. Our company is winding up in two years and I am not assured of a salary anymore. I earn Sh110,000 per month and have a Sacco loan of Sh1.7 million which I am servicing. My monthly expenses are as follows: Loan deductions Sh48,000, Rent Sh8,000, Transport Sh3,000, Food Sh5,000, Chamas Sh5,000, School fees for three children Sh30,000 per child every term. I am left with nothing at the end of the month. My Sacco savings are about Sh600,000 and I have a 50 by 100 plot in the outskirts of Nairobi. I inherited 3.5 acres of agricultural land in the village. I need to secure my finances considering I will be out of a job by the end of two years. Please guide me, thank you.
Benjamin Cheruiyot – the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm
You earn a fair salary by average Kenyan standards. Since your job is contractual, running for the next two years, you have to practice moderation in your spending.
Your budget shows Sh11,000 unaccounted for. I assume this gets into shopping and miscellaneous expenses. Your greatest spending is on school fees.
At Sh30,000 per child a term, you definitely need to build cash flow assets and savings to take care of this expense in two years lest you be forced to downgrade to a low-cost school for your children.
You also need to re-examine this expense and consider other available options, such as public schools if your children are in the primary level. Scout around your area to find out what quality public schools are available.
For instance, assuming that you spent Sh30,000 on all three children per term, your unaccounted funds every month would shoot to around Sh31,000 from the current Sh11,000.
You have not disclosed whether your wife works, and her income. However, going by the moderate budget of Sh5,000 on food and Sh8,000 for rent for a family of five, it can be assumed that she chips in.
Joint family finance is important for focused goals. You are more likely to succeed financially if you are both aligned in your approach and attitude towards finances.
With your expenses averaging Sh60,000 (except loan repayment), you will need about Sh360,000 to stay afloat for six months while job-hunting when your contract ends.
You have stated that you are in chamas where you contribute Sh5,000 every month.
You need to evaluate what type of chamas you are, how they operate, how savings are secured, and whether there is individual financial growth.
Are these chamas the popular merry-go-round, social, mbuzi-eating groups where you contribute funds and give to members in turns within an agreed period or engage in social activities such as visiting parents or helping members pay dowry?
While savings in these types of chamas help build social capital, they don't offer much inflation protection except where the chamas operate via table banking models.
If such is the case, your savings would be better off in cash flow investments like unit trust funds, especially money market, bond and fixed income funds.
Investing Sh5,000 in one of these funds that returns at least 12 per cent annually will amount to Sh135,000 in two years. This amount can help pay off your outstanding debt and allow you to job-hunt without much pressure.
Your Sacco savings of Sh600,000 can also accumulate to Sh750,000 or more.
The interests earned can be reinvested or used to reduce interest on your loan. This will shorten the loan duration too. Should you experience long periods of unemployment after your contract ends, you can withdraw part or all your savings for use on a cash flow investment or to meet a major expense.
If you've got plans for home ownership on the plot near Nairobi, you will need at least Sh2 million for a three-bedroom house.
Since you have an outstanding Sacco loan, you may consider selling part of your rural land, say 1.5 acres, to finance building on the Nairobi plot.
Settling your family near Nairobi will have minimal disruption to their current lifestyle and will allow you to live together when you get another job.
You may consider farming on the remaining two acres, although you'll need skills in an area of interest, for example dairy or cash crop farming.
If done well, these are ventures that can fetch a tidy sum in seasons, depending on the type of farming you specialise in, and the available market. Generally, this requires active management from you, which may collide with your job seeking and employment goals.
If home ownership is not on your immediate radar, or you would not want to settle your family in your Nairobi plot, you may consider selling it.
You could engage a realtor to expedite the process so that you can cash on it in the next year. This may fetch between Sh1.2 million to Sh2 million, depending on location.
Such money can be invested in low-risk investments, especially those with monthly payments such as unit trusts. They enable easy access for lump-sum withdrawals and daily earnings that ensure your money grows consistently.
A minimum of Sh1.2 million kept in a fixed income fund returning 13 per cent annually earns you at least Sh11,000 monthly after tax. This can settle a key expense like rent, which will give you a level of housing freedom as you look to secure another job contract.
Over the next two years, you could also explore ways you can improve your employability and, or your financial inflows. For example, you could scout for and enroll in free professional courses online that boost your resume, or professional side hustles that won’t cost you financially, for example consultancy along your line of work.
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
