I am 36 years old, single, with two children aged 9 and 5 years old. My total earnings are about Sh122,000, and my net is around Sh85,000. My goals are to secure my children's future through an education trust fund, buy an apartment, and start securing my retirement.
My expenses are rent Sh16,000, house help Sh14,000, house budget Sh25,000, fuel Sh10,000, personal care Sh5,000, and miscellaneous debts Sh6,000.
I feel that I am not doing well in life. I don't have any assets right now, even though I have been working for the past six years. What am I doing wrong? How can I change my situation?
Supporting two children on your own while maintaining a household is a significant responsibility. Not having bought property or built substantial investments after six years of employment does not mean you have failed. However, you will need to work with a clear plan and be disciplined in order to meet your current responsibilities and achieve your goals.
Your first step should be to prepare a practical but lean budget that covers all your expenses and establishes how much you can save every month. Your net income of Sh85,000 and listed expenses of Sh76,000 leave a monthly surplus of Sh9,000. To create more room for saving, consider reducing your household budget to Sh22,000 by planning purchases and eliminating unnecessary spending, reducing fuel expenses to Sh8,000 by avoiding unnecessary car travel, and reducing personal care to Sh4,000. These adjustments would release an additional Sh6,000, bringing your surplus to Sh15,000.
Next, prioritise paying off your miscellaneous loans. Use part of the Sh15,000 surplus to pay off the loans. Once the loans are cleared, the Sh6,000 currently going towards repayments will become available, potentially increasing your monthly surplus to Sh21,000.
With this amount, I would advise you to build a buffer investment fund that will cover emergencies and your children’s school fees. Consider investing these savings in a Money Market Fund or a Bond Fund. These investment accounts enable you to make regular contributions, and you can withdraw whenever you need the funds. The investment accounts also give you interest income – currently averaging about 9 per cent per year.
If you invest Sh21,000 every month for one year at an illustrative return of 9 per cent, your fund could grow to approximately Sh260,000, assuming no withdrawals. This would be a good starting point. Keep replenishing the fund with your savings as you draw money for school fees and emergencies so that the fund can keep growing.
For your apartment, consider buying through a mortgage once you have built a sufficient buffer and established a consistent saving habit. For this, I would advise you to explore the Kenya Mortgage Refinance Company (KMRC)-backed home loans. These are government-backed home loans that have more lenient terms and have a competitive interest rate.
The loans are available through participating banks and SACCOs, and you will need to check the KMRC website to identify a partner to borrow from. The loans have a fixed interest rate of about 9 per cent and repayment periods of up to 25 years. You can compare their terms with other home ownership alternatives.
At your current age of 36, a 24-year repayment period would take you to age 60. For illustration, a Sh2.5 million mortgage at 9 per cent over this period would require approximately Sh21,200 monthly. You will also need to factor in an extra amount for insurance. This repayment is slightly above your current rent and therefore manageable. To cover the extra amount (above your rent), you could reduce your savings contribution to your buffer fund by Sh7,000. As your income increases, you can accelerate your mortgage repayment and pay off the loan much earlier.
Once your buffer and mortgage commitments are stable, you could then consider investing for your retirement. You can do so by opening a second MMF/Bond Fund account or opening an individual pension plan account. Start small with an affordable amount of, say, Sh2,000 monthly and grow this as your income grows.
This investment would supplement any retirement savings that you could already be making with your employer’s retirement scheme and with NSSF. As your retirement fund grows, you can consider diversifying to other investment products such as Treasury bonds.
Following through with such a plan will gradually get you to fulfilling your goals. You will, however, need to be intentional to achieve this, but also give yourself some room for adjustments and some setbacks.
If you have any money problems, send us an email at [email protected] . Money questions will be answered in this column.
