I have three Sacco loans, should I sell my car?

Rhina Namsia - Founder of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory, says:

Your payslip is full of loans. The bigger percentage of it goes to repayments, which is way past critical.

First of all, what were the loans you took meant for? Is any of it in a venture that’s generating any income or was it all for consumption?

You also got money set aside for fuel. Is any of the loans servicing a car loan? If you answer yes to any of these questions then ask yourself if that venture or business is viable in the first place. A loan towards a business should at least be able to pay back the interests.

Secondly, you may want to dispose of your car and use part of the proceeds to clear the small loans, (say the Sh451,000 and Sh182,000) and free up more than Sh25,000 on your payslip.

That’s 32 percent of your payslip. It’s a necessary step that you need to take to introduce back cash flow and go back to the drawing board and evaluate your priorities. In this case, right now, you want liquidity and to invest.

If you have no other income stream aside from the payslip, disposing is a necessary move. Your Sacco deposit multiplied by three is slightly above your total Sacco loans and so I am assuming it’s already covering that as the loan’s guarantee.

Before freeing up your cash flow, have clear goals that you want for your liquidity needs and investments. You must define your liquidity needs.

Do you need cash for school fees, for building a home, living a better life, vacation, etc? If you do not define these needs specifically, the cash will come back and it will find its way out via another route that may not serve you yet again.

On investments, start investing in yourself first and get to understand how different investments work, your risk tolerance, your long-term view and needs, your retirement goals and such.

This way, you will be able to set aside money that will specifically go into investments that will work for you. By that, I mean investments that will generate more income and compound your income streams over time.

You may want to increase your share capital so that you earn a better dividend from Sacco and not just by having loans from it.

This you can do by using the Sh3,000 currently paying your Helb which is ending in August, for instance, depending on your Sacco policy. If you increase your share capital to say Sh200,000 at 13 percent as an example, you will be receiving Sh26,000 every year.

However, do understand first that share capital is only sold to another member upon retrieval from the Sacco. Evaluate that first and know what figure you are comfortable to hold as share capital given its returns.

For proper budgeting as a starter, use the simple 50/30/20 rule where 50 percent of your earnings should go towards your needs, 30 percent towards your wants in life and 20 percent towards your investment and savings.

You can always invert the 30/20 as well, depending on your investment status and needs. Using the rule, work towards not having more that Sh27,000 on loans from your payslip and look for other income streams.