My name is Stacey. Two months ago, I got a job that is paying me a net salary of Sh80,000. I live with my parents, but I am considering moving out. How do I budget and start saving and investing?
Should I invest in bonds or Sacco? I have ambitions of registering my company and doing public procurement with the government. How do I go about this? I would also like to pursue my Master’s degree so that I can get an edge as an employee. Please help me plan.
Stella Chepng’eno – Personal finance consultant and trainer
Congratulations on securing a job at such an early age. You have time and age on your side to establish what can be a highly stable financial future. Before you start planning, calculate your net worth, which is everything of value that you own (your assets) minus what you owe in debts (your liabilities).
Every financial move you make should be aimed at increasing your net worth. Do a cost benefit analysis before you move out of your parent’s house. Being housed by your parents cuts lots of costs such as rent, electricity bills and food, which you can direct to building your investment portfolio.
Always remember the Parkinson’s law of money which states that when income increases, the expenses increase in direct proportion. The following tips can help you get started.
Set specific, measureable and time bound financial goals, which should cover the following: Emergency Fund, Education Planning, Investment Planning, Retirement Planning, Home Ownership, Holiday Planning, Debt Management Planning, Insurance Planning and Estate Planning.
Track your expenses on a daily basis and adjust accordingly. Any excess funds should be invested in an income generating activity based on your investment strategy. Improve your spending rate either by increasing your income or decreasing your expenses.
You have worked for two months and earned a combined Sh160,000. List down your expenditures – big or small – over the last two months to see exactly where every coin has gone to. This will help you make a good budget.
Prioritize and allocate resources based on returns and their aggregated value. The secret is to learn how to earn income from active and passive activities, invest in assets which bring in more income and spend the left overs.
Start by saving for an emergency fund that can sustain you for at least six months in the absence of income or in the event of an emergency. This will total at least Sh480,000. These funds should be kept in a Money Market Fund where your money will earn compounded interest.
Diversify to other saving and investment instruments such as Saccos, bonds and short term Treasury Bills. Where to save and invest depends on how fast you can convert the asset to cash, how risky the investment is, and how much return you can expect.
For long term investment you can consider treasury bonds, pension fund or Sacco while for short term savings you can consider money market funds or treasury bills.
Create a freedom account. This is closely related to an emergency fund but can be used for your wants. For example, if you want to upgrade your phone, you can start saving in your freedom account for some months instead of borrowing for such purchases.
Investment in tenders. Every business has its pros and cons, so it is important to research and learn from those who have succeeded.
Note that once you have registered the company you should get the Access to Government Procurement Opportunities (AGPO) certificate so that you benefit from the 30 per cent of Government Procurement opportunities set aside for women, youth and people with disabilities.
Be cautious and have a mentor, preferably a woman who is in this line of business.
Doing business with the government can make you very rich or very broke overnight, and is also trickier for women than men. Discuss your Master’s plan with your parents and enroll as soon as possible on part time basis.
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.
