Saving is for capital preservation while investing is for capital growth.
I am 31, single and without kids. I am in the civil service and my net pay is in the Sh40,000 range. My expenses include rent Sh12,000, salon Sh4,000, food and groceries Sh15,000, power and water Sh1,500, GOtv Sh1,000, merry-go-round Sh1,000, living space accessories and upgrades Sh2,000.
I started my savings journey in January 2025 using a piggy bank. I did not follow a consistent routine but tried to put something in as often as I could. I broke my piggy bank a week before Christmas and counted that I had saved Sh63,250. After this experiment, I would like to transition to formal savings.
Which is the best method to use between Sacco and a money market fund? How much should I save and how do I do it consistently? How long would it take to save to buy a 50 by 100 plot of land in Kitengela, Ruiru, Thika, Joska or Kamulu? My dream is to become a homeowner or a landlady before age 40. – Fidelis
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money
It is commendable that you have demonstrated utmost financial discipline by saving Sh63,250 in one year using a piggy bank. This is an important step towards mastering your money and attaining financial independence by the time you are 40 years old. To achieve your financial goals, review expenditure, budget and track your expenses, understand the difference between saving and investing, adopt a hybrid saving and investing strategy, pay yourself first and become a homeowner or landlady by age 40.
1) Review your expenditure
Your total expenditure is Sh36,500, leaving behind an unaccounted balance of Sh3,500. Audit your financial lifestyle to ensure that you live within your means. It is important to note that some key expenses, like transport and black tax/social capital, are missing from your breakdown. Cut down on unnecessary expenses as shown below.
i). Rent: you are spending Sh12,000 (30 per cent) more than the recommended average of Sh6,000 (15 per cent) and remain with Sh6,000. Relocate to a more affordable house, ranging between Sh4,000 to Sh8,000.
ii). Salon: you are spending Sh4,000 (10 per cent). Reduce this expense by half (Sh2,000) and remain with Sh2,000.
iii). Food and groceries: you are spending Sh15,000 (38 per cent) instead of the recommended average of Sh8,000 (20 per cent), which will enable you to save Sh7,000. Do bulk shopping and have a structured meal plan that ranges between Sh6,000 and Sh10,000.
iv). Power and electricity: reduce this expense to Sh1,000 and remain with Sh500 by reducing wastage.
v). GOtv: You spend Sh1,000, which is unnecessary at this point. Consider switching to free-to-air until your financial situation improves, and at the very least, the local channels option.
vi). Merry-go-round: spending Sh1,000 has no financial value addition. Stop this expense once the round is complete and top up the Sh1,000 to the money deposited in more profitable savings and investing vehicles like Sacco and MMF.
vi). Living space accessories and upgrade: you are spending Sh2,000 (5 percent) which is not so necessary. Pause on non-essential upgrades for some months and save at least Sh1,000.
You will be able to remain with a disposable income of Sh17,500 once you readjust your expenditure. This will boost your savings and investment scheme towards realising your financial goals.
2). Budget and track your money
Use the 50/30/20 guideline to allocate your money. First channel 50 percent (20,000) to essential expenses like rent (Sh6,000), food and groceries (Sh8,000), utilities (Sh1,000), transport (Sh3,000) and miscellaneous (Sh1,000). Two, spend 30 percent (Sh12,000) on savings and investment. Third, channel 20 percent (Sh8,000) towards discretionary expenses or wants like salon (Sh2,000), living space accessories and upgrade (Sh1,000), black tax (Sh2,000) and miscellaneous (Sh2,000). The amount for the miscellaneous expenses gives you ample room for any possible readjustments in case of other unforeseen expenses.
Track your money to ensure that every shilling is recorded down and accounted for. Use an Excel spreadsheet, online application, small tangible notebook or smartphone notebook. Do a weekly summation as per the vote heads and draw a monthly financial statement of the income or cash-in-flows and expenditure or cash-out-flows. In three months, you will get an average of the estimated budgetary guidelines you can work with.
3). Understand the difference between saving and investing
Saving implies the act of putting money aside for future use especially in a bank account, mobile money wallet, and piggy bank.
Investing is the process of making money work for you by generating more cash flow or passive income through Sacco and share dividends, interests from unit trusts and securities, profits from Chama and business ventures. Saving is done for short-term purposes (like emergency and school fees), has a lower risk and lower returns while investing varies from medium-term to long-term, has higher risk and higher returns because the interest earned is usually higher than the rate of inflation.
Saving is for capital preservation while investing is for capital growth but you can either lose your money or gain more. However, both saving and investing should go hand in hand for one to reap optimum benefits. When saving and investing, consider the rate of return on investment (ROI), liquidity (easiness of converting an investment into cash) and your risk appetite (whether you are a conservative investor, moderate or high-risk taker).
4). Adopt a hybrid strategy of choosing both a Sacco and MMF
First, it is important to understand the pros and cons of saving and investing in a Sacco or MMF before deciding to choose either or both. A Sacco requires a regular monthly deposit, promotes a consistent saving habit, offers high returns or dividends annually (8 – 10 percent) offers a wide range of products and easy access to affordable short-term and long-term loans (8- 14 percent) ranging from one year to nine years. Withdrawals may be highly restrictive and you may need to give a 60-day notice. A Sacco is suitable for long-term goals like buying property, a piece of land and constructing a house or rental units. If you buy a share capital and decide to quit, you can get a refund, but it might be subjected to certain conditions as per the existing Sacco by-laws.
MMF, on the other hand, is a type of unit trust (a pool of funds managed by a registered fund manager) bought in fractions or units of 100. It is best suited for establishing an emergency fund. It varies from short-term to long-term goals (1 - 5 years). It is easy to open, and withdraws within 24 to 72 hours. It gives relatively stable returns of 8-12 percent annually. However, the returns can fluctuate depending on the prevailing market conditions. Annual account management fees of at least 2 percent also apply. Using the hybrid system, allocate part of your savings (for instance Sh8,000) to a Sacco for long-term growth and the other part (Sh4,000) to MMF for liquidity purposes.
5). Observe the rule of paying yourself first
According to the 80/20 Pareto Principle, first allocate 20 percent of your income to savings and investments then 80 percent to essential and non-essential expenses. This rule is not, however, cast in stone. You can readjust it to 70/30 which is simply broken down to the 50/30/20 framework as outlined earlier.
Automate your savings via check off, standing order or direct debit method. Automation ensures that before the money hits your bank account or as soon as your account is debited, it is deducted at the source or upon hitting your account and remitted to the designated vehicles. Remember, money speaks one language: "Save me today, I save you later".
6). To buy a plot in Kitengela, Kamili, Joska, Ruiru and Thika;
You need Sh700,000 to Sh1.5 million or thereabouts. Assuming you have a target of saving Sh1 million at an annual return of 8 percent, you need to save Sh10,000 for about 5 - 7 years. To achieve your goal, consider these options: increasing your income through side hustles, reduce expenditure on essential and non-essential expenses and explore alternative locations or plot sizes as time goes by. If you save Sh4,000 per month in a MMF account using the initial deposit of Sh63,250, you will accumulate Sh303,250 in five years which is inclusive of annual fund management fees.
This amount suffices the six months' emergency buffer of the monthly living expenses of Sh240,000. If you save Sh8,000 per month in a reputable and well-managed Sacco, you will realise Sh480,000 in five years or more once you plough back the annual dividends for compounding purposes. Using the 3X multiplier factor, you will qualify for a loan of Sh1.4 million. Therefore, in a span of 9 years you will have bought a piece of land at a preferable location, and built rental units or a home for your residence.
If you have any money problems, send us an email at [email protected] leave your number for contact. Money questions will be answered on this column
