My name is Nathan. I am single and aged 26. I earn Sh90,000 net salary and my contract runs for 3 years so, by 2026 April it will come to an end. I live in Western Kenya. For the last two months, I have been paying debts and trying to settle and make myself comfortable. I am now done with my debts. My figured spending is as follows; Currently, I stay in a bedsitter that costs Sh4,500 per month, grounds-man at home Sh5,000, food Sh4,500, siblings fees Sh10,000 per month, and home support Sh5,000. I’m yet to join any Sacco or figure out what to invest in. What project can I pursue within the duration of my contract and how much in returns will I get?
Rhina Namsia, the founder of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory, says:
Your expenses consume only 32 percent of your net salary. With the remaining 68 percent you can do much in three years if well managed.
What is missing from your budget is your personal salary; paying yourself after paying off everything else. By this, I mean saving and investing for your own future.
First, you need to establish strong foundations that can then allow you to take risks with investing and moving forward after the three years of your contract. These include setting up an emergency fund account, purchasing a medical cover, having a separate savings account that earns you high interest, and opening a retirement account. Your total monthly expenses as of now are Sh29,000. You, therefore, need to save a total of Sh384,000 for one year.
This is money that can cover your monthly total expenses for at least one year assuming everything else remains constant. With Sh10,000 every month you will achieve this within the three years. Save this in a money market account to grow the money from the compounding effects of money markets. With 9 percent interest you can save up to about Sh468,000.
Secondly, find a suitable medical cover for yourself if your employer has not offered one and this can be a one-off payment. A medical cover will cushion you from any eventualities that may arise health-wise without your expectation. Thirdly, establish a savings account that is a high-yield but safe. This still brings you back to a money market account that earns you compound interest. Save Sh30,000 every month in it.
This money can be used to start a business or let it compound as you still establish what to do with it. At 26, you could be thinking of starting a family sooner or later, therefore, having something extra to cater for expanding expenses is important. With Sh30,000 every month for three years, you could save up to about Sh1.2 million in a money market account giving averagely 9 percent and everything else holding constant. Before you invest consult a professional advisor to guide you in terms of risks, safe investments, investments that align with your goals and so forth.
Have a personal retirement pension account for yourself. These are provided by insurance companies and you can start with Sh5,000 per month
Lastly, opt to save into a Sacco if you are planning future huge developments such as purchasing a property, land, house or even building a home. The advantage of saving with a Sacco is that you will have access to affordable credit three times your savings. So if you start saving Sh10,000 every month, in three years you will have Sh360,000 and you can borrow up to Sh1 million on that. However, note that to benefit from this, you need to join a Sacco where you can easily find guarantors or you can guarantee yourself with your savings
After saving for retirement, Sacco saving, saving account, and emergency fund, you remain with Sh6,000. This is money you can use to upgrade your life in terms of clothing, entertainment and so on to create a balance between your hard work and your lifestyle. Above all discipline and consistency will be your key to achieving all this.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.
