Before focusing on long-term goals, build a strong financial foundation.
My wife and I are in our 20s, have no children, and were recently employed as teachers earning net salaries of Sh28,000 each. In the next five years, we plan to go back to school to update our diplomas to degrees. We intend to take a loan for this but are not sure how much. We also plan to join a Sacco, take a loan and buy land in Kiambu where we can build our home worth between Sh700,000 and Sh1.2 million.
We plan to have a child, and start an education policy for him or her. Starting a side hustle with an estimated capital of Sh500,000 is also in the plans. We are considering opening an M-Pesa and banking agency, a clothing boutique, a cereals business, or a taxi-hailing app business.
We have a checking account that we have used to upgrade our house furniture and dress code. We do not have any savings. How do we budget our combined earnings to achieve these goals within the five-year target?
Dominic Karanja, a financial planning and investments consultant
Develop a budget that aligns with your income and objectives and adjust it as your spending patterns and priorities change. Before focusing on long-term goals, build a strong financial foundation. Start by closely tracking all your expenses over the next two months so that you can clearly see where your money goes and spot areas to cut back. You can do this using a notebook, spreadsheet, or budgeting apps.
Allocate approximately 50 per cent of your net income, or Sh28,000, to essential expenditures. Housing expenses should be maintained within 25 per cent of your total income, suggesting a rental budget of approximately Sh12,000. You can budget around Sh6,000 for utilities such as electricity, water, and internet, Sh8,000 for groceries, and Sh2,000 for transportation.
Consider allocating approximately 40 per cent of your income, or Sh22,400, towards savings and investments. Although this target is ambitious, it is crucial for achieving your five-year objectives. Begin by establishing an emergency fund with a monthly contribution of Sh4,000. Allocate Sh6,000 each month towards your degree advancement and a further Sh6,000 for a future land acquisition.
Set aside Sh2,000 per month to initiate a child education policy. Consider saving Sh4,400 monthly to build initial capital for a side business venture. Allocate 10 per cent of income, approximately Sh5,600, for discretionary spending by distributing Sh3,000 towards entertainment or dining out and Sh2,600 for various personal expenses.
Establish an emergency fund to manage unexpected situations such as medical emergencies, job loss, or urgent repairs, which may impact long-term financial plans. A standard recommendation is to save an amount equivalent to six months of essential expenses. With a monthly essential expense totalling Sh28,000, the target emergency fund would be approximately Sh68,000. After accumulating a basic reserve, place these funds in a money market fund which offers returns while maintaining liquidity.
Transitioning from diplomas to degrees should involve researching available programmes, as many universities provide evening or distance learning options suitable for working teachers. Enrolment can be planned for 2026 or 2027. Applying for a Higher Education Loans Board (HELB) loan is an option, as it has lower interest rates.
Saving through a Sacco may also be beneficial since increased Sacco shares can make one eligible for an education loan with well-defined terms. Accumulating savings of between Sh72,000 and Sh120,000 can help reduce the required loan amount and potentially lower interest costs. After graduation, if income increases, it is advisable to factor loan repayments into the updated budget.
For the goal of buying a plot in Kiambu, consider joining a Sacco tailored for teachers, as these organisations are familiar with typical income structures and financial requirements. When evaluating different Saccos, assess factors such as membership eligibility, dividend rates on shares, terms of loan products, required monthly contributions, and office accessibility.
Visit several Saccos, examine their terms and conditions, and select one that fits your financial plans. Borrowing capacity is generally determined by share capital, with most Saccos offering loans of three to four times the value of saved shares. For example, a Sh700,000 loan typically requires shares worth Sh175,000 to Sh233,000, while a Sh1.2 million loan usually needs shares valued at approximately Sh400,000.
Regular monthly savings of Sh6,000 can result in Sh360,000 over five years, making one eligible for loans ranging from Sh1.08 million to Sh1.44 million. Researching current land prices in Kiambu, especially near urban centres, is recommended, as prices fluctuate based on amenities, infrastructure, and proximity to towns. Having this information will assist in refining budget planning.
Plan for a child in 2027 by setting aside savings for early expenses. Ensure that both of you contribute to SHIF for maternity and healthcare benefits. Expect increased costs once your child arrives. After birth, consider education policies that mature when your child reaches university to help cover tuition.
Start side hustles in years three to five of your five-year plan after building an emergency fund, Sacco savings, and advancing your education. Save Sh3,000–Sh5,000 monthly in a "Side Hustle Capital Fund" to reach up to Sh300,000 in five years, increase savings or reinvest profits to meet the Sh500,000 target. Research the market and regulations before starting, avoid investing all the capital at once, and begin with small ventures such as tutoring while scaling up over time.
By adhering to these steps with consistent financial discipline, you and your spouse will be well-positioned to achieve your ambitious five-year objectives. As a couple, it is advisable to make all financial decisions collaboratively and hold regular discussions regarding finances. Take loans only for appreciating assets such as real estate, or for investments that generate income, including side businesses or educational pursuits that enhance earning potential.
Avoid consumer debt and resist lifestyle inflation as income rises. Maintain a high savings rate and leverage increased earning capacity upon completing your degrees to facilitate progress toward your goals. Proactively seek advancement opportunities within teaching or related sectors. Remain committed to your budget, even during challenging periods, and review and adjust it periodically in response to changes in income or expenses.
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