My name is Salim. I am 48. I have a stable income of Sh92,000. I contribute Sh10,000 to a Sacco monthly, and service a flexi loan of Sh10,358 (remaining six months). My shares deposit with Sacco was Sh284,000 as of January 2023. My net earnings are Sh67,000 after deductions. My total monthly expenditure including school fees, food and other expenses add up to Sh59,000. I want to buy land and a car for my mobility. Please advise which to start with and how?
Rhina Namsia, the founder of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory
Your balance is Sh8,000 which is money that if allocated well can compound to something good. However, your only savings so far are in your Sacco. Saving in a Sacco is not a bad move, but you also need to establish a good foundation as you make the decision of buying land and a car. A car is a liability that will need maintenance plus other mandatory expenses hence the need for a good future cash flow. It’s a liability unless it has potential for earning such as running a side business like car hire, taxi, or weekend car-boot sales. If this is not the intention, you might want to start with land and then purchase the car later.
First, adjust your budget accordingly and cut unnecessary expenses since you are spending 64 per cent of your income and only saving 11 per cent of it. Make adjustments to have expenses at 50 per cent and savings to take up at least 20 per cent. Establish an emergency fund which can cover at least six months of your monthly expenses. This will amount to Sh354,000 according to your budget.
Save this money in a money market account to ensure ease of withdrawal while growing it on a compounded basis. If you save Sh8,000 every month in a money market assuming an annual return of nine per cent compounded daily, then expect to raise about Sh400,00 in approximately three and ½ years. This is money that can come in handy whenever you experience a rainy day such as job loss.
Secondly, continue with your Sacco savings and in six months’ time your total share deposits will be Sh374,000. When you finish paying up your loan, have the Sh10,000 from loan repayment added to your Sacco savings so that you get to accumulate more savings. Do this for one year and you will have accumulated Sh434,000 in Sacco savings. Approach your Sacco and ask for a loan of about Sh1,302,000 assuming the Sacco gives 3x one’s savings. Most Saccos help their members in buying property such as land at good prices and have products specifically for that. With that amount worth of loan, you can acquire good land. Another alternative will be to use the Sh10,000 after six months to save and start a small business with the potential for growth. Give yourself a timeline of say three years and if the business does well, the money can grow and give you another stream of income to help you make more investments.
After building a good emergency fund and enough savings at your Sacco, you can then embark on acquiring a vehicle by continuing the discipline of saving and investing your earnings. If three years look like a long time, you might have to find an extra avenue of earning extra income. Start a side hustle, find a better-paying job and/or maintain your expenses at the same time.
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