My name is Nancy, and I earn a net of Sh130,000 per month. I’d like to buy a plot in 2 years’ time and start construction. My budget for the plot is Sh2.5 million with a construction budget of Sh4.5 million. The plot should ideally be a 50 x 100 but I am also comfortable with 40 x 80. It should be within Nairobi, Kiambu, Kitengela, Syokimau or along Kamgundo Road.
My current budget is as follows: Rent and utilities Sh14,500, Wifi Sh3,000, Airtime Sh3,000, Entertainment Sh5,000, Mobile loans Sh9,000, Shopping Sh10,000, Personal treat Sh10,000, Bank Loan – about 62,000, SACCO loan and savings Sh12,000 (to complete by March 2025).
I had taken the loans to start a business that failed to do well. I sold it and used the money to renovate my mother’s house in the village. Kindly help me re-organise my spending to achieve these goals. Help me.
Alex Kibebe is the founder of Rubiani Wealth Management Ltd and an investment consultant and business development coach.
From what you have shared, you have a net income of Sh130,000, with current expenditure totaling Sh128,500. You pay Sh9,000 for mobile loans, Sh62,000 toward a bank loan and Sh12,000 towards a SACCO loan and these loans will be fully repaid by March 2025.
I would advise you to consider eliminating your mobile loans as a first step, as these loans cost you on average 10 percent monthly and can drain your finances.
In January, I recommend that you consider redirecting your personal treat budget of Sh10,000 towards clearing the mobile loans. Once settled, you will free up Sh9,000 monthly, which can be redirected toward saving for your goals.
Next, it is essential to establish an emergency fund to avoid future reliance on mobile loans. In January, I would advise you to open a Money Market Fund (MMF) to give you a buffer to cover any extra monthly spending and cushion against emergencies.
You could save Sh4,000 monthly into this account from part of the funds freed up by clearing your mobile loans. To safeguard your savings, consider opening a MMF account that requires at least 24 hours’ notice for withdrawals to prevent impulsive spending.
With your emergency fund in place, the focus can shift to saving for the land purchase. Open a second MMF account dedicated to this goal and begin saving from February 2025.
Contribute Sh5,000 from mobile loan repayment savings balance and Sh1,500 from your monthly surplus. Additionally, I would recommend reducing your personal treat budget by Sh3,000 so as to bring your total monthly contribution to the ‘land purchase’ MMF account to Sh9,500.
Once your bank and SACCO loans are fully repaid in March 2025, redirect the Sh62,000 from the bank loan repayment and Sh12,000 from the SACCO loan repayment to the land savings MMF account, increasing the total monthly savings to Sh83,500.
In two years (by March 2027), you should have accumulated approximately Sh2,204,400 in this account, assuming a 10 percent net annual return. An additional three months of saving will help you reach the Sh2.5 million required for the land purchase.
Within this saving period, you could research on plots in your preferred home ownership locations. I would also advise you to engage a registered valuer or lawyer to conduct thorough due diligence to validate the land’s legality and ownership status. Once you identify a suitable plot, use your money market funds to complete the purchase.
After securing the land, you can now focus on financing your home construction. Most SACCOs offer development loans of up to four times the value of your SACCO shares.
To qualify for a Sh4.5 million loan, you will need Sh1,125,000 in SACCO shares. Once the land is purchased, redirect your Sh83,500 monthly savings toward building your SACCO shares.
Depending on your current savings balance, this process should take you less than an year. During this time, you may identify a reputable contractor to manage the construction.
Once your SACCO shares reach the required level, apply for the development loan. With a repayment period of 72 months, your monthly repayment will be approximately Sh88,000.
Allocate the Sh83,500 that you were previously savings and temporarily reduce your personal treat expenses to meet this obligation during the construction period.
Once the house is complete, you can further ease your financial burden by redirecting the rent saving toward repaying the loan. By following this plan, you should be able to purchase land by June 2027 and move into your new home within 4 years, by early 2029.
If you have any money-related questions, please email [email protected] with your contact number.
