My name is Steven, and I am 26 years old. I work in a government agency in Nairobi, earning a net salary of Sh55,000. My monthly expenses include Helb loan repayment of Sh3,300; rent, water, and electricity Sh12,500; transport Sh4,000; and food Sh5,000.
I had started saving in a Sacco, accumulating Sh350,000 (Sh11,000 per month in savings). I took a loan of Sh600,000 against the deposit to purchase a piece of land. Unfortunately, the land purchase didn’t go as planned, and I ended up using Sh100,000 on miscellaneous expenses. I deposited the remaining Sh500,000 into a money market account out of fear of spending it unwisely. Currently, I am repaying the loan at Sh18,500 per month.
I also have a girlfriend who I like to spend on for entertainment purposes, and I send Sh4,000 to my family every two months. My goal is to retire at 48 years old. I also want to purchase a home, buy a good car, and be able to take care of my family comfortably, including going on holidays by the time I turn 35. How can I achieve these goals?
Advice from Benjamin Cheruiyot – Engagement Lead, Abojani Investments
Out of your Sh55,000 income, your total monthly spending amounts to about Sh54,300, leaving you with a surplus of Sh700. Your expenses are modest, considering the loan repayment takes up about 30 percent of your income. Your Sacco savings record is commendable, as you’ve been saving about 20 percent of your monthly income, which is an excellent habit.
However, taking a loan without a solid plan can be detrimental, as the interest costs often lead to missed opportunities for asset acquisition and growth. Let this experience be a lesson to improve your financial decisions in the future.
Your profile reflects a young person eager to build wealth quickly and achieve financial freedom within 22 years. To realise your medium-term goals of owning a home, buying a car, and supporting a family by age 35, you must focus on increasing your active income by upskilling or seeking promotions.
Sacco savings and money market fund
You’ve made a good start with low-risk Sacco deposits, which will earn you about Sh30,000 in interest, to be paid in a few months. If you don’t have immediate plans for this money, consider reinvesting it in the money market fund (MMF).
Your Sh500,000 in an MMF is already earning approximately Sh175 daily, with an annual post-tax return of 11 percent. Compounding this amount could generate capital growth of about Sh50,000 in the first year. To accelerate growth, aim to make regular monthly contributions to the MMF when your budget allows.
Life insurance and retirement planning
Consider taking out life insurance, especially if you plan to start a family. Policies are more affordable when you are young, and the benefits can help with education, mortgage repayment, or leaving an inheritance. Retirement planning should also be a priority. Your top goal should be increasing your income through skills that can be monetised, either at your current job or through a side hustle.
If you intend to marry your current girlfriend, consider reducing entertainment expenses and encourage her to develop her career. This will help ensure financial independence and shared responsibility for future goals. Combining incomes in the future will enable you to achieve joint goals, such as homeownership and long-term financial stability.
Aggressive investment approach
As a young person, you can afford to take more aggressive investment risks, as you have time to recover from potential setbacks. Once you’ve repaid your loan, develop a solid investment plan aligned with your financial objectives.
Some investment options to consider:
Stocks: Invest in companies with a track record of strong earnings and consistent dividends.
Fixed income instruments: Treasury bills and bonds offer guaranteed returns and safeguard your principal.
Key takeaways
The path to financial security lies in risk and debt management, disciplined budgeting, and consistent saving. Redefine your objectives to create a SMART budget (Specific, Measurable, Achievable, Realistic, and Time-bound) that aligns with your medium- and long-term goals. Remember, it is not the plan that fails but failing to plan.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column.
