I make Sh61,000, how can I afford a plot in Kikuyu or Dagoretti?

My name is Alex and I am a father of two. I am not married but I am co-parenting. I currently earn a net salary of Sh46,000 and I earn an additional Sh15,000 from a side hustle. My budget is as follows:

Rent: Sh9,500

Electricity and TV subscriptions: Sh5,000

Food and groceries: Sh9,000

Maintenance: Sh16,000 (Sh8,000 per child)

Sacco savings: Sh2,000. I have Sh12,000 so far

Alcohol and smoking: Sh10,000 to Sh13,000

Mother: Sh5,000

I have a Toyota Axio car, but I mainly fuel it with money I get from occasional part-time carpooling.

I have a salary bank account of Sh170,000. I celebrated my 40th birthday in January this year and my goal for the next five years is to buy land and build a three-bedroom bungalow, preferably in Dagoretti where I currently rent or in Kikuyu. I would like to achieve this by the time I am 45. How do I go about it?

Dominic Karanja, a financial planning and investment consultant.

Achieving your goal of buying land and building a three-bedroom bungalow within five years is ambitious, but possible with careful planning, disciplined saving and strategic investments. Land prices can vary widely between the Dagoretti and Kikuyu areas.

A rough estimate for a prime 50x100 plot is around Sh3 million to Sh6 million depending on the exact location. Building a three bedroom bungalow can cost around Sh3 million to Sh5 million depending on materials, labour and finishes. You should be looking at a total of about Sh6 million to Sh10 million to make your dream come true, which means you will need to save between Sh1.2 million to Sh2 million per year for the next 5 years.

You are currently earning Sh61,000 which includes a salary of Sh46,000 and a side income of Sh15,000 against average monthly expenses of Sh56,500 leaving you with a surplus of Sh4,500 per month which is not enough to achieve your goal within the five years. To achieve your goal, you need to save aggressively, review your spending and identify areas where you can cut back.

You have a significant expenditure on alcohol and smoking and you need to consider cutting back or quitting as even halving this expenditure would free up Sh5,000-Sh6,500 per month. While providing for your children is essential, explore ways to reduce this expenditure slightly. Consider exploring methods to reduce electricity consumption and assess the need to maintain all your TV subscriptions. Meal planning, cooking at home more often and reducing food waste can be effective in reducing your food and grocery costs.

Increase your second income by taking on more work or exploring higher paying opportunities. Invest in courses or training that can lead to higher-paying jobs or freelance opportunities. Focus on growing your carpooling business by increasing the number of trips or explore other transport related side hustles. A strict budget is essential, and you need to track your income and expenses closely. Use budgeting apps or spreadsheets to keep track of your finances.

Aim to save at least Sh20,000 to Sh30,000 per month by reducing expenses and increasing income. Continue to save with the Sacco and consider increasing the amount you save. Find out if the Sacco has any affordable housing schemes or loans with preferential interest rates. Use your existing savings (Sh170,000) and future savings to invest in high-yielding opportunities such as government bonds or money market funds. Sacco savings grow over time and can help you obtain a land purchase loan at 12 percent per annum on a reducing balance basis.

Start researching land prices in your target areas as this will give you a more realistic idea of your budget. Explore land purchase plans where sellers offer instalment plans to allow you to pay over time. Consider having an emergency fund of six months' living expenses separate from your savings for the house. Consult a financial advisor or property expert for personalised advice.

To help make your dream a reality, here is a year-by-year budget:

1) Year 1: Build a strong financial base.

1.1   Save aggressively and aim to save Sh20,000-Sh30,000 per month.

1.2   Research land prices in Dagoretti and Kikuyu to identify affordable options.1.3.   Increase your Sacco shares to qualify for a larger loan.

2) Year 2: Purchase land 

2.1Use your savings and a Sacco loan to buy land. The Sacco can give you a loan equivalent to three times your savings.

2.2   Continue to save for a house. Take this as your medium to long term goal. It is important that this type of saving is backed up by a concrete plan, such as a bill of quantities. This will give you targets that you can cross off as soon as they are achieved.

3) Years 3-5: Build your house

3.1   You can adopt the incremental housing concept by building in phases to manage costs. For example, you could start by buying the materials needed for the foundation, then build the foundation and slab. Take a break and resume with walling up to the lintel, and so on.

3.2 Use Sacco loans or other financing options such as the subsidised mortgage financing option under the Kenya Mortgage Refinance Company (KMRC), which is offered by selected banks and Saccos on a reducing balance basis, to finance construction.

3.3   Monitor your budget closely to avoid overspending. Your success or lack of financial management will depend on your budget and how you track your daily spending. You must remain disciplined, track your progress and adjust your plan as necessary.

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.