My name is Roseline. I am a wife and mother of two. I have been a stay-at-home mom for the past four years. I took this break to nurse my newborn, but I now feel it’s time to go back to making money. Previously, I worked in the private sector, earning Sh36,000 net per month. My expenses were minimal since my husband takes care of the household bills. During this period, I managed to save Sh720,000 in a bank account.
Now that my youngest child is in kindergarten, I’m considering using this money to start a business. While I haven’t settled on a specific idea, I’m leaning towards a clothing and beauty products business targeting career women. How do I proceed without losing the money I worked so hard to save?
It is commendable that you managed to save a substantial amount from your previous job. However, over the past four years, your Sh720,000 has likely earned little to no interest, suggesting that you might be keeping it in a current bank account.
Moving forward, it is crucial to save your money in an account or investment vehicle that offers growth opportunities. This helps preserve your savings' purchasing power. For instance, if you had invested your money in an account earning a minimum of 10 percent annual returns, your savings would have grown by Sh72,000 annually. With compounded returns, your total savings today could exceed Sh1 million. It’s important to recognise that current accounts are not ideal for long-term savings.
Collaborative financial planning
Although you have not provided details about your household’s financial structure, I encourage you to adopt a collaborative approach to finances with your spouse. Could there be financial challenges your family is facing that have been difficult to address while you have secret savings? While it is admirable that you’ve saved, a unified financial strategy can strengthen your family’s future. Research consistently shows that financial disagreements are a leading cause of marital conflicts.
A cautious approach
Venturing into entrepreneurship is a commendable aspiration, but it’s essential to tread carefully. You’ve been out of the job market for four years, during which economic fundamentals have likely changed. Moreover, since you’re unsure about the type of business to start, there is a risk of mismanaging your capital.
Statistics indicate that up to 90 percent of new businesses fail within their first five years, and only a small fraction of the surviving businesses generate substantial wealth. This insight is not to discourage you but to prepare you for the realities of entrepreneurship.
Reignite your career
Instead of diving straight into business, consider re-entering the workforce. Your previous career in the private sector suggests that you possess skills and experience valued by employers. Use this opportunity to reestablish your career and generate a steady income while you prepare for entrepreneurship.
For the next two years, focus on rebuilding your career. During this period, reallocate your Sh720,000 into growth-oriented investment vehicles. A prudent strategy would be to divide your savings using a 60:40 ratio:
60 percent in a reputable Sacco with a solid track record and clear accountability. This offers annual dividends of 10-13 percent.
40 percent in a money market fund (MMF) to earn daily compounded interest while maintaining liquidity.
As you begin earning again, allocate your income strategically:
60 percent to investments (Sacco and MMF) to build your financial base.
20 percent for personal use.
20 percent for supporting household expenses.
Learn the business landscape
While working and saving, take the time to understand the business you aspire to start. Connect with individuals running successful clothing and beauty product businesses. Learn where they source their products. For instance, do they buy wholesale from Eastleigh or import from Turkey? What costs are involved? Consider essential factors such as licensing, rental space, location suitability, and competitors.
Ask yourself:
Who are your target customers?
What will differentiate your business in a competitive market?
How much capital will you need to sustain the business?
Thorough research will help you determine whether your capital is sufficient or if your savings would be better allocated elsewhere.
Start small as a side hustle
Once you’ve regained financial stability and gained business insights, you can test your entrepreneurial skills through a side hustle. This cautious approach minimises risks, ensures you have a steady fallback plan, and allows you to learn the ropes of running a business without jeopardising your financial security.
Final thoughts
Your Sh720,000 savings represent years of hard work and discipline. To protect this nest egg, it is vital to plan meticulously before venturing into entrepreneurship. By reigniting your career, growing your savings through investments, and learning the intricacies of your desired business, you can increase your chances of success and financial freedom.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.
