My name is Bromwell. My monthly income is Sh70,000. My sacco dividends paid yearly are Sh50,000.
My breakdown is as follows: School fees Sh15,000, Shopping Sh5,000, Insurance Sh5,500, Sacco Sh4600, Loans Sh28,000 - 25,000 by December 2024, Miscellaneous Sh8,000. Kindly help me plan my income so that I can own a plot or land in the near future.
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money
Your total expenditure is Sh66,100 leaving behind an unaccounted balance of Sh3,900. Your loans seem to be on a reducing balance that will vary from Sh28,000 to Sh25,000. It is not clear about the duration of the loan repayment and what you used them for.
You have made an important step in procuring an insurance policy. However, it is not clear whether it is a life policy or education policy. If it is the former, consider taking education policies for each of your children.
This will cushion you against any unforeseen future risks, for instance if your family were to face the untimely event of your demise or incapacitation.
Your miscellaneous expenditure of Sh8,000 implies that you do not track your money on a daily basis. In your list of expenses, you have not included some important expense items such as transport, airtime, wi-fi or bundles and rent.
This creates the assumption being you are staying in a parent's house or in a premise where you are not paying rent. You need to know how much money you spend on each expense at your household in order to know if there are money-losing holes that need to be plugged.
School fees consume (Sh15,000, that is 21 percent) the second highest expenditure after loans. Whereas this is a significant expense item that cannot easily be readjusted, you need to have a sinking fund that funds such fixed expenses which are regular and necessary.
You equally do not seem to have an emergency fund. That makes your financial situation quite shaky and vulnerable in the event you experience an unexpected misfortune.
You can use the Sacco dividends of Sh50,000 to establish an emergency fund with a money market fund provider and channel monthly contributions towards bolstering it.
Alternatively, you can plough back the Sh50,000 Sacco dividends to increase your savings and earn more dividends in the forthcoming year.
Consider increasing your Sacco saving deposits from Sh4,600 (7 percent) to at least Sh7,000 (10 percent) by the start of next year (2025).
For you to plan to buy a plot or land in the near future, you have to have a solid financial plan that is anchored on SMARTER short-term (3 to 12 months), medium-term (2 to 5 years) and long-term (above 5 years) financial goals.
For example, to buy a plot of about Sh500,000, you need to have saved about Sh150,000 and to get a loan of Sh1 million, you need to have saved at least Sh350,000.
Your goals need to be backed up by sound financial reasons. For example, why do you want to acquire a parcel of land? Is this a quest for sentimental value?
Is it a form of speculative investment? Do you plan to build and settle your family on this land? You also need to be clear from onset on how big you want this investment to be and the location.
For instance, do you want an agricultural land upcountry or are you looking at acquiring a plot, say, in the outskirts of Nairobi where you can either construct your own home or rental houses?
The answers to these questions should then enable you to formulate a savings plan from which each goal that is realized shall launch you to the next step of achieving the bigger project. For example, step one being acquisition of the land, and step two being investing on the land.
I would also urge you to have realistic timelines based on your financial capabilities. These timelines can be brought forward as your financial situation improves.
As you set the timelines, take note of your anticipated budgetary allocation for each goal, and how the deficit in the appreciation in value of the assets you intend to acquire shall be bridged.
Assuming, you managed to get dividends of Sh50,000 at a rate of 10 percent, it means that you have so far saved Sh500,000. In case you borrowed a loan from your Sacco, you need to be patient for some time before applying for a top up loan.
You need to engage in some profitable ventures that can earn you extra income. Relying on your salary alone will not be sufficient enough to enable you to achieve your financial goals in the medium term.
Scan your immediate environment and identify a socio-economic problem that needs a solution. Leverage on your skill-set, special interests and passion to establish a side hustle that can be a launching pad for a robust business.
Perhaps you have a wife who also needs to help earn dual income through business or employment if she is a trained professional.
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.
