The Question: My name is Peter. I need help in reorganizing my finances. I am a medic and have a take home pay of Sh. 420,000. I am the breadwinner. I have three sacco loans that I am servicing that I had borrowed to build some rental stalls and to begin a car wash business. I use 180,000 to service these loans.
I am still unable to realize much from the carwash business since the operating costs are much higher than the income. I have three education policies for my children totaling around 35,000. I save 20,000 for their education every month.
My monthly expenditure – Rent, shopping, domestic manager etc total to 135,000. The rest is our pocket money. Now, I would like to build our house in the next three years. Challenge is that at the moment, I have got no disposable income since it all goes to loan repayment and the outlined expenditures. Please help.
The Answer: From what you have shared, you have a net income of Sh. 420,000 and your monthly expenses totals Sh. 370,000 leaving you with pocket money of Sh. 50,000 and no further funds for investing.
In order to achieve your goal of building your home in three years, you will first need to come up with the approximate cost for building it by getting yourself an estimated bill of quantities. You then need to divide this amount by 36 months in order to see the amount of money you need to save up every month.
For example, if the cost of building your house is Sh. 4,000,000, then you will need to invest at least Sh. 100,000 per month totaling Sh. 3,600,000 in three years. If you save these funds in an interest bearing account, then your savings should get to about Sh. 4 million in the same timeline.
An interest bearing account worth considering is a Money Market Fund. You can review available options and settle on one. At the prevailing rates, your savings should grow at a net interest rate of a minimal of 7.5% per year and this will help towards raising the needed funds.
In the event of bulk cash, you could’ve looked out for medium term bonds such as the three year bond recently released with a 14.228 per cent coupon and 12.1 per cent after tax.
If these amounts were to be saved in a Sacco of good standing, you would be guaranteed dividends of upwards if 10 per cent which you can compound over the 36 month-period to hit your target as well as open yourself up for new funding.
Given that you do not have any funds left at the end of the month, you will need to make adjustments both in your income and expenses to raise the needed monthly savings towards your house project. Here are some suggestions to do this;
You have not given details on the current status of your rental stalls. If this project is still outstanding, I would advise you to focus on completing this as a priority so as to unlock extra income.
I am a security guard in Nairobi. This is how I survive on Sh. 18,000 salary
Another way you can increase your monthly savings is by reviewing your home expenses that currently totals Sh. 135,000. If you reduce on some expenses that you can do without, this can release some funds that will add to your monthly savings.
Also consider reducing your pocket money say to Sh. 20,000 and transfer the balance of Sh. 30,000 to the monthly savings. These will upset aspects of your lifestyle but might be necessary, especially in the absence of additional income streams.
You have not stated the timelines for settling your outstanding loans. If these loans will be paid off within the three years, then you can channel the freed funds towards saving for your home project.
Another option to grow your income is by seeking some locum jobs if your schedule allows or looking for other jobs such as lecturing or consulting in your field of career. This income can be used to accelerate payment of your loans, starting with the most expensive ones.
As for the car wash, you have mentioned that the operating expenses are much higher than the income it makes. You need to have an honest review of this business to see if it has real prospects of breaking even and giving you significant profits.
If the business is still new and growing at your projected rate, then waiting for break-even and profits is quite in order. However, if the business has been in operation for some time and you are struggling to manage its performance, then you may want to consider other options such as selling.
If you make the aforementioned adjustments and raise the target monthly savings, then you will be on course to fulfilling your goal of building your house in the timeline of 3 year.
The Expert’s Answer to this financial question was provided by Alex Kibebe who is the founder of Rubiani Wealth Management Ltd and an investment consultant and business development coach. A version of this answer was previously published in the Saturday Magazine. The Saturday Magazine is a publication of the Nation Media Group.
