Gertrude Njeri who is an accountant, personal finance and investment consultant and the founder of Financial Buddy Africa Ltd, responds to a Kenyan who is looking to retire at 40. Is this the right age to retire? How much money should he invest to guarantee himself a comfortable post-retirement life? Take a look…
The Question: My name is Peter. I am unmarried but in a relationship. I make Sh130,000 monthly. My budget is as follows;
1). Rent: Sh30,000
2). Food: Sh15,000
3). Vehicle fuel: Sh10,000 to Sh5,000
4). Home entertainment: Sh15,000 (Pay tv, Wifi, and online subscriptions)
5). Electricity & Water: Sh3,000
6). Black tax: Sh18,000
7). Partner: Sh15,000
8). Weekend night outs: About Sh6,000 (not sure)
9). Miscellaneous and savings take the balance.
I have Sh340,000 savings in the bank. I also have three acres that I bought from our family’s neighbour upcountry. This land is worth a total of Sh3.6 million. My mom has been using it for farming. I am 34, and going to be 35 in August this year. I would like to retire from working in five years at age 40 and have my money work for me, pay me and sustain my lifestyle through passive investments and income. How can I achieve this with the income and budgetary allocations?
The Answer: Alright, Peter, let’s walk through this. You’re earning Sh130,000 a month, and from your budget, most of it is already committed. Rent, food, black tax, your partner, entertainment, all of that adds up quickly. What stands out is that your savings and investing are not structured. It’s more like whatever remains at the end of the month, and that makes it very hard to build serious wealth.
Now your goal is clear. You want to retire in 5 years at 40 and have your investments fully replace your income. That’s a strong goal, but we need to ground it in real numbers.
To replace Sh130,000 per month, you need about Sh1.56 million per year. If your investments are earning around 8 percent annually, you’d need roughly Sh20 million invested to generate that kind of income consistently. That’s the real target.
Now, when you ask what it would take to get there in 5 years, the answer is where things become very clear. You would need to invest about Sh270,000 every month for the next 5 years to reach Sh20 million.
You are currently earning Sh130,000. So this version of the plan doesn’t work, not because you’re doing anything wrong, but because the numbers simply don’t allow it. The gap is too large for that timeline. So instead of forcing that, the smarter move is to adjust the path while keeping the goal alive.
Rather than aiming for full retirement at 40, think about building financial strength by 40. That means getting to a point where your investments and assets are covering a meaningful part of your life, even if not everything.
A more realistic, and still powerful, target is building a portfolio of around Sh7 million to Sh10 million over the next 5 to 7 years. Now let’s make that feel real.
If you start investing about Sh50,000 every month consistently, at around 8 percent, you’re looking at roughly Sh4 million in 5 years. If you keep going, that grows to around Sh9 million to Sh10 million in about 10 years. That’s how the path actually builds over time.
But to get there, your current budget needs a bit of structure. Right now, you’re not clearly prioritizing investing. You’re spending first, then saving what’s left. That needs to shift.
You don’t have to change your life completely, but there’s room to tighten. Spending Sh15,000 on home entertainment can be adjusted without affecting your lifestyle too much. Even freeing up an extra Sh10,000 to Sh20,000 and directing it into investments consistently makes a big difference over time.
You have mentioned some allocations that you may not be certain about, Sh6,000 for weekend night outs for example. You need to be clear on where every coin goes. Every coin matters in the journey to financial freedom. Being single, I would recommend that you slash your rent to around Sh20,000. It is not clear why you have your partner on a monthly stipend of Sh15,000. This would make more sense if the situation was that of a spouse, under which the money would still be considered ‘in-house’. Does your spouse work? Does she have an income? Is she financially independent? You need to cut this expenditure off and, or at least bring it down to Sh5,000. You also need to cut down your home entertainment down to Sh5,000. With digitization and proper wifi, you can access much of the premium pay tv content that you are currently paying for.
These adjustments alone will give you an extra Sh30,000 that can be directed towards your savings and investments. In order to get your saving plan on track, be clear about the amount allocated for savings. Currently, your allocation for miscellaneous and savings is the balance from your expenses of about Sh15,500. Don’t be vague about what you allocate for your miscellaneous expenses. Allocate Sh3,500 and use the balance of Sh12,000 to top on your savings. Depending on your home situation, if you can readjust your black tax from Sh18,000 to Sh10,000, you would get an extra Sh8,000 which will bring the total amount saved from your readjustments to Sh50,000 per month.
You can start saving this amount at the net rate recommended above, and you may also opt to diversify it amongst various savings vehicles, for example, in order to start building an emergency fund (via a money market fund for instance). You may set aside Sh10,000 every month for this. You may further diversify another Sh10,000 to a professionally run Sacco, and use the balance of Sh30,000 to build on your existing kitty of Sh340,000.
READ MORE: I earn Sh13,000; how do I raise Sh250,000 for poultry, dairy farming business?
Now let’s talk about what you already have. That Sh340,000 in the bank should not just be sitting there. Move it into a high-yield savings account or a money market fund so that it starts earning something while still being accessible. It’s a simple move, but it gets your money working immediately instead of being idle.
Then there’s your land.
This is actually one of your biggest opportunities. It’s worth Sh3.6 million, which is significant, but right now it’s not producing income for you. Your mum is using it, which is fine, but from your financial perspective, it’s an asset that hasn’t been activated yet.
If you can turn even part of that land into something that brings in Sh20,000 to Sh50,000 per month over time, your entire situation will start to change. This requires you to evaluate what portion of the land your mom is currently using and how the remainder can be commercialized. If the land is worth Sh3.6 million currently, what has been its rate of appreciation since you acquired it? Is it in a prime location or is it in a location where land appreciation is exceedingly slow? What agribusiness activities can be activated there to turn it into a profit generating machine? To get proper clarity on this, you may also need to consult an agricultural professional from this area. The answers to these questions will let you know whether you can offload part of the land and redirect the money to investment vehicles that will earn you better returns over and above the sentimental attachment to land.
If we bring this back to your original goal, you are no longer in a bad financial position. You have a good income, no dependents yet, savings, and a valuable asset in land. What needs to change is not your ambition, but your approach.
Over the next 5 years, focus on building momentum. To maintain consistency, automate your money by placing a standing order that sends your Sh50,000 savings and investments kitty to its respective accounts the moment your salary hits your checking account.
I will also urge you to start enrolling for masterclasses on personal finances and investments to start advancing your knowledge on how investments work, for example shares and treasury bonds. This will come in handy as you will need to invest in better instruments such as infrastructure bonds and strong, dividend earning stocks as you build up your investments for that passive income you are targeting from age 40.
By the time you’re 40, you may not be fully retired, but you could be in a position where your money is working for you, your income doesn’t rely on one source, and you have real financial breathing room. And honestly, that’s what financial independence actually looks like in real life.
A version of this personal finance question and answer was previously published in the Saturday Magazine. The Saturday Magazine is a publication of the Nation Media Group.
