My name is Abraham Mutie. I am a 43 year old civil servant working in Nairobi. I earn a gross salary of Sh. 225,000. I have become a slave of bank loans. I have tried some business but they have failed.

I live in my own house worth Sh. 7.5 million inclusive of plot. I have another plot worth Sh. 3.5 million within Nairobi metropolis which I want to dispose to settle my loans. I also have another land worth Sh. 1.7 million where I do farming (maize & beans). My loans are as follows:

 1). Bank loan bal: Sh. 3.7 million, paying Sh. 96,000 per month.

2). Sacco loan bal: Sh. 700,000, paying Sh. 34,000 per month.

3). Sacco loan bal: Sh. 350,000, paying Sh. 9,000 per month.

My budget is as follows: Sacco saving Sh. 5,000/month (saved Sh. 700,000), education insurance Sh. 5000/month, NSSF Sh.1,000/month. Expenditure rent zero, traveling/fuel Sh. 15,000, house shopping SH. 15,000, electricity Sh. 2,500, airtime/data Sh. 3,000, TV subscription Sh. 1,200.

Entertainment Sh. 5,000, others /miscellaneous/parents/siblings support Sh. 7,000. Children School fees Sh. 240,000/year. I don’t have emergency savings. My account is zero. How can I maneuver myself through this situation?

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Expert One:

Including PAYE at 10 per cent on the gross pay, the net position on this payslip will be negative Sh. 16,500.

Reduce the following expenses by 40-50 percent: traveling/fuel, house shopping, electricity, airtime/data, TV subscription, entertainment and others /miscellaneous. This will move the payslip from negative to positive.

Consolidate the two SACCO loans and move into longer repayment. This will free some cash flows.

Monetize the plot. Fence it and lease for farming or whatever business opportunity the environment presents. This will bring some additional cash flow.

Going forward, you need financial discipline and you need financial planning. Prepare and use a budget for spending. Budget will assist to limit compulsive spending.

This budget should be regularly reviewed to make adjustments in the estimated expenses based on the actual experience.

The budget should also include a plan for retirement. Assuming the above works well, it will take you to year 46. The retirement plan should be ready and running at year 50.

Your success will depend on one thing: financial self-discipline.

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Expert Two:

You have concentrated your investments in real estate and farming. A term life endowment policy and cash savings of Sh. 700,000 only means you’re quite conservative in investments. You can do more by increasing investments in the capital markets to provide you with the much needed liquidity especially after retirement.

Your loan balances amount to Sh. 4.75 million, against an asset portfolio of Sh. 12.4 million. Your assets should sweat harder to return at least 10% from passive investments. Your net worth (assets minus liabilities) is an impressive figure of Sh. 8.65 million.

With your annual expenses (excluding loan repayments) amounting to Sh. 956,400, you will need a Sh. 10 million net worth to cover your lifestyle without working a salaried job ever again. Your investments would earn Sh. 1 million at a modest return of 10% annually. You need to do an appraisal of your farming activities to determine if they are financially viable enough to top up your loan repayments. Do this using a simple expense versus income table.

Earnings of around Sh. 70,000 from the SACCO in annual interests (assuming dividends are declared at 10%), cannot cover half of your monthly expenditure. Do a lifestyle audit to eliminate excesses in fuel and transport, and find the Sh. 6,300 that you can’t account for. Loans occupy 61.7% of your income.

The sooner you settle them, the better for your long term finances. With current loan repayments amounting to Sh. 139,000 for Sh. 4.75 million loan balances, selling the vacant plot will leave a balance of Sh. 1.25 million that can be serviced with a Sh. 44,000 monthly repayment for 3 years. You have only savings of Sh. 700,000 locked in Sacco and can’t afford to take a fresh loan to repay the old loans.

That would leave Sh. 95,000 available for investments. Investing this amount in a money market fund will accumulate to over Sh. 1.2 million in a year (at 9% annually). You can withdraw Sh. 1 million and invest in a government infrastructure bond earning at least Sh. 130,000 annually.

I made millions in US but have returned to Kenya broke because of my American wife

You will receive Sh. 65,000 every 6 months. Repeating this process will result in Sh. 1 million invested every year. In four years, your investments will total Sh. 4 million and cumulative payouts of Sh. 520,000.

Other investments that would not drain your time and energy include boosting your SACCO monthly deposits to Sh. 20,000. In another year, your savings will accumulate to Sh. 940,000 that will earn you at least Sh. 90,000 at 10% annual interest.

In four years, your cumulative earnings will approach the Sh. 500,000 mark. These investments will provide you with greater liquidity to finance other long term projects should you seek acquisition of plots to build rentals or expand your farming activities.