My name is Zack. I am aged 36 years and I have a family of two children (6 and 0.5 years) and a wife. My wife is a stay-at-home mom.
I earn a net salary of about Sh. 150,000. My employer is set to close shop by the end of the year 2024 which will leave me jobless. My monthly expenses amount to between Sh. 70,000 and Sh. 80,000.
I do not pay rent as I have built my own house. My financial status is as follows: Sacco savings Sh. 850,000, Investment chama Sh. 500,000. Expected net service pay Sh. 1,300,000. Two pieces of land valued at Sh. 2,000,000. I would like help on how to invest and lead a comfortable life.
Expert’s Take:
At your present stage in life, personal financial planning holds major importance as you navigate transitions in your career, shoulder family responsibilities, and establish the groundwork for your future financial stability.
It’s commendable that you’ve constructed your own residence and accumulated savings and investments.
To effectively manage your finances and reach your financial objectives, it is crucial to commence the process by crafting a comprehensive financial plan and budget. Budgeting assumes a central role in the effective administration of your finances and the attainment of your financial aspirations.
Develop a detailed budget outlining your monthly income and expenditures. Monitor your spending patterns, identifying areas where potential savings or cutbacks can be implemented.
Make establishing an emergency fund a top priority, aiming to cover a minimum of six months’ worth of your expenses. Begin by earmarking a portion of your monthly income to build a financial safety net, providing a cushion for unforeseen expenses and emergencies.
Considering your current expenses, it is advisable to create an emergency fund totaling at least Sh. 480,000, and I recommend investing this fund in a Money Market Fund (MMF). Considering the potential closure of your employer, contemplate exploring new job opportunities or venturing into entrepreneurship.
Investing in professional development, such as acquiring new skills or pursuing further education, can significantly enhance your career prospects. Note that you might not want to try opening a business that might require heavy capital investment given your job uncertainty outlook for this year.
On the contrary, for example, a side-hustle consultancy alongside your current career might not eat into your finances as much and will be an extra income stream or a job loss shock-absorber post December.
It’s also crucial to Involve your spouse in income-generating activities such as getting into employment or business venture. The income generated by your spouse can contribute to covering some of the family expenses, providing additional financial stability.
Since starting a new business is risky, your spouse might want to start off by checking her qualifications and possibility for employment. This will give her a launching template on which she can gain insights on how businesses work should she later opt to start a side hustle and transition to full-time entrepreneurship.
Review your insurance coverage, including life insurance and health insurance, to ensure you and your family are adequately protected in case of unforeseen circumstances. Incorporate retirement savings into your financial goals, as pension saving ensures a comfortable life post-retirement and provides tax benefits.
Continue contributing to your Sacco savings and Investment chama. Saccos are good avenues for long-term savings. I presume your chama operates as a time-bound accumulating savings and credit association where members contribute regularly, borrow from the chama fund, and after a predetermined period, typically around a year, all financial assets are distributed among members proportionally to their savings.
Nevertheless, if your Chama savings are not accruing interest, it’s advisable to contemplate leaving the Chama as your funds are not generating returns.
Ensure you spread risk by diversifying your investments across various asset classes, considering your current financial status. Staying informed about economic conditions and investment options is crucial for making sound financial decisions. It’s important to consider your risk tolerance and financial goals when making investment decisions.
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Given your ownership of two parcels of land, explore ways to leverage this asset for potential income. Options include renting out the land, developing it, or exploring opportunities within the real estate sector.
Evaluate the potential of your land and assess whether selling it could result in a profitable return. Real estate investment provides a source of passive income, but it requires substantial capital and long-term commitment. Returns for property developed for sale typically range from 20 to 30 percent, while rentals yield an average return of 6 to 8 percent per year.
If you are risk-averse, consider investing part of your funds in a MMF. MMFs guarantee returns, preserve capital, allow portfolio growth through regular savings and the funds are easily accessible for withdrawal when needed. Alternatively, treasury bills, treasury bonds, and commercial paper are short and medium-term investment options.
For treasury bills, a minimum of Sh. 100,000 is required, while treasury bonds and infrastructure bonds require a minimum of Sh. 50,000 and Sh. 100,000, respectively. Government securities have shown increasing returns, with treasury bills averaging an interest rate above 16.50 percent and the latest issue of eight and a half-year infrastructure bond paying a coupon rate of 18.46 percent.
If you are a risk taker and you don’t mind holding your money in long term investment, you can consider investing in stocks. Consult with a financial advisor to assist you create a personalized financial plan that is aligned with your financial goals.
A version of this financial question and answer was also published in the Daily Nation newspaper, a publication of the Nation Media Group.