I earn Sh. 30,000 plus commissions. How can I save to buy a car, plot and to build

My name is Ezekiel Wafula. I am 28. I am not married. My net salary is Sh. 30,000. Besides my salary, I earn commissions every month depending on the targets I achieve.

This commission is not constant. At times I get up to Sh. 100,000 and other times I get nothing. In April, I made Sh. 70,000 net in commissions. My total net earnings for April were Sh. 100,000. I have a standing order of Sh. 12,000 that is deducted whether I’ve earned commissions or not.

Last month, I saved Sh. 50,000 from the entire amount I earned. I stay in a Sh. 12,000 one bedroom house. I spend Sh. 1,000 on transport per week. I withdrew Sh. 10,000 from my salary account which I used to shop for my mother. My salary account has a balance of Sh. 20,000.  My fixed savings account has a total of Sh. 430,000.

I have not done my house shopping and have a mobile loan of Sh. 12,000. I also need to channel Sh. 10,000 to a separate fixed account meant for a business my friend and I intend to start.

Last October, I joined a Sacco and have so far contributed Sh. 12,000 (Sh. 2,000 mandatory monthly). My goal is to buy a piece of land in Bungoma at Sh. 300,000 and build a Sh. 1 million house for my mom, then buy a Sh. 600,000 car within the next two years. A total of Sh. 1.9 million. How do I achieve these goals within the next two years without taking a loan? I fear loans.

Expert One:

You need a combination of saving and investing to achieve your goals without taking a loan. You already have Sh. 430,000 in savings. The total cost of achieving your goals in two years is Sh. 1.9 million. You need an extra Sh. 1,470,000 to make your goals a reality.

To raise this balance without taking a loan, you would need to save and invest Sh. 61,250 every month for the next 24 months. At an average compound interest rate of 10 per cent, that would give you Sh. 1,694,622 in savings in two years. In two years, the cost of the land you have in mind might have appreciated above the Sh. 300,000 you are allocating for it.

You can decide to use the savings you already have to buy the land this year and do something with it to contribute towards the amount needed for the other goals. If the seller of the land is willing, you can also pay a percentage cost and pay the rest in smaller installments within a certain timeline.

If you buy the land, to achieve the remaining goals, you would need to be saving Sh. 66,667 per month. In April you were able to save Sh. 50,000, while in months when there are no commissions, you are able to save Sh. 12,000.

Goal 1: Buy land at Sh. 300,000 in two years

To buy land worth Sh300,000 in two years without taking a loan, you would need to save Sh. 12,500 a month towards this goal. If you are saving in a money market fund with an average interest rate of say 10 per cent, you will have about Sh. 345,841 in savings.

Goal 2: Build a house at Sh. 1 million in two years

To build a house worth Sh. 1 million in two years without taking a loan, you would need to save Sh. 41,667 a month towards this goal. If you are saving in a money market fund with an average interest rate of say 10 per cent, you will have about Sh. 1,152,813 in savings. The cost of materials will probably have risen, but you can build in phases once you do the costing (bill of quantities).

Goal 3: Buy a car at Sh. 600,000 in two years

To buy a car worth Sh. 600,000 in two years without taking a loan, you would need to save Sh. 25,000 a month towards this goal. If you are saving in a place like a money market fund, with say an average interest rate of 10 per cent, you will have about Sh. 691,682 in savings in the two years.

Since your goals are short-term (two years), channel any extra income you get towards them. Brainstorm some strategies you can use to increase your income so that you can save more towards your goals.

For instance, the business you are planning to start might bring in some extra income, but there are no guarantees from a new business.

Perhaps there are some side hustles you have done in the past or can do to activate some extra income to channel towards your goal. If you are not doing so already, try to save in a money market fund to earn your savings compound interest above the rate of inflation.

You might also want to adjust your timelines to more than two years, which gives you more space to work on your goals through investing.

Expert Two:

Two years is quite a short period of time to achieve the three goals. You need to take radical steps to fit your finances within this period. The first step is to live off the Sh. 30,000 you are paid monthly. This will allow you to save 100 per cent of the commissions you earn.

The ability to achieve your goals in two years without taking a loan will depend on how much commissions you earn. You need to put away Sh. 70,833 every month for the next 24 months. This will give you Sh. 1.7 million. Out of the Sh. 430,000 you have saved, you can dig out Sh. 200,000 and top it on the Sh. 1.7 million to make a total of Sh. 1.9 million which is your estimated budget.

From the balance of Sh. 230,000, you will need to create an emergency fund to cushion yourself from going into debt in the event of an emergency. It is important that you save through an account that will earn your money interest so that you just don’t have money lying idle at the bank.

This will also ensure that with interests, the total amount saved will be higher at the end of the two year period. (In a savings account that pays an interest of 8 per cent, Sh. 1.7 million will give you an extra Sh. 136,000 in two years). Sh. 70,833 monthly may seem like an arduous task.

But last month, you demonstrated your ability to make such commissions. Evaluate what helped you achieve Sh. 70,000 in commission and capitalize on it. You can also reconfigure your net salary of Sh. 30,000. From the net salary of 30,000, Sh. 15,000 should be for your monthly expenses.

The remaining Sh. 15,000 should be shared between savings and wants. Sh. 9,000 for saving and Sh. 6,000 for wants. To curve out more savings, you may consider slashing your rent money from Sh. 12,000 by moving to a more affordable rental house. You also don’t always have to spend on wants if you can get by without them.

Make sure you keep tracking your expenses through an app or excel sheet to see what you can cut off. It is also important that you keep off mobile loans. Their rates are very expensive.

Expert Three:

Your net salary is Sh. 30,000. This amount is consumed by expenses (Rent Sh.12,000, Standing order Sh. 12,000, Transport Sh. 4,000, Sacco Sh. 2,000).

Assuming that your salary remains constant for the next two years, the only way out is to increase the amount and consistency of your commissions and to cut on some of the expenses. Rent is one area you can look at.

Since you don’t have a family, moving to a more affordable rental house can save you an extra of up to Sh. 5,000. Given that your savings are at Sh. 430,000 and you need Sh. 1.9 million by mid-2023, you will need a minimum fixed saving of Sh. 60,000 monthly, holding all factors constant.

Your monthly standing order will give you Sh. 288,000 within the next two years to make you total Sh. 718,000. If you are earning an interest of 8 per cent on savings, you will get an additional Sh. 57,440. If you move to a rental house of Sh. 7,000 and start saving extra Sh. 5,000, you will create Sh. 120,000 for your goal.

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If you earn the same interest on saving, you will get an additional Sh. 9,600. This will give you a total of Sh. 905,000. Your deficit will be Sh. 995,000. You will need to fix this deficit with your commissions of at least Sh. 41,460 every month. This means that every commission, big or small, must go towards bridging this deficit.

For example, if you save Sh. 70,000 commissions, you will have covered one month and half of the following month. You then need to ask yourself: where does most of your commission come from? In most cases, 80% of our results come from only 20% of our activity or clients. Identify your 20 per cent stronghold and be aggressive in what you sell and how you get referrals from them.

Don’t wait until you get the full amount in 2023 to start settling the goals. For example, you can start by buying land at the end of this year in order to reap from its appreciating factor.