The Question: My name is John. I am 44 years old. I got a job in Europe and moved to Romania, Eastern Europe, two months ago for work.
I have a wife and three kids who are in Kenya. Every month, I am able to make between Sh90,000 and Sh150,000 depending. My family currently lives in a rental apartment.
My goals are to make enough money to buy land and build my family a home, then invest and return home. I don’t want to live here forever. I borrowed Sh800,000 (Sh400,000 from the bank for two years, Sh250,000 from siblings and relatives, and Sh150,000 from my chama) to fund my move here.
I spent this money on agency fees and visa fees. My current savings are largely going towards offsetting these debts. I pay the bank about Sh21,700, I pay siblings depending on how much I make in a particular month, and chama I pay Sh10,000.
I then send Sh35,000 to my wife to cater for my family’s monthly expenses. How do I plan my money, save more, invest and realize my goals so that I can return to Kenya before in six years and live comfortably without struggling financially?
The Answer: Benjamin Cheruiyot – the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm.
With an average monthly income of Sh120,000, your disclosed expenses add up to Sh66,700. This does not include your personal living expenses abroad. Assuming you spend Sh26,800 you will be left with Sh26,500. Investing this amount monthly will help you to meet your medium term financial goals of home ownership.
However, you should look at a longer employment duration as six years won’t be enough to cover your goals, pay debt and meet other needs like your children’s education costs.
For instance, Sh26,500 invested in a low risk fixed income fund returning 12 percent annually will add up to Sh2.7 million in six years.
This may not be enough to buy land in a desirable location in 2033. The cost of land today will have accelerated in six years at a bigger pace than the returns derived from your investment.
This scenario would force you to work even longer abroad to keep up with the cost of land and building that will keep rising in tandem.
If the same amount is invested for ten years, you will accumulate Sh6 million that may afford you a plot at a cost of about Sh4 million further away from urban areas.
With inflation and fuel costs steadily out-pricing materials and transportation costs, building a modest three bedroom house could cost Sh6 million in a decade.
This may not be a very viable financial plan for you as saving Sh26,500 monthly in a fixed income fund posting 12 percent annually won’t be enough.
An easy way to realize your goals is borrowing to buy land first. Currently, you may spend about Sh2 million on a plot. Borrowing this will cost you about Sh30,000 monthly payments in ten years, or Sh35,000 in eight years.
You may not afford that now since you are servicing debts. Your bank loan will likely end in three years, and the chama loan in eighteen months. You will be better placed to consider a loan to purchase land by 2030.
This also depends on the nature of your job. Contractual jobs may forbid you from taking long term debt. You would need to take shorter loan repayment periods. Sh2 million loan repayable in five years will cost Sh45,000 per month. This will be possible after you clear the current loan.
A SACCO loan would be cheaper. You need savings of Sh600,000 to access a Sh2 million SACCO loan through the 3-4 times loan multiplier effect.
If you join a SACCO now and contribute Sh15,000 monthly, you’d accumulate Sh600,000 in three years from own contributions and interests on deposits.
Depending on location, though, you may consider a rural set-up where costs of acquiring land and building would significantly reduce.
This should be based on the area your family currently resides and the ability of the rural area you might target to be economically activated. For example, through agribusiness.
Alongside this, you can deposit Sh10,000 monthly in a unit trust fund for liquidity to manage unforeseen circumstances or build a sinking fund for your children’s education or building budget.
Actively managed cash flow assets like unit trust funds – bond fund and special fund can help meet education costs through regular interests. Carefully selected NSE stock, for example, Stanbic, Standard Chartered, Williamson Tea, and BAT can achieve both income and growth objectives.
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Growth of assets through consistency and compounding interests will set you up for a comfortable retirement. Increasing income sources avails more cash to meet long term goals.
At 44 years old, personal finances must align with milestones to help achieve financial freedom at 60. Lifestyle costs must pass austerity measures. Medical and life insurance are not luxuries.
It is also recommendable that you and your spouse discuss how she can bring extra income on board.
The two of you can start by tracking how the Sh35,000 family expenses budget is utilized and if there are unnecessary expenses that can be cut off or reduced to eke out an extra shilling that can go to an emergency fund to be set up in a money market fund.
Once this is done, evaluate your spouse’s employability, the skills she has and how they can be converted into a job, if she is not already working and earning.
If she is already working and earning, you may need to have a talk on how her income can be enjoined in achieving the family goals, how her money is spent and what financial changes and, or obligations need to be included in her income.
Should the two of you consider starting a business, I would urge that you be cautious as more new businesses collapse than break even. Consult a professional who can evaluate your business ideas and their viability based on location and the targeted clients.
In addition, it’s not late for you to acquire skills that can position you for higher income opportunities abroad and locally. This also means that you should start to consider what you will do to continue earning, directly or passively, when you return to Kenya.
A version of this question and answer was previously published in the Saturday Nation. The Saturday Nation is a publication of the Nation Media Group.
