With a monthly income of Sh80,000, what must I do to buy my dream house within 5 years?
: My name is Abdul Musa. Before Covid-19, I was making between Sh90,000 and Sh105,000 per month. From these earnings, I had managed to save Sh1,242,000. However, I fell sick and used all of these savings. In addition, my extended family was forced to borrow Sh790,000 to settle my hospital bills. I am now back on my feet and today, I make Sh80,000 per month. My monthly expenses are as follows:
Rent: Sh30,000, school feesSh10,000, Food:Sh8,000, Airtime and fare: Sh2,000, Debt: Sh10,000, Savings: Sh3,000, Mum: Sh10,000, Water and electricity: Sh2,000, Wife: Sh3,000. I had a plan of buying a plot or a house before I fell sick and used all my savings. Now that I am productive again, what do I need to do to attain my goal within the shortest time possible?
Rhina Namsia, founder and CEO of The Acemt Consulting, a training and consultation company that provides financial planning and investment advisory
Let us look at your income versus your expenses. From the Sh80,000 you make every month, you spend Sh78,000, leaving you with Sh2,000 only. This amount is insufficient in helping you realise your goal. You have to make some few adjustments on your budget. Start by getting a cheaper house. To avoid changing your lifestyle radically, you can start with a house rent of Sh25,000. This will free up Sh5,000. Talk to your mother and arrange how the monthly stipend she gets can be slashed to Sh6,000 in the interim. This will free up an additional Sh4,000. Secure the Sh3,000 you have allocated to your wife in the interim.
Owning a home or a plot is a goal she will be willing to contribute to. From these adjustments, you will free a total of Sh15,000. The next step is to figure out how to wisely save this money. A short term goal should not go beyond five years. Therefore, put Sh5,000 in a money market fund every month. A money market account compounds the interest earned. Assuming an average annual return of eight per cent on the money market, in five ears you will have accumulated around Sh360,000. The other Sh10,000 can be saved in a good Sacco, where you should be able to get a loan worth three times your savings and pay you good dividends, at least above the inflation rate and in the range of eight to 10 per cent. If you save Sh10,000 every month for the next five years, you will accumulate Sh600,000, making you eligible for a loan worth Sh1.8 million. At this point you will have Sh2.2 million.
With this amount, you can then scout for a piece of land. Consider your preferences such as proximity of amenities and your budget to get an affordable place. The Sh2,000 balance from your earnings can be saved in a separate money market account for any emergencies that may come which is very important in order to avoid withdrawing your savings for crises such as sickness. Choose a cover you can afford and sign up for NHIF as well, which costs from as little as Sh500. It will also be important to secure a retirement plan. This may require you to find additional sources of income to add on the Sh80,000 you make monthly. Saving alone may not get you to where you want to be in the short run so you may need to invest some cash into assets, such as shares, that can grow your money as well. If you pick good shares with great fundamentals, you may be able to scale up your income exponentially.
Chacha Nyaigoti Bichang’a, personal finance coach at Chachanomics Limited, a financial consultancy firm
Lack of a life assurance or medical insurance cover is the biggest challenge you currently face. This is why your hospital bill consumed a total of Sh2,032,000, including all your savings. To prevent a similar health financial risk from recurring, shop for affordable comprehensive medical covers based on your needs and budget. With a monthly premium of between Sh5,000 and Sh10,000, you can procure a family cover that can guarantee an outpatient offer of between Sh100,000 and Sh300,000 and in-patient cover of between Sh1 million and Sh3 million per year.
Such a cover will come with additional benefits like dental, optical, consultation fee, laboratory tests and surgical operations. To get your finances on track, you should urgently consider reducing some of your expenditure on rent, school fees and your mother. Rent is your biggest expense at Sh30,000. This is unnecessary considering your reduced income and debt. You should consider moving to a cheaper house of not more than Sh10,000 for the time being and save Sh20,000. This would also imply that you look for a more affordable school for your children at your new residence. Your saving is too little to meet your financial goals. Consider reducing the money spent on your mother to around Sh3,000 and channel Sh7,000 to savings to make a total of Sh10,000.
Divide the Sh20,000 you saved on rent into two. Top up Sh9,000 on savings to get savings of Sh19,000 monthly. Of the remaining Sh11,000, use Sh5,000 to shop for a health cover and top up the balance of Sh6,000 on your loan repayments. That way, you will be repaying Sh16,000 instead of Sh10,000. Assuming the debt you’re paying is the one your family took for your health bill, you will be able to pay it off within four years using the new repayment of Sh16,000 on reducing balance.
With your increased saving of Sh19,000, go for a well-managed Sacco which will earn you dividends and guarantee you a loan within two or three years. In a year you would have saved Sh228,000 and Sh684,000 in three years. You can qualify for a Sacco loan of Sh2 million which can help you buy a plot. Note that some Saccos provide housing financing products that can help you achieve your goal faster. Some offer affordable mortgages. BY DAILY NATION
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