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A 30-year-old married individual required guidance on securing his investment goals for the future.
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The individual mentioned that he earns KSh 50,000 monthly, but he does not have a defined plan for saving for retirement.
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Abojani Investment Chief Executive Officer (CEO) and founder Robert Ochieng advised the individual to prudently manage financial risks and settle outstanding debts
I am a thirty-year-old married male resident in Nairobi, Kenya, and am at present employed on a stable, permanent contract. My monthly earnings total forty thousand Kenyan shillings, unfortunately, entirely devoured by various recurring expenses and bills.
I’m aware of the significance of laying the groundwork for my financial security, especially regarding my retirement fund. Unfortunately, I haven’t established a reliable and enduring plan for setting aside funds, and despite my efforts, I haven’t been successful at saving thus far, which is causing me increasing concern as my retirement draws near.
I’m eager to receive guidance on how to start this journey while being mindful of my current financial limitations.
Robert Ochieng serves as the Chief Executive Officer (CEO) and founder of Abojani Investment, a private firm focused on assisting individuals in aligning their personal finances with personal objectives – a trusted platform for financial guidance and investment expertise.
Establish a budget
The secret to a secure financial future is effective debt management.
The key to securing a stable financial future is having adequate medical insurance, settling short-term debts and making responsible financial decisions through the creation and adherence to a budget, all as Ochieng advised.
At 30, one typically has already gained some work experience and is in a prime position to acquire more skills and expand their professional expertise, leading to a potential increase in earning potential.
Set financial goals
He suggested breaking down goals into brief, intermediate, and extended-term plans.
I commend you for thinking of the long-term plan of retirement. It’s essential to first establish short-term objectives such as creating a budget and accumulating savings. Additionally, consider setting medium-term objectives that align with your visions of acquiring a plot of land or owning a home.
“After paying rent and purchasing essentials like food, he expects you to have a considerable sum left over for other personal expenses,” he observed.
The financial expert also observed that with an income of KSh 50,000 per month, one can achieve greater financial gains if they allocate their finances wisely.
Considering your long-term financial goals, it is recommended to establish a saving routine as soon as possible.
He recommends setting aside funds as soon as you begin earning a salary.
“It’s suggested that you reserve at least 10% of your income in the beginning phase of your employment. Once your earnings rise, it’s advisable to elevate your savings to the range of 15% to 20% of your income,” the expert counseled.
Expert Ochieng advises individuals to create an emergency reserve that can cover three months’ worth of living costs.
“You must be assertive about saving. With rent costing KSh 10,000, and expenses for food and shopping standing at KSh 15,000, along with personal and credit expenses totaling KSh 15,000, you should still have at least KSh 10,000 left over for savings and investments,” Ochieng clarified.
Considering your financial goals, reviewing your credit score and improving it can help you qualify for better interest rates when borrowing money. Building an emergency fund to cover three to six months of living expenses is also essential, minimizing the risk of accumulating debt when unexpected expenses arise. Generally, saving for retirement early is wise, and contributing to a tax-advantaged account, such as a 401(k) or IRA, can significantly increase your financial capabilities in the long term.
The chief executive officer recommended joining a Savings and Credit Cooperative Organization, preferably the one that your colleagues at work are saving with, in order to potentially have guarantors for future loan applications.
He observed that saving via a SACCO develops a healthy habit and increases self-discipline.
A monthly savings of Kenyan shillings 5,000 in a Sacco account, which earns 10% annual interest every year, will result in an interest amount of Kenyan shillings 6,000 at the end of the first year. If this savings habit is maintained consistently for three years, and the interest earned is invested, it will amount to approximately Kenyan shillings 200,000. This savings plan can be used as a loan multiplier, enabling you to borrow up to three times the accumulated amount, making it possible to secure a loan of around Kenyan shillings 600,000, which can be used to purchase a plot and a house, effectively allowing you to eliminate rent from your expenses, and you can own a home at your own pace.
The Sacco loan repayments will be averaged at approximately 12,500 Kenyan shillings over a period of 72 months, based on the reducing balance formula noted by Ochieng.
In addition to the loan, your Sacco account will continue to accumulate interest as you repay the six-year loan.
In the unfamiliar territory of personal finance, saving in money market fund investments may offer numerous advantages as a low-risk avenue for conserving finances. A money market fund typically invests in low-risk, short-term debt securities and cash equivalents, with the aim of preserving capital while generating modest returns. A small segment of savers maintains a lion’s share of their investments in money market funds, while the remaining portion is held in other types of investments.
Some money market fund varieties are designed to meet specific needs, or goals, these include:
“There are five major types of money market mutual funds:
Liquidity funds
Short-term income funds
Prime fund
Portfolio investment and gear
One of the most attractive aspects of money market funds in the eyes of potential savers is the acquired benefits. Such as liquidity benefits, earning high return rates, and economy secured.
In addition to these advantages, these types of funds have benefits to businesses also. Offering them liquidity while the investment is being generated reducing the risk levels.
It typically involves investing money in low-risk, short-term instruments such as:
‘Commercial paper
‘Certificates of deposit
‘Treasury bills
“Total return of money market funds takes place on a daily basis. Some money market funds may focus on specific areas, for instance, charging women, entrepreneurs and launch a movement to help making investment power shift people who may not have been able to entry the finance of markets.
Ochieng also advised to put the KSh 3,000 balance into a money market fund for investment.
Based on your estimated monthly expenses of approximately 40,000 Kenyan Shillings, it is estimated that the total three months’ expenses would amount to around 120,000 Kenyan Shillings. Achieving this requires about three years.
The savings will receive interest on a monthly basis. This would mean that savings of KSh 3,000 will accumulate to KSh 40,000 within the first year at an interest rate of 10% per annum.
He pointed out that these savings can serve as a contingency fund for any unexpected situations or even future plans to construct one’s own home.
Reducing household expenses: Effective Strategies for Curbing Food and Personal Item Costs
Maintaining a balanced budget can be a challenging task, especially when it comes to catering to the needs of family and friends. Here are some practical suggestions on how to minimize expenses on food and personal items:
**Food**
In order to save money on food expenditures, consider the following strategies:
1. **Meal planning and budgeting**: Establish a weekly meal plan and stick to a budget to avoid impulse purchases and overspending.
* Create a list of meals for the week, taking into account dietary requirements and preferences.
* Set aside a specific amount of money for groceries and stick to it.
2. **Cook at home**: Cooking meals at home is generally cheaper than dining out or ordering takeout.
* Plan meals that use ingredients in bulk, such as soups, stews, and casseroles.
* Use coupons, discount codes, or cashback apps to save on groceries.
3. **Plan for leftovers**: Use leftover ingredients to create new meals or freeze them for future use.
* Use storage containers to keep leftovers fresh and organized.
* Consider composting food waste to reduce your environmental impact.
**Personal Items**
To reduce expenses on personal items, consider the following strategies:
1. **Prioritize needs over wants**: Distinguish between essential and discretionary items.
* Set aside money for essential items, such as toiletries and personal care products.
* Allocate a specific amount for discretionary items, such as hobbies or entertainment.
2. **Shop during sales**: Take advantage of sales and discounts on personal items.
* Look for coupons, discount codes, or cashback apps to save on personal care products.
* Consider shopping at discount stores or online retailers.
3. **Consider second-hand options**: Explore second-hand stores or online marketplaces for personal items.
* Consider buying gently used or refurbished items, such as clothing or electronics.
* Resell or swap items that are still in good condition to avoid waste.
It was also recommended that KSh 2,000 be allocated for immediate savings in a standard banking account.
Any surplus from your job should enhance this account. You can use these earnings to rent land for growing grains and vegetables, alleviating your food expenses.
“Acquire dry staple foods in large quantities, especially when they are in season, and purchase clothing during off-season clearance sales,” Ochieng suggested.
The chief executive officer stated that possessing knowledge, required capabilities and a sense of self-assurance is essential for making financially sensible decisions.
He advocates for regular training sessions for novice investors, providing guidance and instruction at Abojani Investment on a monthly basis.
The information provided in this article is for general guidance only and should not be considered as a basis for readers to make decisions about managing their finances. Readers are advised to seek qualified professional advice that is tailored to their specific situation before making any financial decisions.
Do you have a story to share or seek professional guidance? If so, kindly email us at askanexpert@.co.ke with ‘Ask an expert’ in the email subject line.
How to manage income
A 30-year-old Kenyan man spoke out about his financial difficulties, stating that he consistently found himself in a state of financial hardship well before the middle of the month.
He inquired about guidance on managing his finances, given the high cost of living and the depreciating value of the shilling.
Financial consultant Rufas Kamau urged him to exit consumer debt and settle all outstanding mobile app loans.
Kamau also suggested finding another job, or side hustle, to generate extra earnings, among other money-saving strategies.