I am in Juakali and earn Sh185,000 monthly, save only Sh19,000, and have Sh300,000 loan. How do I spare money for a plot and build for my family?

 

My name is Njuguna. I am married with two children. One is in Form 2 and the other is joining Grade 5. I work in the Juakali sector. My business deals with the hiring of construction materials like steel trappers, wood, and props which are used in the construction of slabs. I hire these out for 30 days, which is the duration it takes for a slab to heal. Once returned, they are repaired and stocked for hiring out the following month if there's business. Keeping records and running the business on a budget is a huge challenge in this sector. But according to what I can glean from my records, my income has been as follows from January to April:

Breakdown of costs

MONTHLY INCOME (Sh)		SAVINGS
January	235,728	M-Shwari Lock Account	40,000 saved between January and April with annual target of Sh. 250,000.
February	99, 690
March	215,622
April	190,516
MONTHLY EXPENSES (Sh)		OTHER EXPENSES (Sh)
House rent	15,000	Chama loan	300,000 – 18,000 monthly (2 years’ loan term)
Yard rent	20,000	Yard Repairs and maintenance	20,000 (varies from month to month)
Utilities	3,000	Casual labour	15,000 (varies from month to month)
Household expenses	20,000	Entertainment	20,000 (varies from month to month)
Sacco savings	5,000	Parents	5,000 (varies  monthly)
Merry-go-round	4,000	School fees	98,000 (per year)

I invested the Sh300,000 Chama loan in a government tender whose payment date is yet to be known. The tender is supposed to yield Sh180,000. I have repaid two months of the loan now. I would like to purchase a plot where I will put up a family home with a budget of between Sh800,000 to Sh1 million in the near future. How can I achieve this with my income and expenses?

Financial experts' advice

Chacha Nyaigoti Bichang'a, personal finance coach at financial consultancy firm, Chachanomics Limited

Chacha Nyaigoti Bichang’a, personal finance coach at financial consultancy firm, Chachanomics Limited. PHOTO|POOL

From your income and expenses, your total average monthly income for the first quarter of the year is Sh185,389. Your expenditure is approximately Sh173,177. This is exclusive of any miscellaneous expenses you might have incurred.

Your Sh300,000 Chama loan is a very expensive one. You will pay a total of Sh432,000 which means you're being charged an exorbitant interest of 20 percent. For now, the income you are anticipating from the tender is unreliable. But you have started well by locking your savings. You will hit the target of Sh240,000 within 12 months. However, your Sacco saving of Sh5,000 per month is a bit low. You need to increase it to at least Sh10,000 for higher dividends and future access to credit. Entertainment is unnecessary for now. It costs you Sh20,000 per month and Sh240,000 per year. Cut it off and channel Sh10,000 towards repaying the Chama loan and the remainder towards your Sacco savings so that you save Sh15,000. This means you'll now pay Sh38,000 for the loan. This should help you clear the loan within the next 10 to 12 months.

Once the loan is cleared, you will have an extra Sh38,000 which you can use to boost your Sacco savings monthly. If you can direct the same installments to savings, within the next 12 months after clearing your loan, you will have saved Sh456,000. Your Sacco account, where you have now been saving Sh15,000, will now have at least Sh330,000.

If you manage to make Sh250,000 fixed M-Shwari amount, your total savings will be Sh1,036,000 without any loans. Currently, you can get a 50*100 plot along Kangundo Road in the outskirt areas of Nairobi at Sh500,000. You can decide to purchase a plot and use the remainder to set up a cost-effective semi-permanent house without taking any loan. Alternatively, the Sh1.036 million will get you a Sacco loan of Sh3 million. Taking a loan, though, should depend on the rate your Sacco will be willing to offer you. If you take the loan route, it will be prudent for you to consider rentals that can generate more income and help offset the loan faster. With residential rentals, your family can take up one or two houses to further save on the Sh15,000 you spend on rent monthly. Since your business is quite erratic, separate your accounts. Get an account for irregular expenses, school fees, and business income.

Felista Wangari runs the 52 Weeks Savings Challenge personal finance group on Facebook

Felista Wangari, runs the 52 Weeks Savings Challenge personal finance group on Facebook. PHOTO|POOL

Your finances indicate that every month, you can save Sh19,000 in your Sacco, merry-go-round, and M-Shwari. Without a timeline, this money can help you buy a plot and put up a family home at Sh800,000 to Sh1 million. At your savings rate of Sh14,000 from the merry-go-round and M-Shwari, it will take you five to six years to achieve your goal. If this Sh14,000 was to be saved directly into a place where you can get compound interest such as a money market fund, offering an average rate of say 10 percent for five years, you would have Sh1,107,153 in savings.

At the same time, your Sh5,000 monthly contributions to the Sacco will have risen to at least Sh360,000 with dividends to give you a total of Sh1.46 million. The Sacco savings alone can give you access to credit three times the savings or about Sh1.08 million. It's worth noting that some SACCOs have housing funds to help members achieve their goals of building or buying homes. A handful of SACCOs have also gotten funding from the government through the Kenya Mortgage Refinance Company to offer mortgages under the affordable housing plan. Talk to your Sacco.

Because your income varies from month to month, there is a possibility that you might be able to save extra in some months. Start by separating business and personal finances and plan on paying yourself a salary. Cut on your household expenses and entertainment as the prices of land and building continue to rise and you need to acquire land now.

Paul Muhami, financial and business advisor at SME Resource Centre

Paul Muhami, financial and business advisor at SME Resource Centre. PHOTO|POOL

Your figures show that since January, your revenues are Sh741,556. This gives you an average of Sh185,389 monthly. According to your estimates, your monthly business expenses are Sh58,000 (31 percent) and household expenses Sh105,000 (56.7 percent). Hiring out scaffolding aids means they were made once and repair only happens on a need basis. It also means that once you hire, you wait for the entire month for them to be returned, repaired, and rehired out again. This implies that you have a lot of time on your hands, which can be utilised in earning more income for your domestic expenses, which are putting a huge strain on your income.

Boost your revenues by doing more business, and also reduce your operating expenses. Since you already have a captive market, look for more items to cross-sell in the construction industry. Sh20,000 on entertainment is not justifiable. Put the money in a money market fund instead, in a year you'll have Sh240,000 in savings and a minimum of Sh24,000 from 10 percent interest.

In three years, this will be Sh720,000 and Sh72,000 in interest. This is Sh792,000 you'd have spent on entertainment, which can buy you a plot! In areas such as Malaa and Joska, you can get a plot at Sh500,000. Top up the remaining Sh192,000 on your Sacco savings of three years (60,000 per year) to get Sh372,000. Assuming by this time you will have offset your loan of two years and saved Sh18,000 monthly installments for one year, you'll have an extra Sh216,000 to make your total saving Sh588,000.

In your Sacco, this amount can give you a loan of Sh1.8 million which you can use to set up a three-bedroom bungalow without touching your M-Shwari savings. Whereas it is good you are saving via M-Shwari, it is not the best saving vehicle. Anything that gives you a six percent return, annualised, is not an investment, because the monthly Consumer Price Index (CPI/Inflation) is around this number. Save in a Unit Trust or Sacco for superior returns. Your return on investment must always be above the prevailing inflation rate.     BY DAILY NATION