I make Sh55,000 and spend Sh41,000. How do I save Sh600,000 to buy a plot within 12 months?

 

My name is Odhiambo. I am 25 and unmarried. I work as a freelance transcription and academic writer. On average, I make Sh55,000 from my work every month. So far, I have managed to save a total of Sh98,000. I live in the Pipeline area of Nairobi County. Every month, my total budget amounts to about Sh41,000. This budget includes the following items:

Food – Sh9,000

Rent – Sh7,600

WiFi – Sh1,500

Entertainment – Sh5,000

Family – Sh5,000

Friends – Sh5,000

Tithe – Sh500

Airtime – Sh1,500

Emergency / Pocket money – Sh5,000

How do I save so that I can buy a plot of land at Sh600,000 within one year in Kisii?

Stella Chepng'eno, personal finance coach and certified corporate trainer, Eagle Tact Consultants

Stella Chepng’eno, a personal finance coach and certified corporate trainer, Eagle Tact Consultants. 

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From your income and expenses, the following analysis can be drawn:

You are supposed to be saving Sh50,000 every month to achieve your goal of Sh600,000. Currently, you already have savings of Sh98,000. Convert these savings into an emergency fund so that in the event of an emergency, your finances will not be disrupted from your primary goal. You have to make some major sacrifices and reduce your expenses radically if you want to hit the Sh600,000 mark within the year. The first place to focus on is the expenses on entertainment and friends. These will give you Sh10,000.

Since you already have a disposable income of Sh14,900 from your income and expense balance, your monthly savings will rise to Sh24,900 to give you Sh298,800 at the end of the year. This amount should be saved in a money market fund that will pay you compounded interest of at least 9 per cent. This means that your total savings for a year will be Sh325,692. This will leave you with a savings deficit of Sh22,859 monthly.

To bridge this deficit, you may need to work extra or do side hustles. Alternatively, you can stretch your goal timeline from one year to two years. With compounded interest, your savings will amount to over Sh600,000 without touching your current savings of Sh98,000.

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

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

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After deducting your current saving, you would need to save Sh41,833 per month to reach Sh600,000. This is more than your monthly budget of Sh41,000. If you saved Sh98,000 for a year, it means that you saved about Sh8,167 per month. However, since there are no budgeted savings in your expenditure, you currently do not have a savings plan. This means that your average savings are below the required margin of between 10 to 30 per cent.

The first step you need is to match your savings with your goal. Start by cutting down on your rent. Look for, and move, to a cheaper house of about Sh5,000. This will save you Sh2,600. Cut down on family expenses by half to save another Sh2,500. In the meantime, do away with expenses on entertainment and friends to save an additional Sh10,000. These cuts will give you Sh15,100 every month and Sh181,200 in 12 months.

Find a reputable Sacco that pays at least 10 per cent on dividends and pool your savings there. At the end of the year, you will have a total of Sh279,200. If you earn dividends at a rate of 10 per cent, you will get an additional Sh27,920 to make total savings of Sh307,120. This amount will be sufficient for you to access a Sacco loan of up to Sh921,360. Alternatively, you can add the balance between your income and expenses of Sh14,000. If you can sustain an income of Sh55,000, this balance will give you savings of Sh168,000 to make a total of Sh447,200 without dividends and Sh491,920 with dividends at 10 per cent. This will give you access to a loan of up to Sh1.475,000, which is enough to buy the plot and build a simple home.

However, instead of taking the loan route, you can extend your timelines. Within 18 months of diligent saving from the above budget cuts, you will manage to have Sh737,880 and Sh983,840 within two years. It is also commendable that you have a budget for emergencies. This fund should be saved in a Money Market Fund where interest will be compounded. You may consider hiving off Sh500 and enlist for health insurance under the NHIF to caution you in the event of a medical emergency.

Robert Ochieng', Investment and Financial advisor at Abojani Investments

Robert Ochieng’, an investment and financial adviser at Abojani Investments.

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With your current savings of Sh98,000, you have a deficit of Sh502,000. This is a figure you can achieve within two years by using your surplus income of Sh14,000 and cutting down on expenditure to friends by Sh3,000, entertainment by Sh3,000. If you save this money in a Money Market Fund that gives you at least 10 per cent in returns, by the end of two years your savings will be Sh635,800. You must evaluate how fast or slow land prices appreciate in the area you are looking to purchase. This will let you know if you need to make further cuts on your expenses, for example, move to a cheaper house of about Sh5,000. You may want to explore the Sacco loan option.

With a Sacco loan, you will only need to have Sh200,000 and guarantors. On a Sh600,000 plot loan, you may attract a repayment rate of about Sh13,500 per month at 12 per cent per annum with a duration of five years and about Sh20,000 per month for three years. Your income and budget should be able to sustain this before you can apply. Between the two options, you may want to ask yourself if you're better off saving for two years to buy the plot without a loan, or taking a loan and servicing it.    BY DAILY NATION