“I am currently working for a manufacturing industry in Nairobi and my salary is Ksh 50,000. My aim is to save Ksh 1 million by the end of 3 years, money I want to buy land in Joska or Kantafu after 3 months. Please advise me on the best strategy to use in order to save Ksh 1 million by the end of 3 years”.
Answer
Saving money is one of the hardest things for many people. You may earn even Ksh 200,000 monthly but end up saving nothing while another person earns Ksh 30,000 and saves Ksh 15,000. Your saving habits will greatly determine the amount of money you will be saving. Ideally, in your journey to becoming a millionaire for the first time, here is how to save Ksh 1,000,000 over the next 3 years.
Reduce your expenses
Your expenses should not exceed Ksh 25,000 per month. With a salary of Ksh 50,000, you are required to rent a house with rent costing less than Ksh 12,000. I would suggest your monthly rent to be Ksh 10,000. After paying Ksh 10k, you will remain with Ksh 40,000. Shopping and food will cost Ksh 15,000. You will also spend Ksh 5,000 on miscellaneous expenses. Total expenses and rent should consume Ksh 20,000 to Ksh 30,000. You will remain with Ksh 20,000 to Ksh 25,000 to save.
How to save your money
You have two best options to save your money. You can do so through the Sacco or Money Market Fund.I suggest that you save it through a Sacco so that you can secure a loan and construct a house with it.In a Sacco, you will also be able to earn dividends or interest annually. If you save Ksh 20,000 monthly, the total savings by the end of the year will be Ksh 240,000. Saccos pay interest of 10% to 15% annually. With Ksh 240,000 savings, interest will average Ksh 30,000. This means that your annual savings will be Ksh 270,000. By the end of 3 years, your total savings and interest will be Ksh 700,000 to Ksh 1million depending on the Sacco you opted to join. After 3 years, withdraw the money and buy land.
Another option is saving in Money Market Fund. MMF is a risk free investment where you earn interest daily. Currently, MMF interest rates in Kenya range between 13% and 18% per year. Money Market Fund is safe, even better than Saving money in a Sacco. The best companies include CIC,Britam ,APA and Old Mutual.
If you save Ksh 20,000 monthly, you will earn interest of Ksh 20,000 to Ksh 30,000 per year. Your interest in 3 years will be Ksh 90,000 to Ksh 100,000. Your savings for 3 years will be Ksh 720,000 to Ksh 900,000. In total, your MMF account will have Ksh 900,000 to Ksh 1 million.
How to maintain financial discipline
Avoid women, alcohol and gambling. These are the things that will increase your spending and prevent you from saving.
Avoid owning a car. A car is a liability—it will not allow you to save because most of your income will go into servicing it, fueling and doing repairs.
Don’t change your lifestyle—maintain your lifestyle even if your salary is increased.