I am 47. I earn an after-tax salary of Sh780,000 a month. My total monthly expenses are about Sh400,000, with the bulk being school fees for children. Above that, I have a mortgage loan of Sh136,000, Sacco loan of Sh252,000 a month and a personal bank loan of Sh54,000.
After these payments I literally have nothing left. I do have a side hustle giving me about Sh300,000 a month and it is where much of the Sacco loan was invested. My net assets now are around Sh90 million but other than my Sacco savings of Sh2 million and pension of about Sh6 million, I don't have much liquid to write home about.
I want to retire in three years with expected monthly expenses of Sh400,000 without any loan and savings of about Sh300,000 a month from business. Kindly advise, as I feel that I am getting a good income but sinking at the same time.
Benjamin Cheruiyot – the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm
Your total monthly expenses, inclusive of loans, add up to Sh842,000 against incomes totalling Sh1,080,000. This leaves you with a surplus of Sh242,000.
This is an enviable position and you would even do better if you put more austerity measures on your regular spending. The target should be to limit your spending to your salary only so that the business income of Sh300,000 is reinvested in the business or elsewhere for an even higher income.
I presume your net asset worth of Sh90 million is largely financed by the loans you are servicing. As you haven't given loan timelines, you could save on further interests by making additional payments towards your principal from your surplus of Sh242,000.
A debt-free situation will release Sh442,000 monthly to your disposal. Added to the surplus of Sh242,000, that would amount to some Sh684,000, which would be available for use in growing your business further and setting you on the path to financial freedom.
Although you are preparing for retirement, I would encourage you not to be in a rush to liquidate your net assets. Instead, concentrating on eliminating the existing debts will give you a smooth transition into a retirement in which you will not spend your days losing sleep over running loans.
Overall, your profile indicates an individual who has put debt to excellent use despite many being risk-averse, especially in the current business and economic landscape that does not inspire much confidence.
With Sacco deposits at Sh2 million, you are looking at an estimated Sh200,000 in annual interests (which you can count as passive income) that can offset certain irregular expenses, pay insurance for business assets or build an emergency fund for your business or personal finances.
With the bulk of your expenses going to school fees, I would encourage you to look into education policies that you can invest in to safeguard your children’s academic continuity post-retirement, depending on their age, academic stage, and future prospects.
Should you retire at the age of 50 without a significant increase in monthly business income, and assuming you're debt-free, you will still have a deficit of Sh100,000 if monthly expenses remain at Sh400,000.
It is therefore paramount that if you're looking at retiring in three years, you should conduct a lifestyle audit to trim your regular expenses by 25 per cent so that you match your current business income.
Likewise, boosting business income by 50 per cent monthly will take care of dependence on business income alone. The house you're paying mortgage on can be leased for higher income as you rent cheaply elsewhere.
You may be able to access your own pension contributions if you retire at age 50 and the remainder at age 60. Should you opt for this, it can be a better leverage for business expansion if you access about Sh3 million.
While this is raiding your retirement savings rather early, prudent investments and a disciplined lifestyle will ensure that your golden years are lived in comfort.
The decade between 50 and 60 should be marked by automation of product and, or service lines, efficiency, and steady business growth for increased and sustainable profits.
You may also want to consider stretching your retirement to between the ages of 55 and 60, which will allow you to maximise on your income as well as diversify your sources of extra income.
Ways of cash management include the use of money market funds, bond funds, and government debt instruments. While these may not give you the kind of returns you would expect from your business, they are handy if you consider diversifying to avert unforeseen risks.
Keeping a better credit profile with your bankers will also guarantee support in periods of low business volumes. Be sure to insure your personal and business property too.
Apart from your goal of retiring early, I would also encourage you to establish a plan for your post-retirement life. What do you envision yourself doing in your post-retirement life? How do you plan to compensate for the change in lifestyle from an active income-generating lifestyle? At some point, with your sizable assets, you may also want to consider drawing a realistic estate plan for your family.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column.
