January 2017 Review

“Its important to accept the fact that your own money situation will have its ups and downs. No matter how carefully you plan. Even if you every financial thing right. Money isnt always going to behave in ways you can predict.” Suze Orman

During the month of January I did really really well on reducing my normal expenses – I spent maybe half the money I usually spend in a month. However there were some abnormal expenses which meant that I spent more than I earned (Yikes!). As I am expecting a baby in about a month, I decided I would spend quite allot of money on baby purchases like a crib, car seat, stroller etc etc and I would use my credit card. I just decided to make my life easier by having these things and the idea is that when I am done using these items, I can sell them and they should sell since I tried as much as possible to get quality items. I timed the purchases so as to get a long interest free period and giving myself about 2 months to pay it off, so with my February salary I plan to pay off the ENTIRE balance of my shopping spree. So not considering these purchase I did really really well and I plan to continue the rest of the year with this momentum. This year is going to be very important in setting myself a good financial foundation and most importantly becoming debt free.

My net worth actually declined by 17% in January. Even though I invested some money in the equity market, the Kenyan equity market was one of the worst performing markets in the world which meant that the value of my portfolio declined 4% even with the additional funds invested. The rest of the decline in my net worth is due to the increase in my credit card balance because of my baby related purchases. I cant wait for this month to be over so that my credit card balance can go back to where it was at the beginning of the year.

For February, I still have a couple of abnormal expenses but I will try to invest some little money in the stock market as well as save some cash as part of the 52 week savings plan on Mshwari.

Wishing everyone a richer February!

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The 52 Week Money Challenge

Experience has taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you’re generally better off sticking with what you know. And the third is that sometimes your best investments are the ones you don’t make.” Donald Trump

Aside from the financial goals that I have set myself for this year, I have decided to also attempt the 52 week money challenge and see how far I can go with it.

Thankfully Mshwari makes the mechanics of this challenge very easy since you can save through the mobile phone instead of physically having to go to the branch with small amounts of savings.

Its a weekly savings exercise in which you progressively increase the amount you are saving each week by a fixed amount. In my case I have started with 500 shillings and each week I add 500 shillings incrementally. You can of course start with a smaller amount like 100 shillings. At the end of the 52 weeks, if I manage to stick to it I will have saved 689,000!

52-week

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2017 FINANCIAL GOALS

Its not your salary that makes you rich; its your spending habits” Charles A. Jaffe

  1. Earn at least 300,000/- in dividend income. I have made a list with a rough calculation of the number of shares I need to purchase over the course of the year to achieve this. Dividends, at least for the shares that I own are usually received between the months of May and November so the first few months of the year will be a dividend drought but I really need to focus on saving the cash to buy shares before books close
  2. Bring my credit debt to zero, ie pay down my two credit cards in full before the end of the year. The one with the highest interest rate first. This will be a yearly savings of approximately 300,000/- on interest payments . Current balance = 8,751
  3. Buy a car (as my credit card debt will be zero by the end of they year, I can afford to get a small vehicle loan). I need to decide on a very reasonable budget because I only want to do a small loan with small monthly repayments. I will not include the car in my net asset value calculation
  4. Increase Net Asset Value (NAV) by 2,000,000 – I calculate this every end of the month and my goal is to do better than I did this year. So I want to give myself a goal of increasing it by 2,000,000/-
  5. CFA III Pass (more like a career goal) but I will include it here anyway.

So 2017 has fewer goals which I think is more realistically achievable and will set me on a solid path to achieve financial freedom within a few years. Obviously for me to be successful, I really need to closely watch my expenditures, make financial sacrifices knowing that its for the greater good, for my family’s future. I have to watch my savings rate, try to keep it as high as possible and continue looking for other sources of income – launch my new business, sell unwanted items and take on other projects.

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Interest Rate Caps in Kenya

A bank is a place that will lend you money if you can prove that you don’t need it” Bob Hope

In early September, a new banking bill became law in Kenya. The new banking law caps interest rates that banks can charge (at 4% above the CBR rate) and also introduces a floor on the rates that banks have to pay for savings account (at 70% of the CBR rate). For a bank customer its kind of great news, we have yearning for a long time for more reasonable interest rates on loans. At the prevailing interest rates its just not reasonable to borrow and I would like to see the rates go way down but I believe it has to be driven by market forces and not by law. The unintended consequence of this law, might be that banks will simply refuse to lend to risky customers and maybe they  will see me as a risky customer so I will get locked out of accessing credit.

I am quite happy about the high interest rates on savings deposits –  because no matter how small your savings you will earn 7% – where else in the world can you earn such interest rates? Unfortunately I do not really have savings right now but its made me seriously consider saving some money – although with our banks you never know, there just might be a catch to this. Either-way I am going to start trying to accumulate some little savings in my savings account but not at the expense of my major financial goals which are to build an equity portfolio and eliminate credit card debt.

However, I also have banking shares and I need them to double but instead they were hit by the new law – overly hit I believe. In hindsight, I should have sold prior to the bill being signed into law, no matter how unlikely it seemed, but I am not managing my portfolio in a very active way – I am more of a buy and hold investor for the moment. I can actually tolerate some capital losses for now.

Credit growth in Kenya has slowed significantly this year – last year credit to the private sector grew about 20%, this year I think we are at 5% and now with this new law it might even grind to a halt completely next year. Its difficult to predict what will really happen, and how this interest rate law will affect the financial sector and the economy, we can only wait and see. Even though credit growth has slowed significantly this year which is very bad for business, the economy does not feel entirely gloomy to me, I see allot of progress and investment going on all around me. It is a very strange, a mixture of positive and negative.

As soon as the new year starts, I am going to purchase a car on loan and that will be my first experience borrowing in Kenya, lets see how willing or not willing they are to grant me credit.

Happy investing!

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Third Quarter 2016 Financial Goal Review

Ultimately we know deeply that the other side of every fear is freedom” Marilyn Ferguson

Again sorry for the long hiatus in posting in this blog, I have not forgotten, I just got overwhelmed with various responsibilities. I am hoping that going forward I will be able to write more frequently.

We are now in the fourth quarter of the year – actually its almost ending, so I would like to do a review of where I stand versus the financial goals that I set at the beginning of the year. Again, I am very much focused on building a Kenyan Equity portfolio for now based on cash flow or dividends earned. Then I also want to eliminate my credit card debt as a priority and anyways my net asset value is now firmly in positive territory so I no longer need to be so afraid. I have also calculated the savings in interest charges is huge – why should I continue to spend so much on interest? in a year total interest expense can come to 300,000/- obviously it will not be eliminated completely next year because it could take me the whole year to repay but from 2018 that expense will be zero. Then I can think about purchasing a car even on a little credit.

So here goes – 2016 goals:

  1. Save a five month emergency fund.  CANCELLED. As I said earlier, I won’t focus on an emergency fund for now because I do have a credit card that I could use in case of an emergency.
  2. Blog more regularly and consistently. BARELY COMPLETE. On this one I have done terribly having only posted only 8 blog posts so far this year. I will aim to do better for the rest of the year and beyond.
  3. Make an effort to sell all the unnecessary items that I own. 0% COMPLETE. I still have made zero effort on this one.
  4. Buy into a pension fund for my future retirement. 0% CANCELLED. I want to focus on my own share portfolio
  5. Top up my SACCO to 1 million shillings. CANCELLED. I have closed this account as its serving me no purpose as I am a net saver and for emergency expenses I can rely on my credit card for now until I have emergency savings
  6. Not to use any credit and if I do to pay it back immediately. SUCCESS. I have been good on this – as long as I do not shop for unnecessary items then  usually there is no danger, and I am totally done with shopping as I have adopted a minimalist philosophy
  7. Keep better track of my expenses by entering the expenses every few days and also keep track of my net worth on a monthly basis. SO SO. I do keep track of my expenses but not very tightly and I am tracking my monthly net worth change without fail.
  8. Reduce my credit card debt by £1,000. more than 100% done on this one and I plan to pay back even more
  9. Earn $1,000 in passive income. 122% complete. A large dividend checked in just at the end of October and I was even able to stay without touching most of my salary.
  10. Make a sale for my business by July 30th. FAIL. I am not sure when I will make the first sale as progress is being made but very very slowly, its just been so hard for me to find the extra time. I however have to push myself on this one as its extremely important to push and start this business as soon as possible

I think I wrote a few too many goals and for next year they will be fewer and more realistic. Focus is really building my share portfolio and paying back my credit card and looking for alternative sources of income which is this new business that I am starting.

Happy investing!

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Five Year Financial Plan

our finest moments are most likely to occur when we are feeling deeply uncomfortable, unhappy or unfulfilled. For it is only in such moments propelled by our discomfort, that we are likely to step out of our ruts and start searching  for different ways  or truer answers” M. Scott Peck

Its always a great idea to have a mid term plan because it helps give your life some sort of direction and purpose and a mid term plan can span anywhere from three to ten years. I think its important to start thinking this way from around high school, I did not and that is why I suffered a couple of years “wondering in the desert” lost without direction. It does not mean that you do exactly whats in your plan because even if you do not, that plan gives your life valuable direction and sometimes the achievement of great things take time.

The other day, it just hit me that I need to have a mid term financial or career plan because if I want to elevate my career and earn allot more money then I am now, then something has to change drastically. I need a “vehicle” that will propel me to a higher income bracket so my choices are to start thinking about changing jobs or gain a good executive MBA. Self employment is also a very viable option and an MBA can also help me launch a business in terms of connecting me to the right people. So my five year plan should encompass all these different options.

I have calculated, that in my current job and  salary it would be nearly impossible to save enough to retire in say ten years even if I save the majority of my income. I just do not have many options where I can invest and make lots of money. Real Estate I fear is very overvalued in Kenya and mortgage rates completely unrealistic. In my plan/goals below you will notice there is no goal to buy a plot or a house but of course things can change in which case I may change my mind. So below are the things I plan to achieve in the next five years, that is before August 2021!

  1. Have paid the balance on my two credit cards in full and be completely debt free
  2. Have a six month emergency fund saved
  3. Own a car outright
  4. Have an investment portfolio that is paying me anywhere between 1,000,000 and 2,000,000 shillings per year in passive income
  5. Acquire the CFA Charter
  6. Gain a good score in the GMAT – above 700 if going the MBA route
  7. Gain public speaking skills by consistently working everyday on this – watching tutorials, reading books about public speaking and getting practice
  8. Have a great job managing a team of people and a portfolio ie be a proper fund manager
  9. Reach my goal weight
  10. Add hiking as an extracurricular activity
  11. Continue a regular yoga practice
  12. Public Service – find an avenue that I can contribute and give back to society

 

Happy planning!

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Half Year 2016 Financial Goal Review

An investment in knowledge pays the best interest” Benjamin Franklin

Sorry for the long hiatus in posting on this blog but I became very preoccupied with preparing for my CFA exam which happened quite some time ago actually. Now that is behind me and I can continue posting regularly, especially as it was one of my goals for 2016.

As we are now more than halfway though the year 2016, its only fitting to review my progress against my annual financial goals. At the beginning of the year, I was quite focused on this idea of building an emergency fund but I have since changed my mind on that one for 2 reasons. 1) I believe that there is significant value in the Kenyan equity market right now and I want to take advantage of that by using all my savings to invest in equities – there is too much negative news on Africa but I think that will change in a couple of years. 2) I also see the value in having my finances more consolidated and in one place and so I have decided to close my SACCO account and put everything in equities and also start to reduce my credit card debt.

So here were my goals for 2016!

  1. Save a five month emergency fund.  CANCELLED. As I said earlier, I won’t focus on an emergency fund for now because I do have a credit card that I could use in case of an emergency. A cash fund would be too much of a temptation
  2. Blog more regularly and consistently. 14% COMPLETE. On this one I have done terribly having only posted only 7 blog posts so far this year putting me at about 14% complete. I will aim to do better for the rest of the year and catch up.
  3. Make an effort to sell all the unnecessary items that I own. 0% COMPLETE. I have made zero effort on this one.
  4. Buy into a pension fund for my future retirement. 0% I want to focus on my own share portfolio
  5. Top up my SACCO to 1 million shillings. CANCELLED. I am closing this account as its serving me no purpose as I am a net saver and for emergency expenses I can rely on my credit card. I know I know, its a challenge to maintain discipline with credit cards.
  6. Not to use any credit and if I do to pay it back immediately. SUCCESS. I have been good on this – as long as I do not shop for unnecessary items then  usually there is no danger, and I am totally done with shopping as I have adopted a minimalist philosophy
  7. Keep better track of my expenses by entering the expenses every few days and also keep track of my net worth on a monthly basis. SO SO. I do keep track of my expenses but not very tightly and I am tracking my monthly net worth change without fail.
  8. Reduce my credit card debt by £1,000. 0% done on this one – but I should be able to make that payment soon when I get my SACCO money.
  9. Earn $1,000 in passive income. 36% complete. I am getting there, there is a very good chance that I will actually hit this target this year, fingers crossed.
  10. Make a sale for my business by July 30th. FAIL. I am not sure when I will make the first sale as progress is being made but very very slowly, its just been so hard for me to find the extra time. Progress on the business is however being made.

So my goals have now reduced, since I cancelled two of them and I now have only eight left. I will continue to stay focused and hopefully achieve all I wanted to by the end of the year.

Happy Investing!

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March Budget

2016 is a leap year and February felt especially long and I was dead broke by the end of the month luckily my family was kind enough to treat me and help me with some shopping.

During March I will be travelling for business so I will take that opportunity to do some careful shopping of things that I need which are mostly cloths and shoes for my son – not too much only what is not available here at the second hand markets. For myself – skincare, books and a few work cloths and fabric to make work cloths. Optional is workout gear and paints. I have budgeted about 71,000 for any shopping.

Otherwise, I will try and skimp and go below budget on a few areas like transport – I am not sure if there is a plan to travel for Easter but for the sake of planning, I will not include it and if we do travel then it will come out of the April budget. I have done a budget and I will compare how I do against this budget though maybe its not necessary to publish it here.

Happy savings!

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Creativity and Wealth

Curiosity about life in all of its aspects, I think, is still the secret of great creative people” – Leo Burnett

Creativity – ingenuity and a boundless imagination that is constantly coming up with original ideas and seeing the world through a different lens – how does this skill come into play when talking about wealth creation? I actually think its an important and often overlooked skill that can play an important part in gaining financial independence.

One benefit of trying to save money, spending less and living more frugally is that you will develop other very crucial skills such as resourcefulness and creativity. When your trying not to spend or waste money you are forced to come up with your own solutions to problems rather than just simply throwing money at it.You might for example, make or re-purpose your own cloths, bake your own cakes, garden, landscape, the possibilities are simply endless and can lead to new business ideas.

Creativity is an important skill when it comes to entrepreneurship, and some say that creativity is an even bigger predictor of success than intelligence and I tend to agree with this notion. I believe that you have to practice being creative and that anyone can become good at this with enough experience. Starting my business is a good platform for me to get this experience even though I am still going very very slowly.

I guess what I am trying to achieve and document on this blog is something that sounds almost impossible even to me sometimes. To attain financial independence within a short amount of time through a modest salary and some ingenuity (the creativity bit). Without a large inheritance, corruption or super large salary. I hope that towards the end of this year I will be certain that this is indeed possible.

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How to save 50% of your income and still live fabulously

Everyday is a bank account, and time is our currency. No one is rich, no one is poor, we’ve got 24 hours each.” –Christopher Rice

Being able to save 50% or more of my income is a very very important goal for me, because as I explained in a previous post, having a high savings rate is the fastest and surest way to achieve financial independence.

I would say that on average I saved about 25% last year, so essentially I am looking to now double my savings rate. Now the reason that it can be so hard to save 50% is that there are expenses like holidays that are almost never on my budget because they do not occur every month. However, this is the whole point of having an emergency savings fund, which you can dip into and replace slowly over the course of the year.

I had planned to save my emergency fund in the first half of this year – however this will be difficult because I am already a bit behind in February, then I will be travelling for work and I will have to do a little shopping also Easter is coming up and I do not want to spend it at home. Therefore my ordinary budget has to be to spend below 50% to leave some extra “room” for contingencies. This means that after Easter, I will have to “catch up” – I think those next few months should be pretty quiet months and by then maybe I can figure some creative ways to save more money.

Now I have done my budget and things are not really working out and the most realistic percentage that I can save is actually 42% and I guess that is OK considering that because business is bad, I have to pull a but more weight in the house so I have to be realistic. Now I have highlighted a few items on my budget that I have some flexibility with and maybe there will be some months that I can save in these categories also on a monthly basis I will be keeping track of how I do against my budget – hopefully these measures will enable me to save as much money as possible.

Of course with time, I should find it easier to save a higher percentage because my credit card debt will come down – right now I spend about 11% of my income paying my credit card. 42% + 11% = 53%.

Now – how do you still live fabulously and I think the answer is about being more creative, doing allot more things yourself and being careful how you spend so that each penny goes a long way. The concept of minimalism and being more careful about what I buy has really helped me to stop buying useless things. My top tips on how you can still live fabulously are:

  1. Plan your meals and avoid buying food that will not be consumed
  2. When buying food, avoid buying too many items and too much variety, stick to fewer staple products
  3. See what you can make or do for yourself – for example I make my own artwork and I want to teach myself photography.
  4. Plan your entire wardrobe and buy clothing according to what you need, instead of because you like this item – plan your wardrobe in a holistic way
  5. Know your style and have a “uniform” when it comes to your dressing, this will simplify your life and avoid decision fatigue. You will look amazing for as little money as possible

Happy savings and investing!

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