You probably started the year resolving to invest more. However all bets on this seem to be off because the lifestyle we had in January when we established our resolutions has become a lot more expensive. What you were spending Kes 50,000 on last year costs you Kes 55,000 this year for the exact same basket of goods you were buying. The situation we are in is a double edged sword. Most people believe that this environment provides a reason not to save. However numbers, which don’t lie, show that as much as we are feeling the pinch of rising costs today, it means we have no choice but to invest more and aggressively to maintain this lifestyle tomorrow. To do this will mean two things:
1) Find alternative sources of Income: You may have a 9am – 5pm job, but perhaps you may find you are gifted at something that can bring you additional income from 5pm – 9pm. This is really the time to start experimenting with this. Every little bit counts.
2) Reduce your expenses. Evaluate your expenses and separate the Needs from the Wants. Among your Wants, could there be things that you might be able to cut down. For example buying lunch every day as opposed to carrying food from home.
The critical step is then creating an investment plan that will get you where you want to go. There are three things that any Investment will do for you:
1) Keep your money safe (Capital Preservation)
2) Generate an Income
3) Grow your Money (Capital Growth).
The ultimate desire is that our investments are relatively safe and can generate enough of an income to sustain our desired lifestyle irrespective of the fact that you choose to work or not. Cash Flow at the end of the day is King. You can have 1000 acres of land and still not have cash to go to the supermarket. Remember, there is also no point trying to generate income from Kes 100,000 because you will not be able to access the kind of investments that can give you reasonable income with that amount. However with Kes 10 million you would. Hence priority at the moment should be to invest in areas where your money has the best potential of growing so that later it can be re-invested in areas where it can provide you with a stable income. Whichever way you look at it, whichever economy you look at, the two types of investments that provide growth are Equities and Property Remember an account that is receiving less money than the rate of inflation is technically loosing you money over time. With our environment it has to be focused on investments that will beat inflation over the long term. This does not mean you should never put money in a Savings Account or in Cash. You need to keep your emergency fund as well as any short term requirements that you foresee in cash e.g. medical expenses, school fees etc. You definitely do not want to be liquidating your property to pay school fees.
Equities refers to investment in companies listed on the Stock Exchange as well as Private Companies. Over the long term this particular investment is said to have the highest returns. It does have risks involved and is therefore a long term investment. Property refers to land that you can buy and sell/develop, or investment property that you can rent out. Your home is not in actual fact considered an Investment unless you intend to sell it. Unlike putting your money in a savings account, these two types of investment require one to commit to learning about them and time to do the research. No one is going to be motivated enough to manage your money as well as you are.
We can be clever about the use of our money. We need to stretch or maximize the use of the money we have been able to invest. By pooling money together with other people we can access investments and hence returns that we would otherwise not be able to access on our own. Well organized Investment Groups have been able to grow in leaps and bounds. Therefore the fact that you may feel your available funds for investment are too little should not stop you. Also for the right investments you can also take advantage of the bank’s money as long as you know the return you are bound to get from these investments will cover your interest costs. By borrowing intelligently you are able to grow your investments a lot faster than trying to save up money to invest on your own.
Waceke Nduati
waceke@centonomy.com
Twitter @cekenduati