A COFFEE CUP AWAY FROM RICHES

[Sassy_Social_Share] I bumped into a client I had worked with about a year ago. Naturally I inquired about how things had progressed financially following his participation in our program. He told me realizing the “value of a cup of coffee” had the most impact to him so far! He had never considered that he can pay cash for a holiday and this is exactly what he did. He went on holiday on a cup of coffee. The price of a cup of coffee per day paid for his holiday. COFFEE = HOLIDAY. I’ll come back to my client in a little while but often the mind block people have to saving or investing is that they think they don’t have money. We seem to think you need to start out with a lot of money to save or invest. If you drink coffee or indeed any other daily habit you may have, trust me you are richer than you know. Let’s go through the logic of this argument assuming a cup coffee costs you about Kes 200/- per day.

The daily impact of a cup of coffee= Kes 200. If you have Kes 200 in your wallet in the morning chances are you will not know where it is in the evening and what you spent it on. If someone actually robbed you, you would not realize it. That cup of coffee is actually 5 packets of milk for your house that day or three packets of milk and a loaf of bread. If you ask casual labourers who earn daily wages what Kes 200 per day means they will tell you it is transport and food for the entire family for that day. There is a women’s group in Kibera that pool funds together between Kes 50 and 500 shillings per person per week. They then lend it out to themselves and others for various business ventures at a return of 10% per month. This is a story for another article but through this they have financially empowered themselves. Your cup of coffee could be pooled in such a Chama and earn you very decent returns.

The weekly impact of a cup of coffee = Kes 1,400 per week (Kes 200 X 7). This is your family’s shopping for fruits and vegetables from the market for an entire week. This is more than your monthly water bill. I know someone who had been doing a Kes 1,500 monthly contribution to a Sacco for two years. He was recently able to leverage on that saving to buy a piece of land. Your coffee is land in some areas.

The monthly impact of a cup of coffee = This is Kes 6,000 (Kes 200 X 30). This is more than your monthly electricity bill. This is your Cable TV monthly bill and/or phone bill. It is your fuel or transportation for anything between a week and a month. I know of a very successful business woman who started off with an investment of Kes 5,000. She started by trading in fruits and vegetables, this then led to starting her own kiosks then she bought a piece of land and to date has over 100 low income units for rental. Guess what – she didn’t drink coffee everyday!

The semiannual impact of a cup of coffee= Kes 36,000 (6 months worth of coffee). This is or comes close to your annual premiums for your car. No need to take insurance premium financing! You can also clear off your credit card balance and stop paying ridiculous interest rates and charges with this amount of money. This is your rent you have been drinking away. This is 1-2 months household shopping. A year ago if you had bought KCB shares with Kes 36,000 the value of your shares would be around Kes 60,000 today. That really starts to increase the options of what you can do with this cup of coffee. Your cup of coffee if invested can grow in value. You can buy shares in companies that are growing with your cup of coffee

The annual impact of a cup of coffee= Kes 72,000 (12 months worth of coffee). This is what my client used to go on holiday, and during the holiday, had as much coffee as he wanted. This is also next terms school fees. Depending on the structure, if this amount goes in as an extra payment into your car loan it can save you approximately Kes 100,000 in interest charges. I recently spoke to an investment group that started out 5 years ago with 10 people, each investing a lump sum of Kes 70,000 and then Kes 5,000 per person per month. Their combined portfolio value made up of shares, land and investment in a small business that hires out party equipment is now Kes 5 million.

You can choose to continue drinking your coffee every day (or whichever daily spending habit you have) or you can chose to buy groceries, pay a bill, pay rent, pay school fees and consider the various investment options for that coffee. So don’t complain you don’t have money or that others are getting rich, you have simply chosen not to see the alternative use of that money. The daily spending habits that we don’t even notice are where the hidden gems are. Let’s go back to the basics. I challenge you to put this “coffee” money daily into a piggy bank and see what happens. You are actually a coffee cup away from riches!

Waceke Nduati

The author runs a program on personal financial management. Find her at waceke@centonomy.com or on twitter @centonomy.

Question and Answer

I am a university student and need advice me what to invest in with my savings of Kes 40,000. It’s clear that my days in school are few so I want to be prepared financially after getting my degree.

Well done on starting to think about investing early. For someone of your age it is recommended that you do start looking into areas that will grow the value of your money. You are young and can afford to leave your investment in for the long haul enabling the funds to appreciate in value. You can do further research on investments such as shares that would offer this growth. However this is assuming you do have a means of catering for your expenses between university and finding a job e.g. from family. If you need to support yourself hold off the investment, place the money in a savings account until you have a source of income to cater for your expenses.

I am a regular reader of your columns on financial management. I would like to enquire your opinion on percentage that is recommendable for saving from salary having just started out in my career. I have no family obligations at the moment.

The more you save and the earlier you start is always better. How much you save eventually has to be related to the goals you set, however as a general benchmark I would recommend not less than 30% of your earnings. This is tied into an estimation of what you need later on for retirement planning purposes. This will also stretch you and get you to cultivate the discipline of earning more- saving more as opposed to earning more to spend more.

Waceke Nduati

Email your questions or comments to Waceke her at waceke@centonomy.com| twitter @centonomy