At Centonomy we believe that wealth is the ability to live the lifestyle that you want, without having to work for it. This means that you own enough assets that pay you, whether you work or not. This is the freedom that allows you to explore your wants and not have to worry about your needs like food, shelter, and education.
Joan and Judy are both senior executives earning a salary of KES 400,000 a month, which is KES 4.8 million a year. They are both in their 40, single, and live alone in Nairobi. By their late 30’s they had each saved about 7 million shillings.
On the surface they look similar, however, when you look deeper into their financial choices there are some major differences. Joan’s parents told her that she needs to own her home which will give her security in the future. So at 37-year-old Joan bought her KES 25 million apartment in Westlands on a 20- year mortgage.
She used KES 5 million from her KES 7 million in savings as a deposit on the property and now pays KES 235,000 per month from her salary in mortgage repayments. She upgraded her car recently and has a 4-year loan costing her KES 30,000 per month.
Her other lifestyle costs like food, clothing, and entertainment, etc. take a majority of what is left. Judy instead chose to rent the apartment next to Joan. She pays KES 100,000 in rent monthly and also has a car loan of KES 45,000 for the next 3 years.
Judy used 4 million from her savings to buy 5 small cars which she has registered as online taxis. Each taxi gives her about KES 30,000 per month. She used the remaining 1 million to purchase a 1 bedroom apartment on the outskirts of Nairobi which she rents for KES 10,000 per month. She intends to buy 7 more small apartments in the next 15 years. She has similar lifestyle costs to Joan.
If Joan lost her job today she would have no other income to pay for her costs. She would have to use her 2 million in savings to survive and that would only last less than 9 months. She would be under real pressure to get another job and have to take whatever comes to survive.
If she does get a job then all she will have in 20 years is the apartment she lives in with no other investments to help pay for the other things she needs.
If Judy lost her job today she would still have a monthly income of KES 160,000 which can cover her house rent and loan repayments and still have KES 15,000 left per month. She would also still have 2 million shillings in savings.
If she continues to work and her plan to buy the apartments works out she will have over KES 80,000 in rental income in 15 years. This is true wealth and financial freedom.
Written By Waithaka Gatumia, Centonomy CEO.