Creating Wealth begins with financial ​education, invest in yourself and see your ​personal finance THRIVE

Anne Wambui Gaitha

CEO, Regal Africa Group

What is saving?

Is setting aside money from your income for future use. Essentially when ​we save money we put in a safe place that is accessible for when we need ​it later.

Why do we save?

We save because in the future we will want and need things that require ​money. These may be future purchases/ expenses or emergencies. ​Therefore savings help us address the short term goals that arise in life.

To save effectively it’s important to have clearly set goals so that savings ​act​u​ally cover the expenses they are planned ​for.

Examples of things to save for/ sa​vings goals to have include:

• Emergency fund (3-6 mo​nths of expenses)
  
• Purchase of house​hold items; electronics, furnit​ure
• Quarterly expenses like school fees​
• Annual expenses like insurance
• Holidays like Christmas and​ vacations
• Future investments (purchase of shares, stocks and bonds)
  

What systems can you put in place to ensure you save?

1. Know what your income vs expenses are; If you earn KES 30,000 and your ​expenses(rent, food, transport, fun) are KES 25,000 it means you have KES 5,000 that ​can be saved.
2. Com​pare your goals with your income and expenses to see if what you have left will ensu​re you achieve your goals or if you need to increase it. I want to buy a phone wort​h KES 25,000 in October, and save for Christmas spending worth KES 15,000. This mean​s I need KES 40,000 by December. With 12 months in a year you can save KES 4,00​0 a month and achieve your goals.
3. Set​ up the savings account where the savings will be held and earn enough interest to beat​ the 7%-8% inflation in Kenya so your money does not loose value.
4. If ​you can automate the savings do so to ensure you continue saving.
5. Alt​ernatively if you cannot automate join an accountability group so that the group prom​pts you to continue saving.
   

What is a money market fund?

A Money Market Fund (MMF) is a unit trust that invests in different low-risk, short-term asset classes. Let’s break this down:

• Unit trust - an investment fund that pools money from many investors and uses this money to invest in different assets.
  
• Low-risk - an investment with minimal chance of loss
  
• Short-term asset classes - are investments that are only available for 3 months - 1 year.
  

So simply put a MMF is a pool of many people’s money that gets invested in assets that mature within a year or less and ​whose chances of loss are low.

HOW DOES IT WORK?

How does it work?

A MMF has four different parties involved in its ecosystem: a fund manager, a custodian, a trustee, and an auditor.

The Fund Manager: In Kenya, this is the Capital Markets Authority which licenses and regulates this registered company. The ​fund manager creates an investment portfolio and makes investments on behalf of its investors.

The Custodian: A custodian, often a bank, keeps the money on behalf of investors until the fund’s management makes an ​investment choice. The custodian then releases the investment amount per the fund policy.

The Trustee: The trustee ensures that the custodian and fund manager are held responsible for the decisions made ​surrounding the fund. They watch for financial misconduct and act as the MMFs’ watchdogs.

The Auditor: The auditor reviews the fund’s financial statements; investors then use these to assess how the MMF performs.

Due to these checks and balances MMFs are considered a low-risk investment as the likelihood of all these safeguards failing ​is low.

FACTORS TO CONSIDER WHEN CHOOSING A SAVINGS ACCOUNT

A couple of things must be considered when choosing a MMF to invest and ​save with. These are divided into 2. The due diligence we are always told to ​undertake before investing in anything and the T&Cs that differ with each ​company.

Due Diligence

• Regulation - Does the Capital Markets Authority regulate the MMF; this ​means that it has the 4 parties discussed above and also the additional ​oversight provided by CMA.
  
• Performance Record - how has the MMF performed over the past 5 years, ​have they been consistent, are they at par with others in the industry
  
• Average returns - the average return for funds in the Kenyan market has ​been 7% and above with some getting as high as 16% recently but we advise ​caution when investing with those making very high returns as they are ​taking​ higher risks
  
• Assets invested in - MMFs typically invest in the same ​asset classes however, some do take more risks than others. A good​ fund manager follows the rule of not having more than 25% of their inves​tments in one asset so in case of anything there ​i​s a balance
  

Terms and Conditions (T&Cs) ​

Terms and Conditions are the requirements that each company sets as the bare minimum for anyone who wants to open an ​account. These requirements vary from company to company but are designed to safeguard the company and you the ​account holder. ​

C​harges applied

• The companies need to make money so they charge you a management fee. This fee is applied to the interest made when ​the funds invest. So if they make 16% in the market they take 2% and give you a final interest of 14%
• The government also needs to make money so they charge you 15% withholding tax on the interest you earn

In other words, your principal (what you save) remains intact and any charges are made on the interest earned. Therefore the ​on​ly charges you directly incur are transaction charges (MPESA or Bank transaction costs)

PesaPlan ​Investor

Creating wealth,

to help you

live your dreams.

What is investing?

Investing is putting money into financial schemes (unit trusts) and assets (stocks, property, businesses) expecting a ​positive return. The positive returns come in the form of income generated from the investments and/or ​increase/appreciation in value of the investment.

Put simply investing is when you put KES 100,000 in an investment and get 14% interest resulting in KES 192,000 in 5 years

Another familiar example is when you buy land for KES 250,000 and sell it for KES 400,000 after 5 years

Why do we Invest?

We invest because we want to create wealth for ourselves and our children by multiplying the money we have. Investing is ​done to ensure we achieve our bigger goals in life. These big goals are the ones that make up our dreams. They include

• Home ownership (whether buying or building)
  
• Educating children to university/college level
• Taking care of aging parents
• Taking a career/ business break for 6months - 1year to travel
• Building your passion project
• Retirement with a similar or better standard of living than you currently have
• Leaving an inheritance for your dependents
  

Risk

We invest based on the potential ​for future growth or income, ​therefore a certain level of risk is ​associated with investing.

The price of a stock may fall, the ​interest earned may be lower or ​none at all.

Knowledge

Never invest in something that ​you do not understand.

Learning about investment ​options ensures you are a smart ​investor who does not get ​scammed

Discipline

Investing requires the ​consistent commitment of ​money to the goal of growth.

You also need to hold on when ​things get tough knowing that ​there will be highs and lows

Identify your big goals/dreams

It is impossible to get to a place if you don’t know where that destination is. You need to have clarity ​about what you want and when you want it. I want to own my own home in the next 10 years

Put a price tag on your dreams

Every goal/dream will cost money to achieve therefore come up with the estimated cost of each of your ​dreams . My own home will cost KES 7 million.

Crunch the numbers

It will take an investment of KES 30,000 a month earning 14% interest annually to get KES 8 million in 10 ​years. This means that you need to evaluate you finances to free up KES 30,000 to invest monthly​

Determine your risk tolerance

Understand if you area high risk/ high reward investor (you may loose your capital and interest or gain ​high interest and keep your capital) or a low risk/low reward (keep your capital but have low interest )

Select an investment and stic​k with it

Find an investment that meets your needs for a minimum interest of 14% annually and risk tolerance and ​the​n stay the course for the 10 years.

Professionally Managed Funds

There may not be one best investment account but a great place to start is with professionally managed funds. Unit ​Trusts as they are well known allow you to invest in the major asset classes but with a lot more flexibility (you can ​withdraw from a fund much easier than you can sell a bond or shares on the market as an individual) and safety.

The peace of mind that comes with having a fund manager responsible for the day to day decisions is priceless.

Real Estate Investment Trusts (REIT’s)

Nothing excites Kenyans as much as owning land and property. Having a home of your own plus a few rental units is the ​dream of many. However, when you are just starting it may not be possible due to the capital-intensive nature of real ​estate. That is why we recommend real estate investment trusts (REIT’s)

REIT’s are a regulated investment vehicle that enables people to collectively contribute money for the purchase of shares ​in a trust that is divided into units to earn profits or income from real estate as beneficiaries of the trust. REIT’s come in 2 ​forms Development REIT or Income REIT. The D-REIT is where investors funds are invested in the development and ​construction of real estate. The I-REIT invests in purchasing shares in completed real estate projects.

Beginner and Intermediate investors are more inclined to the I-REIT because you can build up the minimum investment of ​KES 100,000 annually over the course of 12 months. Returns come in the form of dividends from rental income and ​appreciation of the value of the shares that can be sold

To invest in the VUKA I-REIT from Acorn Holdings click here