I made a conscious
decision not to contact James so that I gauge his desire to achieve financial
independence. Exactly a week before the two months elapsed, he called me and he
sounded very enthusiastic. It seems he had some interesting info for me.
I had devised a
strategy to make him understand the need to manage his expenditure. On the
material day we were to meet, I requested to pick him and we did a drive along
Kangundo road all the way to Kamulu. I took him to meet another great friend
called Musyoka at his home just a few meters off Kangundo road. This fellow
Musyoka has worked as a messenger for one of the UN bodies for as long as I
knew him. Musyoka is calm and collected and talks very little rarely giving
away any info. He however took us round his homestead and James could not help
but notice a very nice Massionette built on a 5 acre piece of land and behind
it some green houses and further down he had some very healthy dairy cattle
(around 30 of them) goats, and sheep (around 100). Musyoka also had around 800
layers and a few ducks. Towards the end of the farm was a fully equipped
borehole and some huge raised tanks. After going round the farm we were given a
cup of tea and soon after we left the farm as Musyoka was headed for a church
meeting. We decided to get into Mwalimu farm and drove all the way up to some
place where there are some waterfalls.
Seated on a rock and enjoying
the breeze, I recounted how I ended up knowing Musyoka several years ago after
I went looking for land in Kamulu. I learnt valuable lessons from him by way of
just observing him. Being a messenger and having achieved so much was
astounding to say the least. He was a man of meticulous plans laid down in very
specific details. Musyoka not only owns the 5 acre farm he lives in but several
other tracks of land off Kangundo road. James could not believe it especially
the messenger part. This was a classic case of man in control of his life
despite meagre earnings, a man who had carefully planned his finances and
achieved enormous success. I was just setting the right tone for James before
taking him to task on the assignment we agreed he’d carry out.
So I told him to take
me through the findings of the analysis of his expenditure. This is what he had
to say:
“I
embarked on the exercise and religiously accounted for every shilling that left
my hands. Surprisingly, over and above the obvious expenses I noted that I
actually spend my cash on so many items that I was shocked at some of them.
Remember I had told you about the following expenses: Helb Loan 5k, car loan
6k, unsecured loan repayment 7k, rent 13, electricity & water1k, school
fees 3k and shopping 8k.
The
other expenses which are an average for the two months that I confirmed were
quite eye opening: car fuel 3k, soft loans from friends 4k, extra food purchase
at home: 2k, gas 3k, house help 3k, daily lunch in the office 2k, relatives 3k,
transport to work whenever not using car 2k, wife’s errand and other personal
expenses 3k, clothing for family 2k, entertainment 3k and other miscellaneous
2k. In other words, my expenses add up to 75k and mind you I earn a net of 58k.
In essence there is a deficit of 17k or thereabout every month. How I managed
to survive like this only God knows. I know you are about to tell me that I
live beyond my means. To demonstrate how serious I have become I have decided
to do a budget that fits the 58k that I earn and here it is:”
Helb Loan 3k (I intend to
renegotiate the 5k this with my employer and HELB)
Car Loan 4k (I hope to
renegotiate with employer for period extension)
Unsecured Loan 7k
Rent 13k
Elec and Water 1k
School Fees 3k
Shopping 6k
Car fuel 2k
Soft loans 2k (until I clear
all of them)
Extra food 2k
Gas 3k
Office Lunch 1k
Relas 1k
Fare 1.5k
House help 3k
Entertainment 1k
Wife personal 2.5k
Clothing 1.5k
Misc. 1k
Total: 58.5k
I could clearly see
that my good friend had acquired a burning desire to get things right. The
positives I lauded in his budget were as below:
1. Reducing the debt (albeit slowly).
2. Living within his means (albeit
consuming all his net).
3. A comprehensive budget that covered
nearly 100% spending.
However, I also
pointed out a significant missing item which was car insurance and maintenance.
I went ahead to propose the following steps to further improve it:
1.
It
was a hard sell but I advised James I never saw the need of him having a car at
that point in time. The jalopy was quite old and despite consuming fuel and
maintenance (which the budget omitted), it was courtesy of a loan. It was the
type that would easily demand you employ a permanent mechanic due to frequent
failures. Take note that if this jalopy is sold even for a mere 300k, the
amount can offset the car loan balance and eliminate the loan repayment expense
as well as fuel; would that amount to killing 3 birds with one stone despite
the inconvenience of life without a car? I however promised him that with
improved finances, he’ll buy a car at a later date.
2. Wouldn't the balance arising out of the car sale repay the expensive unsecured loan?
This gets painful coz he was to repay a loan which the fruits he never enjoyed.
And by the way, he was due to explain to me what happened to the business that
flopped. That is a lesson for another day.
After much cajoling,
he agreed to sell the car though this happened 3 months later. For those 3
months he was forced to go by his budget; after all he owned it.
James saw the sense in
what he was doing and after the car sale, his budget was as below:
Helb Loan 3k
Rent 13k
Elec and Water 1k
School Fees 3k
Shopping 6k
Car fuel 2k
Soft loans 2k
Extra food 2k
Gas 3k
Office Lunch 1k
Relas 1k
Fare 3k
House-help 3k
Entertainment 1k
Wife personal 2.5k
Clothing 1.5k
Misc. 2k
Saving / investment 8k
Total: 58k
When we met after the
car sale, he looked jovial and bubbling with a bit of energy and did not
display any annoyance arising from using the matatus or route 11. Of course I
had a reason to celebrate. After all, I saw an item that generated quite some
discussion. The saving / investment item of 8k was something that in a small
and big way showed that James had overcome a very big hurdle. I could not
believe it when he asked me what to do with that 8k. I threw the question back
to him and asked him what he thought was a good thing to do??
At this point please
note that James had already dealt with several little foxes namely:
1. He certainly had a grip of his
expenses.
2. He was certainly living below his
means and had dealt with troublesome debts.
3. He was now saving / investing 8k
per month.
4. Any future pay rise I’d bet my
small toe that it’d go towards further investments.
Those who know about
budgets will tell you, the budget is nowhere near a perfect one but at least
James was getting somewhere.
By the way, even his
drinking was no longer targeted at drowning his sorrows but to entertain
himself.
However he still had
no clear financial goals and no set targets. His net worth was now near zero
(at least he was almost crossing towards the positive net worth).
Next chapter will be
on what he decided regarding the 8k per month available for saving / investing,
how he set goals, short and long term. I also taught him how to calculate his
net worth. With the 8k, he seemed aimed at paying himself first. A turn around
for him but he still has a long way to go. I wondered whether he had started
enjoying his job but I decided I’ll ask him that much later. From deep inside
my heart, I wished him well in his journey of a thousand miles that he’d only
taken the first few steps. I hoped that he’ll enjoy the walk and live to tell a
story.
Advice: The best thing
about investing while young is being able to make mistakes that will not kill
you financially. Great and successful business people, show early signs even
while in school. Did u know that Njenga Karume used to sell books to his mates?
He could source for them at a cheaper price and sell at a price lower that the
school canteen.
Back then when we were
in High school, we used to buy a full loaf at 14 bob, cut it into 4 pieces and
sell each at 5 bob. It was therefore easy to survive despite getting very
kidogo pocket money.
People also
underestimate the power of investment clubs. I joined one when we were
bachelors 6 year ago. The club was converted into a real estate company and we
now sell plots and also build units for sale. The future looks really bright
for our group.
In the
next post, we shall see what practical investment options my friend came upwith.
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