Hosea 4: 6 “My people are destroyed for lack of knowledge.”
Flashback: James had finally managed to set aside a minimum of 8k per month for savings and investment. We had agreed that he’ll think through and have several options which we would consider.
On one Saturday morning, I passed by my friend’s place and as usual picked him up. We drove to Kitengela. I took him round several schemes we had subdivided and sold plots. We later drove on to Kiserian via Isinya and settled on a joint called Whistling thorns approximately 10km from Kiserian along Pipeline road.
When we sat down, my friend was curious on how I had made serious in roads in real estate. I expected that question bearing in mind what he had just witnessed. I told him that investing must start in the mind. You must see possibilities where others see obstacles. “What about the massive capital needed for such projects?” He asked.
I told him when you have passion for something, then that will override those limitations, capital included. After all, which financier will decline to give you credit if you have a viable project? Did you know that banks make money not from deposits but loans? A strange thing that people forget is that bank takes money from savers and gives it to those who want credit. What do you make of that? Isn't it that the saver does not know what to do with the money but that guy who knows how to leverage on credit knows what exactly to do with other people’s money? In business they call it OPM (Other People’s Money); this is the highest level of investment and as soon as you reach this level, capital is never a limitation.
I cheekily reminded him of the trip to Syokimau and his verdict that we’d get conned by the Land buying Company. I actually bought that 100k plot and 3 years later sold it for 600k. I went and got some loan from my Sacco of 500k, and then my employer gave me some end of contract gratuity of 400k. In total I had 1.5M and that bought me an acre and half in Kitengela. Notice that upon subdivision, the resultant plots were 12. The plots were sold at an average of 300k each and the turn-around time was just 7 months. The total proceeds were 3.6M and all expenses were almost 300k. A profit of 1.8M (100%) at first attempt was quite a good deal. Think about the 3.6M as the seed for reinvesting and repeat the process.
He thought it sounded very simple. “But who said you need a complicated plan to make a million” I asked him. However, I insisted that the hardest bit is to crack the market and convince people to buy whatever you are selling. Anyway, I cut the story short and reminded him we had some matters we needed to deal with from his end.
I therefore wanted him to tell me what he had in mind regarding the 8k per month cash. He had the following options:
- Saving the in a bank for future investment
- Saving in a Sacco so as to acquire cheap credit and acquire assets.
- Buy some stocks
I wanted to know from him why he wanted to save because saving on its own can never make you rich. You may have noticed that I have been mentioning saving / investing. We shall replace / with ‘and’. So you must save and invest.
I went further and advised him that what should guide what his does with the 8k per month is his investment goals, short term and long term. In other words he had to set realistic targets which will guide him on what to do with whatever coin he could set aside for investment. Then, this 8k per month must be looked at as a seed that must at some point produce fruits. Look at it this way, is it wise to save and then think of what to do with the money or it is wiser to plan what you want to do and then save and invest with that in mind?
This got him thinking. At least he tried though I threw him off balance. I further told him that option 1 is not really an option. Why save money in bank where inflation, bank charges will keep diminishing its value and with minimal interest.
Option 2 is not bad especially if it is aimed at accessing cheap credit in future. Option 3 is also OK but there is need to understand which counters you put your money in probably to the extent of analysing the books of the companies. I am not a stocks guru but I bet there are many around if you seek.
I also gave him another very interesting option. I reminded him of that company that had taken us to Syokimau and they had a very attractive option of acquisition of plots in 36 months. In other words he could afford a plot worth 300k if the payments are staggered within a period of 36 months coz the instalments are KES 8,333. Better still he could join a Sacco and contribute say 4k as shares and 4k towards purchase of a plot. There are many Saccos doing that of late. He went for the later and immediately started paying for some plot in Kitengela. By the way, soon after he got a pay raise and was able to contribute much more as shares and fast track the plot payment. The option was attractive because it meant say 1 year down the line he could acquire another property after getting cheap credit from his Sacco. I also encouraged him to set aside just a small amount to buy a few counters at least to learn some important lessons. I reiterated to him the importance of having relevant knowledge before he puts in his money.
I also mentioned to him the importance of keeping track of his growth via a net worth statement. It is as simple as they come, just listing assets on one column and liabilities on another column. In the case where liabilities outweigh the assets, problem galore because it simply means if you sold all your assets and paid all your liabilities, you’d end up with nothing plus of course a debt. If they balance then you actually owns nothing. Finally in a case where the assets outweigh the liabilities, it means you are OK. However, investing must be geared at continually increasing the asset column.
Later in another of our many meeting he mentioned to me some of his short term and long term plans which included:
- Purchase of as many plots as possible; at least two per annum (For this one, we will call him a speculator).
- Doing a residential house for his family (this will only save him the rent and lift the psychological barrier of being a tenant);
- Several flats in the future (for this one we he’ll have grasped the concept of investing for purposes of cash flow);
- A holiday resort (this may be self-actualization, am not sure).
I told my friend that it was amazing that he had such dreams and told him everything is possible if you believe and work towards your dream. I was keen to know how he intended to achieve the above. His answer was quite interesting. “You keep insisting that I must build my asset column” He said. “I am therefore targeting to grow my net worth by at least 70% per annum and to achieve that I will keep buying plots, a bit of stocks and am also thinking about import of finishing items from China”, he concluded. That to me was quite amazing. I told him that it is possible to make money in so many sectors but the most important thing is to have the relevant info; what I keep calling financial education. I therefore did not want to get into details of his plans because to me he had already acquired the basics that would propel him towards his dreams.
I reminded him the importance of giving information to others who need it, being charitable and encouraging people. After all, there is so much abundance for all of us. Saint Luke put it aptly in Chapter 6 verse 38: “Give and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you." This concept applies across board, whether a staunch Christian, a pagan, a Muslim or a Hindu, or anyone else.
My parting shot was a story about the eagle. Notice how it teaches its eaglets to fly. It’ll fly to great heights and release the young one in the air. The eaglet will of course start coming down and soon realize that it is heading to its death, its natural reaction is to attempt to fly. It discovers that actually it can fly on its own. James being the sharp mind he is understood that it was time for me to let him go into the world full of sharks, but I knew he was armed to the tooth to deal with all that comes his way. After all, I had to let him take grow and mature. I hoped and prayed that one day one time, he’ll change and be living testimony that a turn-around is possible.
Fast forward to the present: James fast tracked payment of his first plot and cleared 1.5 years later. I knew as soon as he tasted the sweetness of speculation, I’ll not even need to tell him to buy some more plots. At present he owns 3 plots (Kitengela, Ruiru and Membley) and wants to build a residential house in one of them located at Membley. I hope when it is done he’ll invite me for the house warming. I am sure to have time to remind him of that other house warming 3 years ago that catapulted him into the great re-awakening.
Take note a valuable lesson: James had to contract (through reducing on spending by simplifying his life) before expanding (acquiring assets). I knew at this point that something beyond reality was driving him. He is now a very energetic young man bubbling with loads of positive thought and always looking forward to acquiring assets.
I hope this true story has inspired people to move out of the rat race. It is important to note that there is only one person who can get you out of the rat race, yourself.
Next topic will be on why his first business flopped before it was even 6 months old.