Your roadmap to a secure retirement from day one of your first job

 

By  JANE KAGENDO

In a world where change is the only constant, planning ahead and sticking to plans concerning finances is a challenge, but very essential; what with crashes in the stock market that wipe away gains, recession that threatens incomes and the rising cost of living?

Life is hardly a bed of roses, true, but retiree, Mr Edwin Gachukia, 59, can in his latter years stop and smell the roses, but only because he took the time to sow financial seeds that would assure him of a comfortable retirement.

Now engaged in real estate with several complete housing units that he lets out in the city and others in his home area of Gatheka in Karatina, he is reaping from his efforts to put aside for the later years from early on. He is a role model of good financial planning that many aspire for.

Without realising it he seems to have practised a pattern of habits that are referred to as life’s financial stages, successfully. Ms Diana Gachukia, a personal finance advisor at Zenith Capital & Ventures Finance Company says that one’s income level or financial plans and goals and whatever the economic climate, financial habits like income level and spending tendencies fall into a pattern. These patterns are a valuable guide to being sure one stays on track from one stage to the next successfully.

Mr Gachukia worked for Crystal Constructions, constructions firm in Nairobi as an engineer for 38 years before retiring in 2007 aged 55. “I could have gone on for a few more years, but I was firm on the age I wanted to retire and enjoy my latter years,” he says.

“My first income was over in about a week,” Mr Gachukia recalls. “I had just started out as a trainee in a construction firm after finishing my draughtsman basic course at the Nairobi Polytechnic and the Sh6,700 seemed like a fortune to me.

I bought new clothes, shoes, a few household items and had a drink with friends every evening and in a week, I was flat broke. It was the tarmac rather than a bus to work from then on and I learnt my lesson,” he recalls with a chuckle.

When the next pay day came, he opened an account at a local bank and learnt to separate his needs and wants and put a little away every month.

After a year at his first job, he took evening classes at the polytechnic, advancing to Higher National Diploma which took him a year. Three years after his first job and with his higher qualification, he got promoted and now worked as a permanent member of staff instead of a trainee.

“I appreciated that and the higher pay but was determined to climb even higher. I wanted a degree and even began thinking of one day opening my own business,” he says.

Five years later, he enrolled for the course. “It was tough holding down a job and taking on such a technical course but I was determined,” he says.

He earned his degree in three-and-a-half years and not long after married Judy Nyambura.

Eleven months after graduating, he got a job with another company in a more senior position and was well on his way to the success he had dreamt of.

His job had good benefits too and when the children came along, first Henry Githinji, then Anne Njoki and later John Ndungu, he was able to provide for them.

In a job where his work dealt with construction of both homes and commercial buildings, the dream of his own home began to build in his mind.

He decided to start small and built simple one-room houses in his home area for letting.

His next project was to acquire a parcel of land in Kayole, a low-income area in Nairobi where the land was affordable. He took out a loan at work and in nine months, completed three floors of one-room, self-contained rooms for rent. These were taken up and with the rent, he was able to pay off what was left of his loan.

“When that went as well as it did, I decided to turn things up a notch. I bought another parcel of land in Donholm and put up one-and-two bedroom units and with time, that became viable too.”

His next project was his own home, also in Donholm, a four-bedroom home with an outside servants quarter.

He cut his costs by doing his own engineering and colleagues at the construction firm came in where he needed them and in seventeen months, his home was complete.

“It was such a grand feeling to move into my own home. It was one of the goals I had set out for myself and my family early on,” he recalls.
“I could look forward to my retirement.”

Meanwhile, he and his wife had decided to use the rent income to give their children the best chance at life and send them to school abroad as the home construction began.

After his last official day in office, Mr Gichukia had his three children and their families come home.

“It was in December and even Henry and Anne who studied and now work abroad were around. John, my last-born sort of followed in my footsteps and studied architecture in the US. He chose to come back home rather than work abroad.”

When they came round, he proudly handed each one equal parcels of land on Mombasa Road.

His goal: “I wanted to give them a push right then, rather than when I was no longer around. I was determined that they should finish strong for their sake and that of their children.”

Today, father and son, the engineer and architect, work together as partners in their own construction firm, Majestic Constructions, based in the city’s Industrial Area.

Among their projects has been a home for John on the piece of land his father bequeathed him. Two more homes are to come up on the other pieces of land — one for Henry who plans to come back home and a unit of residential houses for Anne as she has since got married and lives with her husband and daughter.

“I was determined to finish strong and I aligned all my plans and moves with this goal,” he concludes.

Financial stages

To get such success as Mr Gachukia’s Ms Diana Gachukia (no relation to him) presents the stages and the vital signs to check out for in every stage to ensure a good financial run and a strong finish.

Stage one

This is when one starts earning their own income. Since one is in control of how to spend and save, this is the stage when habits, good or bad, form and with consequences as far reaching as into the last stage when one is no longer earning, or at least not from a daily work routine.
Ms Gachukia says this is the time to:

• learn to make a budget and stick to it, differentiating between needs and wants.
• learn about options in as far as financial services such as bank accounts that cost the least to operate and wise borrowing such as through credit cards are concerned.
• establish a saving pattern in an account that would cost the least and yield the most interest.
• protect yourself through insurance with a package that cushions you against unforeseen incidents like illness or disability.
  set goals such as acquisition of assets like a parcel of land, a car or a house.

Check points
You are getting along well in this stage if;

• you have an emergency fund that will keep you going comfortably for at least six months if you lost your source of income or was unable to work due to illness or any other reason.
• have a savings account from which you would draw funds for buying land or other assets.
• you are covered medically as part of your terms of service at work or through insurance that you have taken out for yourself and would be taken care of in case of sickness.
• you have done your homework on credit and know which bank or other financial institution would cost you the least and be most flexible in terms of interest on credit and repayments.

Stage two

This is after five to seven years since starting your first job. You have possibly had job progression with better terms or promotions that have seen income rise.

Expenses have also risen and this is when the first home, first car and other large assets are likely to be acquired. A family is also likely to start at this stage and children add onto expenditure.

Focus on changes from acquiring assets like a car and house to accumulating for the future. The focus is on saving for the children’s higher education and putting away money into a pension plan for your sunset years.

You are on track if:

• you have an account for each of your immediate dependents and are putting away money regularly or are paying into an education insurance policy.
• you are through or almost through with first loans such as for a car or home construction. A mortgage should ideally be the only long-term loan you have.
• you have kept up with saving money into a savings account that would be immediately available in case of an emergency.
• you have been making smart investment decisions like investing in the stock market for the long run, not sale of shares as soon as share prices rise for immediate but very little gain. You should have also diversified your investment portfolio to include, in balance, low risk, low yield and high-risk, high yield investments like unit trusts and the money market.

Stage Three

This is the last stage when one leaves the work force and goes into retirement. Good financial choices made and carried out yield a comfortable life in retirement for oneself and others, including children and grandchildren.

It may also be the stage one spends their day running an own business in a field of their choice that they can run or oversee their own way for their own satisfaction and perhaps with the intention of passing it on. This is also the bequeathing stage where one passes on to their heirs.

Check points

You will be enjoying the third stage if:

• you are through or close to finishing long term loans such as a mortgage and paying for children’s higher education.
• you have no dependents and the lower expenses went to the savings account or a larger investment portfolio.
• you had a clear retirement plan that you have been working towards, such as purchasing assets to get into a business and you can do that immediately.
• you changed you insurance plan to meet your needs as your age advanced.
• you can bequeath your heirs with assets they can immediately put to use such as a parcel of land they can develop or even cash and you would have the fulfilment to see them grow and develop from the effort of your working years.

• you have a written will detailing your assets and how you would like your estate to be run or divided.

Hurdles and obstacles

“All of the above,” Ms Gachukia says, “is how life progresses no matter what level of income one is at.

There are many variables like losing your source of income even for years or one’s income never rising or significantly to acquire assets like land. One may have dependents in advanced years such as people who suffer job loss and go back home, perhaps even with families.”

Bottom line

“In some cases, it is possible to catch up and finish well with a comfortable retirement, if a good job comes along, for example, after a long wait or if one secures funds to start a business that grows steadily.”

“The bottom line,” she says, “is to make the most of what is available and live with the rule of thumb to always live on less than you earn and put away something regularly no matter how small. A little adds up to a lot in the long run.”

The first and second stages are where many fail by living for now and not thinking about 20, or 30 years down the line because that seems like a lifetime away, she says.

“These are the people who drive the big cars, live in the big houses and send their children to the most expensive schools but are completely lost when retirement or job loss comes.”

There is no way to undo the damage in stage three if the first two are frivolously lived, she warns.

“And how heartbreaking to be waking up to go to a menial job in the sunset years or becoming a dependent after so many years of working.”