Keep 90pc of windfall earnings out of reach-Liz Nkukuu
By Moses Michira | August 1st 2016
Nothing can cause more anxiety than unexpected money as witnessed by thousands of newly-rich Kenyans after big payouts.
Thousands of ordinary folks have collectively earned more than Sh100 billion in the last year from land compensation from the Government's standard gauge railway (SGR) project and bonus payments to tea farmers among other transactions that brought windfall earnings.
Often, beneficiaries of these payments assume a different lifestyle, with disastrous impacts including broken families. Liz Nkukuu, a personal finance expert and the chief investment manager at Cytonn Investments, says there is always a significant urge to change one's lifestyle.
"It is only normal," said Ms Nkukuu of the tendency towards unscrupulous spending after unexpected earnings. Tea farmers were awarded Sh64 billion in bonuses last year, in one of the highest payouts.
While the payout was not exactly unanticipated, the change in lifestyle for many beneficiaries was. Tea growing regions like Bomet reported heightened commercial activity including the influx of sex workers from other towns.
And in the lower part of the country, more than Sh35 billion has been paid by the State as compensation for compulsory acquisition of land for the SGR project.
Many lives have changed after the otherwise valueless property yielded millions, but left a bitter aftertaste in several families. Poorer people in society would typically want to indulge in aspirational activities like buying a new car or taking a holiday.
Nkukuu says even wealthier people have dreams, which can be actualised in situations where large amounts of money are earned at once.
"I would advise that someone takes time to tone down the excitement," she said, adding that it would be prudent to set aside at least 90 per cent of the windfall immediately.
In the new-found status, it would be realistic to take 10 per cent of the amount to spend on immediate wants including taking your family shopping or for a simple getaway.
"This must be the limit you set aside to spend."
Among the most important steps is consulting with the closest family members and a personal finance planner.
There are several investment assets that individuals should consider including putting the money in a term deposits with commercial banks or lending to the Government through Treasury Bills and Bonds, which promise to deliver a predictable income stream.
Such investments, unlike many others, such as starting a business, carry little if any risk. It is, however, common for people to venture into businesses they have little or no knowledge about and end up losing the money.
Nkukuu says it would be foolish for anyone to venture into business in the hope of growing the money unless such a person has previous experience.
Patrick Wameyo, another personal finance advisor, says there is no one-size-fits-all recommendation for such situations. As an expert, he would seek to understand the aspirations and needs of the individual before prescribing a solution.
"It is difficult to have one answer," Mr Wameyo said.
Typically, such individuals should cut the urge to spend or invest their new wealth before engaging a more informed party. This is where personal financial planners would help in understating what is best in the long term.
Wameyo said it all boils down to financial illiteracy where people do not understand money. In one incident he has dealt with recently, a man who won Sh1 million in a lottery resurfaced after spending more than Sh800,000.
"It is one sad case because even after advising him, he switched off his phone and only became available when he had Sh200,000 remaining," said Wameyo, who is often contracted to offer such winners expert advice.
Elderly people are worse when it comes to taking financial advice, he adds, because they have a fixed idea about what they want to do.
One of the saddest tales from last year involved a Maasai man from Il Bisil, Kajiado County, who earned Sh30 million after selling his land. He spent most of it on a new Range Rover Sport.
After only two months, the high-end car bought at an estimated Sh20 million developed a problem that would ordinarily be minor for someone who drives such a vehicle but he could not afford to have it repaired. The middle-aged man was left broke, with the broken down vehicle parked in his compound.
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