THE MONEY CHALLENGES WE WOULD LIKE TO HAVE

I have some rich young friends who have come to the cross roads of their wealth creation journey.

These young men have been saving and investing for the last 13 and 12 years respectively. They have followed a simple formula, every month they saved fixed amount, the amount hasn’t changed over the period. When they had accumulated more than sh30m they moved their savings out of their simple savings account and into a fixed deposit account. Rates were good then they were getting nine percent on their money. But in the third year the fixed deposit rates were down to six percent and they wondered whether there wasn’t anything better in the market.

Two years ago they got all their savings, about sh100m by now and bought a fifteen-year treasury bond which pays them just under six million shillings every six months.

That may not sound like much, but the beauty of the deal is that their interest payments on this bond have now surpassed their annual contribution to the fund. They are earning more than they save...

They are determined to take advantage of the power of compounding and are ploughing back all the income into the fund.

In the last year they dipped a toe into the equity market, committing sh5m to the MTN IPO. The plan is to start allocating money every year to buying some shares on the Uganda and Nairobi stock markets.

While they have kind of made up their investment plan as they have gone along the broad outlines show that they have been climbing up the asset ladder from cash to near cash and now going into equity. The next logical step down the road may be real estate, where they will hope to secure the wealth.

This is their plan for the next 10 years, after which they plan to pay themselves a monthly allowance from their potential earning by that time.

"My young friends have managed two things that often mess up our money affairs.

One, they have automated the process. The monthly contributions are standing orders from their income, that like a tax they have learnt to live without and secondly, they resisted the seduction of the get rich schemes they have come across and maintained they steady, even boring progress...

I could not help but admire these unassuming young men. Barring any accidents these young men will have a better financial future than the vast majority of us, not because they will have a good nest egg to begin with but because their minds have been oriented towards investment and away from consumption, which is what makes the difference between the wealthy and the rest of us.

They young men unlike most of us have the benefit of time on their side. Their little savings compounded over decades add up to a credible sum. But the principle still stands start where you are, with what you have.

Meanwhile the young men have invested in themselves studying investment. Their foray into equity signals a further shift in their investment journey.

The assured returns from the bonds are comforting, but over the long term the stock exchange provides the best chance of improved returns. Even better returns can be had from going into private equity, buying into companies not listed publically.

They going down the path that many office workers should take who do not have the time or temperament to run their own businesses but still need to aim for financial freedom.

The inadequacy of time we all understand. You expected on your desk from 9 to 5 and while business is a fulltime job. But more importantly is the right temperament – attitude or psychological makeup, to run a business. While we are the most entrepreneurial country the statistics show that we cannot all be business people.

This path though is not as sexy as pointing to your shop or rentals or trucks and saying their mine. My young friends path is one focused on the end – financial freedom in the future. They are focused on being rich and not looking rich. Placed in one sentence it does not look much, but the difference between the two is worlds apart.

The young men are learning this lesson in real time and in the not so distant future they will not only be rich but be able to look the part.