What does it mean to be wealthy?

Friday, October 25th, 2019 00:00 | By
What does it mean to be wealthy?

Waithaka Gatumia

Wealth is the ability to live the lifestyle that you want, without having to work for it. This means that you own enough assets that pay you, whether working or not.

This is the freedom that allows you to explore your wants and not have to worry about needs like food, shelter and education.

Joan and Judy are both senior executives earning a salary of Sh400,000 a month, which amounts to Sh4.8 million a year. They are both in their 40s, single and live alone in Nairobi. By their late 30’s they had each saved about Sh7 million. 

On the surface they look similar, however, when you look deeper into their financial choices there are some major differences.

Joan’s parents told her that she needs to own her home which will give her security in the future. So at 37, Joan bought an Sh25 million apartment in Westlands on a 20-year mortgage.

She used Sh5 million from her Sh7 million savings as a deposit on the property and now uses Sh235,000 per month from her salary in mortgage repayments.

She upgraded her car recently and has a four-year loan costing her Sh30,000 per month. Her other lifestyle costs like food, clothing, and entertainment take a majority of what is left.

Judy instead chose to rent the apartment next to Joan. She pays Sh100,000 in rent monthly and also has a car loan of Sh45,000 for the next 3 years. Judy used Sh4 million from her savings to buy 5 small cars which she has registered as online taxis.

Each taxi gives her about Sh30,000 per month. She used the remaining Sh1 million to purchase a 1 bedroom apartment on the outskirts of Nairobi which she rents for Sh10,000 per month.

She intends to buy seven more small apartments in the next 15 years. She has similar lifestyle costs as Joan’s.

If Joan lost her job today she would have no other income to pay for her costs. She would have to use her Sh2 million savings to survive and that would only last less than nine months.

She would be under real pressure to get another job and have to take whatever comes to survive. If she does get a job then all she will have in 20 years is the apartment she lives in with no other investments to help pay for the things she needs.

If Judy lost her job today she would still have a monthly income of Sh160,000 which can cover her house rent and loan repayments and still have Sh15,000 left per month.

She would also still have Sh2 million in savings. If she continues to work and her plan to buy the apartments, she will have more than Sh80,000 in rental income in 15 years. This is true wealth and financial freedom. - The writer is Centonomy Ltd chief executive

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