Generally, start small, draw dividends from your learning curve and grow steadily.
Prosperity is Planable!
Having set a foundation via ‘The ABC of a Sustainable Savings Culture‘ from where you have built reserves equivalent to your total monthly expenditure for six months, you are now not only in a position to overcome negative shocks that may emerge, but you are also capable of executing investments strategies which will enable you grow passive thereby reducing your dependence on employment income.
i) Invest your reserves (e.g. 240,000 currency units) in fixed income assets especially 364-day treasury bills. While doing this, continue with the savings culture you started. Continue with your monthly target of saving a specific amount (e.g. 20,000 currency units) for the next 12 months such that by the time your treasury bills mature, you shall have saved an additional pool of funds equaling the principal amount you invested in your first batch of treasury bills.
ii) Assuming nothing out of the ordinary happens, you should ordinarily be enjoying saving by now. Soon you will also be enjoying investing your saved funds and seeing your returns grow. Reward yourself once in a while using part of the returns obtained from your investment. After successfully completing your second year of savings and your first year of investment, invest the funds from the matured treasury bills and your second year savings into treasury bonds or a balanced fund managed by a qualified and professional investment manager/investment bank as from the third year.
So far, the investment alternatives presented above have focused on fairly secure instruments with moderate returns. However, you can employ other higher-return strategies instead of limiting yourself to fixed income products. Higher levels of success depend on your ability to establish a balance between profitablity and risk. Most legal low-risk investments yield relatively lower returns while higher return investments are often accompanied by relatively higher risks. At the beginning of your investement journey, it is understandable if your risk aversion is fairly high (preference for secure investments) but with with experience, confidence and expert advice, your appetite for risk is likely to grow over time enabling you go for higher profitability.
iii) (a) If you had joined a savings/investment group or club, you can jointly purchase a cash flow-positive real estate unit. Holiday homes, student hostels, commercial (office blocks or retail spaces) located in medium-high potential areas are recommendable (this is where a group is more advantageous since the higher capital base needed for a suitable real estate unit is easier to attain), or
(b) approach a financier (SACCO, bank or a public agency) for additional capital to individually invest in a real estate unit as described in (a) above. The higher your share of capital, the lower your cost of borrowing is likely to be. However, the cost of finances should bear a healthy relation to the expected returns from your real estate investment viewed from the pessimistic/worst case scenario.
(c) establish a company with the mission of solving an existing problem or creating value for existing target clients. In many developing and transition economies some businesses in the energy, health and educational sectors are expected to continue performing fairly well. A micro, small and medium enterprise consultant can assist you with this.
For further advice, consult a professional investment advisor/business consultant.
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