CHAI SACCO DELEGATES

1. CHAI SACCO DELEGATES PERSONAL FINANCIAL MANAGEMENT CITY HALL - NAIROBI 23rd March, 2012 MICHAEL A. OPOK Management Consultant +254 726 808 337; +254 20 2059 020; +254 733 808 337 Email: manyuru@yahoo.com or ultimarks.consultancy@gmail.com PFM - MICHAEL OPOK

2. OBJECTIVES OF THE PRESENTATION ● To highlight and help participants understand the need for and benefits of personal financial management (PFM) and investing wisely ● To introduce participants to some available avenues to strategic personal financial management and investment tools. ● To bring out the various factors to take into account when undertaking any investment. • To highlight good financial management tips THE END PFM - MICHAEL OPOK

3. PERSONAL FINANCIAL MANAGEMENT SACCO- Two key words in the SACCO i.e. SAVINGS and CREDIT. THEREFORE: • People join the SACCO to SAVE FIRST and then BORROW (access credit). The credit one has a bearing on the savings “If your reason for becoming rich is to look rich, you will NEVER become rich.” PFM - MICHAEL OPOK

4. What is personal Financial Management (PFM)? • PFM is the process concerned with planning and controllingpersonal financial resources for ones prosperity. • These resources include borrowed funds e.g. loans, owner’s funds or both. • Loan /borrowed money must usually have a cost (loan interest). • when loaning a member; the SACCO assumes that the member has plans and can take full personal controls of the loan resource given. PFM - MICHAEL OPOK

5. BENEFITS OF PFM PROCESS • Ensures that the loan approved is just enough for the purpose e.g. investment, business expansion • Assists to avoid impulse borrowing because its ones right to borrow or because there is an allowance in the payslip • Ensures one maximises the utilization of credit • Assists one avoid misappropriation of personal funds • Enables members to borrow within their ability to repay the loan without financial difficulties (Please cut your coat according to your size) PFM - MICHAEL OPOK

6. Cont’d PFM is also referred to as • Building your financial future • Building financial freedom • Financial security planning • Building financial prosperity N.B. Take opportunity while still working to build your retirement cushion! SAVE REGULARLY BUT BORROW WISELY! PFM - MICHAEL OPOK

7. Prudent Borrowing • This refers to borrowing wisely. • Always start with planning and then borrowing but NOT borrowing and then planning • Research has shown that 90% of members who borrow before planning end up using the loan on unnecessary projects/items and then afterwards struggle for years repaying the loan they never benefited from • There are many ways to using borrowed money. (What did you use your last loan on……?) Let us look at some of the ways of using loans PFM - MICHAEL OPOK

8. MICRO ENTERPRISING Micro enterprising is venturing into small businesses Characteristics of an entrepreneur Commitment - working towards achieving objectives Love for calculated risk – higher the risk the higher the returns Innovativeness – ability to identify/seize opportunities Optimism – looks at the positive side of life Love for money – using money to make more money (not love of money) Proactive – foreseeing possible occurrences in good time before they happen PFM - MICHAEL OPOK

9. Characteristics of an entrepreneur • perseverance and hard work, risk taking ability, • high aspiration and willingness to learn. • dynamism and creativity, adaptability, innovativeness, • ability to win friends and overcoming crisis , • initiative, self- confidence, will power, • determination to succeed, • pleasing personality, congruous (agreeable), • high integrity, responsibility, excellence in work and • perception of time. NB. Learn more and follow business ethics for success

10. Cont’d Are You NOT Tired of Working so Hard to Make Someone Else Rich? What have you learnt from Years/jobs you have done? Do you want to become wealthy? THEN YOU must manage your own financial life well and do not let someone else (Mis)manage it for you! PFM - MICHAEL OPOK

11. Cont’d Anyone who expects to be successful or is interested in self improvement and making a better life for him/herself in the future must be prepared to take full personal responsibility for every aspect of their lives and their future. (Social, Economic aspects ………etc) PFM - MICHAEL OPOK

12. FACTS OF LIFE It’s a fact of life that financial planning is one thing we MUST address to ensure a secure future for ourselves and our families. Why • No one is guaranteed a job for life anymore. • Major corporations are certainly not secure employers. • Downsizing is now the norm rather than the exception. YOU MUST LOVE YOUR JOB AND RESPECT YOUR BOSS NOT LOVE HIM/HER PFM - MICHAEL OPOK

13. The facts of life …. Cont’d • Our education system is designed to teach us how to be “Good Employees” and never prosperous workers. What we do is to: • Go to school ♦Work hard • Get good grades • Maintain good credits • Get a good “JOB” • So that we can consume lots of stuff. • To most entrepreneurs the word “JOB” means • Just OverBroke.” Should teach how to become “Wealthy?” PFM - MICHAEL OPOK

14. Cont’d • We spent 25 years in school but none about money • We are fed and educated Till age of 25+ years • Work For 30 – 35 years gainful Employment • Rely on saved earnings from 60+ Years • Lifestyle changes depending on endowment • Intention to live to 85 years???? • Without sufficient savings, life can be miserable after retirement PFM - MICHAEL OPOK

15. Facts of life ……. (Cont’d) • If you have no money you are not free. • A lot of money will not though make you a good person but will give you chance to live the way you want. • The secret to financial freedom is to earn a lot of money and NOT get a good job, or look for greener pasture. • The secret to earning a lot o money is to have MSI – Multiple Sources of Income PFM - MICHAEL OPOK

16. Cont’d • Today's economy is so competitive that any business intending to be profitable must be extremely well managed and in firm control of every aspect of its business to avoid being left standing by competitors. • This includes having the most efficient and productive employees. • (If you must continue being employed you need to ensure you will be easily re-employable should you lose your current job) PFM - MICHAEL OPOK

17. The unfortunate facts of life/employment • Most employees are one or two pay slips away from bankruptcy, living from one pay day to the next. (e.g. if your employer says he will not be able to pay you for the next 2 months will you survive?) • What are you milking from your current job or employment? • It is essential to save regularly, to make adequate health and unemployment insurance a priority, and to make provision for a comfortable retirement. PFM - MICHAEL OPOK

18. Cont’d • Responsibility is the key to your Personal financial freedom. Take absolute responsibility to be free and for the results you must have. • Freedom is not free as you MUST work for it. Come clean of yourself. • Common denominator of success is what failures do not like doing – WORKING SMART. • Discover yourself – see what everybody else sees but thinking what nobody else is thinking PFM - MICHAEL OPOK

19. Becoming Wealthy What is your definition of being wealthy and being rich? • Becoming rich is neither a birthright nor a random act of chance, it is a choice. • So the question is, Do you choose to be rich? • A wealthy person is not someone who makes a lot of money. A professional with a six figure salary could still be considered poor if he/she spends every cent they make. PFM - MICHAEL OPOK

20. Cont’d • The true definition of wealth is someone who makes enough money to live without having to work. That is, their monthly passive income is greater than their monthly expenses. • So what is passive income? • Passive income is money you earn thatdid not require your constant presence to do so. So if you stopped showing up at your job you would still earn an income or a paycheque. PFM - MICHAEL OPOK

21. Cont’d A passive income opportunity may take time initially to set up. However, if done right, you will be earning passive income even as you sleep. This is also known as residual income, or leveraged income. THE NEED FOR WISE INVESTMENTS PFM - MICHAEL OPOK

22. Avoiding the money wasters 1. Carrying a balance 2. Overspending on (petrol /oil for your car)…… 3. Keeping unhealthy habits. 4. Using a phone/car/rented house that doesn’t fit 5. Buying brand-name instead of generic. 6. Keeping your mouth shut 7. Get rich quick schemes (pyramids, gambling tables, conmen) 8. Paying for something you can get for free. PFM - MICHAEL OPOK

23. Money wasters ……… Cont’d 9. Stashing your money with Uncle Sam rather than in an interest-earning account 10. Being disorganized. Get your financial house in order 11. Putting money in a low-interest account 12. Paying late fees and missing deadlines 13. Paying ATM fees 14. Shopping at stores without a calculator PFM - MICHAEL OPOK

24. ……Cont’d 15. Paying for things you don’t use. 16. Not reading the fine print 17. Mismanaging your flexible spending account 18. Being an inflexible traveller. 19. Sticking with the same service plans and the same service providers 20. Making impulse purchases. 21. Procrastinating. PFM - MICHAEL OPOK

25. DEFINITION OF INVESTMENT • Investment is the process of converting accumulated savings into productive use. • To give your financial future the best chance for stability and success - Invest • understanding your options; cash, fixed interest and bonds, shares, equities or investing in property PFM - MICHAEL OPOK

26. Theories about investing If every time I take from your salary; A shilling you will not sense it 10 shs you wont miss it 100 you will not feel it – you will adjust 20-30% you sense need to adjust and not cause bodily harm though hurt you feeling. What do you use the 30% your money on? If we use our salary well we can invest it in profitable ventures PFM - MICHAEL OPOK

27. Theory 2…….. Cont’d • If we use our income wisely our net worth today should be more than the sum of our wages when we are employed. • If we valued your wealth after your work it should add up to more than the sum of the money you were paid during your lifetime in employment (is it a profit or a loss?). • We should save, invest, find ways to draw) • The key to wealth is hard work PFM - MICHAEL OPOK

28. Why we MUST invest • To enhance incomes Money is never enough • Guarantee your futures income flows Eat one save one • Diversify asset holdings Its good to have • To spread investment risk When one collapse, you can still smile PFM - MICHAEL OPOK

29. Direct investments ►Cash investments: bank accounts and cash management trusts, and short term deposits. • allows access to your money when needed. • most stable investment, with virtually no risk of loss over the short term, but poor returns over the long term. • The main risk - may not keep pace with inflation and purchasing power could be eroded. • tends to maintain their value, regardless of market conditions, but offer limited potential for appreciation. A direct property investment is buying real estate; a family home, land developments. While an indirect investment is made by investing in a property securities trust (Kenya Homes).  PFM - MICHAEL OPOK

30. Other investment channels: • Rental houses - You could be collecting money monthly from your bank accounts • Retirement plans - especially those self-employed • Stocks - Shares of a company’s assets and liabilities and periodic dividends. • Bonds - loaning money to a corporation for a certain period of time. The bond certificate is a promise to repay on a specified date at a fixed rate of interest PFM - MICHAEL OPOK

31. Cont’d • Mutual Funds. A mutual fund is generally a professionally managed pool of money from a group of investors. Invests your funds in securities, stocks and bonds, money market instruments or some combination and decides the best time to buy and sell. e.g. old mutual trust fund, • Annuities. Financial contracts with an insurance company. A deferred annuity helps you accumulate money for retirement, while an immediate annuity provides you with a steady stream of retirement income in return for your money. PFM - MICHAEL OPOK

32. Examples of investments continued: Your Home. Your home is the largest investment during your lifetime. The market value is determined by its condition, the neighbourhood, town, districts, square footage of the house and house style. Social Security. Don’t forget to include it in your financial planning. The income you receive when you reach the eligibility age (e.g., 55/60) is important. Check the record of your earnings and get a statement of your benefits by calling at NSSF offices Insurance covers • Life Insurance. • Disability Insurance • Health Insurance • Homeowners Insurance PFM - MICHAEL OPOK

33. Building future financial security Your personal EstatePlanning ●This is a another way to safeguard your family’s financial future. ●Generally, estate planning includes taking inventory of your assets and making a WILL or establishing a trust. Estate planning is very complex and subject to changing laws. You may need to seek professional advice. (The new Draft “Marriage Law” in Kenya, 2009) PFM - MICHAEL OPOK

34. TIPS FOR INVESTORS • Assess your goals- you need to take your individual financial situation and goals into account. These may change form time to time E.g. PFM - MICHAEL OPOK

35. Cont’d • Shop around. Compare the products and fees of various banks, financial planners, brokers and investment houses. There’s no ideal diversification formula that's right for everyone — it depends on your goals, your financial situation, and your tolerance for risk. • Ask questions. All investments carry some degree of risk, so you should fully understand what you are getting into. Ask for a written explanation of products, operations and fees. PFM - MICHAEL OPOK

36. Cont’d • Educate yourself. Spend some time at your local library gathering information. Read investment and financial publications. • Get advice. A financial advisor, your accountant or tax advisor are all good sources of information to help you understand the choices you are making and what your risks will be. Make sure any salesperson or advisor understands your goals and how much risk you are willing to assume. • Don't buy stocks or other investments pitched to you over the telephone. And never let a salesperson pressure you into acting immediately. PFM - MICHAEL OPOK

37. Cont’d • Be suspicious if a salesperson promises a spectacular rate of return.(WHEN THE DEAL IS TOO GOOD THINK TWICE!) • Don't put all your eggs in one basket. Diversification — distributing your money across different types of investments — is the key to sound investing. • Never invest in a product you don't understand. • Finally, re-evaluate your financial plan regularly.Also, stop and review your plan. PFM - MICHAEL OPOK

38. Steps towards ensuring your Financial success Establish a Spending Plan First step toward financial freedom is establishing a spending plan - ● includes your and your spouses’ income ● any other sources THEN see what your expenditure pattern is. Reduce all those unnecessary expenses PFM - MICHAEL OPOK

39. Cont’d Pay yourself first Pay yourself first by setting aside your savings when you receive your pay before spending on anything else. It’s automatically deducted from source. Just like with taxes, if you plan a specific amount, e.g. Kshs. 5,000 per week amounts to 260,000/- a year, not counting interest earned. PFM - MICHAEL OPOK

40. Cont’d • Divide and conquer: If a specific amount need to be accumulated, a home or car. • Divide the time you have to save into the amount you need to save. • This takes serious commitment to achieve. Some SACCO’s use a simple form to show the progress a member is making toward a goal like this PFM - MICHAEL OPOK

41. Cont’d • Double your money: The rule of 72 equation can be effective for longer term savers. The formulas: • How long would it take for $100 to double in value at 4% rate of return? = (72x100÷4% interest = 18 years) What rate of return would you have to get to double your money in 15 years? = (72÷15 = 4.74%) This simple yet powerful tool shows the value of saving for long term needs like retirement. PFM - MICHAEL OPOK

42. EXAMPLE – SIMPLE MONTHLY BUDGET A SIMPLE MONTHLY BUDGET: • 25 - 35% - House Rent, services etc • 25% - Food, domestic expenses • 10% - clothing, transport • 5% - Relatives (parents) • 5% - Health, education • 10 – 20% - Savings • 10% - Church/mosque (tithe) • 10% - Emergencies / contingencies PFM - MICHAEL OPOK

43. SOME INSIGHTS • Poverty or being poor is a state of one’s mind set • The more you work as an employee, the more the taxes increase and the more your expenses equal or exceed income • But passive income makes a difference • “make money work for you, do not work for your money”- Invest. PFM - MICHAEL OPOK

44. Cont’d • A RICH MAN’S MONEY DOES NOT COME FROM SALARY OR MONTHLY CHEQUE. • It comes from his businesses and relevant investments. • It also comes from guarding against the unnecessary losses/ poor spending habits. PFM - MICHAEL OPOK

45. A POPULAR SPEECH A quote from a speech by a man born with no limbs (Hands & Legs) - about his goals in life “I have many dreams and goals that I have set to achieve in my life. I want to become the best witness I can be of God's Love and Hope, to become an international inspirational speaker and be used as a vessel in both Christian and non-Christian venues.” “I want to PFM - MICHAEL OPOK

46. Cont’d “become financially independent by age of 25, through real estate investments, to have a car modified for me to drive, be able to share my story on the "Oprah Winfrey Show"! Writing several best-selling books has been one of my dreams and I hope to finish writing my first by the end of the year. It will be called "No Arms, No Legs, and No Worries!” What are your dreams? PFM - MICHAEL OPOK

47. FINAL REMARKS YOUR FUTURE DEPENDS ON YOU NOT YOUR EMPLOYER. MANAGE YOUR FINANCES WELL AND INVEST WISELY! PFM - MICHAEL OPOK

48. “HE WHO DOES NOT CHANGE HIS MIND IS LIKE STAGNANT WATER, HE BREEDS REPTILES OF THE MIND” PFM - MICHAEL OPOK

49. MONEY IS THE BEST SERVANT BUT THE WORST EMPLOYER MAKE MONEY YOUR SERVANT AND NOT YOUR EMPLOYER! PFM - MICHAEL OPOK

50. “The Biggest room in the world is the room for improvement ‘You can still improve..!’