MaertinK.
Benson, a 24-year-old single boda boda rider from Nakuru city, is diligently working towards a financial goal that could significantly improve his income. With a disciplined saving habit, he saves Ksh500 daily after covering his daily expenses. By June 2024, Benson plans to purchase a 300cc five-wheeler cargo motorcycle tuk-tuk to create a second income stream, focusing on the transportation of light cargo or the sale and distribution of water within Nakuru town.
Current Financial Situation
-Savings: Benson has saved Ksh86,500 on his phone.
– Goal: Buy a tuk-tuk costing between Ksh250,000 and Ksh450,000.
– Income Stream Objective: Use the tuk-tuk for transporting light cargo or distributing water.
Options for Funding the Purchase
Benson is considering two primary options to fund the remaining amount needed to buy the tuk-tuk:
1. Taking a Shylock Loan:
– Pros: Quick access to the required funds.
– Cons: High-interest rates, which could lead to significant financial strain and increased debt.
2. Hire Purchase from a Seller:
– Pros: Allows Benson to start using the tuk-tuk and earning income while making installment payments.
– Cons: Higher overall cost due to interest, and the risk of repossession if payments are missed.
Financial Advice and Recommendations
Evaluate the Necessity and Timing
– Assess Financial Readiness: Benson should ensure he has a stable financial cushion, including an emergency fund, before committing to a significant purchase. This will protect him from unexpected expenses and potential financial setbacks.
Consider Alternative Funding Options
– Personal Savings: Continue saving diligently. With a daily saving rate of Ksh500, Benson can accumulate an additional Ksh91,000 in six months, bringing his total savings to approximately Ksh177,500.
– Savings Groups or Chamas: Join a savings group where members contribute regularly and can access lump sums of money periodically.
– Microfinance Institutions: Explore microfinance institutions that offer lower interest rates compared to shylocks.
Calculate the Total Cost and Return on Investment
– Total Cost: Calculate the total cost, including interest if considering a loan or hire purchase. Compare this with the expected additional income from the tuk-tuk.
– Projected Earnings: Estimate the potential earnings from the tuk-tuk business. Ensure the projected income comfortably covers the installment payments, operational costs, and still leaves room for profit.
Make an Informed Decision
– Interest Rates and Terms: If opting for a loan or hire purchase, carefully review the interest rates and terms. Seek advice from financial experts to understand the long-term implications.
– Negotiate Terms: Attempt to negotiate better terms with sellers or lenders. Sometimes, better deals can be secured through negotiation.
Risk Management
– Insurance: Ensure the tuk-tuk is insured to protect against potential losses.
– Diversify Income: Continue with the boda boda business while gradually building the new income stream. This diversification will reduce dependency on a single source of income.
Conclusion
Benson’s ambition to expand his income streams by purchasing a tuk-tuk is commendable. However, it’s crucial to approach this decision with careful financial planning and consideration of all available options. By saving diligently, exploring alternative funding sources, and making an informed decision, Benson can achieve his goal without compromising his financial stability.
