1. MANAGING PERSONAL DEBT AND INVESTMENT
Presentation by:
Isaiah Opiyo
Friday, 6th July 2018
Uphold public interest

2. Training Objectives To understand how to use debt to create wealth,
To understand how to borrow wisely,
To understand how to reduce financial distress related to debts.
To establish how to make your money work for you,
To understand how to make optimal returns.

3. HOW TO USE DEBT TO CREATE WEALTH
Is debt /loan a good thing or a bad thing?
Reasons?
Why do some people fear loans?

4. HOW TO USE DEBT TO CREATE WEALTH
Loans are not generally bad but it is the use that will determine whether it is a good debt or a bad debt.

5. GOOD DEBT VS BAD DEBT
Good debt is a debt taken for investment that will grow in value or generate income..
Only good debt can help you build long-term wealth.

6. CHARACTERISTICS OF A GOOD DEBT
The assets outlasts the time it takes to pay off the loan
Income earned & value of the acquired assets exceeds the cost of the loan.

7. CHARACTERISTICS OF A GOOD DEBT
The income generated can repay for cover the cost of the loan.
to repay the loan with some extra income

8. EXAMPLES OF A GOOD DEBT
Mortgage loan.
Business expansion loan.
Taking a loan for offplan.
Student loan.
Car loan for business use.

9. WHAT IS A BAD DEBT
It is a debt taken for consumption purposes.
It is debt incurred to purchase things that quickly lose their value and do not generate long-term income.

10. CHARACTERISTICS OF A BAD DEBT
A bad debt increases your liabilities and erosion of your networth.
The cost far outweighs the benefit.

11. CHARACTERISTICS OF A BAD DEBT
The duration of the loan exceeds the lifespan of the asset purchased.
Value accrued from the assets is less than the cost of the loan.

12. CHARACTERISTICS OF A BAD DEBT
The interest rate charged is beyond the rate of profitability of the business.
It keeps you in an almost perpetual debt.

13. EXAMPLES OF A BAD DEBT
Loan to buy shares,
Car loan for personal use.
Credit card & salary advance
Loan to start a business.
Loan to pay monthly expenses.

14. BAD DEBT------TAKING A CAR LOAN: KSH.1.2M

15. BAD DEBT-----TAKING A CAR LOAN: KSH.1.2M
Time Period
Monthly Loan Repayment
Monthly
(14% P.A)
Car Value (Depreciation)
1 year
108K
1.3M
900K - 970K
2 years
57K
1.38M
760K- 830K
3 years
41K
1.48M
640K- 700K
4 years
33K
1.57M
540K – 590K
5 years
28K
1.68M
460K – 480K

16. LEADING CAUSES OF BAD DEBTS
Over indebtedness and multiple borrowing
Wrong financial plans /decisions
Over-ambition in financial matters
Irregular incomes and Salary delays
Unattainable lifestyle
Lack of Financial Literacy: reckless spending

17. REMEDIAL ACTION ----MANAGING BAD DEBTS
Negotiate for loan restructure with the lender e.g. lower the monthly repayments
Debt consolidation
Debt counseling and structuring
Converting loan facilities into affordable credit facilities e.g. overdraft to normal loans.

18. ALTERNATIVES COURSE OF ACTIONS – BAD DEBTS
Purchase in cash
Saving
Investing
Postpone gratification

19. WHY SAVE WHEN I CAN BORROW?

20. WHEN TO BORROW RATHER THAN SAVE
If you need something immediately and cannot wait to save.
If it will take a long time to save up for
Take advantage of an investment opportunity
If the gain from direct purchase outweigh the cost of borrowing,
If lump sum payment is required.

21. FACTORS TO CONSIDER-- BORROW OR SAVE
How quickly do you need the money?
If you decide to borrow, what's the best option?
What type of loans and how much is the cost?
Will you be able to borrow?
Can you afford to borrow?
How will you repay a loan if you are unable to work?

22. WHAT IS INVESTING 1. Have you injected money in any investment?
2. What was it?
3. What was the experience?
4. Has any of your investments collapsed?

23. WHAT IS INVESTING
Investing- your money making money for you.
Every investment has both RISKS and RETURNS.

24. CHARACTERISTICS OF INVESTMENTS
Expected return this is the gain you expect to obtain on your investment.
Liquidity----- the ability to easily convert an investment to cash.
Risk----- the possibility that you will earn a lower return on your investment than expected or lose some or all of it.

25. HOW DO I INVEST? Investing- your money making money for you.
Every investment has both RISKS and RETURNS.
Forms of Investing
Active /Direct investment
Passive investment e.g stocks

26. INVESTMENT PLANNING PROCESS
1. Determine your investment goal
2. Determine your investor profile
3. Determine your investment objective
4. Understand your investment horizon
5. Determine your investment choices
6. Monitor your investments

27. WHAT IS YOUR INVESTMENT GOAL?

28. WHAT IS YOUR INVESTMENT GOAL?
1. Car purchase
2. Build a home
3. Raise capital for business
4. Retirement planning
5. Raise college funding

29. INVESTMENT GOAL----Purchase apartment @KSH.5 million

30. EVALUATING REAL ESTATE INVESTMENT
Pay Back period
The 2% rule-----you should get 2% of your investment back, every month.
The 7-year rule----the property must be paid off in 7 years (or less).

31. WHAT KIND OF INVESTOR ARE YOU?
1. Conservative investor---risk averse investor.
2. Moderate investor---can take moderate risk.
3. Aggressive investor---a risk taker.

32. WHAT ARE YOUR INVESTMENT OBJECTIVES
1. Liquidity and safety e.g. cash, fixed deposit accounts.
2. Incremental income e.g. dividends
3. Capital growth and appreciation e.g. parcel of lands.
4. Capital preservation e.g. plots.

33. INVESTMENT HORIZON
1. Short term: 1 to 5 years, e.g. cash, Suitable for conservative investors.
2. Medium term: 6 to 10yrs e.g. shares
Suitable for moderate investors.
3. Long term: above 10yrs e.g. stocks
Suitable for aggressive investors.

34. FACTORS--- INVESTMENT CHOICES
1. Investment objectives
2. Risk tolerance
3. Liquidity needs
4. Time horizon
5. Capital injection required
6. Participation (active /passive)

35. INVESTOR PROFILING

36. INVESTMENT CHOICES----CONSERVATIVE INVESTOR
1. Fixed Deposit accounts
2. Money Market funds
3. Government bonds
4. Rental houses
5. Cash

37. INVESTMENT CHOICES----MODERATE INVESTOR
1. Balance mutual funds
2. Real estate and properties
3. Investment cooperatives
4. Agriculture (farming)
5. Dairy farming

38. INVESTMENT CHOICES----AGGRESSIVE INVESTOR
1. Stocks /shares
2. Equity fund
3. Land
4. Business---matatu business
5. Private placement ventures
6. Offplan investments

39. CONCLUSION
“The secret to investing is to figure out the value of something – and then pay a lot less.”
J. Greenblatt

40. Thank You….
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