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MANAGING PERSONAL DEBT AND INVESTMENT Presentation by: Isaiah Opiyo Friday, 6 th July 2018

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

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MANAGING PERSONAL DEBT AND INVESTMENT Presentation by: Isaiah Opiyo Friday, 6 th July 2018

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

  2. 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. Training Objectives

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

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

  5. 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. GOOD DEBT VS BAD DEBT

  6. 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. CHARACTERISTICS OF A GOOD DEBT

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

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

  9. 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. WHAT IS A BAD DEBT

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

  11. 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. CHARACTERISTICS OF A BAD DEBT

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

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

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

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

  16. 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 LEADING CAUSES OF BAD DEBTS

  17. 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. REMEDIAL ACTION ----MANAGING BAD DEBTS

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

  19. WHY SAVE WHEN I CAN BORROW?

  20. 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. WHEN TO BORROW RATHER THAN SAVE

  21. 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? FACTORS TO CONSIDER-- BORROW OR SAVE

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

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

  24. 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. CHARACTERISTICS OF INVESTMENTS

  25. 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 HOW DO I INVEST?

  26. 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 INVESTMENT PLANNING PROCESS

  27. WHAT IS YOUR INVESTMENT GOAL?

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

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

  30. 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). EVALUATING REAL ESTATE INVESTMENT

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

  32. 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. WHAT ARE YOUR INVESTMENT OBJECTIVES

  33. 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. INVESTMENT HORIZON

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

  35. INVESTOR PROFILING

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

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

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

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

  40. Thank You…. isaopiyo@gmail.com Tel: 0732003300

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