How to Save Ksh1 Million in Kenya When Your Monthly Salary is Ksh80,000-Ksh100,000

‍EDITOR’S NOTE: This is the second article in our Money254 Partner Series produced in partnership with Absa Bank Kenya to celebrate the launch of their new digital savings account. To read the first article, click here. For more on Money254’s editorial policy, read here.

UPDATE: From May 2023, the Absa Digital Savings account has an annual interest rate of 9% which accrues daily, compounds monthly and is also paid out every month.

Have you ever thought of how significant the one million number is? Well, if you had one million shillings in one-shilling coins, it would take you eleven and a half days of continuous counting. 

And that is at a rate of counting one-shilling coin per second non-stop.

If you had Ksh1 million in cash and spent Ksh500 daily, it would take you over five years to spend the full amount. A million shillings can also buy you a decent car, provide a down-payment for buying a house or enable you to start a capital-intensive business, say a hardware or sale of imported electronics. 

It could also afford you that piece of land that Kenyans highly desire. You could find an eighth of an acre in Ruiru, Juja, Kiserian, Ngong, Ruai, for this amount. Equally, an acre of arable land in rural counties such as Nyandarua, Kirinyaga, Machakos, would fit within this budget. 

There are arid parts of Kwale, Kajiado, Kilifi, Homa Bay where you could get as many as 10 acres with this amount. 

All of this is to say that a Ksh1 million is a lot of money and an unimaginable amount of savings for most of us. 

Entrepreneurs often cite their first million as the gateway that jump-started their success. However, you need not be an entrepreneur to have Ksh1 million. Indeed, a simple strategy of financial discipline and strategic savings will lead you there sooner than you might think. 

This article provides three routes to saving Ksh1 million for Kenyans earning a gross salary of between Ksh80,000 and Ksh100,000 and are living in Nairobi. The net pay translates to about Ksh61,000 and Ksh75,000, respectively. 

The 50/40/10 Rule

In Summary

Rule 1: 50/40/10

Gross Salary: Ksh80,000
Amount to save monthly: Ksh24,400
Time to Ksh1M: 3 years, 5 months (41 months)
Interest earned if saving with Absa Digital Savings Account: Ksh118,965
With Absa 7% Quarterly Compounding Interest: Ksh1 Million Saved 4 Months Earlier

‍Gross Salary: Ksh100,000
Amount to save monthly: Ksh37,500
Time to Ksh1M: 2 years, 3 months (27 Months)
Interest earned if saving with Absa Digital Savings Account: Ksh68,263
With Absa 7% Quarterly Compounding Interest: Ksh1 Million Saved 2 Months Earlier

What we like about this rule: It provides the shortest period to achieving the Ksh1m target but also allows you to have some discretionary expenses. The percentage of income saved is, however, on the higher side and may be difficult for some people depending on the responsibilities they have. 

The 50/40/10 rule is one of the most aggressive savings rules. It is relatively new in the world of financial management and was popularised by a young British woman who used it to successfully buy her own house at the age of 28. 

The rule stipulates that 50% of your income should go towards basic needs and mandatory bills. These include rent, transport, food, healthcare, basic shopping, education, etc. 

The rule further requires 40% of your total income to go to savings while the remaining 10% is used for wants or non-essential bills. Examples of non-essential bills include pay-tv, streaming services, movie tickets, clubbing, travel and home internet (that is not work-related), etc. 

If your monthly take home is Ksh61,000 and you plan to use this rule, you will need to spend a maximum of Ksh30,500 on all your essential expenditures. Ksh24,400 will go to savings, while Ksh6,100 will be used on wants. 

If you take home Ksh75,000 per month, you will have Ksh37,500 spent on needs, Ksh30,000 on savings, and Ksh7,500 on non-essential expenses. 

With the above method, a Ksh80,000 gross salary will take you three years and five months, while a Ksh100,000 gross salary will take you two years and three months to achieve the target of Ksh1,000,000 in savings. 

The 50/30/20 Rule

In Summary

Rule 2: 50/30/20

Gross Salary: Ksh80,000
Amount to save monthly: Ksh12,200
Time to Ksh1M: 6 years, 10 months (82 Months) 
Interest earned if saving with Absa Digital Savings Account: Ksh275,917
With Absa 7% Quarterly Compounding Interest: Ksh1 Million Saved 14 Months Earlier!

Gross Salary: Ksh100,000
Amount to save monthly: Ksh15,000
Time to Ksh1M: 5 years, 7 months (67 months)
Interest earned if saving with Absa Digital Savings Account: Ksh218,959
With Absa 7% Quarterly Compounding Interest: Ksh1 Million Saved 10 Months Earlier

‍What we like about this rule: This rule is the ultimate beginner’s budgeting guide in that saving 20% is fairly achievable with a good provision for ‘wants’. If you are good with your discretionary expenses, you can easily save more without exactly hurting your preferred lifestyle. 

This rule has been around for nearly two decades after US Senator Elizabeth Warren popularised it, in her book - All Your Worth: The Ultimate Lifetime Money Plan. 

The rule requires that 50% of your income is spent on needs and essential expenditures, 30% on wants (non-essentials), and 20% on savings. 

Under this rule, if your take home is Ksh75,000 per month, Ksh37,500 should cater to your needs, Ksh22,500 on wants, and Ksh15,000 on savings. 

With a Ksh61,000 monthly take home - you will have Ksh30,500 on needs, Ksh18,300 on wants, and Ksh12,200 on savings. 

Thus, with a Ksh75,000 net salary, it will take you 5 years and 7 months to accumulate Ksh1 million in savings. It will take you 6 years and 10 months with a Ksh61,000 net salary. 

A related budgeting rule is the 80/20 rule which allows you to combine the needs and wants - but limit them to 80% of your income - while savings take 20% of your income. 

60/40 Rule

In Summary

Rule 3: 60/40

Gross Salary: Ksh80,000
Amount to save monthly: Ksh18,300
Time to Ksh1M: 4 years, 7 months (55 months) 
Interest earned if saving with Absa Digital Savings Account: Ksh175,075
With Absa 7% Quarterly Compounding Interest: Ksh1 Million Saved 7 Months Earlier

Gross Salary: Ksh100,000
Amount to save monthly: Ksh22,500
Time to Ksh1M: 3 years, 9 months (45 months)
‍Interest earned if saving with Absa Digital Savings Account: Ksh127,765
With Absa 7% Quarterly Compounding Interest: Ksh1 Million Saved 5 Months Earlier

What we like about this rule: It is simple enough that you only have to split your income into two and the savings portion into four equal parts of 10% each. Importantly, it incorporates an actual reward element with the “fun money” - structured rewards - proven to be a good incentive to save.

The 60/40 budget rule was popularised by journalist Richard Jenkins. Under the rule, 60% of your income goes to needs and all essential expenditures. The remaining 40% is categorised into four sub-categories, each 10%. The four include wants or fun money; retirement savings; short-term savings; and long-term savings. 

Under this rule, we assume that you will have one account to hold all your savings - retirement, short-term and long-term savings - which will account for 30% of your savings.

This means that if your net salary is Ksh61,000, Ksh36,600 will be spent on your basic needs. Ksh6,100 will go to wants and fun money as Jenkins put it. Ksh18,300 will be kept in savings to cater for retirement, short and long-term savings.

Under this rule, it will take you 4 years and 7 months to save Ksh1 million if your gross salary is Ksh80,000. 

On the other hand, a Ksh100,000 gross salary will require you to save Ksh22,500 (out of your Ksh75,000 take home) in savings. This will take 3 years and 9 months to reach the dream target. 

The Road to Ksh1 Million Savings

Having a budgeting rule is a great start, but it is not very useful if you fail in the implementation stage. Certain habits and tools are effective in helping you stay on course with the budgeting rule you prefer to manage your income. 

Here are some important tips in your journey to Ksh1 million in savings. 

Track Your Expenditure

The common phrase is that what gets measured gets done. This principle applies to financial management - you can only follow the budget rule of your choice if the expenditure is tracked. 

You could start by separating your cash into two or three segments of your preferred rule, once the money checks into your account. 

It is also prudent to keep track of the expenditure, perhaps on a weekly basis for self-accountancy. Excel sheets are excellent in doing tracking - although there are new mobile apps that perform the same task with great efficiency. Many people also prefer the good old pen and paper - there is a psychological benefit to writing your expenditure down. 

While sticking to the budgeting rule of your choice is critical, you could boost your savings further if you can identify unnecessary expenditure - or what can be called ‘wastage’ - even after having it in your budget. 

For example, if you use the 50/30/20 rule and notice your food budget is high because of eating out, you could opt to make your meals at home and move the balance to your savings account. 

Automate Your Savings

One of the greatest hindrances to a savings culture is a lack of discipline in spending money where it should. 

Many people often have a plan for their money on the day before the salary hits the account. However, all manner of distractions come afterward. 

Sometimes you will see an offer on a fridge you had not planned on buying and think - I can get this and start saving next month - or other times it's that emergency call from home that your grandma’s cow is sick. 

The solution to this problem is to automate your savings as much as possible. One way to go about it is to have a dedicated account for savings and ask your employer to deposit the target amount directly into the account. 

You could also make a standing order with the bank to have the deduction automatic on a specific day of the month - perhaps on the day you usually receive your salary. 

Get the Right Savings Account

Having a dedicated savings account is ideal for several reasons. As mentioned above, it helps improve financial discipline by keeping your savings out of your immediate reach. A savings account also shields your money from inflation. 

Money depreciates over time - if you have Ksh100,000 today and keep them under your mattress, you will still have the cash two years from now - but its value (what it can buy) will have gone down by then. However, if you get a good savings account, you can preserve the purchasing power of your money. 

As we’re here to celebrate the new Absa Digital Savings Account, let’s look at what it would mean if you had your savings in this account.

The account pays out 7% per annum if you stick to the withdrawal limit of once per quarter. While that’s hopefully a good incentive to keep your savings growing, if you do need to withdraw more, you still earn 3.5% per annum and there are no withdrawal or account management fees. 

One other useful aspect of the Absa Digital Savings Account is that the interest is paid quarterly. This means you can take advantage of the power of compounding. That is, your interest also earns interest faster as the quarterly interest accrued will be added to your principal every quarter for you to start earning interest on.

For example, the interest you earn in the first three months of 2023 (end of March), is added to your savings and earns a 7% interest in the next 3 months (end of June) and so on - if you do not choose to withdraw.

In the example given above of someone with Ksh100,000 under the mattress, the same amount would be worth about Ksh131,079 at the end of the four years - if there were no withdrawals in between. 

The Absa Digital Savings Account operates digitally and can be opened online through this link. There is no minimum balance required and there are no maintenance fees charged.

All you need is to upload your KYC details, including copies of ID and KRA pin, a passport-size photo, and a specimen of your signature. You can then start making your savings - while tracking your performance through an Absa mobile app, USSD, Internet Banking, or via the branch if you feel the need to. 

If you happen to have an emergency in the middle of your savings plan, you can access your cash instantly. You will still enjoy the 7% interest if you withdraw only once in 3 months. If you withdraw more than once in three months, you lose the 3.5% bonus interest but enjoy the ability to deal with emergencies with your own money instead of borrowing.

The Frugal Route

The beauty of personal finances is that there is no fixed way of doing things. In the road to saving Ksh1 million, there is the option of making adjustments that will accelerate your journey - as long as you are committed. 

Like everything good in life, you must make sacrifices along the way and exercise restraint - for the bigger goal. For example, with a Ksh61,000 net salary and using the 50/30/20 rule, you will have to fit your recurrent expenses within Ksh30,500. 

This means you might have to restrict yourself to a house where the rent is not more than Ksh15,000 so as to cater for other bills such as transport to work, food, clothing etc. 

It also means you have to avoid debt since debt repayments fit in the basic needs category - and would cut away the funds needed to give you a decent quality of life. 

Your wants’ budget will also be capped at Ksh18,300. A minimalist lifestyle, however, can see your wants reduced even further, raise your savings and reduce the time it takes to get to the big M. 

Some tips that could reduce your wants budget include shopping in bulk instead of regularly buying small amounts that may require delivery fees. You could also take up jogging or home workouts instead of paying for a gym membership, share the home internet with a neighbour to split the cost; reduce take-outs and dining expenses, among others. 

You could also accelerate this journey by finding ways to increase your income in addition to your salary and channelling all additional income to savings. A side hustle can be a great idea that would aid you on this journey. Working longer hours at work for extra pay - if your employer has a provision for this - may also be beneficial in bringing your dream of a Ksh1 million bank balance closer to reality. 

When you are saving towards a financial goal that you are very passionate about, you may find some sacrifices worth it if they can help you reduce the time it takes to achieve this dream.

To accelerate your journey to Ksh1 million, you may want to consider adopting a frugal lifestyle, which some may consider a little extreme way of cutting all discretionary costs to a bare minimum or the minimalist lifestyle which is considered less extreme but a complete mindset change to being comfortable with less. 

The frugal-minimalist route to Ksh1 million in savings is a choice and in no way a must-do, but an option to consider down the road. 

Wrapping Up

You do not need a huge salary to save your first Ksh1 million. As the Englishmen say, the little strokes fell the great oaks. With discipline, consistency, and a strategic savings plan - you could well have Ksh1 million in your savings account sooner than later. 

The Absa Digital Savings Account offers some good benefits for anyone keen on consistently saving towards a goal while still having the flexibility of quickly withdrawing their savings when an urgent need arises. 

For the driven saver, the bonus structure can be a good motivator to keep saving without withdrawing until the goal is reached. This is while being able to track progress digitally. 

Check out the Absa Digital Savings Account here and learn if it is a good choice for your saving needs.  

UPDATE: From May 2023, the Absa Digital Savings account has an annual interest rate of 9% which accrues daily, compounds monthly and is also paid out every month.