My Husband and I Are Not Sure How to Grow the Proceeds from Our Property-Sale. Any Advice, Please?

Good morning and how are you doing?

Friday letters are usually dedicated to taking questions from our community. Do you have a question for us? Please feel free to?

• send an e-mail to [email protected] ; or
• send a DM to any of our social media channels, or
• simply fill out this form . Don’t worry, your responses are kept anonymous.

***

Question

We have lost a fortune since COVID-19. We invested $45,000 in the perfume oil importation business—an investment that went wrong. Life has been miserable since then.?

We pay school fees of almost ?4 million yearly for our children, although we have a property that caters for their school fees.?

Now, we want to sell the property and we’re expecting about ?60 million to ?70 million which we can use to start a business.

These are the options my husband and I are considering:

1. To hoard dollars with a chunk of the money but at the same time, need a business for daily income so we can pay school fees, feed and eventually build a portfolio from there.
2. Hubby wants to start selling building materials, as we live in an area where massive developments are ongoing. We’re hoping to get land on the main road but the problem is that such lands are expensive, about ?40 to ?60 million. So, we might not have enough money to start the business.

?I’m scared we might lose this money again. What financial advice will you render in such a situation? What profitable business will you suggest?

Answer

Thank you for sharing this with us.

From your explanation, it's not clear whether your household has an additional source of income except the property. If it’s the case that the property is your only source of income, then it’s not advisable to invest all the proceeds from the property into a business. First, decide how much your household needs to sustain itself for a year—school fees and all expenses inclusive. Let’s call this portion the “upkeep fund”. Split the upkeep fund into two. One portion which is enough to last you for three months can go into a regular savings account. The other portion which is equivalent to nine months of expenses can go into a low-risk investment that can easily be liquidated. This could be a high-yield savings account (HYSA), for example.?

Now, we’re left with what remains after you have kept aside the upkeep funds. For this, you can either invest all in a business or halve it as well. Although, it is highly recommended that you split it into two so that all your eggs are not in one basket.?

If you decide to invest all in a business, it would mean you would not have enough funds to start the building materials business. You can consider starting the building materials business on an online platform first. This will save you the cost of acquiring that land by the roadside. It is also understandable that the reason for wanting to purchase the land by the roadside is to make sales by creating visibility for the business. To solve this, you can consider making contacts with construction companies and pitch your business to them pending when you have a physical outlet. As regards storage of the building materials, if your house has a room/basement that you can devote to this pending when you start to make gains from the business, it is advisable that you convert it into storage for the business.

If you decide to halve it, we advise that you invest one half into a very low-risk portfolio and use the other half to start a business. This would mean that you need to explore a less capital-intensive choice of business. There are many businesses you can start ranging from Airbnb, to event planning and catering services, transportation business, etc. There is a vast majority to choose from, and we will be unable to recommend a specific business that you can venture into. We instead advise that you try to conduct proper research on your area and the businesses that are likely to thrive there. Try to fish out several options, which you can weigh against each other, before making your final choice.

Another piece of advice which you may find useful is to consider starting the building materials business on an online platform first. This will save you the cost of acquiring that land by the roadside. You can consider making contacts with construction companies and pitch your business to them pending when you have a physical outlet. As regards storage, if your house has an extra room/basement, you can devote it to this, pending when cash flow from the business starts to improve. (This was captured earlier and is repeated here)

Going with the assumption that your property is the only source of income for the household, it is advisable that you and your partner seek a source of income, possibly through a salary-paying job. This will help to sustain the household while also pursuing business and investment opportunities. It will also help to prevent a major financial setback should the business have any complications.

***

Question

I have saved up my three months living expenses as my emergency funds. Which safe investment would you advise I put the funds into?

Answer

Well done to you!

While it is important to save and invest actively, it is equally important not to miss out on saving towards an emergency fund. An emergency fund is a bulk of savings set aside to save you from unforeseen financial burdens. Usually, it is equivalent to three months or more of your estimated living expenses.

A useful tip to bear in mind when stacking up your emergency funds is that it can also bear fruits (that is, you can also invest it). There are two considerations to bear in mind when investing your emergency funds:

• Liquidity: This refers to how quickly one can convert an asset into cash without negatively affecting its price. It is important to bear this in mind in order to avoid being stranded should you need the funds.
• Risk: Ideally, your emergency fund should be invested in a very low-risk asset, to avoid desperation from fear of loss.?

Also, a befitting investment for emergency funds is a high-yield savings account (HYSA). Here, you earn interest, and can easily withdraw your money whenever.

***

Did you find this newsletter useful? Please feel free to share it. You can read previous newsletters here

Join our community today and learn everything you need to know about money. This also gives you access to our monthly webinar series on different topics around personal finance.?

The MoneyAfrica community has so much to offer you in your personal finance journey, watch this video to find out.