Passive Income is the Lifeline in the Cost of Living Crisis, Kenyans Told

Kenyans have been encouraged to embrace the concept of passive income to cushion themselves from the effects of inflation and the global cost of living crisis that has increasingly caused anxiety in many households. 

This was the key message that came out of a webinar hosted by KCB Bank Kenya on Thursday, October 5, aimed at raising awareness of the various investment options that can help Kenyans build passive income, particularly amid the high cost of living. 

Key Takeaways

• It is important to have a provision for uncertain times through passive income. 
• Passive income is instrumental in achieving financial freedom
• Investments are not just about returns, accessibility and flexibility are equally important considerations
• Invest without comparing yourself to others, let your personal goals guide your investment choices
• Be intentional about managing your lifestyle to ensure you live below your means

In creating passive income, Kenyans were encouraged to be mindful of their lifestyle to ensure expenses are always below their respective incomes. Living below your means allows you the legroom to invest and ultimately create passive income. 

Cut the Coat as Per your Cloth

Further, the need to have a personalised investment approach was emphasised, noting that there is no universal rule that should guide how much you should save or where you should invest your savings. 

The important thing is to understand your goals and suit your investment options to your personal goals. 

“Context is important when making an investment. A doctor, for example, may have a runway of up to 80 years while a footballer will typically have a shorter runway. Adjust your investment options to your personal circumstances and know investments are not only about money. For some people, the most important thing is to invest in yourself, for example by learning a skill as a young person.”

“Before deciding which investment tool to use, you have to introspect on your goals and your objective. If you need your money back after two years, pick a product which will allow that. It would be useless if you invest for the biggest returns and two years later, your money is not accessible,” advised Timothy Macharia, the Head of Wealth Management at KCB Investment Bank. 

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MMFs vs T-Bills Vs Bonds 

The interactive session, headlined as Creating Passive Income: A Necessity to Overcoming Economic Turbulence, was hosted on X (formerly Twitter) where Macharia offered expert insights on personal and objective ways of building a personal safety net suited to their personal finances. 

Some of the popular investment tools available in Kenya, such as Money Market Funds (MMFs), Treasury bills, and bonds - were discussed in detail. 

Macharia noted that the three investment options are some of the common products used in creating passive income but with different goals. 

An MMF, for example, has no lock period and the funds can be accessed within 2 days - making it ideal for people who may need their invested funds within a short duration of time.

Treasury bills, on the other hand, have a lock period of 3 to 12 months, which would be suitable for an investor who knows they will not need the money back for the respective lock period.

Bonds, like T-bills, have a lock period but for an even longer term - which equally suits a different kind of investor who is not looking to recoup their investment in the short term. 

The event came at a time when the global cost of living crisis, described by the United Nations (UN) as the worst cost of living crisis in the 21st century, has continued to put a strain on many Kenyan households. 

Macharia noted that having a provision for uncertain times was not the preserve of employed Kenyans, urging those in business to create a habit of separating their business and personal finances. 

“For people in business, it is important to create some separation between personal finances and business finances. For example, you can pay yourself some dividend and create a portfolio that is independent of the business. Even when the business is struggling, you will have a margin of safety,” he added. 

Biting Inflation

Earlier in the week, the Central Bank of Kenya announced that Kenya’s overall inflation stood at 6.8 per cent in September 2023, compared to 6.7 per cent in August. 

Fuel inflation remained at a high of 13.1 per cent in September, while food inflation stood at 7.9 per cent. 

The rising cost of fuel has had a ripple effect on other sectors of the economy, particularly on the cost of food products and electricity, adding a strain to many household budgets. 

Kenyans with a disposable income have been encouraged to fully utilise their money to ensure it protects them from inflation and uncertainty in the economy. One way of doing this, as discussed in the online session, is to ensure your savings grow with your income. 

You can listen to a recording of the KCB event here.