Sadly, many people don’t know what they’re worth!
The Sunday Nation
Nairobi,
13 December 2015
Safaricom Ltd Chief Executive Officer caused a stir on Wednesday when he posted a declaration of his wealth on the Internet. In it he listed various assets that he owns altogether worth US$2,719,000 (about Sh277 million). He also declared his income for the last 12 months – about Sh110 million.
While many people were wowed by the seemingly “immense wealth”, I was left wondering a few things. First of all, Safaricom is a company worth over Sh100bn with Sh160bn in annual sales and making over 40bn profit last year: is it fair to pay its CEO Sh110m per year?
Mr. Collymore has bank balances in local and foreign banks totalling about Sh116m. So my second question was: Is it OK for some one who earns Sh110m per year to have Sh116m in the bank? It says something about his spending habits – he is not extravagant.
But one thing that I still cannot fathom is this: a man works for over 30 years and all he has to show for it is one house and some shares in two related companies? Something is amiss!
Nevertheless, the sad truth is that many people do not know how much they are worth: Not because it is too much, but because they don’t know how to calculate it. In a nutshell, your wealth is the value of what you own minus that of what you owe.
So, if you take a loan to buy, say, a house, the value you own is only what you have contributed for its purchase. That is, the deposit you have paid. So, if it is worth Sh5m and you make a 10 per cent down-payment, then it is only worth Sh500,000 in your books you!
The remaining Sh4,500,000 of the house’s value belongs to you financier – the bank. No wonder they keep the ownership documents! Obviously, as you make your loan payments, you gradually increase your stake in the property.
Suppose you were financed at 18 per cent interest over ten years. Your monthly instalment will be Sh81,000. In the first month, Sh67,500 will be interest on the loan and only Sh13,500 will go towards paying the Sh4.5m loan. So, after that payment, your stake in the house increase to Sh513,500.
As time goes by, the interest element out of the Sh81,000 increases so that by the end of one year, your stake will have increased to Sh677,143. This gradual increment in your stake continues until you finish paying the loan.
But of course, in 10 years, the market value of the house will have increased; perhaps to Sh15m. In addition; paying Sh81,000 per month for ten years makes a total of Sh9.7m. So, the question then is: What is the value in your books? Is it the Sh5m that you bought it for, or the Sh9.7m that you paid or the Sh15m market price? Figure it out for yourself.
 |
 |