From Sh240M, you can spend Sh10k every day for ever & ever!

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

29 October 2017

I overheard a conversation between two traders at Toi Market, Nairobi recently. The first one claimed that if you were given Sh240 million and spent Sh10,000 daily, it would last you 65 years. But the second man disagreed; his point being that the value of Sh10,000 cannot remain constant over such a long period of time.

I did not stay long enough to hear the end of the conversation – I was eavesdropping! Still, this brought to mind a point that I made in these columns a few months ago: that money has no value unless you spend it – the value is in what you spend it on.

Whenever we hear some one talking about a certain amount of money, we immediately begin to wonder what we could buy with it. This is the only way we can appreciate the value.

Thus I suspect that, when the second trader heard about spending Sh10,000 daily, he started thinking about what he could buy with it. He then realised that the cost would increase with time and therefore, the money would buy less and less.

However, this whole discussion was based one major assumption: that the money would be sitting somewhere “under a mattress”. Well, actually, it can’t fit under any mattress, so perhaps, in their minds, the two market traders were think about it kept in a room.

The truth is that you’d be mad to keep Sh240 million at home! So this money will most likely be in a bank account. Now banks do pay interest on deposits and, currently, most are paying around 7% per annum. Thus for Sh240 million, you would expect to earn about Sh16.8M in one year. When the relevant tax is deducted (15%), you will be left with Sh14.28M.

This works down to more than one million shillings per month! It is actually about Sh39,000 daily. Therefore, if you removed Sh10,000 every day, you would never finish the Sh240M – never, ever! In fact; your balance would increase gradually even though you are withdrawing such a large sum every day.

Now, I don’t know why the two traders were talking about Sh240M. I wasn’t there when they started their discussion. But I suspect it was in relation to Samuel Abisai’s win of Sh221M in May this year. I don’t know what Samuel is doing with his money, but if it is still sitting in a bank account, earning a modest 7% per annum, he should be getting about one million shilling every month – after tax!

Now what can you do with an income of one million shillings after tax per month? Me? I would save most of it since my dream lifestyle would require far less than that!

But, obviously, inflation will eat into the money. So, the question remaining is: if we accounted for inflation, how long would the Sh240M (or Sh221M) last if you spent the sh10,000 daily?