The document discusses how higher rates, inflation, and oil prices can reduce disposable income and require adjustments to spending and investments. It advocates staying invested during tough economic times by cutting unnecessary expenses. It provides the example of Cato the Elder, who rejected extravagance. The document then outlines seven levels of financial freedom, with the seventh being abundant wealth from a balanced portfolio providing a safe withdrawal rate. It encourages developing financial discipline to build capital and take advantage of investment opportunities.

1. A whirlwind of higher rates, rising inflation and global oil prices leads to a decline in disposable
income, which is the net income an investor is left with to invest and spend after all necessary
expenditures. Put simply, investors will have to dig deeper into their pockets to meet their
expenditures, leaving behind a smaller amount of free cash. Therefore, spending, purchases and
investments need to be re-adjusted accordingly.
Staying invested is the best way to navigate such tough economic times. However, to stay invested,
unnecessary expenditures need to be cut off. This means, spend only on what is necessary, or better
put, ‘Avoid the Superfluous’.
It is said that Cato the Elder, a renowned senator and roman soldier, never wore a garment that cost
more than a few dollars. He drank the same wine as his slaves with whom he regularly worked
alongside in the fields. He rejected the extensive trappings of high society. “Nothing is cheap,” he said,
“if it is superfluous”.
If you don’t need it, don’t buy it and if you don’t care about it, don’t worry about what everyone else
thinks.
Discipline to Financial Freedom
Opportunities shall continue to emanate in the financial markets for all investors with ready capital to
invest.
A good example of this today is the fixed income markets. Higher interest rates provide opportunities
for investors to lock-in higher rates in fixed income securities such as the recently issued
infrastructure bond (IFB). Investors who seek to invest in the current fixed income market are bound
to lock in significantly high rates for their investments, which have relatively shorter durations.
Investments in non-infrastructure treasury bonds require a minimum investment of KES 50,000.
The minimum investment amount for infrastructure bonds is KES 100,000. With sufficient capital,
one can take advantage of market opportunities such as the current IFB1/2023/7. A leaflet on this
particular issue is attached below:
JUNE 2023
MONTHLY REPORT
AVOID THE SUPERFLUOUS

3. Building the necessary capital to invest requires discipline. To achieve consistency in discipline, it is
important to understand one’s stage in life.
Best selling author of the book 'Financial Freedom' and a leading voice in the financial independence,
retire early (FIRE) movement, Grant Sabatier, has broken down the 7 levels of financial freedom, as
shown below:
1.Clarity
It is important to take stock of your financial situation. How much do you have? How much do you
owe? What are your goals? Most investors want to be rich. Without a clear goal, financial freedom
remains a far-fetched dream.
2. Self-Sufficiency
Clarity makes it easier to achieve self-sufficiency, where one is able to stand on their own two feet. A
normal source of regular income is expected at this stage. It is also understandable if one is still taking
on loans to make ends meet and therefore may not have enough to commit to investments. However,
loans should not be overwhelmingly high compared to regular income.
3. Breathing Room
After all the necessary expenses have been taken care of, determine the extra income that is left i.e.
disposable income. This is the income that is used to build up investor capital. Opportunities that can
be harnessed at this stage may include money market funds which allow for regular investing and
encourage investors to develop an investing culture.
4. Stability
Discipline and consistency help one achieve stability in their financial journey. At this point, one is
able to maintain a stable investment account, pay up their debts and therefore free up more cash for
investments and take up insurance policies.
It is advised by financial experts that when analyzing how much one needs to have saved, it is
important to think about the overall financial picture in an uncertain financial moment, rather than
just factoring in regular, everyday expenses.
5. Flexibility
Grant reckons that investors at this stage have at least 2-years’ worth of living expenses saved. One
has the ability to think of their money in terms of what it can buy them. Additionally, more risk can
be included in the investor’s portfolio such as stocks or shares.
6. Financial Independence
Investors at this stage can depend fully on income from their investments. An investor can have
income being generated from repayments from investments. These could be bond coupons, stock
dividends or rental income.
To get to this point, one is likely to have invested a high percentage of their income. It is also
important to point out that this is consistent, disciplined investing. However more monitoring of an
investor’s portfolio is needed to secure the assurance of their investments.

4. 7. Abundant Wealth
This can be likened to the self-actualization stage. It is the epitome of wealth creation. Financial
independence is achieved and investors can safely withdraw approximately 4%, adjusted for inflation,
from a balanced portfolio of stocks and bonds each year, and be relatively certain that the money will
continue to grow and not run out.
References:
https://www.acorns.com/learn/investing/levels-of-financial-freedom/
https://www.bloomberg.com/news/articles/2023-06-02/summers-says-fed-should-mull-half-point-
july-hike-if-june-a-skip
FA Jesse Ludenyo| Research Analyst
[t] +254 20 235 1738/41/42 [m] +254 71818 7437
Saachi Plaza Block C 2nd Floor, Argwings Kodhek Road, Kilimani

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