My name is Peter. I'm 30 and earn a gross salary of Sh59,500. I try to live within my means. My net salary after statutory deductions of Sh13,726 and loan deductions of Sh5,834 and Sh6,016 is Sh30,923. I make monthly Sacco contributions of Sh3,000, with a current total of Sh48,000 (being share capital of Sh30,000 and share deposit of Sh18,000). My rent is Sh7,000, water and electricity Sh2,000 and shopping Sh8,000. I also pay Sh2,500 a month into a table bank, which distributes savings and interest at the end of the year. I also have another chama of Sh3,200 that goes towards savings and loan payments (savings of Sh43,000 and loan balance of Sh34,000). I also have other loans from mobile applications
1) Sh29,620 – to be paid in one instalment in one month
2) Sh20,000 – payable within 6 months with an instalment of Sh3,460
4) Sh9,514 – payable within 3 months with an instalment of Sh3,340
I have been working for a year and my contract ends in December 2025. I am in a cycle of paying off one mobile phone loan and taking out another one the next minute to survive. I don't enjoy working and I can't go on living like this. I need your help.
Chacha Nyaigoti Bichang'a, a financial coach at Chachanomics Consulting and author of Mastering Your Money.
Your net balance is not Sh30,923 but Sh33,924. Your total expenditure is Sh25,700, leaving an unaccounted balance of Sh8,224. You are weighed down by the devastating effects of the vicious cycle of huge mobile phone loans totalling Sh66,200, Sacco loan deductions of Sh11,850 per month and a Chama loan balance of Sh34,000. As a result, you derive little satisfaction from your work and this will affect your performance if not addressed as soon as possible. To address your financial problems, consider the following strategies:
1) Have a debt repayment plan: You have accumulated huge loans that have depleted your disposable income beyond the recommended threshold. Use the debt avalanche method and start by repaying the highest mobile loan of Sh29,620 that is due in a month. Then pay off Sh7,066, which should also be a one-off payment in one month. Then move on to Sh9,514, which is payable in three months, and finally Sh20,000, which is to be paid in six months. Consider taking out a Sacco top-up loan to clear all your mobile phone loans. Once you have done this, refrain from taking out further mobile loans and develop financial discipline to enable you to live within your means. Please note that although mobile phone loans are easier to access, they are addictive and come with very expensive interest rates.
2) Review your financial lifestyle: You do not seem to be living on a budget. This explains why the balance of Sh8,224 cannot be accounted for. A budget would help you keep a firm grip on your money and expenses to avoid wastage. You will have more disposable income which you can use to pay off some of the mobile phone loans. Use the 50/30/20 budgeting guideline. Prioritise 30 percent (Sh10,000) of your income for savings. Use 50 percent (Sh17,000) for necessary expenses such as rent, utilities, buying food, etc. The remaining 20 percent (Sh6,700) should be spent on wants or used to pay off some of the mobile loans. This budget guideline can be readjusted in light of your current financial situation and more money can be directed towards paying off mobile phone debts. This will free up more money for saving and investing. Track your money daily to ensure you know where every shilling is going. By recording your expenses on a daily basis and making weekly summaries per expense item, you will be able to create a monthly financial statement that will help you create a realistic budget in three months' time.
3) Set up an emergency fund: Your contract ends in December. In order to protect yourself from unforeseen circumstances, in case your contract is not renewed or some other unfortunate outcome occurs, you need to set up an emergency fund equivalent to six months of your living expenses. This amounts to about Sh155,000, which should be invested in an established money market fund that earns modest returns. So far, you are doing a commendable job by saving Sh3,000 in a Sacco, Sh2,500 in table banking and making Chama deposits of Sh3,200 despite the heavy loan burden.
4) Enrol for financial coaching and mentoring: At the age of 30, you are in a financial take-off phase that requires sound decision-making on personal finance matters. Use the services of a financial coach to help you identify your financial goals and strategies for achieving them. Investing in a good coach will help reprogramme your mindset and equip you with the necessary knowledge and skills to improve your relationship with money, overcome the trap and shame of debt, save and invest more in profitable ventures.
5) Diversify your income sources: Relying on one job alone will not make you financially independent. Look around you and see if there is a part-time job or business that you can do, especially in your spare time. In the meantime, look for a potential job by applying to companies or government agencies that need your skills. This should be a major concern, especially as your contract expires at the end of the year with no guarantee of renewal. Start working on your contingency plan by targeting hustles you can do when you are off duty.
Let this also be your wake-up call to start building your CV to enhance your employability and competitiveness in the job market. If you do your research, there are several accredited free professional development courses available online. There are also dozens of scholarships for online training seminars that you can use to improve your CV. As your financial situation improves, you can start to consider academic upgrading, such as a degree if you have a diploma, or a masters if you have a degree. These are medium-term goals that you can achieve gradually.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column.
