Question: My name is Gerald. I am single, and my net salary after statutory deductions is Sh35,000. My budget is as follows: Rent Sh13,000 for a one-bedroom house, bus fare Sh3,500, power Sh500, garbage Sh200, water Sh700, food Sh4,000, mum and siblings Sh5,000, girlfriend Sh4,000 and mobile loans Sh4,000.
I have been in employment for nearly one year now, but I don’t have any savings. I am in a cycle where I have to pay off one mobile loan and borrow another the very next minute to survive.
I feel weighed down by my family and girlfriend’s expenses because they all assume I earn lots of money. I find no joy in working and I can’t continue like this. I need your help.
Answer: Josephine Murage, an investment banker and personal finance consultant. You live beyond your means. From your expenditure, you are left with Sh100. This means that from the breakdown you have provided, the only amount left for savings or emergencies is Sh100 per month.
This puts you in a very dire situation requiring radical budgetary surgery. Since you haven’t invested or saved anything, the debts you take, and the money you make are purely for consumption, black tax, and social status.
This means you’re building other people's wealth at the expense of your own. To come out of the vicious cycle of debts, you need to take the following drastic measures under a crisis budget:
One, move to a more affordable house. Your salary cannot afford a Sh10,000 house, let alone the Sh13,000 rental you currently live in. You need to reduce rent from Sh13,000 to around Sh5,000.
This will save you Sh8,000, out of which Sh4,000 can be used to offset the recycling debt and the balance of Sh4,000 can be used to stabilise yourself throughout the first month. Once out of debt, this step will leave you with an extra Sh8,000.
Two, have a candid conversation with your mum, siblings and girlfriend. Explain to them clearly and firmly that you are surviving on a shoestring and can’t sustain the heavy black tax anymore.
Cut down the funds you send home from Sh5,000 to Sh3,000. Slash the girlfriend token from Sh4,000 to Sh1,000. This will save you Sh5,000 and also correct the wrong impression that you earn a lot of money.
Step one and two above will cumulatively spare you a combined total of Sh13,000. Out of this, start saving Sh8,000 in a reputable Sacco earning dividends at a rate of above 10 percent and Sh5,000 in a Money Market Fund.
The Sh5,000 in the MMF shall act as your emergency kitty and can be accessed on short notice while the Sacco savings will be for a medium-term investment goal. You can place standing orders that will make sure that the two allocations are fulfilled before you get to spend any cent.
Do thorough due diligence before you commit your money, and if need be, consult a professional investment advisor on what Saccos or MMFs to go for and which ones to avoid.
Three, find an extra stream of income to help you cover your basic needs because, currently, what you earn is not enough. For instance, get a side hustle to engage in during your spare time. You can scan your immediate environment and find a business or service, for example, washing cars between 5pm and 9pm after work.
Four, start to track and monitor your expenses. Get a small notebook or use a downloadable online expense tracker to record your daily expenses that can ultimately help you do a weekly and monthly analysis of your expenditures in line with various items.
This will help you to evaluate the workability of your budget, know where every shilling goes, cut down on costs, and save even more.
Lastly, set clear financial goals to back up your savings. Saving money is more effective and achievable when there is a goal in sight. In your case, it could be finding capital to fund a master’s degree and increase your career marketability, or it could be acquiring an asset such as a plot somewhere in the outskirts of Nairobi.
You are not too young to start dreaming. Your short-term goal might be to attain financial stability. The medium-term goal (two to five years) may be to save enough and start investing in more rewarding alternatives such as infrastructure bonds or the acquisition of an asset.
A longer-term goal may be to include saving for retirement and preparing for family life and the heavier expenses that come with family responsibilities. You have age on your side and the ability to make financial adjustments that will reward you in the long term.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.
