My name is Linet and I am 29 years old. I have a job where I earn Sh200,000 net per month. I have a bank loan of Sh3 million at an interest rate of 18 percent per annum with a balance of 77 months. I have an emergency fund of Sh200,000. I also have a car with a resale value of Sh1.2 million that I would like to get rid of. I have Sacco savings of Sh250,000. My monthly expenditure is as follows: loan repayment Sh65,000, rent Sh21,000, house bills Sh10,000, Sacco Sh10,000, groceries Sh10,000, hair and nails Sh8,000, fuel Sh10,000, miscellaneous Sh15,000, clothing Sh10,000, black tax Sh15,000, car insurance Sh4,000, tithing Sh20,000, excursions Sh8,000. I want to be debt-free by the age of 30 and start investing wisely. Please help me.
Gertrude Njeri is an accountant, personal finance and investment consultant. She works as a community manager for an investment company in Nairobi.
Earning Sh200,000 net monthly, maintaining a Sacco savings of Sh250,000 and having an emergency fund of Sh200,000 at your age is commendable. At just 29, you are in a great position to create lasting wealth. However, I must be honest: your 18 percent loan interest rate is eating into your financial potential, and your current expenses exceed your income. Let's create a practical, aggressive strategy to get you out of debt and into smart investments before you turn 30.
Step 1: Aggressively pay off the loan
Your Sh3 million loan is holding you back with a balance of Sh2.31 million and 77 months to go. This debt is costing you far too much in interest, so the priority is to pay it off quickly. Here's the plan:
a) Sell your car, which has a resale value of Sh1.2 million.
b) Use this money to reduce your loan balance to Sh1.11 million.
c) Continue your current monthly repayment of Sh65,000.
d) With the reduced loan amount, you will pay off the debt in 20 months instead of 77.
This strategy saves you significant interest and frees up cash flow for other financial goals.
Step 2: Adjust your budget using the 50/30/20 rule
You are currently spending beyond your means, making it difficult to save or invest effectively. To fix this, we'll use the 50/30/20 budgeting rule to ensure you live within your income while prioritising debt repayment, savings and tithing.
Hair/nails: 5,000, Clothing: 5,000, Outings: 5,000, Miscellaneous: 5,000Â (The remaining 40,000 to go towards savings and investments)
Savings (20 percent)
 40,000
Emergency fund: 15,000, Sacco savings: 10,000, Tithe: 20,000, Black tax: 15,000, sinking funds savings account (20,000 ), fuel expense (Sh10,000) and reduce your travel cost to around Sh5,000 monthly.
This adjustment keeps your spending in line with your income. Note that the 50/30/20 rule can be adjusted to suit your personal situation. It is simply a guide to help you plan your money. For example, while tithe is a personal matter based on faith, the Sh20,000 tithe allocation is not a legal deduction set in stone, especially at the expense of your already strained finances and debts.
It can be withheld, cancelled altogether or readjusted until your financial situation improves. It may not be financially logical to go broke or get into debt in order to tithe.
Step 3: Continue to build your Sacco savings
Your consistent contributions of Sh10,000 to your sacco are excellent and should not stop. This habit will not only increase your savings, but also ensure access to affordable loans for future projects. Once your loan is settled, consider using Sacco loans for planned expenses or other growth opportunities, as their interest rates are much lower than those offered by banks.
Step 4: Build an adequate emergency fund
Your current emergency fund of Sh200,000 is a good start, but it's not enough. Ideally, you need three to six months' worth of essential expenses, which is around Sh300,000 to Sh600,000 based on your adjusted budget. Save Sh15,000 per month towards your emergency fund until it reaches this target. Once the emergency fund is complete, divert this amount to investments.
Step 5: Start investing wisely
Once your loan is fully paid off in 20 months, you'll have Sh65,000 a month to invest. Since you're young, time is your greatest ally in building wealth.
Investment strategy:
Low risk options (short term goals):
i) Money Market Funds (MMFs): Start here to grow your savings with minimal risk while building confidence in investing. MMFs are also ideal for saving for other investments, such as bonds, while earning stable returns in the short term.
ii) Medium-risk options (medium-term goals):
Government bonds: These offer stable returns and fit in with your long-term safety net.
Stocks and ETFs: Once you're debt-free and financially comfortable, allocate funds to these for higher growth potential. Exchange-traded funds (ETFs) are particularly suitable for beginners or investors who prefer a diversified approach without the need to pick individual stocks, offering exposure to the stock market with less risk.
Use the age-based asset allocation rule:
Subtract your age (30) from 100. Allocate 70 percent of your portfolio to stocks/ETFs and 30 percent to safer investments such as bonds and money market funds. For example, if you invest Sh65,000 per month in diversified assets, you could build a substantial wealth over the next 5-10 years.
As you embark on this journey, there are a few questions you should consider, the answers to which will determine your progress. These include:
i) Are you comfortable selling the car to accelerate your debt repayment?
ii) Would you be willing to further adjust your 'wants' budget if necessary?
iii) Do you foresee any major expenses that might disrupt this plan?
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.
