Provide all relevant information to get sound financial advice reservations

I am a single lady working with an airline company. I earn a net income of Sh80,000. I am currently servicing a loan for which I pay Sh25,000 every month. I have some savings in a sacco. How can I leverage my payslip to create some savings to achieve my goal of buying and developing a plot? Mary-Anne

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Mary-Anne, although you have provided quite a bit of information about your personal finances, you have not adduced adequate information for proper financial advice.

There are some important pieces of information that are missing that would enable me to give you the right financial planning advice.

For example, I need to know about your monthly expenses, what you used the loan for and your risk tolerance.

Going by your submission, it is very clear that there is an unbalanced financial equation in your statement which begs for additional clarity; something that can only be extracted from your financial budget. You received a loan of undisclosed value and directed it to other purposes that you also did not disclose.

Apart from the impact of reducing your monthly income through repayment, the loan should be reflected in your monthly budget in the form of additional income incase you used the money to start a business. This is not reflected in your submission.

The foundation of sound financial planning is anchored on proper budget planning and as a result, any financial advice rendered without this consideration is often futile and can not help add much value to your financial wellbeing.

Your budget should help define how much money you will direct on repaying your loan, how much you need for your expenditure and how much is left for your savings to support your goals. You will be amazed at how much money you spend on things you do not really need.

Many financial planning efforts especially on budgeting fail to squeeze substantial savings due to lack of specific financial goals that they are intended to achieve.

You seem to have a roadmap to your destination for your long-term goals.

If you want to buy a plot and construct a house, then you should estimate the amount of money you will need to save in order to achieve this goal.

The next thing you need to do is to assess your financial standing – your spending and your savings.

Servicing the loan at the rate of Sh25,000 leaves you with a monthly surplus of Sh55,000 from your net income of Sh80,000 to meet your monthly expenses and for savings.

Since repaying the loan is a financial burden that will stay with you for sometime if you go by your repayment rates, your focus should be on investment savings rather than safety savings to guarantee you some source of income.

This will help enhance your repayment amount and consequently reduce pressure on your budget.

Alternatively, you can increase your loan repayment amount to expedite and lighten your financial burden.

This however will call for a lot of sacrifice through tightening of your budget.

Safety savings should be limited to an emergency fund with easy access and high liquidity for your crisis needs.

Investment savings can either be in the form of monthly contributions to unit trust funds, fixed deposit schemes and even monthly injection of savings into the capital of a business venture.

Through this you can be sure of some substantial income either weekly, monthly, quarterly and even annually depending on the size of your investments.

Just as you would match your savings to your financial goals, you should try to link your investments to your goals to lighten your saving efforts.

Isaiah Opiyo, Personal Financial Consultant, [email protected]