Help! I earn Sh34,000 and my family, siblings depend on me

Money.

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What you need to know:

  • I also have a side hustle that gives me Sh20,000 per month which I use.
  • I am reluctant on whether to save in Sacco or not. Please help me achieve my money goals.

My name is Stephen and I’m a teacher. I have worked for about 1 year as a teacher. My net salary is Sh34,000. I live in a one-bedroom rental house where I pay Sh10,000. Transport to work is Sh4,000. I have three siblings in secondary school and a brother who needs to join college next year. They need my help as I am the only one in my family with a job. I had an outstanding loan of Sh400,000 which I had taken at Premier Credit. I realised this loan was too expensive. I borrowed Sh1.3 million from a bank and paid off the Premier loan. I paid off Sh600,000 in loan and interest. I remained with about Sh500,000 as the balance of about Sh200,000 had been withheld by the bank as insurance and loan charges and fees. This loan has a repayment period of 96 months and installments of Sh22,000. I have already repaid the first month. I would like to use the balance of Sh500,000 to open a business for my wife. I would also like to build a house for my mom and myself. I also have a side hustle that gives me Sh20,000 per month which I use. I am reluctant on whether to save in Sacco or not. Please help me achieve my money goals.


Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money

Your total income is Sh54,000 (net salary plus side hustle). However, the loan you took recently (whose monthly deduction is Sh22,000) has greatly reduced your total income to Sh32,000. The only two listed expenses total Sh14,000 leaving Sh18,000 unaccounted for.

1). Live within your means:  Draw a budget for your expense. The vote heads need to include household items/food, utilities, healthcare, black tax, personal upkeep. 

2). Consider the total cost of loans before applying: consider the take-home amount and total interest to be charged during the repayment period. The bank loan of Sh1.3 million you have taken to clear another more expensive loan is equally expensive. At Sh22,000 repayments per month for 96 months, the total cost of the loan is Sh2,112,000. You will pay a colossal sum of Sh812,000 as interest.

3). Review your expenditure: Desperate times call for desperate cuts as follows.

i). Rent and transport: You are spending Sh10,000 which is equivalent to 31 percent of your total income which is more than the recommended average of 15 percent. Find a cheaper house and reduce this to around Sh5,000. This should ideally be near the school you teach in order to eliminate heavy transport costs. If you’re not able to find a house near your school, work to cut your transport to Sh3,000. This will give you Sh6,000 from the two expenses.

3). Use the 50/20/30 rule:

i). Paying yourself first/saving (20 percent): Sh6,000

ii). Necessary expenses (50 percent): Sh16,000 spread as follows: Rent Sh5,000, Transport Sh3,000, Food Sh7,000, Utilities Sh1,000.

iii). Others (30 percent): Sh10,000 (Black tax/family Sh5,000 and miscellaneous Sh5,000)

If you pay fees for your siblings, arrange to channel Sh5,000 monthly. Also make use of the county, constituency, and ward bursary funds. The sibling looking to join college can utilise the KUCCPS platform which offers students access to HELB funding. They can also defer for a few months and find some small work such as supermarket teller or untrained rural teacher which will help ease your burden. The Sh5,000 allocated for miscellaneous expenses should double up as your emergency fund. This can be a Money Market Fund which at the moment will only retain your value with inflation at 9.6 percent. Channel 20 percent (Sh6,000) in your budget to a reputable teacher’s Sacco. You will accumulate Sh216,000 and Sh360,000 in three and five years respectively besides the dividends of Sh21,600 and Sh36,000 respectively, and qualify for a development loan of Sh1,080,000 in five years.

4). Do your due diligence before spending Sh500,000 on a new startup. Start small along your wife’s passion and skillset. With a loan and funding limitations, you don’t want to start a capital-intensive venture. If the business has potential, you may scale it up. You need at least Sh20,000 extra to sustain yourself better and shorten your loan repayment period. For example, by boosting your installments with an extra Sh10,000 to Sh32,000, it’d take you 66 months instead of 96 months to clear the loan, which is equivalent to five years and five months. 

Bank loans are usually on reducing balance which means the faster you pay on principal the less interest you’ll pay. Also, teachers' Saccos have a soft spot for teachers. Once you join one, discuss your loan predicament and evaluate any alternative solutions you might be offered.

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