I am 26 and make Sh. 1,500 daily. I don’t know how to save or manage this money. Help!

Hello, my name is Elijah. I’m 26 and I work as a salesperson in Nairobi and earn Sh1,500 per day on average. My rent is Sh5,500 and transport is Sh200. I don’t have a budget on how to spend the rest of the money which I can't account for. I have a four-month-old daughter. I feel like I will face certain financial ruin if I don’t get my financial act together. The problem is, I don’t know how to do it. Please help me budget and know how to spend.   

Inziani Khasiani, financial consultant and the executive director at Klientele Kenya

Financial planning and budgeting is not just about how much money you spend; it is also about where you spend your money. Thinking about where your money goes gives you opportunities to look for ways to manage it better.

Budgeting is a habit. Do it properly and your future self will be thankful. Here are some ideas to get you started.

The first step is to write down your net income and then record your monthly expenses against it. Because your expenses will vary from one week to the next, it is important to track your costs for a month to get an accurate monthly average.

Write down all the things you have to pay for like food, rent, school fees, and power and how often you pay them, for example weekly, or fortnightly. Keep a notebook and write down your expenses for a couple of months.

Compare your monthly expenses to your monthly income to see where the money goes. Work out your total income minus your total costs each month. 

If your total is positive, you are meeting your expenses and can start saving. If your total is negative, your expenses are more than you can afford. You will need to find ways to either reduce your expenses or increase your income to meet your costs. You need to aim to hit a positive position so that you can start saving.

The next step is to categorise your expenses into essential and non-essential expenses.

Look at the goods and services you spend money on. Which do you consider to be essential? How do you decide whether or not something is essential? Eventually, you will have to be realistic about your status and craft your own answers to this question. Spending on food and housing would be defined as essential but other items are less defined. 

Where particular goods or services are seen as essential, expenditure on them cannot be cut out completely. When you reach the budgeting stage, the target will be more about reducing the expenses of these, for example, by buying fewer of them, or a cheaper version. Part of this process will require you to shop around, search and compare prices.

Next is to look at the non-essential expenses. Again there is no standard definition of non-essentials. Non-essential expenses are usually things that you can either substitute or live without.

Now that you have a clear idea of what non-essential spending consists of, it’s time to set a plan to reduce the amount of money you spend on such items. Start thinking about anything you would like to change. Write down the things you would like to change or improve. Monitor the spending for some months.

The next process is to consolidate and review the information captured and create financial goals. Setting goals is a good way to start helping you decide how you wish to spend your money in the future. It is about changing the way you manage your money to see if there are any ways to spend less and increase the money you get. It is about making commitments on what investments you wish to undertake in the short term, medium term and long term.

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