I am a matatu driver earning Sh1,200 daily but I don’t know where my money goes
I am a matatu driver earning Sh1,200 daily but I don’t know where my money goes. Photo | Photosearch
What you need to know:
- My name is Francis. I work as a matatu driver in Nairobi and earn at least Sh1200 per day. I work from Monday to Saturday. I have a wife and one child whom I support.
- My problem is that I can never account for my money and can't even explain where it goes. I really need to get my finances in order. Please help.
Robert Ochieng’, Investment and Financial Advisor at Abojani Investments
Your income can be put to better use with a budget that accurately captures expenses on a monthly basis. It is costly to buy household items and foodstuffs daily. Again, such daily payments easily tempt you to spend all; after all there are similar payments tomorrow and the days after. You need to write down your expenses as follows: How much do you spend on rent? What other fixed expenses do you have? This will help you get an estimate of your monthly expenditure.
You need to open a bank account for recurrent expenses. From your daily earnings, you could save Sh830 towards all expenses, while using Sh370 towards daily expenses on foodstuffs and household items in the first month. This will help you transition from daily spending to a monthly budget.
The advantage of a monthly-focused budget is that you are able to purchase items in bulk quantities, thus cheaper. Daily savings into a bank account can be best done "over the counter" to eliminate mobile transfer costs. With discipline, you could accumulate the amounts and save weekly.
Buying dry cereals direct from farmers or dealers is cheaper than buying from small scale market traders. Your surplus of Sh11,000 can be allocated towards personal development. You could be looking forward to a fixed asset ownership, or investing in a business. Joining a SACCO will help you realise your dreams. Saving Sh7,000 in a SACCO will enable you access a loan facility at 3X your deposits. If you consistently do this you will have Sh84,000 at the end of the year. This can grant you access to Sh252,000 loan that you can direct towards purchase of a plot. You can also use the same to start a business you can jointly run with your wife.
The balance of Sh4,000 can be put in a money market fund account to cater for unforeseen expenses. This will serve as a buffer account for emergencies. Savings in an MMF earn annual interests at between 8-10 percent. In a year, you will see the fruits of your focused financial habit and will encourage you to dream even bigger.
Personal finance is about the mindset. Certain indulgences like frequent eat outs, clubbing, betting and weekend outings are money pits that keep you broke. Finding cheap leisure activities like joining a football club or an estate fitness gym will not only save you cash but also help you build a social support base. You did not mention your child's age. School fees is best planned annually. Saving a fixed amount monthly can help you settle termly fees without struggle. Interests earned from SACCO deposits or MMF can be directed towards school fees payments. In this case, your money works for you.
*******
I got a salary increase: Should I buy a plot or car first?
My name is John. I am 32, married with one child. I got a salary increment from Sh70,000 to Sh100,000 net. My monthly expenses are as follows; rent Sh10,000 (though relocating soon to a Sh15,000 house), shopping Sh5,000, food Sh6,000, emergency saving Sh5,000, bills Sh5,000, chama Sh2,000, entertainment Sh5,000 and parents Sh2,000 shopping. I bought a parcel of land with a bank loan in 2020 with a repayment period of six years at Sh14,000 monthly. I am planning to build a two-bedroom house on this plot and also buy a car. Kindly advise on which development is best to begin with and how. I am very afraid to join any Saccos. The last sacco I joined collapsed with my Sh400,000 savings. Which are the best investments that can give me passive income or lead me to financial independence or what adjustments would you recommend I make on my finances? Please help.
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money
Your total expenditure per month is Sh54,000 (including loan repayment). Using Sh70,000 as the base, Sh16,000 is unaccounted for. Here are a few suggestions you can put in place to attain financial freedom.
1). Maintain your lifestyle despite the increment: This would mean that you reassess the reasons behind your intention to shift to a more expensive house. Is your current house so small that you would like to move to a more spacious one? Are you motivated by the salary increment that affords you the ability to pay for a more spacious or expensive house? It would be more prudent to refrain from spending more in rent so that you have more disposable income to increase your savings for investment.
2). Readjust and track your expenditure to reduce wastage: The Sh16,000 which is unaccounted for implies that you are not keen on some little expenses here and there that ultimately amount to a significant amount. Tighten your purse strings so that you readjust some of your expenses like utility bills (water and electricity expenses). If you reduce the bills by half, you will save Sh2,500. Equally entertainment expenses should be reduced or channeled towards emergency saving or miscellaneous expenses.
3). Increase loan repayment: Use part of the salary increment to increase the loan repayment by Sh10,000 (from Sh14,000 to Sh24,000). By now you have paid about Sh504,000 and the remainder can be paid in one year and nine months. This will free Sh24,000 which can be invested in profitable passive ventures.
4). Increase your savings: You are currently saving Sh5,000 for emergency and Sh2,000 in a Chama (equivalent to 10 percent). Considering your increased income, you need to increase your total savings to over Sh30,000 spread as follows:
i. Emergency (10 percent of total income): Channel Sh10,000 into a money market fund paying a compound interest of at least 9 percent. In three years, you will have accumulated Sh393,372 (inclusive of 15 percent withdrawing tax and 2 percent annual management fee). This figure will roughly translate to three months' average total expenditure assuming your total expenditure will be Sh100,000 per month.
ii. Sacco (15 percent of total income): Channel Sh10,000 to a Sacco. You need to carry out due diligence and find out a well-managed Sacco to which you can channel your deposits. You will also benefit greatly from the annual dividends of about 10 percent.
iii. Take an education cover for your child: Shop around and see if you can procure a 10-year policy with an insurance firm and pay Sh5,000 monthly premium. This will ensure that your child's education will be safeguarded. When doing this, be cautious with terms and conditions and their impact on your payments, and defaults, or premature withdrawals from the package offered.
4). Have an investment strategy: In the meantime, it may not be profitable to take a loan to build a two-bedroom residential house. Buying a car will also not be profitable unless it converted into a taxi business. Consider constructing single room rental units if the land is in a commercial centre or town. You may take a Sacco loan of about Sh1.5 million. Once you have cleared your bank loan, you will have more funds to build more rental units gradually that will earn you more passive income. In sum, here is a summary of your budgetary allocations:
·Sacco: Sh15,000, Education policy: Sh5,000, Bank loan: Sh24,000, Rent: Sh10,000, Shopping: Sh5,000, Food: Sh6,000, Emergency: Sh10,000, Bills: Sh2,500, Chama: Sh2,000, Parents' shopping: Sh2,000, Transport: Sh5,000, Miscellaneous: Sh8,500.
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.