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I earn Sh29k and live in Ngara, how do I budget right to avoid spending all my earnings?

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 Money works best in a controlled environment where it is directed according to the budget and/or financial plans.

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 My name is Dan. I live in Nairobi, Ngara, and my net salary is Sh29,449. I work in the Westlands area and use matatus. I used to save Sh4,000 per month in a Sacco account but I haven’t been saving for the past six months. My sacco savings were Sh16,000, which I withdrew and spent. I am in a merry-go-round with a couple of my friends where we contribute Sh3,000 every month. We are 20 and I expect to get Sh60,000 when my turn comes up in October this year. My problem is accounting and budgeting for my money. Other than rent money of Sh7,000, I don’t know how to budget or spend. Sometimes I spend and find myself broke and with mobile debts. I have tried to use the 50:30:20 model but I can’t seem to figure out how it works. I have a wife and we are expecting a child in December. My wife is a veterinarian but she is not currently practising. She is jobless and expectant. Please help me get my act in order.

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

From your report, you lack financial discipline. You neither spend with a budget nor track your money to where every shilling goes. This lack of accountability partly explains why you are sometimes broke and with mobile phone debts. To put your act together, you need to develop a concrete financial plan anchored on three financial pillars.

Come up with a realistic budget or spending plan. A budget is a framework that tells where your money should go instead of worrying about where it went after spending. A budget assists you in allocating specific amounts to certain expense items or vote heads in line with the source(s) of income. You have said that you have tried to use the 50/30/20 budgeting guide but you don’t know how it operates. In simple terms, spend 50 percent (about Sh14,700) of your net salary for the necessary expenses such as rent (an average of 15 percent which is about Sh4,500), foodstuffs (an average of 20 percent which is around Sh6,000), transport (an average of 10 percent which is about Sh3,000) and others (an average of 5 percent translating to Sh1,200). Consider moving to a more affordable rental unit that is not far from your workplace.

Channel 30 percent (about Sh8,800) towards various saving schemes such as an emergency fund (about Sh3,000), Sacco for investment purposes (about Sh3,000) and insurance policy, preferably a life cover for the family (Sh2,800).

Instead of saving in a merry-go-round which adds no value to your money, channel the money to a compound interest earning money market fund earning about 13 percent interest as per the current market rates and factoring in withholding tax and inflation rate. In three years, you will have realised a cumulative total of Sh131,285 exclusive of withholding tax and account management fees.

Spend 20 percent (Sh5,900) of your income towards discretionary expenses or wants. These include black tax, subscriptions, fashion and trends. It is important to note that this budgeting guide is not cast in stone. It can be adjusted according to one’s financial goals and needs. It is advisable to cut down on discretionary or unnecessary expenses and, to some extent, the necessary expenses to clear outstanding debts and increase disposable income for saving and investing.

To adhere to your budget or spending plan, you need to track your expenses daily. Then prepare weekly summaries as per the various expense items or vote heads and finally prepare a monthly financial statement. Once you use the budgeting guide and track your money for three months, you will be able to determine the average amount you use for every expense item and be able to make realistic adjustments.

Set smarter financial goals. Money works best in a controlled environment where it is directed according to the budget and/or financial plans. Your goals should be specific, measurable, achievable, realistic and time-bound. They should range from short-term (three-12 months) to medium-term (two to five years) and long-term (5 years and above). An example of a short-term goal is to relocate to a cheaper rental house of about Sh4,500. One of the medium-term goals is to start saving Sh3,000 in a money market fund in a year and save Sh3,000 in a reputable Sacco in the medium term and long term. Once you take out life insurance, which is a long-term goal.

Also, acquire financial literacy. You cannot solve the same financial problems with the same mind that created them.

Above all, you need to identify your definite purpose and monetise your passion based on your core gifts and skill set.

If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.