I am a single nurse earning Sh41,000 but I am stuck in debt. Save me from this hole
I am a single nurse earning Sh41,000 but I am stuck in debt. Save me from this hole. Photo | Photosearch
What you need to know:
How can I save myself from this hole and how long would it take to get back on track and develop myself?
My name is Davis. I am 30. I am a single nurse earning a net of Sh41,000 in rural Kenya. My soft skills earn me an average of Sh8,000 to Sh13,000 monthly. However, I am unable to get out of debt and this has led me to fall out with close family members who secured the loans because auctioneers are breathing down their necks. My loan stands at Sh203,000 with Sh70,000 in arrears. Other debts (mobile loans) stand at Sh63,000. Rent is Sh6,000, Shopping Sh3,000, Electricity Sh500, all other expenses Sh2,000. How can I save myself from this hole and how long would it take to get back on track and develop myself?
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money
Your debts cumulatively stand at Sh266,000. Your income total averages Sh51,500. Your expenditure total Sh11,500 and a colossal sum of Sh40,000 is unaccounted for. To get back on track, start with the following three strategic measures.
1). Get debt management and repayment plan: Have a candid conversation with your physical financiers and agree on a debt repayment plan. Start by repaying your mobile loans which stand at Sh63,000 by channeling Sh20,000 to repay all in three months. Second, embark on repaying your Sh203,000 loan. If you channel Sh20,000, you will clear the loan in about 10 to 12 months (including penalty arising from arrears). This means the unaccounted amount of Sh40,000 should be tracked and subdivided between the two loans. In future, reduce your debts on consumption (bad debts) which form the bulk of mobile loans. Don’t borrow to fund a lifestyle.
2). Start a saving and investing scheme: Because you are single, you need to save 30 percent of your total income (Sh15,450) or even more. You need to identify some wise saving and investing ideas to ensure you do not fall back into your current cycle of borrowing for consumption. Saving alone will not help you break free from the trap of debts. You need to invest in financial instruments that generate more passive income, such as joining well-managed Saccos with high dividends, interest-earning money market funds, government securities and real estate. Once you clear your mobile loans in three months, you will have a disposable income of Sh20,000. Put Sh10,000 monthly in a deposit-taking Sacco and the remaining Sh10,000 in an interest earning money market fund that will serve as your emergency fund. Once your main loan clears by the end of 2023, you will have another disposable income of Sh20,000. Out of this amount, use Sh10,000 to raise your Sacco deposits to Sh20,000 monthly. Increase your emergency fund to Sh15,000 and use the remaining Sh5,000 to take a personal insurance policy as an investment diversification. In three years (by 2026), you will have accumulated Sh600,000 (besides annual dividends) as Sacco deposits which will guarantee you a development loan of Sh1,800,000 using the 3x multiplier factor. Your emergency fund, if invested in a money market fund earning 9 percent compounded interest, will grow from Sh120,000 in the first year to Sh517,772 in two years and Sh745,461 in three years.
3). Be alive to the growing cost of living and extra needs you might require between now and 2026: Since your side hustle gives you an average of Sh10,500, explore how you can accelerate this to an average of between Sh15,000 and Sh20,000. For instance, should you take on extra responsibilities or wish to improve your lifestyle, your financial plan will be impacted and you will require extra income streams to stay on course.
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