I am a single woman earning Sh127, 000 net. How do I organise my money?

My name is Tiffany, 33. I am single. I earn a net salary of Sh127, 621 from a gross of Sh173, 700. I have so far bought 2 pieces of land (10 acres in Laikipia, and 1/2 an acre in an agricultural zone where I  farm). In 2019, I bought a 1500 cc car worth Sh900, 000 that I use to commute to work. This is how I spend my salary:

● Pension - Sh17, 300 (employer also matches same amount)
● Sacco savings - Sh17, 500
● Plot loan (Sh700,000) repayment - Sh25, 000 (it’s a 1/4 acre in an agriculture zone)
● Merry go rounds - Sh3, 750 and Sh1, 200
● Annual holiday savings - Sh2,000 per month
● Rent - Sh10, 000  
● Power - Sh1, 000
● Car fuel - Sh15, 000
● Shopping - Sh5, 000
● Airtime & bundles - Sh3, 000
● Shopping for parents - Sh4, 000
● Hair & nails - Sh4, 000

Which are the best investments that can give me passive income or future-proof my earnings? 
What adjustments would you recommend I make on my finances?

Dominic Karanja, financial planning and investment consultant.

From a gross monthly salary of Sh173, 700, it seems you are not getting tax relief on your pension contribution. With a net pay of Sh127, 621, it means your PAYE is Sh44, 178 which is based on a taxable pay of Sh173, 500.

Pension contribution of Sh17, 300 will give you a tax relief of Sh5, 190. Start applying the 50:30:20 budgeting rule where your net pay will be allocated as follows; 50% will go to your needs, 30% to your wants and 20% will cover your savings and investments. Classify rent, electricity, car fuel and shopping as part of  needs and phone airtime & bundles, shopping for parents, holiday savings and hair & nails as part of  wants.

Classify the loan installment under the needs category. However, if you are doing commercial farming, part of the loan repayment should come from the farm income. This means that you will have some change from the Sh25, 000 you pay monthly.

If the farm isn’t currently commercially activated, your loan repayment would take a maximum of about two and half years (assuming the loan is fairly fresh) after which you will unlock a surplus of Sh25, 000 for investment. This money can be targeted at solid long term dividend stocks. Make sure you take Masterclasses before going for stocks to learn to invest in the right counters.

Based on that classification, then you are spending Sh56, 000 on your needs against the expected target of Sh63, 811 and Sh13, 000 on your wants against the expected target of Sh38, 286. Though the amount you are spending on needs and wants is within the target, consider lowering the amount you are spending on car fuel since it is taking 12% of your net income.

I would recommend that you spend 5% - 10% of your net income on your transport cost. Based on your income, the target on the savings and investment should be at least Sh25, 524. You are already saving Sh24, 450, which is 19% of your net income through Chama and Sacco.

However, there is no provision for an emergency fund, set up one that can take care of at least 6 months of your expenses. Start by redirecting Sh4, 950 you pass around in merry-go-rounds. This can be topped up along the way to meet the 6 month minimum sufficiency requirement.

Since you don’t have family responsibility yet, increase the amount of money you are saving with Sacco. Always remember to capitalise your Sacco dividends to deposits to help increase your borrowing power and high dividend earning capacity.

Overall, you’re spending Sh108, 750 per month, which is lower than your net income and as a result you have some extra Sh18, 871 of income which can be directed towards savings and investment. This is an amount you have not accounted for. Track the loopholes it’s going to and seal them.

You can do this by writing down everything you spend money on for a full month (from one pay stab to the other). For instance, you own a car; what do you spend on the normal expenses associated with motor vehicle ownership like repairs, normal service, and insurance?

Consider your risk profile and the timeframe you want to be tied to an investment. If you are risk averse, you can consider investing in Money Market Fund (MMF). Invest at least 70% of your emergency fund in an MMF. Treasury bills, treasure bonds and commercial paper are other investment options you can consider in the short and medium term. You need a minimum of Sh100, 000 and Sh50, 000 to invest in treasury bills and treasure bond respectively.

You also need Sh100, 000 for the infrastructure bond. If you’re a risk taker and you don’t mind holding your money in long term investment, consider investing in stocks. Since you have already invested in agricultural land, it’s important to put it into productive use so as not to accumulate assets that are not generating income.

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.