I earn Sh137,000 gross but loans and expenses leave me negative

I earn Sh137,000 gross but loans and expenses leave me negative. Photo | Photosearch

What you need to know:

I am married and blessed with two children. The total spending is more than I earn.

My name is Bryan. I earn a gross salary of about Sh137,967. I service a Sacco loan of Sh3.5 million with a monthly repayment of about Sh69,000. My expenses are as follows: PAYE Sh30,678, NHIF Sh1,700, NSSF Sh1,080, pensions fund Sh8,386, Sacco Sh2195, staff benevolent fund Sh1,000, rent Sh16,000, monthly average house spending Sh20,000, school fees per term Sh20,000 (I am married and blessed with two children). The total spending is more than I earn. Kindly advise me on how to come out of this endless cycle.

Dominic Karanja a financial planning and investments consultant

When you deduct your monthly expenses and statutory deductions from your income, you have a deficit of about Sh25,000 which is substantial since it’s 18 percent of your income. This indicates that without support from your spouse, it will be difficult for you to live within your means. Out of the current loan balance, I assume that your loan is payable in six years because a SACCO loan of Sh3.5 million at annual reducing balance interest rate of 12 percent payable in 72 months will attract a monthly instalment amount of Sh69,000.

Under the “one third (1/3) rule” the net amount an employee must retain after all deductions cannot be less than one-thirds of his salary. After your net pay of Sh96,122.34, your take home is Sh46,000 after deductions. You must be making your loan repayment after receiving your pay because if it is deducted through the checkoff system you are breaching the “one third (1/3) rule”.  The loan repayment is 72 per cent of your net income, so you will have to adjust your budget so that you are able to meet all your financial obligations.

Your income sources are not enough to afford the monthly loan instalments. If the SACCO loan was used to buy an asset, I would recommend that you dispose of the asset and use the funds to pay off your loan balance. But if the loan was used for other purposes, you will have to adjust your expenses since loan deductions are mandatory. If you have paid a substantial amount of the loan you can negotiate with the SACCO to have the loan restructured.

If the disposal of the asset and loan restructuring are not feasible options, then you must adjust your current expenses. You need to consider your spouse’s income when preparing your budget so that you will have two income sources to take care of the common expenses. She is key in deflating some of the expenses you have. If that is not possible then you will have to reduce your monthly expenses substantially.

You will have to consider moving to a cheaper house (Sh8,000 per month). Consider lowering your house spending by half so that you can save at least Sh10,000 per month. You will also have to consider moving your children to a cheaper school so that you can spend half of the amount you are spending now, and thus save around Sh2,500 per month. If you adjust your budget as recommended, you will save around Sh20, 000 which will still leave you with a deficit of about Sh5,000 per month.

You need to consider having a side hustle which will augment your current income so that you will avoid having deficits. Since you’re already stretched to invest in a new business, you may leverage on what you already have such as skills and go into part-time consultancy. If you have a vehicle, drop your ego and convert it to a part-time income generator.

It is recommended that you commit 20 per cent of your net pay towards savings and investment but in your case, you are only saving Sh2,195 which is only 2 per cent of your net income. Any extra income that you earn should be directed towards investments. I would recommend that you set up an emergency fund that can take care of at least 6 months of your expenses even as you work to bridge the deficits you currently have.


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