I earn Sh215,000 net but I am broke and facing repossession
I earn Sh215,000 net but I am broke and facing repossession. Photo | Photosearch
What you need to know:
How can l get out of this trap? l also need to buy a plot and complete the building by end of next year.
My name is Paul. I earn a net of Sh 215,000. I live in a house of Sh30,000 and have a car loan of Sh700,000 (in default that needs to be cleared or the car will get repossessed by end of August). My bank is willing to give me a non-guaranteed loan of Sh1.2 million but I can't access it as I am on CRB with several small loans (mobile and one other bank loan) defaulted, amounting to Sh200,000. How can I get out of this trap? I also need to buy a plot and complete building by end of next year. Here’s my monthly budget in Kshs:
Monthly income: 216,000 (300,000 gross)
Rent: 30,000
Power: 4,000
Water: 5,000 (paying 40,000 arrears then revert to 1,000 usage monthly)
Shopping: 10,000
Nanny: 6,000
Entertainment: 20,000
Parents: 5,000
Wife: 10,000
Wifi: 3,000
Netflix: 1,000
Loans in default: Sh740,000 due and Sh200,000 due. All defaulted from 2019, at the onset of Covid when I’d lost my job.
Loans access: Sh1.1 million non-guarantee limit available.
Benjamin Cheruiyot - the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money. Photo | Pool
Your expenses amount to Sh94,000 monthly. That is 43 per cent of your net salary. This is enviable by any standards and can be improved by cutting down on the entertainment allocation. Reducing Sh7,000 will add up your surplus to Sh130,000. This amount will help you pay off the huge loans and make savings and investments, which should be your biggest focus now. Since you can only access a Sh1.1million non-guaranteed loan from your bank upon clearance by CRB, you may not be able to meet your intended goals of purchasing a plot and building a house by December 2023. You need to clear the Sh200,000 debts to restore your creditworthiness. This should take you two months to pay off the loans plus any interests and also pay the standard fees to get you out of a negative listing.
You will have to negotiate a three-month reprieve on the vehicle repossession to enable you to pay off the Sh740,000 car loan plus interests incurred. A Sh800,000 loan will cost you about Sh20,000 monthly, for 48 months. The balance of Sh110,000 can be allocated as follows:
i) Sh55,000 to a Sacco Bosa account to help you build deposits that can get you a 3X multiplier loan to finance the acquisition of a plot.
ii) Sh35,000 to a money market fund to establish a fund for personal short-term goals. The advantage of this account is high liquidity.
iii) Sh20,000 to a ready-access ordinary bank account to sort out emergencies that may arise.
By December 2023, savings in the money market fund will amount to Sh560,000 inclusive of interests. Sacco deposits will have accumulated to Sh825,000. Pending any emergencies, your bank account will hold Sh300,000. The total in these accounts will be Sh1.6 million, which is only enough to buy a plot.
The other viable option is to take a 3X multiplier loan on your Sh825,000 saved in the Sacco. With this, you will access a Sh2.4 million loan repayable at Sh55,000 monthly for 60 months on a reducing balance formula. This will afford you a Sh1.5 million plot and the balance can be used to assemble building materials and start work on the foundation. To pay the Sacco loan, you will have to reduce contribution to the money market fund account to Sh15,000 and the ordinary bank account savings to Sh10,000. This will free Sh30,000. When you reduce Sacco monthly savings to Sh30,000, you will have Sh55,000 to service the loan. Finally, you can build your house at your own pace using funds saved in the money market fund and Sacco interests.
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