I earn Sh35, 000, should I quit and buy a car on hire purchase for Uber business?

My name is Peter. I am single. My current job pays me a net salary of Sh35,000.

Out of this, my monthly expenses are as follows: rent 10,000 in Mlolongo, food and groceries 12,000, water and power 1,200, bus fare 4,000, lunch 1,200, entertainment 3,000 and bank savings 3,600.

I'm thinking of acquiring a car on hire purchase from a local dealer. The car is valued at Sh1.3 million cash.

My aim is to turn it into an Uber, and quit my job to operate it. Is this worth it or will I just burn my fingers?

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

You need to review your budget. Some of your monthly allocations are beyond the universally recommended percentages, especially given that you’re single with  reduced spending on needs.

Rent: At Sh10,000 (29%), you spend more than the recommended average of 15% of your net. Reduce it to around Sh6,000 by moving to a less expensive house and save Sh4,000.

Food and groceries: At Sh12,000 (34%), you spend more than the recommended average of 20% of your net. Considering the high cost of living, reduce it to around Sh10,000 and save Sh2,000.

Buy foodstuffs such as cooking oil and groceries in bulk, especially cereals when prices are low. For example, a local retailer has been running offers on some weekends where shoppers save as much as Sh500 per 5 litres of cooking oil.

Bus fare: At Sh4,000 (11%), you spend more than the recommended average of 7.5% of your net. Cut it by 1,000 to around Sh3,000 by travelling off-peak ,or use buses instead of vans.

Entertainment: At Sh. 3,000 (9%), you spend more than the recommended average of 5% of your net. Reduce it to around Sh2,000 and save Sh1,000.

From the above expense reductions, you will remain with a total disposable income of Sh8,000 which can boost your savings. Saving Sh3,600 (10%) in a bank account is not sufficient in line with your financial goals.

You should channel your savings to a higher interest earning vehicle like a money market fund which will give you at least 9% compound interest, which will function as your emergency buffer. Use part of the disposable income to top up savings to around Sh5,600.

In 3 years, your emergency MMF will be around Sh220,288 (exclusive of management fee and withholding tax). Diversify your savings by channelling Sh6,000 to a Sacco for acquiring loans for investment purposes.

The Sacco deposits will accumulate to Sh216,000 (exclusive of dividends calculated annually). Sacco's key benefits are two-fold: giving loans based on pro-rata or using 3x multiplier factor of your savings and earning modest annual dividends at a rate of over 10% interest.

Starting an uber business sounds like a profitable business venture, but you need to carry out adequate feasibility study and the costs you will incur.

For instance, quitting your job to venture into an area you have never worked in before may not be very advisable. Remember, you want to acquire the car on hire purchase, which is costlier than even bank financing. If you acquire from a rogue trader and default on signed-on payments, you might incur very severe penalties or even lose your car altogether.

Ask yourself what is driving you. Is it the low income from your employer?

Have you even talked with other Uber owners who acquired through hire purchase on the challenges they face? Do you have the requisite training and licenses? Before resigning from your job to start an Uber business, you need to have clear short-term, medium-term and long-term goals.

An option, for example, would be for you to buy a car, put it in an Uber or Bolt taxi business as a side hustle and learn the ropes as you continue with your job. In two or three years, you can then quit to concentrate fully in the business.

By then, you will have bought another car and drive yourself. Relying on one car to meet all your basic needs is unsustainable due to the risks and cash flow challenges.

Considering your current financial position, you can only qualify for a Sacco loan of about Sh650,000 after three years of joining and saving a minimum of Sh6,000. Instead of raking in debt you have no backup plan for, concentrate on creating an additional skills-oriented income stream that will boost your earnings.

You may also want to acquire driving certifications and licenses, and possibly do part time driving for pay over the weekends. This will earn you some money and give you road experience and business insights on the transport industry.