I earn Sh58,000 net, but by mid-month I’m flat broke

My name is Eric. I earn Sh58,000 net salary. My expenses are as follows; Rent Sh8,000, Food Sh6,000, Transport Sh8,000, Internet Sh2,000, Loan Sh10,500.

I have a huge extended family who depend on me from time to time (my parents and my five siblings). By mid-month, I get broke and start borrowing. How do I control my finances and save to buy a piece of land in two years' time?

Chacha Nyaigoti Bichang’a - Financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money:

Your total expenditure is Sh34,500 against your net salary of Sh58,000. From your financial breakdown, Sh23,500 is unaccounted for, which translates to a whopping 40 per cent of the total income. This implies that you can only account for 60 percent but not for 40 percent of your income – a clear indicator that you are spending without a budget and daily financial tracker.

You have not equally prioritised on saving for emergencies and investments, making your financial position insecure. To achieve your financial goals, you need to develop a discrete financial plan anchored on three fundamental strategies.

1). Have a spending plan/budget: Operate with a well calculated monthly budget that clearly indicates how you would allocate your money to various expense items. This can be easily achieved when you track your money on a daily, weekly and monthly basis for about three months. Then work out the average income and expenditures, which will give you a better picture of your money.

Use the 80/20 rule to guide you in your allocations so that you prioritise saving of at least 20 per cent, which translates to Sh11,600. Break the 80 percent into 50/30, whereby you spend not more than Sh29,000 (50 per cent) for necessary expenses such as rent, transport, food and utilities, and not more than Sh17,400 (30 per cent) for loans and black tax.

However, these percentages can be adjusted depending on your financial goals/needs, loan obligations, age bracket and other factors. For example, you can reduce the 50 percent on necessary expenses to 40 percent and channel 10 percent to the saving component to enable you achieve the goal of buying a plot in two years. You need to clear the consumer or mobile loans as soon as possible to enable you save more.

2). Start a saving and investing scheme: Once you have a clear spending plan, you will be able to save for emergency and investing. Save at least 20 per cent (Sh11,600) in a Sacco and 10 per cent (Sh5,800) in a money market fund (MMF) earning a compound interest of 10 percent per annum. You will realise a cumulative total of Sh278, 400 and Sh146,160 respectively.

Using the three times multiplier factor, you can qualify for a Sacco loan of Sh835,200 by the end of two years which you can use to buy a plot in a town of your choice. You may decide to put up a simple structure for your residence as you gradually amass funds to build some rental units. The savings in MMF will cushion you against any unforeseen circumstances.

3). Hold a candid conversation with your parents and siblings. Inform them about your financial plans that will necessitate the need to cut down. Let them know that you will only cater for the bare minimum expenses such as paying schools fees and sending a little token to parents for their upkeep.

Alternatively, help them support themselves through agribusiness. Support them to do some farming, rear chicken and keep some cows. As your siblings come of age, have them get into income generating economic activities to ease off your burden.

Also scan your immediate environment and find out the requisite skills, services or goods on high demand. By starting a side hustle, you will supplement your income and help yourself raise money for your savings and investment goals. You do not need to live from hand to mouth. Be creative, identify your passion and monetise it.

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