I have bank, shylock, and mobile debts amounting to Sh1.2 million; how do I repay them?

My name is Elizabeth. I am 35. I have debts that have spiralled out of control. I have a Sh1 million loan that I took to buy my personal use car. I have three debts of Sh200,000 – Sh100,000 which I took from my Sacco, Sh60,000 which I took from a shylock, and Sh40,000 which I took from four different mobile lenders. My monthly salary is Sh110,000. I am deducted Sh30,700 as monthly repayment for the Sh1 million loan, and Sh6,300 for the Sacco loan. I am not repaying the shylock and two of the three mobile loans because my budget is too strained. The budget is as follows. Rent: Sh30,000, Food: Sh15,000, Vehicle fuel: Sh10,000, Entertainment: Sh10,000, Electricity and water: Sh3,000, Mother’s monthly stipend: Sh5,000. The Sh1 million loan has a duration of 48 months. I have so far repaid two years. The Sacco loan has a duration of 24 months. I have so far repaid six months. How do I get out of this debt hole?

Benjamin Cheruiyot – the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm

You have no savings because you spend your entire salary. Looking at your expenses, it appears you are spending 27 per cent on rent. Moving to a cheaper neighbourhood will increase fuel costs as this may mean relocating further away from your workplace. You may consider cutting down on the entertainment budget to spare Sh5,000 which you can channel towards the Sh100,000 shylock and other lenders' loans.

Your precarious financial position is largely connected to the car loan. With 28 per cent of your income going towards car loan repayment, you should reconsider the merits of keeping the car. You are certainly struggling to keep it. If the nature of your job doesn't involve much travel, you could spend about half of the Sh10,000 in fuel costs if you opt for public transport. Car-pooling with neighbours also lowers this cost significantly. Given your current financial position, your rent appears to be on the higher side. You may want to consider a temporary measure such as relocating to a more affordable rental unit. This is a measure that will upset your current lifestyle but go a long way in providing surplus cash to help relieve your debt burden. For instance, if you moved to a Sh15,000 unit, you would be able to salvage Sh15,000 which will amount to savings of Sh90,000 within six months – money that can further lessen your debt burden.

Sometimes you need to make a tough decision to steady the ship. Selling the car is such a decision. Assuming the car is still in a good state, you could get Sh800,000 and use it to pay off the Sh736,800 still due on the loan. This will save you Sh40,700 monthly. It is important that you clear the Sh100,000 debts to restore your creditworthiness and get yourself off the lenders' bad books. This should take you three months to pay off the loans plus any interests and also pay the standard fees to get you out of negative listing. It will also help you make savings and investments, which should be your biggest focus now.

In case you haven't built any asset classes, you can start by investing in the capital markets to provide you with the much-needed liquidity, especially in your 40's when children are all grown and education expenses grow. You are 25 years away from the golden age of 60, which is enough time to dabble in both conservative and aggressive investments.

One rule of personal finance is that doing nothing or something will both have consequences. If you were to let the present situation prevail, you would lose a great deal of compounding interests. Savings and investments of Sh40,000 every month will add up to Sh12 million at a net annual return rate of 12 per cent in about 10 years. Returns from a Sh12 million portfolio of bonds and money market funds will be about Sh1.4 million annually. This will reduce dependence on salary income.

Investing Sh40,000 in a money market fund will accumulate to over Sh530,000 in a year (at 10 per cent annually). In two years you can withdraw Sh1 million and invest in a government infrastructure bond earning at least Sh180,000 annually. You will receive Sh90,000 every six months. Repeating this process will result in Sh180,000 reinvested in the MMF, or accumulated to Sh200,000 for another bond investment.

Other investments that would not drain your time and energy include boosting your Sacco monthly deposits. These investments will provide you with greater liquidity to finance other long-term projects should you seek the acquisition of a plot to build your home or buy from the market.

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I went broke and returned to the village; now I have a job offer in Nairobi. How do I avoid going broke again?

My name is Peter. I am single and aged 34. I was living in Nairobi two years ago. I earned Sh90,000 salary in the private sector but I hardly invested or saved. I used most of my money on a lavish lifestyle, women and clubbing. The job ended and I returned to the village in Laikipia, broke and in shame. I left with debts of nearly Sh100,000 that I had borrowed from friends. I also took off with rent arrears of Sh26,000.

I have now secured a job in Nairobi that will pay me Sh65,000. I would like to restart my life afresh and settle all the debts I took. I would also like to start saving to secure my future. In three years, I would also like to start a family but the fear of running broke again is scary for me. How do I plan and budget this salary and avoid my past money mistakes?

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

At 34 years, you are heading towards your middle age. In the financial life cycle, when you are in the 30s, that is typically known as the take-off stage of multiplication through robust saving and investing strategies. It is commendable that you have learnt from your past money mistakes of being extravagant, not saving and investing. Many young people waste their prime years in their 20s and 30s only to discover much later of the time value of money and numerous missed opportunities of earning more.

You have debts totalling Sh126,000 (including rent arrears). Luckily, these are interest-free debts that can be repaid with ease once you plan for your finances prudently. To plan for your money, adopt the following strategies.

Set SMARTER financial goals: The reason you squandered your modest salary of Sh90,000 per month is partly due to your inability to set financial goals and work towards achieving them. The goals should range from short-term (three to 12 months), medium term (two to five years) and long-term (five years and above). By setting SMARTER financial goals, it means that your objectives should be specific (clear and unambiguous), measurable (quantifiable in financial figures), achievable (attainable), realistic (recorded down in simple terms), time-bound (set timelines), evaluable (reviewed regularly) and result-oriented (targeting concrete outcomes). Short-term goals include negotiating with your creditors and paying them off your outstanding debt of Sh126,000 in a period of one year. For example, you can commit to pay Sh10,500 per month to clear the debts in 12 months. One of the medium-term goals is that you can contribute Sh8,000 to Sacco BOSA account and Sh5,000 to a compound interest earning money market fund. Once you clear the debts, you can increase the monthly contribution of Sacco and MMF to around Sh10,000 and Sh7,000 respectively. The purpose to take a life policy cover of 10-15 years by contributing around Sh10,000 to get a lump sum payment of about Sh3 million by the time you are 50 years. This will double up as your retirement plan and security against the risk of losing life that may financially cripple your family.

Track your expenses daily: Just like operating any business, you need to know your starting and closing balance by the start and end of the day respectively. By monitoring and recording down every expense, you will identify your spending patterns. You can use a pocket notebook or a mobile application to track your expenses for transport, household consumption, rent, utilities, airtime, M-Pesa and bank transaction charges, entertainment and black tax. Do a summation of the total expenses per expense item vis-à-vis the total income (prepare a financial statement). This will enable you to develop a workable spending plan or budget in line with your financial goals and needs.

Use the 50/30/20 budgeting guide to plan your finances: Channel 50 per cent of your income (Sh32,500) towards necessary expenses (rent, household goods, utilities, personal upkeep, transport), 30 per cent (Sh19,500) towards saving for various purposes (emergency, investment and insurance and retirement) and 20 per cent (Sh13,000) for wants like entertainment, black tax, fashion, and trends. This guide, however, is not cast in stone because you can readjust it accordingly to suit your financial goals. For example, you can readjust it downwards, by 10 per cent across the board (totalling 30 per cent), and get Sh19,500 for repaying the outstanding debt in about seven months. Once you clear the debt repayment, you can increase the money for saving and investing among other expenses.

Start a side hustle: Relying on your monthly salary alone will not suffice on account of the ever-increasing cost of living and rising demands. To supplement your income, do a feasibility study of your neighbourhood and identify a problem or pressing need that you can solve by starting a small-scale business. You need to learn an essential life skill and offer essential services online. Identify your passion activity and monetise it to create an additional stream of income. You can write business or project proposals, pitch and network for business, and other part-time ventures.

Acquire financial literacy: You cannot solve your financial problems with the same mind that created them. Find and enrol for a financial coaching programme, and consult a financial coach to hold you accountable until the goals are met at an affordable rate. Be intentional about the information that you consume from friends, workmates, social and mainstream media.

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.