I’m a mum of two earning Sh65,000 but unable to save anything. How do I budget to be saving Sh10,000 monthly?

My name is Stacie. I live on the outskirts of Nakuru and work in Nakuru CBD. I have two children, a boy aged 11 and a girl aged nine. I earn a monthly net salary of Sh65,000. I want to be saving about Sh10,000 monthly. However, I am currently unable to do so as my expenses often outweigh the money I earn. My rent is Sh13,000, I use Sh6,000 for my matatu fare to work and my children’s fare to school. Food takes about Sh15,000 at Sh500 per day. I use Sh2,000 for home entertainment and Sh2,500 for power and water. I send home Sh3,000. I pay school fees of about Sh36,000 per term. I use much of the remainder for my merry-go-round Chamas, grooming and miscellaneous expenses. There are times when I hive off cash from my budget to meet my personal expenses such as weekend entertainment. How can I rearrange my budget so that I start saving Sh10,000 every month? I aim to buy a small plot worth Sh1 million within Nakuru, set up a semi-permanent house and move in.

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

You have one main source of active income, that is, a monthly salary of Sh65,000. From your breakdown, you spend the whole of it and nothing remains for any worthwhile saving. Your total expenses come to Sh45,000 and the remainder (Sh19,500) goes to merry-go-round Chamas, grooming, and miscellaneous expenses.

This implies that you are consuming 30 per cent of your salary on unnecessary expenses or instant gratification. To avoid spending your tomorrow today, adopt the following strategies.

Read: I earn Sh120,000 but always broke a week after being paid

One, audit your lifestyle and plan your finances properly. To determine your current financial position, you need to calculate your net worth (sum total of assets minus liabilities) and find out how long you can survive in the unfortunate event that you lose your job or become incapacitated.

From your breakdown, you hardly own anything of value and this means you are operating on a negative net worth. Start by reviewing the way you spend your money on a day-to-day basis. Record where every shilling goes and do a tally of the weekly and monthly expenses. Once you do this for three months, you will establish how much you spend per month on average.

To rearrange your budget, use the 50/30/20 spending guide. Start with paying yourself by directing at least 30 per cent (Sh19,500) to various high-interest-earning saving accounts. Channel 20 per cent (Sh13,000) to wants or unnecessary expenses like weekend entertainment, buying additional clothes, grooming and black tax. But this can be adjusted downwards (to 10 or 15 per cent) to boost the savings and investment account monthly deposits.

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Channel 50 per cent (Sh35,500) of your income towards necessary expenses like food, rent, fare, utilities and education. You are spending Sh43,500 (70 per cent) for the same which is much higher. Readjust your expenses downwards by Sh11,000.

On rent, you are paying Sh13,000 (20 per cent) which is higher than the recommended average of Sh15 per cent. Reduce it to around Sh10,000 and save Sh5,000 by shifting to a more affordable house in a safe and secure neighbourhood.

You are spending Sh15,000 (23 per cent) on food, which is more than the recommended average of 20 per cent. Reduce this expense by around Sh12,000 and save around Sh3,000. Buy essential perishable and non-perishable foodstuffs in bulk.

You are spending Sh6,000 (9.2 per cent) on fare, which is within the recommended range, but you can still consider moving and staying near your workplace and save Sh3,000. With a disposable income of Sh11,000, start a saving and investment scheme.

Using the same budgeting rule, channel 30 per cent (Sh19,500) of your income plus the disposable savings of Sh11,000 (totalling Sh29,500) to various savings accounts. One of them is an emergency account that should have at least six months of living expenses which totals to Sh390,000. Save Sh9,500 in a well-managed money market fund offering a compound interest of at least 10 per cent. In three years, you will have accumulated Sh377,340. This fund will cushion you against any unforeseen eventualities.

Read: I am a doctor, what do I invest in to earn Sh150,000 monthly?

The second saving strategy is to channel Sh10,000 to a well-run Sacco. A Sacco will help build collateral for affordable credit facilities and give annual dividends and other front-office financial services. You will realise Sh360,000 in three years and cumulative dividends of at least Sh72,000.

Using the three times multiplier factor, you will qualify for a loan of Sh1 million, which you can use to buy a commercial plot at a preferred site in Nakuru town. You can raise additional funds from your side hustle to build a semi-permanent structure to settle in as you progressively develop it by constructing single-unit rental houses that can earn you passive income to supplement your salary.

It is important to plan for your children’s education, so procure an education policy for them. Calculate how much you need to educate them from secondary to university. Consider the sum assured, tax incentives and the pay or benefit rider that waives premium payment in the event of your incapacitation or untimely death.

Take the current annual fees plus expected living costs times the number of years to study and that will give you the approximate total of the cost of your children’s education today. Set aside around Sh11,000 saved from unnecessary expenses or wants and channel Sh5,500 for each child to procure a modest education policy cover with a reputable insurance company which will guarantee you the cumulative sum assured ranging from Sh500,000 to Sh700,000 at the maturity besides the bonus payments to cater for fees especially in secondary.

Suppose you take a 10-year policy for each child, you will get a sum assured of around Sh500,000 (Sh250,000x2) and after four years of monthly premium contribution, you will receive a yearly bonus starting with Sh38,000 and end with Sh75,000 for each child. But if you take a 15-year cover, at maturity you will get around Sh485,000 for each child and a yearly bonus starting with Sh73,000 and ending with Sh145,000 for each child.

In a nutshell, you need to scan your living and working environment to start a business that you can run during your free time or engage someone to help you.

Potential businesses you can start include a grocery, second-hand clothes and food café. Endeavour to build your soft skills in IT, selling and marketing, and above all, upscale your personal financial literacy skills in debt management, budgeting, saving and investment among others.

If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.