My name is Ahmed. I am married to one wife but we live in different places due to the nature of my work. I earn a net salary of Sh106,000 and my expenses are as follows: KCB loan Sh28,066 ending March 2025, Sacco Sh8,500, education policy Sh5,000, rent Sh13,000, wife upkeep Sh5,000, shopping Sh8,000, mother Sh20,000, Internet subscription Sh2,500, water and electricity bills Sh2,000. Since we live in different places, I am also forced to pay for some extra expenses like food and Internet subscriptions in my place of work. Therefore, when 10th of every month reaches, I’m broke. I would like to get a handle on this. I would also like to complete my rural house project which is nearly completed and find a space around Nanyuki to buy. How do I go about this?
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money, says:
To achieve your financial goals, here are three financial strategies you need to adopt.
1 Audit your financial expenditure: From your breakdown, your total expenditure is Sh92,066 and Sh13,934 is unaccounted for. You need to review your expenditure as suggested below:
i. Black tax: In the event of unavoidable circumstances, reduce the amount of money you give your mother from Sh20,000 to around Sh5,000. Hold a candid conversation with her on the reason behind the reviewing of your financial expenditure. Once you do this, you will save Sh15,000.
ii. Rent: Cut down the money you spend on rent from Sh13,000 (12.2 percent) to about Sh10,000 and save Sh3,000 (which increases your disposable income to Sh18,000). If possible, consider relocating your wife to a place near your workplace to reduce the double expense on rent and food among other basic discretionary expenses.
2 Budget and track your money: Your unaccounted-for amount of Sh13,934 implies that you do not budget before you spend your money and you hardly track where your money goes. Budgeting is essential because it gives your money a definite sense of direction and helps you plan as per your financial goals. Without a spending plan, you are acting on autopilot and highly influenced by emotional and social demands. Use the 50/20/30 rule as a budgeting guide as illustrated below:
i. Prioritise your savings (20%): Before spending your money, ensure you channel at least Sh21,200 to your saving accounts like Sacco, insurance education policy. Currently, you are saving Sh8,500 in a Sacco which translates to 8 percent (much below the recommended average of 20 percent). Strive to increase Sacco's saving to around Sh15,000. You still need to channel the remaining balance of Sh6,200 to a compound interest-earning emergency fund account which will cushion you against unforeseen happenings. (These funds can be hived off from the disposable income of Sh18,000 and still leave you with an extra Sh11,700).
ii. Necessary expenses (50%): Spend Sh53,000 for basic needs like rent (Sh13,000), shopping (Sh8,000), wife upkeep (Sh5,000), internet subscription (Sh2,500), utilities (Sh2,000), education policy (Sh5,000). These expenses total to Sh35,500 leaving behind a balance of Sh12,500. This implies that the percentage allocation for necessary expenses can be readjusted downwards from 50 percent to around 40 percent or 30 percent so that you channel more money (Sh12,500) to saving for an emergency (increase from the suggested Sh6,200 to Sh10,000), retirement and investment (channel the about Sh5,000 to a life insurance endowment policy). The remaining balance from the readjustment of Sh3,700 may be used to cushion you from the increasing cost of living.
iii. Wants/unnecessary expenses (30%): Spend a cumulative total of Sh31,800 to repay the loan (Sh28,066) and the balance may be used for black tax, for instance, channel Sh5,300 to assist your mother. By doing so, you will have cut down on unnecessary expenses such as entertainment, eating out, and giving donations to relatives and friends in the interim.
3. Develop an investment strategy: Analyse your risk appetite on whether you are aggressive, moderate or conservative in investing. Equally, you need to identify your money personality on whether you are a spender, frugal saver, hoarder, serial debtor or strategic investor. This will help you identify how far you can risk. Consider converting your rural house project into an income-generating project, that is, a rentable house or a resort if it is accessible and near an urban centre instead to cut down on unutilised dead capital once complete.
If your wife isn't working, consider starting a business for her after scanning the immediate environment to determine the potential socio-economic problem that can be turned into a business opportunity. If she has professional qualifications, they may be commercialised for income through offering services such as consultancy in her field. This will give your family an extra income source and reduce dependency on your sole earnings.
After clearing your loan in six months (by March 2024), you will have an additional disposable income of Sh28,066 which can be utilised to increase emergency and Sacco savings while factoring other emerging expenses due to the increasing cost of living. Ideally, your savings would align with your dream of acquiring the Nanyuki asset. However, you need to examine the return value on investment and whether your investment is based on speculation. Also, examine the net benefits of the loan you took at the end of repayment.
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.