My name is David. I live in Kitui County and work as a matatu driver plying the Kitui – Nairobi route. I earn at least Sh1,200 per day, which is paid daily. I work from Monday to Saturday.
However, there are days when I don’t drive the Nairobi route, especially if there’s low passenger traffic.
My salary comes to about Sh31,000 monthly, but I can’t even say where this money goes. Sometimes I am forced to take mobile loans to pay rent.
I have a wife and a newborn baby. I would like to buy a plot and set up my own home on the outskirts of Kitui town and stop renting.
How do I get a handle on my finances?
Emmanuel Mbogholi is a Partner at SFAI Kenya – a strategy, accounting and tax practice helping entrepreneurs grow their businesses
I commend you for wanting to take control of your finances and setting the goal of becoming a homeowner. To accomplish what you’ve set out to, you need to put in place prudent money management practices.
The foundation of personal financial planning is being able to have an oversight of your income and expenditure. Start by tracking how you spend your money. Take one month and note down every amount you spend and what you are paid.
It is important to list down every expense no matter how small so you can know which ones are necessary to keep and which ones you can do without. Secondly, draw up a basic budget to assist you categorise your monthly expenses such as rent, utilities, food and household shopping, transport and debt repayments.
You can use the 50:30:20 budget rule where you spend 50 per cent of your income (which based on your estimate would amount to Sh15,500) on basic needs which include food, rent, utility payments such as electricity and water, health care and household shopping.
To cater for health care expenses for you and your family, ensure you update your NHIF (National Hospital Insurance Fund).
You can then budget 30 per cent of your income, being Sh9,300, on other expenses such as debt repayment, airtime and internet, extended family support, non-essential travel or holidays, and clothes.
Finally, allocate the remaining 20 per cent of your income (Sh6,200) on savings and investments. This amount can be topped up in months where you have surplus income.
Since you are currently the breadwinner of your family, prioritise paying your current debts to increase your disposable income.
Keep your spending at no more than the budget allocations. If your expenses are beyond your income, begin by cutting down on all non-essential spending until your finances are in control. Review your other costs such as housing and shopping to ensure you are within budget.
The other priority you need to have is an emergency fund. Set aside half of the Sh6,200 allocated for savings and investments and direct this amount to an emergency savings fund to help you meet any unexpected spending such as family emergencies or lack of work during low travel seasons. You can do this through a high yield savings account such as a Money Market Fund (MMF). There are quite a number of licensed institutions dealing with MMF’s and most allow you to save and withdraw your money through your phone.
The remaining half (Sh3,100) can be placed in a Sacco to enable you save towards buying the plot of land and building a home. The faster you are able to pay down your debts while living within your budget, the more you are able to allocate towards your savings and investments. Avoid borrowing especially from digital loan providers as the interest payments are quite punitive.
Also remember to begin setting aside savings for the education of your newborn child. Open separate savings accounts for each of these goals. Saving with a Sacco will also allow you to borrow against your shares to undertake the housing project based on the cost. Once you establish your emergency kitty, aim to increase your monthly Sacco savings to a minimum of Sh10,000.
To lighten your financial burden, approach your wife and together, explore alternative sources of income such as part-time work, investments or other ventures. A possible income stream would be to start a small business which your wife can manage. See if there is an unmet need in the market within your surroundings and capitalise on this.
Ensure that your wife has the interest and skills to manage such a business. You can also explore additional work opportunities when the matatu business is on low season or work with your wife on the family business. You can also work towards owning your own matatu which will increase your earning ability. This will call for a lot of sacrifice.
What is important is for you and your family to maintain financial discipline by living within your means, avoid borrowing and work on increasing your revenue streams.