I’ve earned Sh83,000 for a year, but I have no savings to show

I earn a gross salary of Sh125,000 and a net of Sh83,000 after all deductions. My rent, WiFi, tithe, and other recurring expenses total Sh35,000.

I can survive very comfortably on Sh1,000 per day with my one child and wife. However, I have no investment, no savings, no emergency funds, I am not in any Sacco, no money market fund.

I started earning just a year ago and I really struggle with controlling my money. I have never had anyone in my life teach me how to manage finances. What do I need to do?

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

Your total expenses (recurrent expenses of Sh35,000 and daily expenses of Sh1,000 amounting to Sh30,000) is Sh65,000 against a net salary of Sh83,000. The remaining balance which is unaccounted for is Sh18,000.

To address your problem of lack of personal financial management skills, and to get a smart handle on your money, you need to adopt the following suggestions.

One, audit your financial lifestyle. Take a reality check to determine the exact areas you need to improve on.

This will help you evaluate your spending habits, actual financial position, sources of income, kind of debts you have, how much has been invested in current and fixed assets, and savings you have accumulated for emergency and investment.

Draw a budget

At your age, having worked for a year, you may not have much to write home about but you need to know how to grow your net worth by saving and investing more in current assets (cash and cash equivalents like MPesa, bank account, Sacco, unit trusts and stocks) and fixed assets (land, home, rental property).

Two, track your money and draw a budget. Learn to record all the financial transactions or expenses made on a day-to-day basis. You can use a small booklet, financial journal, online app, or smartphone notebook.

You need to be intentional, keen and consistent without which you will veer off track. For you to track your money well, you need to first draw a budget and track your money.

Secondly, you can track where every shilling goes every day, week and month and do an average of at least three months to determine actual estimates per month per expense items or vote heads.

Financial discipline

If you do this consistently and accurately, you will develop financial discipline and be able to save and invest. 

Use the 80/20 or 50/30/20 rule as a guide to budgeting your money. In the first option, use 20 per cent of your monthly income on savings, then spend the remaining 80 per cent as expendable income.

In the second option, pay yourself first by allocating 30 per cent (Sh24,900) of your income to savings (10 per cent for emergencies, 10 per cent for irregular expenses, insurance policy and 10 per cent on investments).

Then channel 50 per cent (Sh41,500) to necessary expenses like rent, household items, bus fare/fuel, utilities, school fees, medication and clothes). Allocate 20 per cent (Sh16,600) to wants or other expenses such as entertainment, saving for holidays, entertainment donations/black tax, fashion and trends.

These percentages, however, are not cast in stone. You can vary them as per your financial needs and goals.

Financial advisor

Three, acquire financial literacy skills. This entails learning vital lifelong skills on how to budget your money, use debts well, save and invest, ringfence your assets, discover your purpose in life and monetise your passion.

Be purposeful and read books on personal finance, then watch and listen to YouTube videos on this topic.

Choose a financial advisor or coach who can hold you accountable for the financial choices you make.

Choose a business idea that aligns with your skill set and work on it until it becomes a dependable side hustle.

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.