Help! My wife and I earn Sh50,000 but always broke by the 7th day of month

We don’t take lunch, and we don’t save because by the 7th of every month, we have nothing left.

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My name is Justus, 34, married with two kids, one in grade 3 and the other joining baby class next year. I am employed, earning Sh30,000 while my wife earns Sh20,000. We pay our house-help Sh6,000 and pay Sh10,000 rent. Current school fee for our daughter is Sh13,000 per term and use Sh120 every morning to work, making it Sh480 daily. We don’t take lunch. I don’t save because by the 7th of every month, we have nothing left. What can I do to be financially responsible?

Chacha Bichang’a, a financial coach at Chachanomics Consulting Firm and author of ‘Mastering Your Money’, says:

From your financial breakdown, your dual net income is around Sh50,000 and total expenditure is Sh38,600 but Sh11,400 is unaccounted for. To be financially responsible and make a financial breakthrough, you need to adopt the following strategies:

1) Use the 80/20 budgeting rule

This rule is also known as “pay yourself first”. To be able to budget your money responsibly, you need to prioritize saving as the first expense by channelling at least 20% (Sh10,000) of your income to a savings account. The remaining 80% should be broken down into 50/30 whereby 50% (Sh25,000) should be channelled towards necessary expenses such as food, transport, rent, school fees, medication etc. while 30% (Sh15,000) should be utilized for entertainment, donations/black tax, fashion and trends. This percentage can be readjusted downwards to 20% (Sh10,000) or 10% (Sh5,000) depending on your financial goals, age, and demands.

2) Review your expenditure

Take a thorough audit of your financial lifestyle. Reduce your expenses on transport because you are spending Sh9,600 (19.2%) monthly, which is more than the recommended average of 10% (Sh5,000). Consider travelling off-peak and save Sh4,600. You also need to cut down the Sh10,000 expenditure on rent, which translates to 20% of your total income more than the recommended average of 15% (Sh7,500). Consider moving to an affordable house nearer your work place and save Sh2,500. In total, you will have an additional disposable income of Sh7,100.

3) Set SMARTER financial goals

i. Specific: Clear, straightforward and unambiguous financial goals. Identify what exactly you want to achieve e.g. start saving Sh10,000 monthly in a Sacco.

ii. Measurable: Your financial goals should be quantifiable in monetary terms, that is, state how much your goals are worth financially and how you will know you have achieved them e.g. secure a Sh1 million loan in three years for investment in real estate.

iii. Attainable: The goals should be achieved based on your potential sources of income. Indicate the actions and activities you need in order to achieve your goals e.g. cut down on expenses, save more, start a side hustle to generate more income etc.

iv. Realistic/Recordable: Goals are only realistic when written down in a notebook, diary or digital application. Consider whether your goals are aligned to the reality of your current income, age, circumstances etc.

v. Time: Your goals should be achieved within a certain time frame. Consider how long it will take to achieve your set goals in the short-term, medium-term and long-term.

vi. Evaluate: Assess and review your financial goals from time to time to determine the progress made and challenges faced for possible readjustment. Evaluate your performance on a monthly and quarterly basis.

vi. Results: Your SMARTER goals should produce desirable outcomes once evaluated from time to time to determine positive strides made and areas that need to be worked on.

4) Establish a saving and investing mechanism

Adopt diverse saving strategies based on your financial goals. For example, save the additional disposable income of Sh7,100 in a compound interest earning money market fund. In three years, this translates to Sh279,294 which is inclusive of annual management fee and withholding tax. Channel 20% (Sh10,000) of your ‘pay yourself’ or saving funds to a well-run Sacco earning modest dividends of over 10% per annum. In three years, you will have accumulated Sh360,000 exclusive of annual dividends which when ploughed back will earn you compounded interest. Sacco savings will enable you secure an investment or personal development loan using the 3x multiplier factor. Also consider taking an education policy for your children to guarantee them quality education in case of any unforeseen emergencies.

5) Start a side hustle

You need to come up with novel ways of earning additional income. Already your dual income is constrained and is hardly enough for your day-to-day expenses. Scan your working and residential environment with a view to starting a business that addresses a socio-economic need that many people are willing to pay for at a reasonable price. You can start a car wash, food café, grocery, cosmetics shop, barber shop etc. and hire somebody to manage it as you monitor it after work and during weekends.

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.