The Question: I am young and single Kenyan man, and my net salary after statutory deductions is Sh. 35,000. Out of this amount, my budget is as follows: Rent Sh. 13,000 for a one-bedroom house, bus fare Sh. 3,500, power Sh. 500, garbage Sh. 200, water Sh. 700, Food Sh. 4,000, mom and siblings Sh. 5,000, girlfriend Sh. 4,000 and mobile loans Sh. 4,000. I have been in employment for nearly one year now but I don’t have any savings.
I am in a cycle where I have to pay off one mobile loan and borrow another the very next minute in order to survive. I feel weighed down by my family and girlfriend’s expenses because they all assume I earn lots of money. I find no joy in working and I can’t continue like this. I need your help.
The answer: It is clear that you live beyond your means. From your expenditure, you are left with Sh. 100. This means that from the breakdown you have provided, the only amount left for saving or emergencies is Sh. 100 per month. This puts you in a very dire situation requiring radical budgetary surgery.
Since you haven’t invested or saved anything, the debts you take, and the money you make are purely for consumption, black tax, and social status. This means you’re building other people’s wealth at the expense of your own. To come out of the vicious cycle of debts, you need to take the following drastic measures under a crisis budget:
i). Move to a more affordable house. Your salary cannot afford a Sh. 10,000 house, let alone the Sh. 13,000 rental you currently live in. You need to reduce rent from Sh. 13,000 to around Sh. 5,000. This will save you Sh. 8,000, out of which Sh. 4,000 can be used to offset the recycling debt and the balance of Sh. 4,000 used to stabilize yourself throughout the first month. Once out of debt, this step will leave you with an extra Sh. 8,000.
ii). Have a candid conversation with your mom and siblings, and girlfriend. Explain to them clearly and firmly that you are surviving on a shoestring and can’t sustain the heavy black tax no more. Cut down the funds you send home from Sh. 5,000 to Sh. 3,000. Slash the girlfriend token from Sh. 4,000 to Sh. 1,000. This will save you Sh. 5,000 and will also correct the wrong impression that you earn a lot of money.
Step one and two above will cumulatively spare you a combined total of Sh. 13,000. Out of this, start saving Sh. 8,000 in a reputable Sacco earning dividends at a rate of above 10 per cent, and Sh. 5,000 in a Money Market Fund. The Sh. 5,000 in the MMF shall act as your emergency kitty and can be accessed on short notice while the Sacco savings will be for a medium-term investment goal.
You can place standing orders that will make sure that the two allocations are fulfilled before you get to spend any cent. Do thorough due diligence before you commit your money, and if need be, consult a professional investment advisor on what saccos or MMFs to go for and which ones to avoid.
Caroline K Gikunda: 10 critical lessons from Khalif Kairo’s business troubles
iii). Find an extra stream of income to help you cover your basic needs because currently what you earn is not enough. For instance, get a side hustle you can engage in during your spare time. You can scan your immediate environment and find out a business or service that hustle at, for example, it could be washing cars after work between 5pm and 9pm.
iv). Start to track and monitor your expenses. Get a small notebook or use a downloadable online expenses tracker to record your daily expenses that can ultimately help you do weekly and monthly analysis of your expenditures in line with various items. This will help you to evaluate the workability of your budget, know where every shilling goes, cut down on costs, and save even more.
v). Set clear financial goals to back up your savings. Saving money is more effective and achievable where there is a goal in sight. In your case, it could be finding capital to fund a Master’s degree and increase your career marketability, or it could be acquiring an asset such as a plot somewhere in the outskirts of Nairobi. You are not too young to start dreaming.
Your short-term goal might be to attain financial stability. Medium term goal (2-5 years) may be to save enough and start investing in more rewarding alternatives such as infrastructure bonds or the acquisition of an asset. A longer-term goal may include saving for retirement and preparing for a family life and the heavier expenses that come with family responsibilities. You have age on your side and the youthfulness to make financial adjustments that will reward you in the long term.
The answer to this financial query was provided by Josephine Murage, an investment banker and personal finance consultant. A version of this question and answer was also previously published in the Saturday Magazine which is a publication of the Nation Media Group.
