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In May 2024, Raphael, a Roysambu-based man, made a bold decision to take a car loan facility for a Sh1.6 million Mazda Axela.
This was four months after he landed a permanent and pensionable job with a leading financial institution, taking home a gross salary of Sh110,000.
Even though he had a plan for the loan repayment, Raphael told Money254 that he never factored the changes that buying a car would have on his overall earnings.
“The interest rate is 18 percent and my monthly installments come to about Sh34,000. I will be paying the loan for 84 months (7 years), although I plan on increasing my contribution when my salary increases,” he told Money254.
He explained that his net pay after the loan installment has been deducted to about Sh44,000, barely enough to cover his bills, which include rent (Sh22,000), utilities (Sh5,000), and shopping (Sh10,000). As such, he is left with less than Sh10,000 for car maintenance and fuel.
Responding to the matter, Margaret Njeri, an IRA-accredited financial advisor and wealth coach advised him to reduce expenses, increase income, and possibly refinance the car loan.
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Njeri shared some guidelines to help Raphael assess his financial situation and adjust accordingly:
- Assess Spending Priorities:
Car Loan: The loan consumes over 30 percent of their gross salary, which is unsustainable. Consider refinancing the loan for a lower interest rate or extended tenure to reduce monthly payments.
Reduce Discretionary Spending: Evaluate and minimize house shopping and non-essential expenses. For example, create a detailed monthly budget and stick to it.
- Increase Income:
Supplementary Income: Explore side hustles or freelancing opportunities(that align with your skills and interests or market research) to increase income, especially since the current job is stable.
Salary Adjustment: While hoping for a salary review, consider negotiating benefits like transport or fuel allowances to ease expenses while considering the job description.
- Consider a long-term Strategy:
Build an emergency fund by saving any surplus from reduced discretionary spending or additional income. Avoid further debts until the current financial situation stabilizes.
