The Question: My name is Gilbert. My wife and I have new jobs as primary teachers upcountry. We both earn a net salary of Sh. 28,000 each. We have two kids. One is in nursery PP1 and the other one is a toddler at home. These are our first jobs. We are excited and anxious not to mess up our money.
We have big dreams. We would like to go back to school and scale ourselves upwards career wise. We would also like to buy a piece of land and build our own home in the foreseeable future. We haven’t done much with our first salaries because we don’t know how to budget. Please help us draw a budget for our net salary using the 50:30:20 method. We don’t have loans yet. Should we also pay tithe and black tax at this stage?
The Answer: Your total income as a couple is Sh. 56,000. It is important that you hold a candid conversation with your wife on how to share your financial obligations as a couple and leverage on your dual salary for increased savings and investments. This will help you to overcome any nagging feelings of financial infidelity and incompatibility especially at the early stages of your careers.
Use the 50:30:20 rule to help you budget. Pay yourself first before you start spending on other needs and wants. You can automate and diversify your savings as illustrated below:
a). Channel 30% towards Savings. This translates to Sh. 8,400×2 (Sh. 16,800) diversified as follows:
- Sacco: Sh. 3,500×2 = 7,000
- Education Policy Insurance: Sh. 3,000×2 = Sh. 6,000 (2 kids)
iii. Emergency fund: 1,900×2 = Sh. 3,800
b). Channel 50 percent (Sh. 14,000×2 = 28,000) towards necessary expenses. These expenses should be shared proportionately with your wife (you can pay house rent, child’s school fees and house-help for the toddler) as follows:
- Rent: Sh. 4,000 (for the houses popularly known as doubles). If you get one near your places of work, you can eliminate transport and top up your rent for a better and spacious house.)
- School fees: Sh. 4,000 (per month)
iii. House-help: Sh. 4,000
- Shopping: Sh. 7,000
- Transport: Sh. 2,000×2 = Sh. 4,000
- Utilities: Sh. 1,500
vii. Others: Sh. 3,500 (This should help cover deficits arising from the cost of living).
c.) Other expenses 20% (Sh. 5,600×2 = Sh. 11,200). This may be allocated to your emergency fund, black tax, entertainment, and gifting.
When budgeting, consider the following:
1). Monitor your expenses on a daily, weekly and monthly basis to determine where every shilling goes to avoid wastage and live a frugal goal-driven lifestyle. Leverage on the pocket friendly rural lifestyle to grow your financial muscle for investments.
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2). Diversify your savings and investments. As a couple, channel part of your savings to a teacher’s Sacco, take education policies for your children and save for emergencies. Use the Sacco savings for investment or development projects that can generate more income instead of just getting a loan and buying land and building a home in the medium-term. Invest in yourself and acquire financial literacy skills by enrolling in a financial management program to teach you how to manage your money wisely, borrow debt and invest appropriately.
3). Reviewing your financial situation. Calculate your net worth after every six months to determine your actual financial position. If your net worth is positive or improving, it means you are doing well (assets outweigh liabilities). The rule of the thumb is: For every 2 assets there is one liability (ratio of 2:1). Paying tithe is not cast in stone, especially when you’re new at work and salary. Out of the Sh. 11,200 use Sh. 5,000 to pump up your Sacco savings to Sh. 12,000. Then allocate Sh. 2,000 to your personal needs, Sh. 2,000 to your black tax, and the rest of Sh. 2,200 to your religious gifting.
4). Join a reputable Sacco. Teachers Saccos have friendlier solutions for teachers. By diversifying and saving through the Sacco, your annual savings will amount to Sh. 144,000 with a dividend of Sh. 14,400 at the rate of 10 percent. In five years, your savings will total Sh. 720,000 without factoring the dividends. Your emergency kitty will stand at Sh. 228,000 if they aren’t utilized within that period. This total of around 950,000 can get you a quick development secured loan of up to Sh. 2.8 million.
5). Take a sound life cover with a reputable insurance company or have an individual pension plan besides the plan provided under the TSC.
6). Scan your immediate environment and find out what skills, services or goods are in high demand. Find your niche and devise a plan on how to solve an existing or emerging problem. A side hustle will supplement your income and help you raise money for further education and fill any budgetary gap you may be experiencing.
The answer to this personal finance question was provided by Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money. A related answer was previously published in the Saturday Magazine. The Saturday Magazine is a publication of the Nation Media Group.