Saturday, September 23, 2023

How you can survive in Nairobi with Sh. 20,000 net salary

My name is Martin Indeche. I’m 28. I have recently started living in Nairobi where I am working as a security guard. I earn a net salary of Sh. 20,000. I have one child in the lower primary. My wife does not work but I would like to start a kibanda business for her. How best can I survive on my little salary in Nairobi?

Option One:

Work with the 80/20 percentage rule. Your income is quite low. Most of your entire money is bound to go to essentials. But you still need to save and grow some other forms of income. The 20 per cent should cater for your savings. Here’s the breakdown:

80% of your Sh. 20,000 net salary is Sh. 16,000. This Sh. 16,000 is expected to cater for food, rent, transport and school fees. The maximum amount you should allocate for rent is Sh. 8,000. You will certainly go into debts if your rent goes above this. With Sh. 8,000 rent budget, you will be able to find housing in areas such as Pipeline, Embakasi, Kayole, Kibera, Kawangware, Ruiru, Mathare, Umoja, Ruai, Kangemi, and Rongai.

Since you have a young child, you should consider the security of the neighbourhood you will be living in and the surrounding amenities such as schools for your young child. Once you settle your rent, you will remain with Sh.8,000. Allocate Sh. 4,000 for food.

Buy things like cereals in bulk and store them for the month. You can buy them at cheap stores around the Nyamakima area. Build a good relationship with your local mama mbogas for discounts, cheap groceries and market deals. Out of the remaining Sh. 4,000, you can send Sh. 2,000 to your mom back in the village.

This shouldn’t be every month. You can arrange to be sending every two months so that in one month, you have Sh. 2,000 as miscellaneous or emergency savings.

With the remaining balance of Sh. 2,000 out of Sh. 16,000, build up a fund for the kibanda business your spouse wishes to start. You can save this for about five months to come up with Sh. 10,000, which is adequate capital for a grocery business.

When launching, the relationship you have formed with your local mama mbogas will come in handy in getting them to hold your spouse’s hand as she ventures into the groceries business. You have now spent 80 per cent of your net earnings and have a balance of Sh. 4,000 which is 20 per cent of your net salary.

This is the money that should go to your savings and investments. Join a table banking chama or a Sacco where you will earn dividends, as well as build your account for future financing. Think about adding extra sources of income.

Your wife’s venture will be a good starting point. Sh. 4,000 is a significantly small amount that can take long to multiply into good capital. How else can you add on extra income? What side hustles can you do when you are not working?

For instance, if you are a night guard, can you spare some hours during the day to work as a part time car washer? Picture this, at Sh. 50 per car, ten 10 will give you Sh. 500, which multiplies to Sh. 15,000 monthly. You must create an extra source of income to grow faster.

Option Two:

With your net salary, a budget is an emergency requirement in determining what you’ll be spending on food, transport, food, shopping, education, and miscellaneous expenses. Use the 80/20 rule to determine your financial allocations. This can be further broken down to 50/20/30.

This means your allocations will be 20% savings, 50% necessary and very essential expenses such as food which should take around 20% of the 50%, rent of around 15%, utilities of around 5%, and medical expenses of around 10%. The remaining 30% can be spread out for wants like airtime, bundles, gadgets, cable TV, some of which are not necessary for low income earners.

This means that depending on your needs, your allocations can vary between 50/30/20 or 50/40/10. With these allocations, this is how much money will go to every item:

a). Rent (average 15%):   Pay a rent of around Sh. 2,500, which is adequate for a single room in areas such as Kibera, Kwa Njenga, Kawangware, and Mathare Valley.

Such rent can also be paid for a mabati house in Dandora, Eastlands and Jericho where people living in City Council houses have built mabati house extensions. For a permanent single room house you may pay about Sh. 4,000 to Sh. 5,000.

It is advisable that the rent should be between 10 and 20% in order to have some disposable money for other essential expenses.

b). Food (25%):  You can spend around Sh. 5,000. This includes other related shopping of essential items like cooking oil, kerosene, charcoal, soap, tooth paste, veggies, tomatoes, cereals, onions, flour, rice. Instead of buying the small packages of Sh. 20 or Sh. 30 (the Kadogo Economy), buy in bulk monthly to save.

I am a security guard in Nairobi. This is how I survive on Sh. 18,000 salary

c). School fees (not more than 20%): You can afford to pay Sh. 2,000 monthly totalling to Sh. 6,000 per term and Sh. 18,000 per year in a low cost private school. Alternatively, you can take your child to the City Council public primary schools which are much better than low cost private schools.

The levies charged in public schools are more affordable. They will hardly exceed Sh. 3,000 per term. This will help you remain with some extra Sh. 3,000 disposable income for saving.

d.) Chama (10%): Save Sh. 2,000 through an interest earning investment group with a revolving fund. In future, you can use your savings as collateral for a short-term financing.

e). Parents in the village (5%):  Spend around Sh. 1,000 as a token to parents every month.

f). Saving/Investment (10%): Save Sh. 2,000 via unit-linked fund managers. In one year, you’ll have Sh.24,000 plus an interest of at least Sh. 4,000 totalling to Sh. 28,000. Deposit the savings in a well-run Sacco earning an interest of about 10% or buy shares of undervalued counters/companies with the saving of Sh. 2,000 per month.

For example, Absa shares are trading at around Sh. 10 meaning that you can buy 200 Absa shares which is above the required minimum of 100 shares at any given time of trading.

g). Wife’s Kibanda business goal (25%): Save and then set aside Sh. 5,000. Rent for a Kibanda ranges from Sh. 3,000 to Sh.5,000 per month. Three months’ savings will be enough to start a Kibanda business selling tea, mandazi and chapati.

h). Ensure you have enrolled for the NHIF to be safeguarded in the event of a medical emergency.

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