The Question: I am 29 years old. I have a job where I earn Sh200,000 net per month. I have a Sh3 million bank loan with an interest rate of 18 percent per annum with a balance of 77 months. I have an emergency fund of Sh200,000. I also have a car worth Sh1.2 million in resale value which I want to dispose of. I have Sacco savings of Sh250,000.

My monthly expenses are as follows: Loan Repayment – Sh65,000, Rent – Sh21,000, House bills- Sh10,000, Sacco – Sh10,000, House Shopping – Sh10,000, Hair & Nails – Sh8,000, Fuel – Sh10,000, Miscellaneous – Sh15,000, Clothing – Sh10,000, Black Tax – Sh15,000, Car Insurance – Sh4,000, Tithe – Sh20,000, Outings- Sh8,000. I want to be debt free and start investing carefully by the time I turn 30. Please help me.

Expert’s Answer: Earning Sh200,000 net monthly, maintaining Sh250,000 in Sacco savings, and having an emergency fund of Sh200,000 at your age is commendable. At just 29 years old, you are in a great position to create lasting wealth. However, I must be honest: your 18 percent loan interest rate is eating into your financial potential, and your current expenses are exceeding your income. Let’s create a practical, aggressive strategy to get you debt-free and set up for smart investments before you turn 30.

Step 1: Aggressively Pay Off the Loan

Your Sh3 million loan is holding you back with a balance of Sh2.31 million and 77 months remaining. This debt is costing you far too much in interest, so the priority is to eliminate it quickly. Here’s the plan:

1. a)Sell your car, which has a resale value of Sh2 million.
2. b)Use this money to reduce your loan balance to Sh11 million.
3. c)Continue making your current monthly repayment of Sh65,000.
4. d)With the reduced loan amount, you will clear the debt in 20 months instead of 77.

This strategy saves you significant interest and frees up cash flow for other financial goals.

Step 2: Adjust Your Budget Using the 50/30/20 Rule

Currently, you are spending beyond your means, which makes it hard to save or invest effectively. To fix this, we’ll use the 50/30/20 budgeting rule to ensure you live within your income while prioritizing debt repayment, savings, and tithing.

Your adjusted budget can be as follows:

By selling the car, you eliminate the fuel expense (Sh10,000) and reduce your travel cost to around Sh5,000 monthly. This adjustment keeps your spending in line with your income. Note that the 50/30/20 rule can be adjusted to fit your personal situation. It is simply a guide to help you plan your money.

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For instance, whereas tithe is a personal issue that is based on belief, the Sh20,000 tithe allocation is not a statutory deduction that is cast in stone, especially at the expense of your already strained finances and debts. It can be withheld, completely done away with, or readjusted until after your financial well-being improves. It may not be financially not logical to go broke or stay stuck in debts I order to pay tithe.

Step 3: Continue Building Sacco Savings

Your consistent contributions of Sh10,000 to your Sacco are excellent and should not stop. This habit not only grows your savings but ensures access to affordable credit for future projects. Once your loan is cleared, consider using Sacco loans for planned expenses or other growth opportunities, as their interest rates are far lower than your current debt.

Step 4: Build a Sufficient Emergency Fund

Your current emergency fund of Sh200,000 is a great start, but it’s not enough. Ideally, you need 3 to 6 months’ worth of essential expenses, which comes to around Sh300,000 to 600,000 based on your adjusted budget. Save Sh15,000 monthly toward your emergency fund until it reaches this target. Once the emergency fund is complete, redirect this amount toward investments.

Step 5: Start Investing Wisely

Once your loan is fully paid off in 20 months, you’ll free up Sh65,000 monthly for investments. Because you’re young, time is your greatest ally in building wealth.

Investment Strategy:

Low-Risk Options (Short-Term Goals):

i). Money Market Funds (MMFs): Start here to grow your savings with minimal risk while building confidence in investing. MMFs are also ideal for saving toward other investments, such as bonds, while earning stable returns in the short term.

ii). Moderate-Risk Options (Mid-Term Goals):

Government Bonds: These provide stable returns and align with your long-term safety net.

iii). High-Risk, High-Return Options (Long-Term Goals):

Stocks and ETFs: Once you’re debt-free and financially comfortable, allocate funds to these for higher growth potential. Exchange-traded funds (ETFs) are particularly suitable for beginners or investors who prefer a diversified approach without the need to pick individual stocks, offering exposure to the stock market with less risk.

Use the age-based asset allocation rule:

Subtract your age (30) from 100. Allocate 70 percent of your portfolio to stocks/ETFs and 30 percent to safer investments like bonds and MMFs. For example, if you invest Sh65,000 monthly in diversified assets, you could build significant wealth over the next 5–10 years.

Selling the car will eliminate a depreciating asset and free up cash to tackle debt. The 50/30/20 rule will ensure that you’re living within your means and saving intentionally. Aggressively paying off the loan will relieve financial pressure and allow you to invest confidently.

Your Sacco savings provide a safety net and a future source of affordable credit. You’re young, and so your investments will benefit from compounding returns over time. There are some questions that you should consider as you embark on this journey whose answers will determine your progress. These include:

i). Are you comfortable selling the car to accelerate your debt repayment?

ii). Would you be willing to further adjust your “wants” budget if necessary?

iii). Do you foresee any major expenses that might disrupt this plan?

With focus, discipline, and the right plan, you’ll not only be debt-free but also on track to achieve financial independence and long-term wealth.

The answer to this personal finance question was provided by Gertrude Njeri who is an accountant, personal finance and investment consultant. She works as a community manager for an investment company based in Nairobi. A version of this question and answer was also published in the Saturday Magazine.