I am Joan, 27. I have no children and earn a net pay of Sh80,000. Lately I have been desiring to own a car because I am tired of using public transport. I have savings of Sh120,000. How can I buy a car worth Sh600,000? My expenses are: Rent and utilities, Sh17,350, monthly shopping Sh8,000, monthly upkeep Sh8,000, hair Sh3,000, Netflix Sh700, Amazon Prime Sh560, Google subscription Sh250, gas Sh1,200, electricity Sh1,500, Wi-Fi Sh3,000, nails Sh500, savings Sh20,000, travel Sh10,000 and gym Sh3,000. I live with a sibling, and this is why the food budget is high.
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Firm
Your total expenditure is Sh77,060 against a net pay of Sh80,000, which leaves you with Sh2,940 unaccounted for. You can leverage on your youthful age, your active income and low dependency to attain financial freedom. Consider the following strategies.
Set specific, measurable, achievable, realistic and time-bound goals. These should range from short-term (three to 12 months) to medium-term (two to five years) and long-term (five to 10 years and beyond).
In your case, buying a car solely for convenience purposes may not be a prudent step because of additional expenses in fuelling and maintenance, unless you have a plan of turning it into an income-generating asset such as a part-time taxi.
You should delay personal gratification for the sake of saving and investing more, for increased cash flow and capital growth rather than spending for consumption and entertainment.
Budget and track your money. From your breakdown, Sh2,940 is unaccounted for. This implies that you do not track your money daily to guard against unnecessary expenditures.
You need to readjust your expenditure. You are spending Sh17,350 on rent and utilities, which translates to 22 percent of your net pay. You need to separate utilities from rent because electricity is appearing separately, yet it is part of utilities.
If you combine them, the sum of all utilities and rent is Sh18,850 which is 23 percent. The recommended average on rent is 15 percent, which translates to Sh12,000 and utilities should consume at least three percent (Sh2,400).
These two items total to Sh14,400. You would save at least Sh4,450 or more if you get an affordable bedsitter of not more than Sh10,000.
On monthly shopping and upkeep, it is not clear the specific expense items that fall under upkeep and how different they are from general shopping.
Cumulatively, you are spending Sh16,000, which translates to 20 percent. Because you only live with your sister, you can downscale to Sh12,000 (15 percent) and save Sh4,000.
Some expenses for personal grooming-like hair and gym should not be done monthly. You can plait your hair once in two months and save Sh1,500. Gym subscription can be done annually or semi-annually.
Paying Sh3,000 monthly translates to Sh36,000 in a year, which is a lot of money. You can shop for a cheaper annual subscription gym that accords what you need instead of subscribing to a high-class gym for status and recognition.
You are spending Sh10,000 on travelling, which is higher than the recommended average of 10 percent (Sh8,000). Re-adjust and save Sh2,000. Review your travel plans to cut down on unnecessary travelling at weekends and peak times, especially to and from your workplace. As you adjust your rent, consider moving closer to your workplace to save on fare.
Some entertainment expenses such as Netflix, Amazon Prime and Wi-Fi may be unnecessary, except Google subscription, which accords you additional space for storing photos, bulk emails and other essential documents.
You can do away with Netflix and Amazon Prime and save Sh1,260 unless they add value towards creating some income stream by uploading your own content. On Wi-Fi, you may partner with two or three other tenants within your neighbourhood and spend at least Sh1,000 and save Sh2,000.
Once you review and adjust your overall expenditure, you will be left with a disposable amount of about Sh14,000, which can be channelled to a prudent saving and investing scheme to achieve the goal of buying a car in three years.
Establish a sound saving and investing scheme. It is not clear where you are saving your money. Is it in a bank, a Sacco or a chama? Assuming you save the Sh20,000 in a Sacco, you will realise Sh720,000 plus the current deposit Sh120,000 totalling Sh840,000.
Using the 3X multiplier factor, you will qualify for a loan of Sh2.2 million, a modest sum that can be invested in real estate, or in a more lucrative infrastructure bond that is tax-free and fetching a coupon of about 18 percent currently.
If the Sh14,000 is invested in a money market fund earning a compound interest of at least 13 percent, in three years, you will earn Sh612,663 without including withholding tax and annual account management fees.
This fund will act as your emergency buffer. You have the option of withdrawing the money to buy a car and replenish it gradually. Alternatively, you can reinvest this money in government securities and earn more passive income rather than just buying a car, which is a liability that attracts additional expenses.
In summary, consider starting a side hustle in your spare time, acquire financial literacy and other soft skills, and pursue further education that will increase your chances of career advancement and pay.
Identify your unique TRAP, that is, your talents, resources within your reach, special abilities and potential to establish a passion business to supplement your current income.
If you have any money problems, send us an email at [email protected] and leave your contact number. Money questions will be answered on this column.
