I am unable to survive with my current salary. I earn a net of Sh40,000. Whichever way I try to balance this money,I just can’t make it work. My expenses are as follows: Machakos family rent Sh14,000 inclusive of water and electricity. Nairobi house rent Sh6,500 inclusive of water and electricity. Car Loan (monthly) Sh18,000. Defaulted bank loan Sh339,000 (monthly installments of Sh12,000). Transportation Sh3,000. Food Sh3,000 (Nairobi). Food Sh9,000 (Machakos). School Sh1,500. Fuel Sh4,000. Other debts (Monthly) Sh3,000. I am willing to adopt a better approach and try to meet my obligations. Please help.
Alex Kibebe is the founder of Rubiani Wealth Management Ltd and an investment consultant and business development coach
Your first step in getting your finances in order should be resolving debt, especially the defaulted loan, as this is a significant source of your financial distress and can keep you trapped in a cycle of financial instability.
Overcoming this debt will require you to make some temporary sacrifices, but these sacrifices are worthwhile and can always be recovered once you are financially stable.
Depending on the value and outstanding loan, I would recommend selling your car and using the proceeds to clear your defaulted bank loan and other debts.
This will not only make you debt-free but also significantly reduce your monthly expenses by eliminating the Sh18,000 car loan repayment and Sh4,000 in fuel costs.
Although your transport costs may increase from Sh3,000 to possibly Sh5,000 per month to cover public transport, your total monthly expenses would substantively come down from Sh74,000 to Sh39,000.
Any funds remaining after clearing your debts can be invested in a Money Market Fund account or in a Treasury Bill, both of which offer reasonable returns of about 13-16 per cent per year. Research these investment products and identify one to invest in.
Next, you will need to come up with a more practical budget that corresponds with your remaining income of Sh39,000 while setting aside some savings towards fulfilling other investment goals.
One immediate concern is your total rent of Sh20,500 for both Machakos and Nairobi which takes up more than half of your net income.
You may need to make an adjustment as this is draining much of your income. Consider moving to a more affordable house with a rent of Sh5,000 in Nairobi and moving your family in Machakos to a rental house that costs Sh10,000.
Alternatively, you could relocate your family to Nairobi to live with you and find a place with rent of about Sh15,000. Either adjustment would lower your overall monthly expenses to Sh34,000, leaving you with a surplus of Sh6,000.
Consider investing this surplus in a Money Market Fund to further grow your investment portfolio. If you do so, you could potentially replace your car debt-free within two to three years depending on your existing savings.
Even after successfully replacing your car, I would encourage you to continue investing as this will help you achieve other financial goals such as owning a home and saving for your children’s education.
In addition to these steps, I would also recommend exploring ways to increase your household income. The two rents paid in Machakos and Nairobi and the difference in rental prices suggest that your family could be in Machakos while you’re in Nairobi.
It would be good for you to have a financial reason behind this arrangement. Is it because your spouse works in Machakos while you work in Nairobi? If your spouse is currently not working, figure out urgently what she can start doing to onboard some additional income.
You could consider starting a small business for your spouse or encourage her to seek employment. If she is working, discuss your predicament with her and evaluate how she can chip in to ease the general household budget.
If you have some free time, consider starting your own side hustle. Such extra income would help increase your savings thus enabling you to achieve more with your finances.
Your journey to financial stability will require you to make tough adjustments and adopt new financial habits.
To support you through the process, consider consulting a financial counselor or find someone who can keep you accountable. With consistent effort, you will get out of debt and build a secure future for you and your family.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered on this column.
