My name is Derrick. I earn a gross of Sh60,000. After statutory deductions, I take home around Sh43,000 but end up borrowing. My family’s household expenses are as follows: Rent – Sh11,000, School fees for my two children per month – Sh10,000, Transport – Sh5,000, Shopping – Sh5,000. Can you please advise me; I want to buy a piece of land, build a house upcountry, and finally buy a car without taking out a loan.
Josephine Murage, an investment banker and personal finance consultant
From the financial breakdown that you have provided, your total expenditures per month amount to Sh31,000. This leaves out Sh12,000 that you have not accounted for. You need to list all your loans down, and the places where you borrow them. I assume that you are stuck in a mobile-borrowing loan cycle whose interests are very expensive. Re-examine your budget, trim excesses and use the realised funds to pay off monthly debts.
To make headway in managing your money, you need to know where every coin is going. This means listing down your recurrent monthly expenses, allocating finances to them, having a manageable and realistic miscellaneous budget allocation, and setting aside investment-oriented savings.
To do all this, start with tracking your expenses. You may need to get assistance from your spouse on this if you are not sure about your household’s spending habits. You can list all the expenses you spent money on in October, and then list the same for the current month of November. A spending pattern will start to emerge, and this is what will inform you of areas you need to trim to further accelerate your financial growth.
Adopt the 50:30:20 budgeting method, in which you will allocate 50 per cent to needs, 20 per cent to wants and 30 per cent to savings and investments. Note that these percentages can be altered as your financial situation changes.
You might want to evaluate how your spouse can contribute financially to offload some of your household expenses. This will relieve more funds which you can allocate to your savings. For example, what are her qualifications and employability? If she can find work that will bring in at least a net of Sh15,000 to Sh20,000, your household could be between Sh10,000 to Sh15,000 closer to realising some of your saving goals.
As you set out your savings, you need to be clear about what is realistic and in which durations. You have mentioned land, a house and a vehicle. These are not short-term goals, given that you have not indicated having any savings and your apathy towards asset financing. Set short-term, medium-term and long-term goals.
Each of these goals should take you closer to your long-term goals. They should be realistic, time-bound, and attainable. In your current financial situation, I would not encourage you to prioritise acquiring a vehicle, unless you can create a secondary income stream out of it – such as through weekend car-boot sales or the running of evening and weekend taxi business.
Over and above proper financial management, you need to devise ways of improving your current net earnings. To do this, you might need to acquire additional qualifications and skills by way of returning to school, attending relevant seminars and masterclasses, and boosting your work output.
This may require a bit of financial input which means it can be one of your medium-term goals that will then propel you to your long-term goal of owning a home.
You intend to acquire land and build upcountry. What informs this resolution? Why upcountry? You need to be clear on whether your aim is related to costs or the need for a retirement home, and how moving upcountry could impact your work. Set a budget too for this. There are places you can get land for as low as Sh100,000 or even less, but there is no value, especially should a need to liquidate come up years down the line.
Set your sights on a specific location, work with the current rates and create an allowance for appreciation. Loans are not always as bad as they are made out to be. In fact, by committing your savings to a Sacco, you will not only access dividends at a rate that is much higher than what is offered in a fixed deposit bank account but could also access financial support at three times your savings and a more affordable repayment rate. If you have land at a strategic place, some Saccos offer affordable building support through the Kenya Mortgage Refinance Company home loans.
However, before you take a loan, your capacity to meet repayments will need to be accommodated by your net earnings.
If you have any money problems, send us an email at [email protected] and leave your number for contact. Money questions will be answered in this column.
