I earn Sh256,000 and Sh65,000 goes to statutory deductions. Other breakdowns are as follows. Sacco loan 1 – Sh77,000 to run for 12 months, Sacco loan 2 – Sh14,000 for 24 months, insurance policies Sh13,000, Sacco savings Sh4,000, house rent Sh11,000, house expenses and children’s fees Sh58,000. After attending to all the above, I am left with too little to invest. The loan was spent on acquiring land. My family has expanded and traveling without a car is difficult. What can I do?
Chacha Nyaigoti Bichang’a, a financial coach and the author of Mastering Your Money
Your net salary is Sh191,000 after deductions. Your total expenses are Sh177,000 and Sh14,000 is unaccounted for.
First, review and readjust your expenditure. Lumping together household expenses with children’s school fees is inappropriate. It is easy to know how much fees you pay per term, which can be broken down into approximate amounts paid per month.
You need to track your daily, weekly and monthly household expenses, which should constitute 20 percent of your earnings.
You are spending Sh58,000 (30 percent), meaning you are spending at least 10 percent of your net income on children’s school fees, which translates to Sh19,100 per month while 20 percent (Sh38,900) goes to household expenditure.
Tracking expenses helps curb unnecessary spending, facilitates the process of drawing a budget and fosters financial discipline.
Once done, you will be able to account for the exact amount you spend on household expenses and to trace where the Sh14,000 goes.
You may find that it goes to discretionary expenses like black tax and entertainment because you have not factored them in your breakdown.
On house rent, you are doing exceptionally well, and you should retain it even if your financial situation improves.
You have skipped other items like utilities, transport, among other necessary expenses.
Adjust your Sacco savings upwards. You are saving a meagre Sh4,000, which is just 2.1 percent of your net. This is much lower than the recommended minimum of 10 percent, which translates to Sh19,100 or approximately Sh20,000. Ordinarily, once you take a high premium loan with a Sacco on a pro-rata basis, your monthly deposits go up.
Once your first Sacco loan is cleared in 12 months, you will have a modest disposal sum of Sh77,000. You can decide to use this amount to clear the second loan in about two months once you increase the monthly repayment from Sh14,000 to Sh91,000.
This option would be more beneficial as it will save you the interest you will have paid for the remaining 12 months (second year of the loan repayment).
After clearing the second loan, you will free Sh91,000, which you can utilise as follows: Increase Sacco saving deposits from Sh4,000 to Sh20,000 and establish an emergency fund by channelling Sh30,000 to a money market fund earning a compound interest of about 13 percent.
You need at least a six-month safety net of about Sh1,146,000. It will take you three years of consistent savings to raise about Sh1,322,840 (before withholding tax and annual management fees are deducted).
You need to set up a sinking fund to cater for school fees and other irregular expenses that are not part of the emergency fund. Channel Sh20,000 towards a second money market fund account. This fund will make it easier for you to withdraw when school fees is due.
To achieve the goal of buying a car, you need to set up a third money market fund account where you can channel Sh30,000.
In three years, you will have accumulated Sh1,312,840. This amount will be enough for a good second-hand car of your choice. The remaining Sh11,000 can be used for your discretionary expenditure.
Four, optimise the usage of the land for commercial purposes. There are many options to consider.
You can lease it, build affordable housing units for low-income earners if in an urban centre or use it for farming. You can withdraw some funds from the sinking fund to fund the envisaged income-generating project.
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
