My name is Monica. I am 24 years old and the firstborn in a family of six. Two months ago, I secured a job in Nairobi with a net salary of Sh74,000. I have been living with a friend for the past month and would like to move out soon. This is my first official job and the first time I am earning such a significant salary.
Coming from a poor family, my mum – a jobless single mother working as a farmhand upcountry – and my siblings will all be looking up to me. Some of my siblings are in primary school, while others are in secondary. How do I budget my salary to help my mum and siblings while still saving for myself? Please advise me.
Josephine Murage, an investment banker and personal finance consultant
It is commendable that you are focused on establishing sound financial habits early in your career. The financial success you achieve will largely depend on how you allocate your net income, and budgeting will play a critical role.
Assess your financial position
Start by determining your current financial position by calculating your net worth – the total value of your assets minus your liabilities. Even though your net worth might seem insignificant now, this exercise will help you prioritise. For example, if you have any outstanding debts, including mobile loans, prioritise paying them off first.
Track and analyse your spending
The fact that you have been earning for two months – an equivalent of Sh148,000 net – but lack a clear breakdown suggests the absence of bookkeeping and budgeting. Avoid falling into the temptation of overspending due to the comfort of a regular, guaranteed salary. This could lead to financial strain or debt.
Start by reviewing how you’ve been spending over the past two months. Track every shilling you spend daily, then tally your weekly and monthly expenses across categories. After three months, you will have a clear picture of your spending habits and can create a sustainable budget.
Use the 50/30/20 rule
Consider the 50/30/20 budgeting rule for structuring your expenses:
50 per cent for needs: Essential expenses like food, rent, utilities, transport, and medical costs.
30 percent for wants: Non-essential spending like airtime, internet bundles, personal accessories, and leisure.
20 percent for savings and investments: Build your financial security through saving and investing.
To ensure discipline, set up standing orders to allocate funds immediately upon receiving your salary. For instance, 20 percent of your income should go directly to savings and investments.
Build savings and an emergency fund
Direct your savings to accounts that offer dividends or compounded interest. For example:
Savings: Consider a Sacco account offering 11–13 percent annual dividends.
Emergency fund: Use a money market fund (MMF) for daily compounded interest and easy access to funds.
Since you don’t yet have an emergency fund, start with MMF savings, which can double as your emergency reserve. Research thoroughly before committing to a specific fund, and seek advice from an unbiased investment professional if necessary.
Keep living costs manageable
You’ve indicated plans to move out. This is a positive step towards independence, but keep your rental expenses within 15 percent of your net income – ideally, below Sh10,000. Find a modest but decent living space that balances affordability with proximity to work to minimise transport costs.
Set SMART financial goals
Define Specific, Measurable, Achievable, Realistic, and Time-bound (SMART) financial goals. These will guide your budgeting and spending decisions.
Short-term goals (3–12 months): Focus on stabilising your family’s finances without compromising your own. For example, explore small economic ventures for your mum, such as zero-grazing dairy farming. With her farming experience, this could provide both milk for consumption and extra income. Dairy cooperatives can offer support, including feeds, veterinary guidance, and marketing. You may need upwards of Sh100,000 for a good dairy breed, which you can save within 3–12 months.
For your siblings, encourage your mum to apply for local bursaries to cover school expenses. Provide occasional support for minor needs.
Medium-term goals (2–5 years): Prioritise advancing your career. Consider pursuing a master’s degree if you already hold a bachelor’s or enrolling in a degree programme if you have a diploma. Additionally, look out for professional courses and certifiable masterclasses to enhance your skills and competitive edge.
Long-term goals (5+ years): Plan for significant investments like homeownership, treasury bonds, or dividend-paying stocks.
Avoid debt
At this stage, steer clear of loans until you’re financially mature and capable of managing debt responsibly.
Explore secondary income streams
In the coming months, consider starting a side hustle to diversify your income. Relying on a single income source can be risky. With your age and a stable salary, you have the potential to achieve great financial milestones.
In summary
Your financial and emotional stability will partially depend on the stability of your immediate family. While it’s admirable to support them, it’s vital to ensure you don’t sacrifice your financial health. By prioritising budgeting, disciplined savings, and prudent investments, you’ll set yourself on a path to long-term success.
If you have any money problems, or if you’d like advice on managing your finances, feel free to get in touch at [email protected].
