My name is Kezia. I’m 27. I am a mother of one, a boy aged five. My son and I have been living with my parents in Meru town. My son is in PP2. My mother is a retired primary school teacher and my dad is a veterinarian. He owns an agrovet in town. I have been working at my dad’s agrovet for upkeep, but I recently got a job in Nairobi with a gross salary of Sh45,000.
I am starting this job on April 1. This is my first formal job after years of joblessness and I want to make something out of it. My son will be staying with my parents while I work in Nairobi.
My problem is that I am not good with money management and I am scared that with the cost of living higher in Nairobi, I might end up in a zero sum game. I want to be able to send my mom something for my son. I want to save and go back to school to improve my diploma to a degree and eventually a master’s.
How do I budget for transport, rent, and groceries? Which are the best and safe areas that I can afford to live in with my current salary? How much should I save and invest? Please help me plan.
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money.
At 27 years, you are at the prime age of your youth and getting a job gives you a good starting point for planning for your future. After statutory deductions of about Sh15,000, you will be left with a net salary of Sh30,000. To plan your money prudently, spend with a budget, track your money daily, set up a saving and investing fund, set financial goals and engage in a side hustle.
1) Spend with a budget
Use the 50/30/20 rule to plan your finances. First, this rule requires you to allocate 50 percent (Sh15,000) to necessary expenses such as food (Sh6,000), transport (Sh3,000), rent (Sh4,500) and utilities (Sh1,500).
Buy foodstuffs in bulk preferably once a month except for perishables that can be bought once a week. As for rent, consider affordable but secure estates along Thika road. Please note that you may have to readjust your rent allocation depending on vacancy availability.
However, by living alone, you do not need to go for a fancy rental. Second, allocate 30 percent (Sh9,000) to savings. Have saving as the first expense item by automating it. Choose a reputable well-managed Sacco and channel Sh4,000 a month.
Save about Sh3,000 in a money market fund and Sh2,000 for your child's education policy. Third, allocate 20 percent (Sh6,000) to wants such as sending your mum Sh4,000 for the child's upkeep and school fees.
Utilise the remaining Sh2,000 for your grooming and other miscellaneous expenses. This budgeting guide can be readjusted to suit your needs and financial goals.
2) Track your money daily
To be effective in budgeting, monitor and record your expenses in a daily expense tracker, spreadsheet or easy-to-use mobile application.
Make this a priority and a habit when starting your new career. Prepare a weekly financial summary with listed-expense items or vote-heads and work out a monthly financial statement. Once you do this for at least three months, you will be able to save more, cut down on wastage and unnecessary expenses.
3) Set up a saving and investing fund
Automate your savings as first expense item via check-off and direct debit or standing order. Diversify your savings for various purposes.
Firstly, establish an emergency fund of about six months of your living expenses (for example, Sh180,000) that can cushion you against unforeseen eventualities.
Channel Sh3,000 to a money market fund that earns a compound interest of at least 10 percent. In about three years, you will have saved Sh126,390 and Sh234,247 in five years.
These amounts are exclusive of withholding tax of 15 percent on the returns or interest and annual account management fees of two percent. MMF is easily accessible, the principal amount or monthly contribution is secure and earns modest returns. It is important to note, though, that MMF cannot make you rich or increase your money steadily but it helps you establish a good saving culture.
Secondly, channel Sh4,000 to a reputable Sacco that offers at least 10 percent interest as dividends at the end of the year. In three years, you will have accumulated Sh144,000 and Sh240,000 in five years.
Plough back your annual dividends and avoid going for dividend advance. A Sacco guarantees you a loan based on the 3X multiplier factor besides building a lifelong saving culture.
Thirdly, allocate Sh2,000 towards an education policy for your child. Scout for a reliable insurance firm with a good offer that stretches about 10 to 15 years.
4) Set financial goals
As part of financial planning, ask yourself where you would like to be in 5 to 10 years period in terms of savings, investment and career growth (personal development).
Come up with short-term financial goals ranging from 3 to 12 months, medium term goals ranging from 2 to 5 years and long-term goals of five years and beyond. An example of a short-term goal is to automate your savings.
One medium-term goal is enrolling for further education. Whereas this goal can be supported through your savings and investments overtime, and, or staggered affordable semesters, I would also encourage you to apply and tap into sponsorships.
These could either be via formal institutions or through certified professional courses that are offered online by accredited and recognised professional institutions, colleges and universities across the world.
5) Engage in a side hustle
To supplement your salary, identify an income-generating activity you can undertake during your free time. This may be in line with your skill-set, area of interest or passion.
Take up an online course to acquire necessary skills in financial literacy, online marketing, blogging, video-editing, topography, catering, tailoring, content creation among others.
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.
