I earn a net monthly salary of Sh127,000 after statutory deductions, which includes a loan repayment of Sh32,000 and an education insurance payment of Sh3,000 for my child. Here’s a summary of my monthly expenses: Rent: Sh26,000; Utilities and WiFi: Sh6,500; Shopping: Sh20,000; Household daily expenses: Sh15,000; Transport, airtime and lunch: Sh15,000; Savings for my child: Sh15,000; Black tax (supporting family): Sh10,000.
The remaining amount usually goes towards paying off mobile loans and informal debts borrowed from friends. My mobile loan debt has accumulated to about Sh200,000. I find myself in a constant cycle of debt—paying off loans with each paycheck and then borrowing again to get through the month.
I want to break free from this cycle and work toward financial freedom. I own a piece of land currently valued at Sh600,000. I also have a car, which I barely use due to my financial constraints. I'm considering selling it to buy a smaller vehicle that I can use for online taxi services as a side hustle. Is this a good plan?
Inziani Khasiani, financial consultant and the executive director at Klientele Kenya
Improving your financial situation and building a more stable financial future is possible, but it requires a thoughtful approach and a willingness to address the factors keeping you in a cycle of debt.
To improve, you need to understand and internalise your existing financial situation. An overview of your financial status shows a monthly salary of Sh127,000 and monthly expenses of Sh142,500.
This results in a monthly deficit of Sh15,500. It is essential to address this gap to avoid further financial strain and potential reliance on credit for financing this deficit.
Many people find themselves caught in perpetual debt due to a mix of unexpected expenses, insufficient emergency savings, and sometimes a lack of clear budgeting. For example, sudden high medical bills or car repairs can quickly drain savings, forcing reliance on credit. Without a detailed budget, it’s easy to lose track of spending or fall victim to high-interest loans.
Emotional spending and limited financial knowledge can also play a role, as can the absence of supportive guidance. Think through and identify the factors that relate to your position.
To mitigate the risk of falling into perpetual debt, you should focus on building a comprehensive emergency fund [have a monthly target of funds set aside] to provide a financial cushion against unexpected expenses.
Establish a clear and realistic budget by tracking your income and expenditures, categorising them into necessities and discretionary spending, and making adjustments to eliminate unnecessary expenses.
Regularly review this budget to stay on track and make informed financial decisions. You will benefit from cultivating a financial literacy mindset—educating yourself on personal finance topics—so you can better anticipate and prepare for potential financial challenges in the future.
Your expenses exceed your income, yet best practice demands that total expenses should be below 80 per cent of your income. Target a 40 per cent reduction on bills and Wi-Fi, shopping, household daily expenses, transport, airtime and lunch, savings for your child, and black tax.
This will reduce the expenses to Sh109,900.00 and bring a net positive cash flow of Sh17,100. Note that you have a running mobile debt of Sh200,000. Mobile debts are more expensive than conventional bank or Sacco loans.
In fact, this is a debt that could be costing you upwards of Sh10,000 per month in interest and charges. You need to pay it off as soon as possible. You also need to know the actual amount of informal loans that you owe. I recommend that this amount be used to clear the mobile loans with strict provision of “no borrowing” in the intervening period.
The proposal to sell the car is good, given that you are not using it. The proposal to buy another car and convert it into an online taxi is a serious investment decision that requires that you evaluate the risk versus the expected returns.
To get a clear picture, talk to someone who is already in that business and understand the challenges and risks. Prepare a simple business plan and be sure that you understand the numbers. Invest only after confirming financial viability.
How much, on average, does the business generate daily, given the saturation in the market? What are the operational costs? Alternatively, you could use the funds to settle part or all the remaining debt.
You also need to establish a long-term financial plan that speaks to stability. Building a stable financial future starts with having clear and well-defined financial goals.
By setting both short-term and long-term objectives, you create a roadmap that guides your financial decisions and keeps you motivated. The short term should focus on building strong foundational steps that prepare you to confidently pursue your long-term goals.
Having tangible, time-based targets are instrumental in establishing a stable financial future because they provide structure, accountability, and motivation to achieve.
This ensures that the financial planning process is focused, practical, and effective. Instead of “build a more stable future”, define very specific objectives and convert them into actionable, time-bound goals.
The use of the shamba falls into long-term planning. What business activities can be undertaken on the shamba, and whether those activities are commercially and financially viable, should go through the same process as above for the taxi.
As you strengthen your financial base, continue refining your plan and seeking professional advice when needed. Regularly reviewing your progress and educating yourself about personal finance will empower you to adapt to changing circumstances and make informed decisions.
By focusing on building a solid foundation in the short term, you set yourself up for lasting financial security and the achievement of your long-term aspirations.
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
