I would like financial advice on how to have a consistent budget plan without having to borrow from a bank overdraft and phone banking. This month, I have consolidated my debts and taken a Sacco loan to pay Sh5,500 monthly for the next few years. I will also be saving Sh4,000 monthly in the sacco.
After that deduction and tax deductions, I get a net pay of Sh51,000. This is the amount I want to manage well. I don't pay rent or school fees, since my hubby does that. I help with the other school expenses, house food, and house girl payment.
I estimate Sh30,000 for house food, my transport and personal upkeep. I pay my house girl Sh8,000, cooking gas Sh3,000, water bill Sh2,000, and Sh5,000 as a life policy payment. Sometimes I support parents with roughly Sh3,000. I have found myself spending above this budget by Sh10,000 to Sh20,000 , especially when I get an emergency expenditure.
I have a money market fund which has Sh17,000 but I want to consistently save. How do I save and stick to my income since I currently don't have another source of income? Irene
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money
Your total expenditure is Sh51,000 versus a net income of Sh51,000. This implies an ideal situation whereby the expenditure equals the net income. In reality, however, you have reported that you overspend by Sh10,000 or Sh20,000.
You ultimately lack financial discipline, which may be characterised by impulse buying and the allure of easy-to-get digital loans.
To manage your money prudently, adopt these four financial strategies. Use the 50/30/20 budgeting guide, track your expenses, diversify your savings, and exercise financial fidelity with your husband.
Use the 50/30/20 budgeting guide to allocate your money. First, channel 50 per cent (Sh25,500) to necessary expenses such as food, 20 per cent (Sh10,200), transport 15 per cent (Sh7,650), utilities four per cent (Sh2,000) and cooking gas six per cent (Sh3,000).
If well utilised, the 13kg LPG gas can last three months, thereby saving Sh2,000 in the subsequent two months. Second, allocate 30 per cent (15,300) to savings for various purposes (as discussed under strategy number three ahead).
Lastly, channel 20 per cent (Sh10,200) to wants, that is, things you can easily do without, such as money sent to parents and some personal upkeep expenses like grooming, fitness, clothing and fashion.
For effective budgeting, track your expenses on a day-to-day basis. Do a weekly and monthly summation that will help you prepare a financial statement (an income versus expenses analysis).
Cut unnecessary expenses or over-expenditure. You are already overspending by haphazardly allocating Sh30,000 (59 per cent) on essential expenses like house, food and transport, and personal upkeep (a non-essential expense).
Categorise your expenses into A, B and C whereby category A includes highly essential expenses such as foodstuff, transport, utilities, and cooking gas, Category B includes essential expenses like house girl, and life policy, while Category C consists of non-essential expenses such as money for parents, and personal upkeep.
Categories A and B total to Sh43,000, which is more than the recommended average of Sh25,500. The remaining balance is spent on a life policy (Sh5,000) and parents (Sh3,000). This leaves you in a precarious financial situation, whereby you hardly have any money left for saving for emergencies and investment.
The main reason for your monthly budgetary shortfall of Sh10,000 or Sh20,000 is on account of impulse buying and the allure of mobile application loans, which you were fond of before you consolidated them by taking a Sacco loan. Exercise financial discipline by spending with a budget and learning to cut back on unnecessary expenses or overspending.
Diversify your savings and investments. To reap optimum benefits, have a variety of saving and investment vehicles for specific purposes such as emergency, investment, and retirement.
It is commendable that you are saving Sh4,000 via check off, partly because of the Sacco loan you took. The life policy you have taken of Sh5,000 (10 per cent of your net income) is part of your retirement planning.
What you are lacking is an emergency fund to cushion you against unforeseen eventualities like incapacitation and job loss. Allocate 10 per cent of your net (Sh5,100), automated via direct debit (at an exact date your salary hits your bank account) and channel it to a reputable, well-managed MMF provider.
Assuming your monthly expenditure is Sh51,000 (times six), you need to save at least Sh306,000 to survive for six months in case of any emergency.
Considering you already have Sh17,000 in MMF, you will accumulate Sh237,782 in three years and Sh426,190 in five years, exclusive of withholding tax and two per cent annual account management fees.
It will take you four years to save an equivalent of six months' total expenditure (Sh327,299). Consider topping up your Sacco savings by 10 per cent (around Sh5,000) on account of accessibility to affordable credit on a reducing balance, issuance of loans using the 3X multiplier factor or thereabouts, and the lucrative benefit of dividends at a competitive rate of 10 per cent or more. Your savings will act as collateral to obtain a substantial loan for investment purposes in real estate or agribusiness.
Exercise financial fidelity by acquiring financial literacy. You need to leverage your dual income as a couple to create more wealth. This can be achieved when you consider budgeting your money collectively, tracking each other's expenditure, and acquiring financial management skills as a couple.
In other words, you need to hold each other financially accountable as like-minded accountability partners. Begin with yourself, then gradually cascade it to your partner and your children (financial parenting).
Watch videos and listen to audios together, besides reading personal finance books and discussing lessons learnt. As a result, you will be able to stamp out unhealthy financial beliefs or myths, thoughts, and spending patterns anchored on the misconception that "Your money is yours, but his money is ours".
Practice financial fidelity as a couple by being transparent and accountable to each other. This will accelerate your financial growth and steady wealth creation.
Above all, upscale your skill set and your soft skills in areas of personal interest. Identify your passion and monetise it by starting a side hustle to supplement your income.
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].
