I am a 26-year-old accountant earning a net salary of Sh34,000. I also earn an additional Sh15,000 from a side hustle.
My monthly expenses are as follows: Sh20,000 for rent, shopping, transport, internet, and food, Sh10,000 for black tax, Sh14,000 for my master’s loan repayment. I save Sh6,000 in a Sacco and Sh4,000 in a money market fund.
Currently, I am in my second year of a master’s programme and I am planning to take a Sh500,000 Sacco loan to start a business. I would appreciate your insights on whether this is a viable move, potential risks, and alternative strategies I should consider.
Monicah Mwaniki, co-founder and chief executive officer of Arvocap Asset Managers
First, you need to appreciate that you’re already showing commendable financial discipline. Saving Sh10,000 every month, despite your commitments, is a strong start. You have already made some good moves. You are saving consistently (about 20 per cent of your income), which is commendable.
You are pursuing further education, which is an investment in your future earning power. You have a side hustle that brings in a meaningful amount every month. But let us take a hard look at the bigger picture.
i) Your expenses are too close to the edge
Right now, your monthly obligations are about 90 per cent of your total income. This is very tight. I recommend keeping fixed costs at no more than 50 to 60 per cent of your income so that you have room for savings, emergencies, and investment opportunities. Your black tax at Sh10,000 is generous but also significant.
While family support is important, it is okay to have open conversations about scaling it based on your capacity. You cannot pour from an empty cup. Note that before you save in your Sacco and MMF, your expenses take up Sh44,000 from your combined earnings of Sh49,000 (Sh34,000+Sh15,000). When you factor in the two savings, your total goes to Sh54,000, which leaves you with a monthly deficit of Sh5,000, requiring the black tax allocation to be slashed to even out your budget.
ii) Risky move
While the ambition to start a business is admirable, jumping into Sh500,000 of debt at this stage is dangerous, especially since you are still repaying your master’s loan and you don’t yet have stable cash flow projections for the business.
Business cycles, especially for first-time entrepreneurs, can be unpredictable. Many businesses take 12 to 18 months to break even. During this time, you would be paying loan instalments from your already strained income. A missed payment can damage your credit score and increase your stress.
iii) Maximise what you already have
Your side hustle is already contributing about 30 per cent of your total income. This is a good sign! Before taking on debt, consider upskilling to charge higher rates for your freelance work. Additionally, dedicate more time to grow the side hustle, then grow your networks to get better-paying clients. A well-managed side hustle could grow to contribute an additional Sh10,000–20,000 monthly without the risks of a large loan.
iv) Finish your master’s and expand your job prospects
Once you complete your master’s degree, you will be in a stronger position to negotiate better-paying roles or even pivot into consultancy. Many accounting professionals with advanced qualifications move into roles that pay upwards of Sh80,000–100,000 per month.
This could double your income without taking the risk of debt, and you would then have the capital to invest in business from savings, and not from borrowed money.
Rather than taking a Sh500,000 lump sum loan, consider micro-testing your business idea with smaller amounts. Start with Sh50,000–100,000 saved over time. You could also partner with someone to share the initial capital burden. Ensure you build an emergency fund first to cushion any shocks, and explore grants or incubation programmes, which are abundant in Kenya for young entrepreneurs.
Your ambition is strong, and your instincts are good. But patience is your best asset right now. Avoid the pressure to move too fast. Focus on building a solid financial foundation first.
Grow your side hustle, finish your education, and increase your employability. When you finally step into business ownership, you will do so from a position of strength, not strain. Remember, wealth building is a marathon, not a sprint. Take your time.
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
