My name is Malik. I am 37, single, and I love the soft life. I earn a net salary of about Sh140,000. I get a car mileage allowance of Sh30,000 that is paid separately. My expenses include: Car loan Sh45,000 ending February 2026 (Balance Sh405,000), rent Sh25,000, transport Sh10,000, parents Sh10,000, shopping Sh15,000, internet, water and electricity Sh6,000. I end up spending all my extra money on miscellaneous expenses and weekend treats.
I have recently become aware that age is catching up with me. I am torn between buying an apartment on mortgage or buying a plot in the outskirts of Nairobi and building. Also, I have not been very good with savings. I have about Sh280,000 savings in my bank account. I was thinking of investing in MMFs, but the earnings of Sh2,000 per month seem too little. How do I budget my money to achieve the home goal?
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money
There is some Sh59,000 (26 per cent of your income) which you have not accounted for. This implies that you do not plan your finances properly. You are also living a YOLO or consumerist lifestyle. Your mindset is wired towards spending on liabilities instead of investing in profitable assets. To manage your money wisely, do the following.
Review your financial lifestyle to reduce over-expenditure on certain items and do away with expenses that do not add any value. This will help you live within your means, save and invest more.
Reduce expenses on needs and wants. The car you bought can be considered an asset if it generates income but it is more of a liability or a want that drains your money due to fuel and maintenance expenses. The good news is that the car loan will be cleared in eight months. This will free a whopping Sh45,000. Your rent expense of Sh25,000 (15 per cent) can be reduced to Sh17,000 (10 per cent) or less by relocating to a cheaper residence. This will free at least Sh8,000 into your disposable income. Readjust the amount you spend on transport from Sh10,000 to around Sh7,000 and save at least Sh3,000. Reduce fuel costs by carrying some passengers to their place of work in town or opt for car-pooling once in a while. Ask yourself whether it is necessary to send your parents Sh10,000 every month. Have a candid conversation with them and reduce the expense to around Sh5,000 and save Sh5,000. The Sh15,000 you spend on shopping can be readjusted to around Sh10,000 by buying in bulk. Avoid impulse buying and eating out unnecessarily. Monitor your consumption on the internet, water and electricity. Cut them down from Sh6,000 to Sh3,000. Install a cheaper WiFi network. You will be able to release Sh24,000, which will help you repay your loan faster or be channelled towards saving and investment schemes.
Track where every shilling goes by recording down every expense you incur in a small notebook, mobile app or spreadsheet. Use the 80/20 or the 50/30/20 budgeting guide to allocate money every month. The 80/20 rule is also known as the Pareto Principle or Pay Yourself First, and requires that you prioritise saving at least 20 per cent (Sh34,000) of your total income and spend 80 per cent (Sh136,000) on necessary expenses. The second option, the 50/30/20 guideline requires one to channel at least 30 per cent (Sh51,000) towards savings and investments, 50 per cent (Sh85,000) to essential or necessary expenses such as rent, transport, shopping, and utilities. The remaining 20 per cent (Sh34,000) to wants or non-essential expenses such as parents, welfare groups, entertainment, fashion and trends.
Set clear saving and investment goals. You should learn that there is nothing like little money because a shilling saved is a shilling gained and little by little fills up the measure. You need to understand the difference between saving and investing. Saving is usually short-term, deposited in a secure financial vehicle that has better returns than a bank current account. It is more accessible and useful for emergency and irregular expenses. Investing, on the other hand, is long-term, more goal-oriented and risky with the potential to earn higher returns or with a likelihood to lose the seed capital altogether. However, the two can work together.
Diversify your savings and investments. Save Sh280,000 in a MMF earning a compound interest of about 10 per cent and top up a certain amount like Sh10,000 every month. You will accumulate Sh791,395 in three years and Sh1,223,238 in five years, which is inclusive of 15 per cent withholding tax on the returns and two per cent annual account management fees. This amount will provide a safety net for any emergency.
Save in a Sacco with strong internal controls for investment purposes. Saccos offer affordable credit facilities, good returns on savings (dividends), and can satisfy your risk appetite through access to various products. Suppose you deposit Sh17,000 (10 per cent of your income) in a good Sacco, you will realise Sh612,000 in three years and Sh1,020,000 in five years which is exclusive of dividends in case you plough them back for compounding purposes. Consider taking one or two insurance policies such as endowment or life policy to ring-fence yourself and your next of kin in case of demise or incapacitation. Consider other investment options like stocks and government securities.
Once you embark on robust saving and investment goals, you can preferably buy a piece of land in the outskirts of Nairobi and build gradually. This goal may be achieved within five years once you embrace steadfast saving and investment culture. The second option is buying an apartment house on a mortgage scheme. Register in the Boma Yangu online platform, fill the required personal details, deposit 10 per cent and you will stand a chance of acquiring your preferable house within the range of Sh2 million to Sh5 million with a variable mortgage rate of 5.9 per cent to 7.4 per cent and a monthly payment of 30 per cent to 40 per cent gross monthly income. Other mortgage schemes offered by alternative lenders like banks give fixed interest rates ranging from 9.5 per cent to 15.4 per cent annually. The mortgage option is a bit more expensive than accumulating your own savings in a Sacco and acquiring a loan on a reducing balance, and you may supplement with your savings in an MMF as long as you do not deplete the emergency account.
To change your unhealthy financial beliefs and scarcity or consumer mindset, enrol in a three-month financial literacy masterclass. Such a course will teach you basic personal financial management and wealth creation skills like budgeting, tracking your money, saving, investing, demystify the concept of debts and learning to use debt wisely, and ring-fencing your assets. Hire the services of a good personal finance coach who can hold you accountable as you make the baby steps in financial planning and execution.
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