I am single and I make Sh200k in a neighbouring country, but I think I’m too extravagant while my contract ends in two years
My name is Dennis. I am 30. I am single. I currently live and work in a neighbouring country. I started working 11 months ago on a contract that will last three years.
I am getting paid an average of Sh200,000. I pay Sh50,000 rent and use Sh30,000 on food and Sh50,000 on entertainment. I spend Sh20,000 on my dad and Sh20,000 on general house expenses. I save the rest.
I recently spent Sh250,000 of my savings to travel back to Kenya and spend time with my family. Upon returning, I have been feeling like I don’t have control of my finances.
I would like to have full control so that when I return home, I will have something for me to live comfortably. Please guide me.
Benjamin Cheruiyot, the Engagement Lead at Abojani Investments, a personal finance and investments advisory firm, says:
You earn a fair salary by the average Kenyan standards. Since your job is contractual, running for the next two years, you have to practise moderation on your spending.
Your budget shows that Sh50,000 is spent on entertainment — an amount that equals rent. It goes without saying that should you keep up this expense, you will often remain broke and may not achieve much by the time your contract ends.
You also need to scrutinise the general expenses of Sh20,000. Are there some expenses that you can do without?
Savings of Sh30,000 over the last 11 months amount to Sh330,000. You spent Sh250,000 on travel and holiday with your family.
That’s equivalent to eight months of savings. With only about Sh80,000 as savings, it is certain you are hustling backwards.
Unchecked expenses for everyday use and entertainment easily run into tens or hundreds of thousands of shillings.
This drastically lowers your ability to maximise on earned income for wealth creation. Ideally, with fewer responsibilities, you should save and invest 30 per cent of your net income.
In your case, you should put aside Sh60,000 every month in investments that generate cash flow.
You are only saving Sh30,000. You can do better by cutting down on entertainment by at least half. This will add Sh25,000 to savings.
You can also cut Sh5,000 from food or general expenses. Your budget should look like this after adjustments:
Rent – 50,000, food – 25,000, entertainment – 25,000, dad – 20,000, general expenses – 20,000, savings/investments – 60,000.
Further scrutiny can reveal areas you may reduce further, especially rent, food and entertainment.
You also spend Sh20,000 as black tax, which is quite significant. Is there a specific reason why this is the case every month? Based on your initial savings, Sh60,000 can be invested as follows: Sh20,000 to a money market fund for an emergency fund. This will help you stay afloat when your contract ends, before you get another job.
Saving Sh20,000 for two years will add up to Sh548,000 at 13 percent annual return. Considering your lifestyle, this only equals almost four months’ worth of expenses.
You need at least 6 months’ worth of expenses or Sh840,000. You could also put Sh40,000 monthly in another money market fund to accumulate for a longer-term investment, for example, treasury and infrastructure bonds.
You only need Sh50,000 for a treasury bond, and Sh100,000 for an infrastructure bond. You can accumulate Sh500,000 after a year and invest in a treasury bond.
You will then earn about Sh40,000 every six months. In your last contract year, you will accumulate another Sh500,000 and top up on your emergency fund savings. These savings can be accelerated even further if you trim down your budget further on the items highlighted above.
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
