My name is Priscilla. I earn a net salary of Sh30,000 per month. I have the following debts; rent arrears Sh126,000, personal debt Sh40,000, Chama loan Sh11,000. I save in a Sacco with monthly deductions of Sh5,000 but for now, I am not eligible for a loan. My shopping is Sh5,000 and Transport to work Sh7,200. Rent monthly is Sh9,000, water and electricity Sh2,500, school fees Sh40,900 per year, Merry-go-round Sh2,000 per month and Chama savings Sh2,500. My mother Sh1,200. I am a single mother of one. Kindly assist me on how I can manage my finances better to secure my child’s future.
Emmanuel Mbogholi is a Partner at SFAI Kenya; a strategy, accounting and tax practice helping entrepreneurs grow their businesses.
Your expenses total Sh37,800 against a net of Sh30,000. This explains your piling debt. You will need to approach your predicament threefold. One is working out a budget that is within your current income. The second is exploring avenues for generating additional income that will give you and your child a more stable financial foundation. Thirdly to pay off your current outstanding debts to provide you with more disposable income.
I propose you apply the 70/30 approach. Here, 70 percent of your income which in your case is Sh21,000 will be set aside to meet committed expenses that include housing and utilities at no more than Sh5,000, food and household shopping at Sh5,000, transport at Sh3,000, school fees at Sh3,000 and debt payments Sh5,000. From these estimates, it might mean you review your housing arrangements where you move to a more affordable house and reach an agreement with your current landlord to pay the arrears in instalments. Get a grace period for this to allow you to make the necessary adjustments.
The remaining 30 percent will be applied as follows; divert Sh5,000 to pay off your Sacco chama loan within two months (top up Sh1,000 in the second month). Then resume your Sacco savings in the third month. Once your chama debt is paid off, explain to your chama your predicament to evaluate if you can pause your monthly or see if you need to slash your Sacco savings.
You now have Sh4,000 disposable income. If you take a sabbatical from your Chama, you will have an additional Sh2,500 to make a total of Sh6,500. If you can’t, temporarily reduce your Sacco savings by Sh2,500, add Sh2,000 to the Sh5,000 debt allocation to come up with Sh7,000. This will leave you with a balance of Sh4,000. With the Sh7,000 set aside for debts, start paying off your rent arrears in instalments. Use the balance of Sh4,000 to tackle your personal debt of Sh40,000. This should be paid off within 10 months, after which you’ll have disposable income to boost your Sacco savings.
In order to achieve this balanced budget, you will need to cut back on unnecessary spending. Begin to form habits that will align to a frugal lifestyle such as discount shopping, buying essentials only and avoiding impulse buying. Small decisions such as choosing to carry food from home, having a consistent meal plan, cooking in bulk, buying used items, walking where you can, swapping out your light bulbs to energy-saving units, and even selling what you don't need will begin to help you gain back control of your financial situation.
You need to attempt to create additional revenue streams. This could be in the form of taking up a part-time job. Since you already have a regular job, it might be better to explore finding a work-from-home side job. The internet provides various avenues for doing this. The benefit of online jobs is that they do not require a huge investment besides getting a computer and ensuring you have a stable internet connection. It will also call upon you to invest time to learn the skills that are required for such jobs. Try to be consistent in what you choose to do and within no time, you will begin to reap the fruits of additional income. Research shows that online jobs take time to master but once you do, have the potential to earn you from Sh30,000 per month. Any amount created from this should go to easing off your debts so that you can start considering educational policies for your child and accelerated savings for investments.
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