I am married and a father of a five-year-old girl. I live upcountry with my family. I earn a net salary of Sh42,200. I mostly work from home. My wife is a salonist on commission but I really don’t know how much she makes as she is always complaining that she is broke.
My monthly expenses are as follows: Rent Sh11,000, food and groceries Sh10,000, Power and water Sh2,000, GOtv Sh2,000, Mum Sh3,000, Wife Sh2,000, Table-banking chama Sh5,000, Beer Sh1,000 to 2,000 every weekend. Bank savings Sh5,000 (I am inconsistent and have only managed to save once over the last four months). I have combined mobile debts of Sh5,000 which I repay and borrow again.
Recently, I got an offer from my employer to move to our headquarters in Nairobi. I will get a Sh20,000 pay increase for the move which will push my salary to about Sh62,000. Should I accept this offer? I want to be financially independent, buy a plot of land and build a home for my family. Please advise.
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money.
You are living beyond your means because you are experiencing a negative cash flow of Sh3,800. Your total expenditure is Sh46,000 against your net income of Sh42,200.
Consider your financial goals and assess the impact the relocation will have on your family and your overall expenditure. One of the merits of accepting the offer is that you will get a salary increment. This money will enable you to repay your mobile debts, save and invest more to achieve your financial goals. The other advantage is that relocating to Nairobi will offer you potential opportunities for professional growth, finding side hustles, networking and future promotions or getting a better-paying job. Third, living in Nairobi will expose you to new experiences, ideas and perspectives that will enrich your life and expand your worldview.
On the other hand, you will incur much higher relocation expenses including rent or housing costs, transportation and increasing living expenses. The move will drastically affect your family for you may be temporarily separated from your wife and daughter as you settle down before you bring them over. Your wife's career as a salonist and your daughter's schooling will be affected. The family's social life will change drastically. This will ultimately weigh heavily on your budget, erode the net gain and possibly hinder your quest to save and invest more to buy a plot and build a home.
If your relocation is purely pegged on the Sh20,000 increment, you had better stay upcountry, stabilise your finances and focus your financial goals. The extra money will not amount to anything significant if the living costs outweigh your income. But if the move offers career growth, exposure, long-term promotion potential or other career opportunities, take it but negotiate for relocation support and plan family logistics prudently.
Explore viable options of reducing your expenditure on rent of Sh11,000 (26 per cent) to around Sh6,500 (15 per cent) which is possible upcountry for a small family such as yours and save around Sh4,500. Second, cut down your expenditure on food and groceries from Shs10,000 (24 per cent) to around Sh8,500 (20 per cent) and save around Sh1,500 by buying foodstuffs in bulk, leasing some land and plant crops for subsistence and even commercial purposes.
Third, monitor your consumption of water and electricity with the aim to reduce them from Sh2,000 (five per cent) to around Sh1,000 and save Sh1,000. Fourth, consider doing away with a GOtv subscription by installing free to air service providers and save Sh2,000. You can equally eliminate your expenditure on beer which consumes Sh6,000 per month or cap it to a maximum of Sh1,000 for a start as you move towards eliminating this expenditure altogether. Find something productive to do over the weekend such as enrolling for weekend classes for professional growth, doing side hustles or voluntary community service. You may retain your mother's and wife's token of Sh3,000 and Sh2,000 respectively depending on their needs.
Hold a candid conversation with your wife. She needs to declare how much commission she is earning. Sixth, the Sh5,000 you spend on table banking Chama can be redirected towards a modest compound interest earning unit trust (money market fund, balanced fund, or bond fund). Once you review your expenditure, you will be left with at least Sh15,000 which will be significant in repaying the debt of Sh5,000, offset budgetary deficit of Sh3,800 and boost the savings and investments (Sh6,200).
Draft a budget and use the 50/30/20 guide to allocate your money to needs and wants. Channel 50 per cent (Sh21,100) to necessary expenses such as rent, foodstuffs, utilities transport, health and other basics. Dedicate 30 per cent (Sh12,660) to savings and 20 per cent (Sh8,440) towards wants such as mother, social welfare groups, fashion and trends. This guide, however, can be readjusted to suit your financial goals. You can review it to 40/40/20 or 40/50/10. Track your expenditures daily and record every expense to avoid wastage.
Prioritise saving for an emergency, investment and life insurance. Set up a six months' worth of your living expenses (Sh42,00 X 6) amounting to Sh253,200 to help you during a rainy day. If the Chama money is a merry-go-round without any value addition, channel it to a compound interest earning unit trust that guarantees security of your deposits, liquidity and good returns. You will realise Sh300,000 (inclusive of account management fee and withholding tax) in five years if you invest it in an MMF earning 10 per cent annually. Do not stop once you have successfully established an emergency fund.
To achieve your investment goals of buying a plot and building a three-bedroom bungalow in a town of your choice, you need Sh500,000 for a plot and an estimated cost of Sh2.5 million, totalling to Sh3 million. To achieve this goal in five years, you need to save at least Sh10,000 in a Sacco so that you can accumulate at least 750,000, including ploughed back dividends. You will qualify for a loan of Sh3 million if the four times multiplier factor is applied.
Alternatively, you may consider going for a loan and buying a plot first after three years and building in phases till completion in five years. Consider taking a life insurance police or an education policy for your daughter, ranging from 10 to 20 years. A life insurance policy is much better than an education policy. In case of your untimely death it would guarantee financial protection, and provide a long-term financial plan for your family.
Above all, you need to explore potential opportunities of earning more money. Depending on her level of accountability, you may consider starting a salon business for your wife to make her self-reliant and embrace financial fidelity as a couple. Hold regular financial talks with your wife and consider enrolling in a financial literacy class to streamline your financial goals and beliefs. Assess the pros and cons of relocating to Nairobi based on your prevailing situation but not emotions and the allure of a salary increment that will be wiped out by the potential escalation of living expenses.
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