My name is Dave. I have just secured a one-year contract with a certain NGO in Nairobi after being jobless for a couple of years. My gross pay is Sh100,000. I expect it to be around a net of Sh75,000 after deductions.
Having been jobless for a long time, I feel like I have been given a second chance. I am literally starting all over. How do I budget for rent, transport (note that once in a while, I need to travel down to the village), food, electricity, school fees for two kids (one in public secondary, the other in private kindergarten), wife allowance, communication, and savings?
Also, I am relocating to Nairobi from another town. My wife is reluctant to remain there and wants to follow me to Nairobi. Please help me budget and avoid going broke again.
Alex Kibebe, the founder of Rubiani Wealth Management Ltd who is an investment consultant and a business development coach, says:
There are various ways to create a budget. A simple and effective method that I recommend is the 50:30:20 rule. This approach allocates 50 per cent of your net income to essential expenses, 30 per cent to discretionary or non-essential expenses and 20 per cent to savings.
Your essential expenses will include rent, utility bills, food, essential household items, transport expenses, and school fees. Based on your expected net income of Sh75,000, you can work at keeping the total basic expenses within Sh37,500.
Consider renting a house in the outskirts of Nairobi where rent is more affordable. You can search for a house in the direction of your workplace to reduce travel costs.
For instance, if your office is in Westlands or Waiyaki Way, consider areas like Uthiru, Kinoo or Kikuyu. If the office is along Mombasa Road, consider Syokimau, Athi River or Kitengela and if along Thika Road, consider Githurai, Ruiru, or Juja. Budget approximately Sh15,000 for a two-bedroom house.
If you get a house within these areas, your daily transport costs should approximate Sh160 for a round trip, totalling about Sh4,000 per month.
Budget for basic expenses
Allocate Sh10,000 per month for food, utility bills and essential home shopping. For your children’s school fees, set aside funds every month to cover the total fees.
I would approximate a monthly school fees budget of Sh7,500, amounting to Sh90,000 per year. This will translate to Sh30,000 per term for both children.
By following this budget outline, your total budget for basic expenses will come to roughly Sh36,500, which is within the expected range.
For non-essential expenses, I recommend setting aside Sh7,000 for your family’s extra expenses that may include clothes, school trips and family outings.
Allocate Sh3,000 monthly for the occasional travel to the village. Maintain Sh5,000 for any miscellaneous and emergency expenses within the month.
You can then set aside Sh5,000 for your wife’s allowance. I would also suggest that you consider looking for a job or setting up a business for your wife. This way, she can contribute to the family budget and potentially save on her monthly allowance.
Flexible investment account
If you follow this plan, the total budget for discretionary expenses will come to Sh20,000 which is within 30 percent of your net income.
If you keep to this budget, you will have Sh16,000 available for saving. I recommend investing this in a Money Market Fund (MMF). MMF is a flexible investment account that yields a return of about 15 per cent per year at prevailing market rates.
Compare the various fund managers available and identify an MMF provider to invest with. If you consistently invest the monthly savings in an MMF, you should have about Sh200,000 in a year.
If your contract is not renewed, these funds will help meet your expenses as you look for another job. You can also use part of the savings to start a business.
If on the other hand your contract is renewed, you can continue investing and growing your fund to meet other goals such as having a buffer for children’s school fees, owning a home, starting a family business or maintaining an emergency fund.
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
