I am 35 years old, unmarried with a one-year-old daughter. I am a consultant for a variety of services. On average, I make Sh85,000 net every month.
I live in Pipeline area in Nairobi County. My budget includes food Sh12,000, rent Sh12,500, WiFi Sh2,500, entertainment Sh5,000, black tax Sh5,000, friends Sh5,000, tithe Sh8,500, airtime Sh2,000, pocket money Sh5,000, clothes Sh10,000, nanny Sh8,000, baby items Sh10,000.
I have no savings to speak of, and I feel like I am in a cursed profession. Now that I am a mother, I can’t afford to continue like this. I need to start saving, secure my child’s future and get a plot somewhere and build. How do I achieve this in the shortest time possible? - Mary
Chacha Nyaigoti Bichang’a - a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money
Your total monthly expenditure amounts to Sh85,500 against your net salary of about Sh85,000. You are spending beyond your earning capacity. There are also weak points in your finances. You have no provisions for saving or emergencies. You are not in a cursed profession but you need to cut off excesses.
You need to work with a budget in line with your financial goals. First, classify your expenses into three categories: highly essential, essential and non-essential.
Category A are highly essential expenses that include food, rent, nanny, baby items, emergency and medical costs.
Category B entails airtime, WiFi, clothes and tithe. Category C encompasses black tax, entertainment and friends. Reduce your expenditure on category A and B but do away with category C if possible or cut down the expenses.
Reduce spend on food and baby items. Cumulatively, you are spending Sh22,000 (26 per cent). Downscale by buying food in bulk at discounted prices and when in season especially for consumables like cereals. Preserve the food well and curb any wastage by the maid. Buy baby items once in three months instead of every month. Try to save around Sh5,000.
On rent, cut it down to Sh10,000 and save around Sh2,500 by moving to cheaper house. You will save Sh7,500 from Category A. Retain the emergency expenses but this will be better handled under a saving and investment scheme.
Cut down your expenses on airtime and Wi-Fi to around Sh2,000 and save Sh2,500 by subscribing to cheaper monthly offers for airtime and internet bundles. You do not need to buy clothes every month. Budget to buy once in six months and save about Sh5,000. In total, you will save Sh7,500 from Category B. Tithe being a spiritual and religious commitment can be retained at 10 per cent.
Reduce your expenditure on black tax and friends by half. You can do away with entertainment or reduce it significantly to Sh2,000 and save Sh3,000. In total, you will save Sh8,000 from Category C. The sum total of the reduced expenses amounts to Sh22,500 which can be channeled to a saving and investment scheme.
Alternatively, you can use the 50/30/20 budgeting guide and channel 50 per cent (Sh42,750) of your income to essential expenses, 30 per cent (Sh26,650 to saving and investing and 20 per cent (Sh17,110) to unnecessary expenses.
To save consistently, set SMARTER financial goals that consider the short-term (12 months), medium-term (two to five years) and long-term goals (more than five years). The saving scheme should have three parts: Irregular expenses, emergency and investment. Channel the pocket money of Sh5,000 to a money market fund that earns 10 per cent compound interest.
Out of the disposal income of Sh22,500, channel Sh8,00 to an emergency money market fund earning a compound interest of at least 10 per cent and Sh14,500 to a Sacco. In three years, you will have accumulated Sh317,760 in MMF account which is inclusive of withholding tax of 15 per cent of the interest and two per cent annual account management fee.
On Sacco deposits, you will have Sh522,000 which is not inclusive of annual dividends for the three years. The Sacco savings will help you get a loan of around Sh1.5 million using the times three multiplier factor. You can use this loan to buy land in the outskirts of Nairobi and build a simple structure for living in or renting out.
To secure the child’s education, do due diligence on the insurance products available in the market and get one for your daughter. An affordable cover may range from Sh3,500 to Sh5,000.
About upscaling your consultancy services, you need to specialise on the most needed consultation service, establish a working system, hire staff and train them well on how to handle clients. Do a market survey on most essential service on high demand then work on it. Spreading your energies on multiple services may not be productive in the long run.
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.
