I am almost two years into my accounting job and earn a gross of Sh45,000. Out of this, I spend Sh6,000 on food, Sh4,150 on Helb loan repayment, Sh8,800 on a bank loan that I used to take my sister to college. Sh2,000 goes is for the workers’ union, Sh2,500 I spend on my insurance saving. My rent is Sh7,000, and out of the remaining money, I have to support my sister who is in college, and my other family members. I have completely been unable to save. Buying new clothes is a nightmare. I don’t even have an asset to show for the work I do. How do I turn this situation around? Please help.
Dominic Karanja, a financial and investments consultant
You currently have a negative net worth. However, you can change your financial situation by making some radical decisions. With a gross salary of Sh45,000, your monthly net pay is Sh36,751. Your monthly living expenses amount to Sh30,450, leaving you with an extra Sh6,300, likely allocated to commitments such as black tax and other unspecified expenses like transport, entertainment, and utilities.
Managing personal finances can be complex. To navigate these challenges effectively, it’s crucial to establish a comprehensive financial plan and a budget. Create a budget containing all your income and expenses. Identify areas where you can reduce costs and avoid falling into the “saviour complex,” where you feel overly responsible for others’ problems at the expense of your own well-being. Initiate a candid discussion with your family about your financial situation.
Set a specific percentage of your net income for supporting family members to ensure that you only support where you can. Reevaluate your allocation to workers' union fees, which currently represents four per cent of your gross income. Reducing it to 1.5 per cent can save you approximately Sh1,300 monthly. Explore cost-cutting measures for food expenses, such as bringing lunch from home, enabling you to allocate at least 12 per cent of your net salary to food thus enabling you save at least Sh1,500 monthly. Allocate a modest portion of your income to personal grooming and clothing, focusing mainly on essentials and budget-friendly options.
Develop a strategy for repaying your loans. Consider adopting the loan avalanche method where you will focus on paying off high-interest debts first, so that you minimise the total interest paid on loans over time. Prioritise setting up an emergency fund that can take care of at least six months of your expenses. Allocate a portion of your income each month to create a financial safety net for unexpected expenses and emergencies. Invest in professional development to enhance your skills, potentially leading to career growth and increased income.
While it’s recommended to commit 20 per cent of your income to savings and investments, you are currently saving only seven per cent of your net monthly income with insurance. I would encourage you to start saving with a Sacco and always remember to capitalise your Sacco dividends to deposits to help increase your borrowing power and earning of high dividends in the subsequent years. Saccos mainly offer savings, loans and investment products. However, you need to consider joining a Sacco where you can get friends who can act as your guarantors in case you need to borrow.
Retirement savings should be part of your financial goals because pension saving assures you a good life after retirement, and it also offers you some tax benefits. You will need 70 – 80 per cent of your pre-retirement income to live comfortably after retirement. Explore side hustles and passive income sources to augment your earnings. Seeking advice from a financial advisor can provide valuable insights tailored to your specific situation.
