Help! I’m a school dropout living with my parents. I have a business but waste profits on parties

My name is Kelvin. I’m 21.

I dropped out of college and my dad put up a small business for me where I earn a net profit of about Sh20,000 per month.

I live with my parents and they cater for all my expenses so I end up wasting my money partying with friends and on personal items.

It’s been seven months since I started working and so far I have saved Sh74,600 in a box at home and I can’t account for the rest.

I would like to start planning for my future but I worry I’m too young and I’m not quite sure how to go about it.

Please advise.

Chacha Nyaigoti Bichang’a, a financial coach

You have two precious assets that you need to exploit to attain financial freedom, that is, time and energy. You need to adopt the following five strategies in order to plan for your future.

1. Audit your financial lifestyle

You need to determine your financial position by reviewing how you spend your money, your associations or people you hang around with and how you spend your spare time.

This strategy will help you determine how you are really doing financially, whether you are living within your means or not and be able to undertake certain measures that will help you cut down on unnecessary expenses like partying.

You need to reorganise your life, set meaningful goals that will help you focus on what is important in your life, and get a new set of friends who will stop you from your excessive partying life.

2. Budget and track your money

You are not too young to learn about budgeting and how to use your money responsibly. Maintain proper books of account for your small business and separate business money from your money for upkeep or other expenses.

Have a spending plan for the proceeds from your business and ensure you pay yourself a certain percentage of the net income as your salary depending on the performance of the business.

For example, you can apportion your business net income of Sh20,000 as follows: save Sh5,000, pay yourself a salary of Sh5,000 and plough back Sh10,000 to boost the business or replenish the stock.

Track your expenditure by recording how you spend your money on a day-to-day basis. Once you do this for three months, you will determine the average monthly expenditure that will assist you in drawing a realistic budget depending on your financial plans and set goals.

A budget will help you control your money, reduce any wastage on unnecessary expenses like partying, avoid getting into the trap of debt, save more and plan how to increase your income.

3. Practice proper saving and investing mechanisms

You have saved Sh74,600 for seven months which translates to an average of Sh10,657 per month. This implies that you save about half of your business profit which is highly commendable (even if you cannot explain where the remaining amount goes including the money you receive from parents).

Saving the money in a box at home is risky and unwise. You need to learn about prudent vehicles for saving your money that can earn you competitive interests above the rate of inflation.

You need to channel your savings to interest earning vehicles such as money market fund (MMF) that earn an interest of at least nine per cent per annum.

MMF is a collective pool of funds usually professionally managed by insurance companies, banks and investment companies registered by the Capital Markets Authority (CMA).

It is a safe, accessible and easy way of making your money earn interest. You need to set a specific saving target to serve various purposes such as emergency, business expansion and school fees for personal development.

Capitalise on the money you receive from parents for your upkeep to save more and keep your expenses at the bare minimum.

4. Learn business management skills

As a youngster, you do not need to waste time partying and squandering your money aimlessly. Instead, invest your time, energy and money learning vital skills on how to manage your business cash flow, upscale its output, building your business brand, creating customer confidence and recruiting staff to assist you.

5. Go back to school

You need to consider going back to school, even if on a part-time basis. Your parents may be willing to foot the bill. The other option is that you can save for the college expenses over a period of about two years as you work on improving your business.

Take a business-related course relevant to your area of interest or passion. By doing so, you will be equipped with the skills required to run your business as your full-time job or acquire professional skills that can enhance your chances of getting a job elsewhere as you run your business as a side hustle.

At your young age, you might also want to consider courses that will align with the artificial intelligence evolution taking place across the globe to avoid redundancy.

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.