I am Bryan, a clerk in a company earning a gross of Sh89,500 and a net of Sh30,000. Statutory deductions total Sh19,239.35, Pension Sh6,750, Sacco Sh6,248 (loan+savings of Sh2,000), bank loan deductions of Sh18,741 and salary advance deductions of Sh6,084. I pay university fees for one continuing child and a new university entry for my child and secondary school fees for my son. I use roughly Sh200 on fare daily and have too many contributions on WhatsApp groups. I feel overwhelmed because of debts. Please help.
Dominic Karanja, financial planning and investments consultant, advises:
Your current net pay after statutory deductions is Sh70,260.64 but going forward it will reduce to Sh68,918.14 because of the Housing Levy of Sh1,342.50 that will be deducted from your pay. There is a proposal to increase the NHIF rate and if that is effected at your current salary, you will be expected to pay almost Sh1,000 more per month. Though you have not indicated whether your children are attending public or private universities, you need to consider that with the new university funding model, you’re likely to pay more fees for the student enrolling in the university than you have been paying for the continuing one. You have not indicated how much is spent on various expense categories apart from transport, though it’s evident you spend more than you earn, that’s why you are resorting to taking salary advance.
Under the “one third (1/3) rule” the net amount an employee must retain after all deductions cannot be less than one-third of his salary. With a gross salary of Sh89,500, you should take home at least Sh30,000 after deductions which means at the moment, your payslip cannot accommodate more deductions. It is recommended that you commit at least a third of your net income towards loan repayments, which means you should currently be committing at least Sh21,000 toward loan repayments, but your current monthly loan repayments amount to Sh29,000.
Though you have not indicated the outstanding loans balances , I recommend that you consider consolidating your debts and if that is not possible, adopt debt snowball method that will involve making minimum payments on all your debts, then pay off the smallest debts first to get them out of the way before moving on to bigger ones. Sacco loans are cheaper than bank loans and the Sacco can advance you a loan amount that is three time your savings, however your income sources should afford the monthly loan instalments.
If you have enough Sacco savings to borrow a loan that is enough to consolidate all your loans, consider that option so that you will be paying a loan instalment that you can afford. Bank loans are becoming expensive and there is a high likelihood of the bank loan instalment going up in the medium term. Once you clear your salary advance from your current month salary, I would recommend that you wean off taking the advance unless it is extremely important. Always avoid taking loans for consumption purposes. Part of your income is spent on contributions to society, but you need to avoid having the “saviour complex” since you can’t save everyone. Set a limit of the amount you should contribute.
It’s recommended that you commit 20% of your net pay towards savings and investment but you are only saving Sh2,000 in a Sacco which is only 3% of your net monthly income and 7.5% of your salary towards pension. Since you already have grown up children, you are getting towards retirement age and thus retirement savings should be part of your financial goals. Pension saving assures you a good life after retirement.
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