I am 27 years old and employed with a net salary of Sh38,000. I get a further Sh4,000 from a side hustle. My expenses are Sh7,500 rent, Sh6,000 food, Sh2,000 shopping, Sh700 for water and electricity and Sh2,000 miscellaneous expenses. I have check-offs for Sh5,000 for a savings plan with a payout of Sh812,000 in 12 years that I started contributing in November last year, Sh2,000 for Sacco savings and Sh2,000 for Helb payments.
I also contribute Sh4,000 for a workplace savings plan with a payout of Sh55,000 at the end of the year, plus a further Sh4,000 monthly MMF allocation that currently stands at Sh69,000. My savings stand at Sh150,000. I want to finish my Sh150,000 Helb loan as soon as possible. I have a project with a budget of Sh450,000 that I need to do before the end of the year. Am I using my money properly or are there some adjustments I can make?
Chacha Nyaigoti Bichang’a, a financial coach at Chachanomics Consulting Firm and the author of Mastering Your Money
At 27, you need a strong financial foundation that will prepare you for a financial takeoff in your 30s. This can be achieved by embracing sound financial management practices. You are fortunate to have secured a job earning you a net salary of Sh38,000 and a side hustle earning Sh4,000 per month, which totals to Sh42,000.
Your recurrent expenditure amounts to Sh18,200 and your total check-off deductions for savings is Sh15,000. There are two scenarios. One, your total expenditure (recurrent expenses plus savings) is Sh33,200 which leaves behind an unaccounted balance of Sh8,800. Two, if the check-off payments are not deducted from the net salary but from the gross pay, then the unaccounted balance is a colossal sum of Sh23,800 (translating to 56 per cent of your total income). I, however, suspect that your check off is after mandatory deductions and from a net of Sh38,000.
Still, you need to track where the Sh8,800 that is unaccounted for goes. This translates to an unaccounted amount of Sh105,600 per year, which could be invested to boost your Money Market Fund investment, or which could be used to cut down your outstanding debt. Track your money to establish the exact amount that various expense items or vote heads consume, such as personal upkeep or grooming, transport, subsistence or foodstuffs, utilities or black tax.
You can do this by listing down every single thing you spend money on. Use a sheet with expenses and amounts columns. By monitoring your expenses, you will be able to identify expense items that need to be reduced and those that need to be increased, especially savings and investments. No shilling will be unaccounted for as is the case in your current financial situation.
Use the 50/30/20 budgeting guide to help you allocate Sh21,000 to essential expenses (such as rent, food, utilities and transport), Sh12,600 to saving schemes (Sacco, MMF, insurance or retirement plans) and Sh8,400 to wants (black tax, entertainment, grooming). You are spending Sh14,200 on essential expenses which is commendably below the expected range thereby saving Sh6,800.
On savings, you have surpassed the expectations by contributing Sh15,000 which is 36 per cent compared to the recommended 30 per cent. Your discretionary expenditure amounts to Sh4,000 (around 10 per cent) which is below the expected amount by Sh4,400. At face value, your overall expenditure is within your means and more manageable. You only need to account for every penny and prevent any form of wastage.
Consider offsetting your Helb loan faster by allocating an additional amount, for example Sh3,000, which will clear this loan within one year.
Secondly, save Sh37,500 per month so that you can achieve the goal of raising Sh450,000 for your project in 10 months. Third, review your savings' plan because the 12-year plan is more of a long-term goal but earns little returns on the investment. Consider saving and investing the money in a vehicle that gives you a higher yield.
You will need to do thorough due diligence and know the fine print in this plan to avoid losing your money either by terminating the plan, or by moving this allocation to a pyramid scheme-type of investment offering higher than normal returns. If need be, consult a professional financial and investment advisor to guide you. When investing for the long-term, the aim is not just to pile up money. You must have a clear goal with a workable timeline that you want to realise from the savings you are building up.
Alternatively, you need to diversify your savings and investment to cushion you against turbulent market forces. Prioritise short-term and more flexible saving options like establishing an emergency fund. Aim at saving Sh252,000 to Sh504,000 ranging from six to 12 months of your recurrent expenditure to cushion you against unforeseen eventualities. By reducing the discretionary expenditure, you will be able to channel more money towards your ambitious project and clear your Helb loan. Once done, you will boost other savings and investment vehicles that will earn you sustainable passive income.
Your side hustle income of Sh4,000 can be boosted to Sh10,000. The fact that you are earning something from a side hustle is an indication of potential for scaling upwards. You need to explore how you can pump these earnings to at least Sh10,000 over the next five months to December.
For example, by clearing your Helb loan and tracking where the Sh8,800 is going to, you will have a disposable income of Sh10,800 that can push your Sacco savings to Sh12,800 per month. At the end of the year, examine the returns you have received from the contribution plan at your workplace by comparing against other legitimate returns in the market.
For example, could these funds offer you better returns if you were to divide them between your Sacco and your MMF? At the same time, you have the advantage of age and might want to scale up your skills. This is an allocation that you could consider directing to such purposes to boost your marketability and earning grade.
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
