I earn Sh256,000 and Sh65,000 goes to legal deductions. Other details are as follows. Sacco loan 1 – Sh77,000 for 12 months, Sacco loan 2 – Sh14,000 for 24 months, Insurance documents Sh13,000, Sacco savings Sh4,000, House rent Sh11,000, Household expenses and children fees Sh58,000. After taking care of all the above, I have very little left to invest. The loan was spent on buying land. My family has expanded and travelling without a car is difficult. What can I do?
Chacha Nyaguti Pechanga, Financial Coach and Author Mastering your money management
Your net salary is 191,000 shillings after deductions. Your total expenses are 177,000 shillings and 14,000 shillings unaccounted for.
First, review your expenses and adjust them. It is not appropriate to combine household expenses with children’s school fees. It is easy to know how much you pay per semester, which can be broken down into approximate amounts to be paid monthly.
You should track your daily, weekly and monthly household expenses, which should make up 20 percent of your earnings.
You spend Sh58,000 (30 percent), which means you spend at least 10 percent of your net income on your children’s school fees, which translates to Sh19,100 per month while 20 percent (Sh38,900) goes to household expenses.
Tracking expenses helps reduce unnecessary spending, makes budgeting easier, and promotes financial discipline.
Once you’ve done this, you’ll be able to calculate the exact amount you spend on household expenses and track where your 14,000 shillings goes.
You may find that this goes to discretionary expenses such as black tax and entertainment because you did not take them into account in your analysis.
As for renting a house, you are doing excellently well, and you should keep it even if your financial situation improves.
You’ve skipped other items like utilities and transportation, among other necessary expenses.
Adjust your Sacco savings upwards. You are saving only Sh4,000, which is only 2.1% of your net savings. This is far below the recommended minimum of 10%, which translates to Sh19,100 or about Sh20,000. Usually, once you get a high-interest loan from Sacco on a pro rata basis, your monthly deposits increase.
Once you have repaid your first Sacco loan within 12 months, you will have a modest sum of Sh77,000. You can decide to use this amount to repay the second loan in about two months once the monthly repayment increases from Sh14,000 to Sh91,000.
This option will be more beneficial because it will save you the interest that you will pay during the remaining 12 months (the second year of repayment of the loan).
After repaying the second loan, you will free up Sh91,000, which you can utilize as follows: Increase your savings deposits in the Sakko Association from Sh4,000 to Sh20,000 and create an emergency fund by channeling Sh30,000 into a money market fund that earns compound interest of about 13 percent.
You need a safety net of at least six months of about Sh1,146,000. It will take you three years of consistent savings to accumulate about Sh1,322,840 (before deducting withholding tax and annual management fees).
You should create a savings fund to cover school fees and other irregular expenses that are not part of your emergency fund. Direct Sh20,000 to a second money market fund account. This will make it easier for you to withdraw when your school fees are due.
To achieve the goal of buying a car, you need to create a third money market fund account where you can direct 30,000 shillings.
In three years, you will have accumulated 1,312,840 shillings. This amount will be enough to buy a good used car of your choice. The remaining 11,000 shillings can be used for your discretionary expenses.
Fourth, improve land use for commercial purposes. There are many options that can be considered.
You can rent it out, build affordable housing units for low-income people if you are in an urban center or use it for agriculture. You can withdraw some of the money from the consumption fund to finance the income-generating project.
If you have any financial issues, email us at (email protected) and leave your contact number. Financial questions will be answered in this column.
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