I am unable to live on my current salary. I earn a net worth of Sh40,000. No matter how I try to balance this money, I won’t be able to make it work. My expenses are as follows: The Machakos’ rent is Sh14,000 including water and electricity. Renting a house in Nairobi is 6,500 shillings, including water and electricity. Car loan (monthly) Sh18,000. Non-performing bank loan Sh339,000 (monthly installments Sh12,000). Transportation 3000 Sh. Food 3000 shillings (Nairobi). Food: 9,000 shillings (Machakos). School 1500 sh. Fuel 4000 Sh. Other debts (monthly) 3,000 shillings. I am willing to adopt a better approach and try to fulfill my obligations. Please help.
Alex Kibibi is the founder of Rubiani Wealth Management Ltd, an investment advisor and business development coach
Your first step to getting your finances in order should be to resolve debt, especially a non-performing loan, as this is a significant source of your financial distress and can keep you trapped in a cycle of financial instability.
Overcoming this debt will require you to make some temporary sacrifices, but these sacrifices are worth it and can always be paid back once you become financially stable.
Depending on the amount of the outstanding loan, I recommend selling your car and using the proceeds to settle your defaulted bank loan and other debts.
This will not only keep you debt-free, but will also significantly reduce your monthly expenses by eliminating your Sh18,000 car loan payment and Sh4,000 fuel costs.
Although your transportation costs may increase from Sh3,000 to Sh5,000 per month to cover public transportation, your total monthly expenses will decrease significantly from Sh74,000 to Sh39,000.
Any money left over after you settle your debts can be invested in a money market fund account or a Treasury bond, both of which offer reasonable returns of about 13-16 percent per year. Research these investment products and select one to invest in.
Next, you will need to create a more practical budget that matches your residual income of Sh39,000 while allocating some savings towards other investment goals.
One immediate concern is your total rent of Sh20,500 for both Machakos and Nairobi which takes up more than half of your net income.
You may need to make an adjustment because this is draining a lot of your income. Consider moving to an affordable house with a rent of Sh5,000 in Nairobi and moving your family in Machakos to a rented house that costs Sh10,000.
Alternatively, you can move your family to Nairobi to live with you and find a place with a rent of around Sh15,000. Either adjustment will reduce your total monthly expenses to Sh34,000, leaving you with a surplus of Sh6,000.
Consider investing this surplus in a money market fund to grow your investment portfolio. If you do this, you can likely replace your car debt-free within two to three years depending on your current savings.
Even after you successfully trade in your car, I would encourage you to continue investing as this will help you achieve other financial goals such as owning a home and saving for your children’s education.
In addition to these steps, I also recommend exploring ways to increase your household income. The two rents paid in Machakos and Nairobi and the difference in rental prices indicates that your family can be in Machakos while you are in Nairobi.
It would be good to have a financial reason behind this arrangement. Is it because your wife works in Machakos while you work in Nairobi? If your spouse is not currently working, quickly find out what she can start doing to earn some extra income.
You can consider starting a small business for your wife or encouraging her to look for work. If she is working, discuss your plight with her and evaluate how she can contribute to the overall family budget.
If you have some free time, consider starting your side project. This extra income will help you increase your savings thus enabling you to achieve more with your money.
Your journey toward financial stability will require making tough adjustments and adopting new financial habits.
To support you through this process, consider consulting a financial advisor or find someone who can keep you accountable. With continued effort, you will get out of debt and build a secure future for you and your family.
If you have any financial problems, send us an email to (email protected) and leave your contact number. Financial questions will be answered in this column.
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