I am 29. My net salary is around Sh30,000. On top of this, I earn commissions depending on the targets that my boss has set for us. The highest commission I have earned per month is Sh10,000. On average, I strive to earn at least Sh5,000 commission, which takes my monthly income to around Sh35,000.
My expenses are as follows: Rent Sh8,000, food (I don’t cook at home) Sh300 per day, water and power Sh2,000, mum Sh4,000, transport 3,000 (this is sometimes lower when I get dropped or picked up by the company vehicle), girlfriend Sh5,000.
I bet regularly on sports and on radio gambling games. I don’t place huge amounts and my sports winnings are usually under Sh10,000. I have not won anything on radio yet. That’s how I got cash to buy my current sofa set.
I can’t seem to progress financially. I have a mobile debt of Sh8,955. My bank account balance is Sh18,000. My girlfriend is employed as an MPesa agent. She lives with her parents and has one child, a boy aged six. She is pressuring me to marry her and I also feel it is time to start a family.
I am however not sure if I can sustain a family with my current finances. She wants me to move from my bedsitter to at least a one-bedroom self-contained apartment for privacy. However, the areas she has suggested cost upwards of Sh12,000 in rent.
What additional costs should I expect? I would like to own a home someday, but I don’t see any hope. My girlfriend says I should try affordable houses but I don’t know how to go about it. What should I do? How do I organise my money? Sylvester.
Dominic Karanja, a financial planning and investments consultant
You're on the right path towards financial stability. Your fixed expenses total around Sh31,000. This leaves you with approximately Sh4,000 after covering essential expenses, excluding betting and miscellaneous spending. Careful planning is crucial as you consider major decisions like marriage, family, and homeownership.
The primary reason for the lack of financial progress appears to be the tendency to spend nearly your entire income without allocating funds for savings or investments.
The expenditure on gambling is a substantial drain on your finances. Even minor bets can accumulate over time and foster a mindset of gambling as a solution rather than strategic planning. Additionally, the presence of mobile debt suggests that there are instances where expenditures exceed income, leading to reliance on credit.
Start by creating a detailed budget. From the next month, record every single shilling you spend. Group your expenses into categories such as rent, food, transport, and entertainment, and assign specific amounts to each.
You can use the 50:30:20 budgeting rule, which suggests dividing your net income into three main categories: 50 per cent for needs, 30 per cent for wants, and 20 per cent for savings, investment, and debt repayment.
Needs are essential expenses, wants are discretionary expenses, while savings, investment, and debt repayment are dedicated to building your financial future and getting out of debt.
Ideally, needs should comprise 50 per cent of your income, which is Sh17,500 in this case, but you are already over the 50 per cent limit if you factor in basic food costs.
The Sh4,000 you send to your mother could be considered a "need" depending on your family's situation, but in strict budgeting terms, it is a financial obligation.
If your mother's allowance is considered a need, then your total needs are Sh8,000 (rent) + Sh5,000 (basic food) + Sh2,000 (utilities) + Sh3,000 (transport) + Sh4,000 (mother) = Sh22,000. This constitutes 63 per cent of your Sh35,000 income, exceeding the 50 per cent guideline and leaving less room for wants and savings.
For food (basic groceries if cooked at home), let's estimate Sh5,000 (you are currently spending Sh9,000 by eating out). The difference between your Sh9,000 food expense and our estimated basic groceries of Sh5,000 is Sh4,000, categorised as a "want."
Sh5,000 spent on your girlfriend is a want, and so is the expense of betting or gambling, which contributes to your financial outflow. Wants ideally should be 30 per cent of your income, which is Sh10,500.
Based on current spending, your wants include Sh4,000 (excess food) + Sh5,000 (girlfriend) + all betting = Sh9,000. These significantly impact your capacity to save or repay debt.
Savings, investment, and debt repayment ideally account for 20 per cent of your income, which is Sh7,000. The mobile debt stands at Sh8,955 and requires aggressive repayment. Focus on managing your money before you can even think about pursuing a family.
a) Reduce needs where possible
Food expenses appear to be the largest immediate saving opportunity. Consider cooking at home to lower the food expense to Sh5,000, which would free up Sh4,000. The rent of Sh8,000 is reasonable for your income, but may need re-evaluation when considering family needs.
b) Reduce wants
Stop betting completely as it is draining your money without benefits. Discuss with your girlfriend about her Sh5,000 monthly allowance. If you're planning a future together, merge finances into a joint budget. If not living together yet, redirect this money to debt and savings. Also, discuss how to tackle the child’s expenses.
c) Prioritise savings, debt repayment and investment
Allocate the freed-up funds towards settling your mobile debt. Repay this high-interest debt within one to two months, then commit 20 per cent (Sh7,000) of your income, along with any additional savings, to savings and investment initiatives.
d) Build an emergency fund
Save at least six months of essential living expenses (around Sh180,000) as a safety net for emergencies.
e) Establish separate accounts
Maintain an operating main bank account for salary and daily expenses, and a separate account (preferably one that is less accessible for impulsive spending) for your emergency fund and future financial goals.
f) Moving out
Avoid moving to an apartment until you have done all the above. If you must move, consider areas with one-bedroom apartments with rent of around Sh9,000. Alternatively, start with a larger bedsitter or an affordable one-bedroom within your current budget.
g) Increase your income
Consistently aim for the Sh10,000 commission. Develop skills by seeking courses or training that could lead to higher-paying roles within your company or elsewhere. Consider a side hustle to utilise your skills and earn additional income outside your primary job.
h) Homeownership and affordable housing
Owning a home is possible with careful planning and savings, but may require years of disciplined saving. Even affordable housing options often require a down payment which requires a dedicated savings plan. It is advisable to explore government initiatives and Sacco housing options, keeping in mind that this is a long-term goal.
If you have any money problems, or if you’d like advice on managing your finances, feel free to get in touch at [email protected].
