Sound Personal Financial Advice from Experts
Question of the Month (Published by Saturday Nation 29/01/22)
I earn a gross salary of 46200, my net salary after deductions is 36000, I rented a 13000 1 Bedroom house, I have a spouse, no children. My monthly consumption of bus fare is 3500. Electricity is 500 monthly, water amounts to roughly 700, 200 for waste collection.
My allocation for food is 4000 monthly. For the last 3 years I have been in employment, I don't have any savings. If I was to lose my job anytime, I cannot survive a month with what I have left with in Nairobi. My spouse is a recent graduate, she is jobless. I am stretched by family expectations, their insinuation that working for a brand like KQ, you earn a hefty salary. By every mid-month to end month, I turn to the jobless friends to borrow fare, Sometimes the last week of every month, I sleep at my workplace, pretending that I had a lot of workload so as to be left behind, so that I take a good nap at the office wall to wall carpeted floor. Please, help me to elevate my financial strength and decision making. I forgot to tell you that my lender slashes 75% of my salary every month. So every month I repay and take another loan. That's the trend. This year, I want to change. Please help.
The following can be observed from your request for financial advice.
1. You leave beyond your means and you're highly indebted making it difficult to finish a month without borrowing fare from your jobless friends and going for a loan from a lender who slashes 75% of your salary every month translating to Kshs.27,300 leaving you with a small balance of Kshs. 9,000 which is insufficient to cater for all your monthly expenses totalling to Kshs.21,900.
2. You neither save nor invest. For the last three years, you have been living hand to mouth besides being trapped by huge debts. The debts you take are purely for consumption which means you're building other people's industries at the expense of your own.
3. You have a problem of wanting to please other people who have a wrong perception that you earn a lot of money just because you work with a brand like Kenya Airways.
4. There are some undisclosed expenses relating to what you exactly use the overdraft/Shylock loan for. Besides using it to repay the previous balance and debts from friends, some money could be used to help other family members in the form of black tax.
5. To come out of the vicious cycle of debts, you have to take the following drastic measures.
i. Set clear financial goals outlining how to get out of the trap of debt, start saving and investing. The goals will show your financial position and destination in terms of the targets to be achieved at a given point in time. The short term goal will be to work out ways of repaying the loan and stop the habit getting loans to fund your extravagant lifestyle. Medium term goal (2-5years), you may aim to save for investment in a Sacco', Chama, Unit trust, buying a plot and build rental houses for low income earners etc. Your long term goals may include saving for retirement, taking education policies for children and acquiring a home.
ii. Create a crisis budget to help you get out of the financial mess. You have to reduce rent from Kshs. 13,000 (consuming 28% of his salary) to around Kshs. 5,000 by moving to an affordable house. This will make you save Kshs. 8,000 that can be chanelled to savings once the debt is cleared. To cut down on transport costs, you can travel off peak to and from your place of work and save about Kshs.1,000. The rest of the expenses seem reasonable.
iii. To repay your huge debts, you can opt to stop going for an overdraft or salary advance and try to minimize your expenditures.
iv. You should have a candid conversation with your wife, friends and relatives particularly those who depend on you for support. This will go a long way in correcting the wrong impression that you earn a lot of money. You seem to be suffering from low self-esteem by succumbing to the urge to please other people at your own expense. Sleeping in the office is a short-term scapegoat of trying to run a way from the bitter reality of not being able to meet the required expenses.
v. You need to acquire personal financial education. The root cause of the financial problems are as result of lack of financial literacy on how to set financial goals, budget, save, invest and use debt wisely. You need to hire the services of financial Coach who will act as your accountability partner to help you formulate a financial plan on how to get out of debt, save and invest. You can listen to inspiring audios and watch videos on YouTube on personal financial management. Besides, you can read personal financial books like "Mastering Your Money," "Rich Dad Poor Dad," "Think and Grow Rich" among others.
vi. You should identify a side hustle you can engage in during spare time in order to earn another stream of income. Relying on a salary alone will not help you meet all you financial expectations. You can scan your immediate environment and find out a business you can start for your wife.
vii. Learn to track and monitor your expenses. You should get a small notebook or use a downloadable online expenses tracker to record your daily expenses that can ultimately help you do weekly and monthly analysis of your expenditures in line with various vote-heads. This good personal financial habit will help you evaluate the workability of a budget, know where every shillings goes, cut down on costs and save more.
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