Sound Financial Advice Published on Saturday Nation on 26th March, 2022

 How to Survive on a Sh. 26,000 Salary as a Newly Employed TSC Teacher

"Anthony is a newly employed teacher. He has a new job with the Teachers Service Commission. His starting salary is a basic of Sh. 26,000. This is his first job and his first formal salary. He has been posted in Eldoret. He is single and without a child. He wonders; how should he budget this salary? What amount should go to what budget allocation? What amount should he save? Between a Sh. 500,000 car and a Sh. 500,000 plot of land, which should he aim to acquire within two years? How much should he save for this? Where should he save?"

First, congratulations on securing a job as a TSC teacher. Being young perhaps in 20s, employed, single and without a child is a plus in laying a firm foundation for a financially prosperous future.

Second, one major challenge you are face as a newly employed youngster is lack of financial literacy skills* such as budgeting, debt management, saving and investing. That is why you are wondering how you should budget, the amount you should save and unable to distinguish between needs and wants. For instance, you are in dilemma whether to acquire a car or plot worth Sh.500,000 in two years.

To survive on Sh.26,000, you should do the following:

1. Budgeting. You should know that a budget is a spending plan that guides you on how to allocate money to things you value most as per your set goals. Above all, a budget helps to live within your means as you work towards increasing your income streams. Earning Sh.26,000 is not little money as you would be tempted to think in view of the escalating standard of living.

Use the 80/20 rule (Pareto Principle) to determine your financial allocations. This can be further broken down to 50/20/30. This implies that as soon as your salary hits your bank account channel 20% to savings, 50% for the necessary and very essential expenses such as food, transport, rent, utilities and medical expenses. The remaining 30% can be spread out for wants or not very essential expenses like airtime, bundles, cable TV, gadgets, household accessories, entertainment etc. Depending on your needs, your allocations can vary between 50/30/20 or 50/40/10.

Considering the above financial allocation guideline, the following is a simple guide on how much should go to every item or vote-head.

a) Savings (30%). This should be the first priority expense before anything else is done. This means you should channel Sh.7,800 to your savings' accounts: one for emergency fund (10% translating to Sh.2,600) and another for investment (20% translating to Sh.5,600). The emergency fund should be channelled to an insurance company that provides a unit trust called money market fund (MMF).  If you save Sh.2,600 in a MMF earning at least 8% compound interest, you will earn Sh.101,288 in three years. This fund is crucial in cushioning you against any unforeseen eventuality. As for the 20% saving for investment, you can channel it to Mwalimu National Sacco' or any well-run local Sacco' owned by teachers. In three years, you will have saved Sh. 201,600 whose benefits are two-fold: you will earn dividends at a rate of not less 10% every year and it will act as a collateral to acquire a loan of about Sh.600,000 which you can use to buy a plot as per your wish. But you will need to be patient and save with consistency for at least three years not two as you think.

b) Food (20%). As a single person, your expenses on meals will be much lower than if you were married or staying with somebody. You can spend not more than Sh.5,200. Purchase foodstuffs and other consumables in bulk like cereals, cooking oil etc.

c) Rent (15%). Look for an affordable rental house and spend around Sh.3,900 for a one bed-roomed house.

d) Transport (10%). Spend not more than Sh.2,600 a month. This means you will spend Sh.130 or even less per day.

e) Utilities (5%). Spend a total of Sh.1,300 on electricity and water bills.

f) Bank and mobile charges (5%). Spend Sh.1,300 for airtime, and transaction charges including bank and M-pesa.

g) Black tax/donations (10%). Spend Sh.2,600 to build your social capital. This includes giving tokens to your parents and siblings where necessary.

h) Miscellaneous expenses (5%). You need to leave some money aside to cater for any emerging and unbudgeted for expenses called miscellaneous or contingency fund.

2. Side hustle. Besides living within your means as shown by the budgetary allocations above, you need to ask yourself: what else can I do to earn an additional income? Which side hustle can I engage in when free especially late in the evening, on weekends or during holidays? For instance, you can do house-to-house tuition, write revision pamphlets on your favourite teaching subjects, give mentorship talks to youth or teenagers in schools, churches etc. within your vicinity. When choosing a side hustle, it is important to consider your inborn talents, resources available, abilities or skill set, and potential.

3. Acquire personal financial education. You can enroll for a one-on-one online financial coaching, attend seminars, read personal financial books and watch educative videos on YouTube. Without financial literacy, you are likely to make many mistakes and follow wrong advice from colleagues who lack sound financial education.

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