SOUND PERSONAL FINANCIAL ADVICE ON SATURDAY NATION

Reader's Question Published in Saturday Nation 23rd April, 2022

"I live in Ngong and work at the Nairobi Central Business District. I earn a monthly salary of Sh. 40,000. I have a family of 3. I want to be saving about Sh. 10,000 monthly. However, I am currently unable to do so as my expenses often outweigh the money I earn. My rent is Sh. 13,000. I use Sh. 6,500 on bus fare. Food takes about Sh. 12,000 at Sh. 400 per day. I use Sh. 2,000 for home entertainment and Sh. 2,500 for power and water. I send home Sh. 3,000 and give my spouse the remaining Sh. 1,000 for personal use. In between, there are times when I hive off cash from my budgets to meet my personal expenses such as weekend entertainment. How can I rearrange my budget so that I start saving Sh. 10,000 every month? My aim is to build up Sh. 1 million for my family’s land or home ownership."

Answer to Question of the Month

To rearrange your budget in order to achieve your financial goals, the following is a simple guide on how much should go to every expense item or vote-head.

1. Rent. You should not spend more than 20% of your salary which translates to Sh8,000 a month and set aside Sh.5,000.

2. Transport. Spend not more than 10% of your salary which translates to Sh.4,000 a month and set aside Sh2,500. This would mean that you will have to travel during the off peak hours so as to pay less bus fare. Consider car-pooling with friends or colleagues at work to reduce transport costs.

3. Food. Spend not more than 25% of your salary. This translates to Sh.10,000 per month and set aside Sh.2,000. Buy foodstuffs and other consumables in bulk.

4. Entertainment. Consider doing away with home and weekend entertainment for the time being as you put your financial act in order. This will free Sh.2,000 that will be chanelled to savings for home ownership.

5. Home. Reduce this expense to Sh.1,000 and set aside Sh.2,000. You need to hold a candid conversation with your parents on why you are reducing their stipend.

The rest of the expenses should remain unchanged. Once you have rearranged the budget as shown by the above allocations, you will be able to free Sh.13,500. This disposable fund can be utilised as follows:

1. Establish emergency fund. Deposit Sh.3,500 monthly into a money market fund that can earn you at least 8% compound interest per annum. In three years, you will approximately realise Sh.136,349 and Sh.246,397 in five years. This fund will cushion you against any unexpected eventuality.

2. Sacco savings. Use the remaining balance of Sh.10,000, as per your expectation, to save in a well-managed Sacco that gives annual dividends at a rate of 10% or more. In three years, your Sacco deposits will accumulate to Sh.360,000 and guarantee you a loan of Sh.1,080,000 which you can use to build a house on the family land or act as a down payment for home ownership. You should note, however, that building a house at home or owning a home is not profitable asset as it will tie your money and reduce your disposable income or earning ability. Instead, consider investing the loan you acquire from a Sacco in a venture or business that can earn you a return of over 10% per month.

3. Start a side hustle. You need to find out what you can do to earn extra income to supplement your salary instead of visiting social joints during weekends. You can equally use your free time to acquire a much-needed skill that will enable your to start a business of your choice.

https://nation.africa/kenya/life-and-style/saturday-magazine/i-earn-sh40-000-how-do-i-save-sh1-million-to-build-a-family-home--3791688

 

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