Chachanomics Financial Advice Published in Saturday Nation on 15th October, 2022

Reader's Question

My name is Dennis. I am a lab Technologist on a contract that’s ending in November 2024. I earn a net pay of Sh56,917. I have a wife and one baby. I literally live on loans because my pay goes into debts. I have a pending salary advance of Sh90,000, payable at Sh30,000 installments monthly. I also have credit loaners of Sh5,670 monthly for six months, I have paid three months already, rent Sh10,000, monthly shopping Sh10,000, wifi Sh3,000, electricity Sh3,000, water bill Sh1,000, transport to work Sh 2,000. I am unable to even save for emergencies. Kindly help me.

From your financial report, you have three major challenges: vicious cycle of bad debts (salary advances and credit loaners), lack of savings to cushion you against any emergency and lack of an investment plan to increase your income. You are living beyond your means because your total expenditure is Sh64,670 (total recurrent expenditure of Sh29,00 plus the total monthly loan repayment of Sh35,670) whereas your net income is Sh56,917. You have a deficit of around Sh7,753 without factoring the miscellaneous expenses which your financial record does not capture.

To get yourself out of your financial quagmire, consider the three strategies below:

1. Review your financial expenditure

Consider readjusting your expenditure and your lifestyle so that you can live below your means in order to get some disposable income to repay some of your loans or meet the part of your budgetary deficit. Always draw a budget to give you a road map of where every shilling should go and track your expenses on a daily, weekly and monthly basis. Reduce your expenses as shown below.

a) Rent

You are paying Sh10,000 (18%) more than the recommended average of 15%. Readjust to around Sh8,000 by moving to a slightly less expensive house and save Sh2,000. 

b) Wi-Fi

Do away with paid wifi by subscribing to an affordable monthly bundle package of Sh1,000 which will give you an added advantage of more talk-time and save Sh2,000. 

c) Electricity 

Reduce your domestic consumption from Sh3,000 to Sh1,000 and save Sh2,000. Scrutinize the kind of electric appliances consuming a lot of power and cut down on wastage. 

d) Water and transport

 Do a minor readjustment and save around Sh1,000.

You will have a total disposable income of Sh7,000.

2. Have a debt repayment plan

 Ask yourself some pertinent questions: "What influenced me to take the loans? What did I use the loans for? How best can I get out of bad debts?" Start of by repaying the small debt before focusing on the big one. Use the disposable income to first clear the remaining debt Sh17,010 which you owe credit loaners. Use the disposable income of Sh7,000 to top up the monthly repayment  to Sh12,670. Instead of three months, it will take you one and half months to clear  the loan and remain with a balance of Sh4,440 in the second month.

Commit to pay your salary advance in three months and resist the temptation to go for another one. By December this year, you will have cleared all the outstanding loans. Learn to delay your personal gratification, save first and only acquire a loan for investment purposes.

3. Start a saving scheme and an income generating business

 Now that you have identified your major financial problem, you should embark on acquiring good financial habits such as saving for emergency, irregularly expenses and investment. Remember your contract is ending in  November 2024 which is two years from now. There is need to start start a robust saving scheme to cushion you against the possibility of staying without a job for sometime in case your contract is not renewed. Use the disposable income of Sh4,440 to open an compound-interest earning money market fund and increase it to Sh10,000 once you clear the credit loaners and remain with a balance of Sh2,670. In two years you will have accumulated about Sh256,075 (without excluding the 2% annual management fee and 15% withholding tax). Once you clear your salary advance loan, you will be left with a cumulative disposable income of Sh32,670.

In January 2023, diversify your saving scheme as follows:

a) Channel Sh20,000 to a Sacco and in two years you will have BOSA deposits of Sh480,000. The Sacco savings will earn you modest dividends and guarantee you a loan based that you can use for any  investment project of your choice.

b) Use the remaining Sh5,000 to take an insurance education policy for your child

c) Channel Sh7,670 towards establishing a business for your wife such as a grocery shop selling cereals, vegetables and cookies in the estate where you live.

Above all, invest in yourself, identify your passion activity and work on it till it starts earning you some additional income. As laboratory technologist, you can enrol for further education, do some consultancy work or establish a business of supplying laboratory equipment and drugs.

Online link

https://nation.africa/kenya/life-and-style/saturday-magazine/my-job-contract-is-ending-in-2024-and-my-finances-are-in-a-mess-please-advise-3989936

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