Chachanomics Personal Financial Advice Published in Saturday Nation on 8th Oct. 2022

Reader's Question 

My name is Davis. I am 30. I am a single nurse earning a net of Sh41,000 in rural Kenya. My soft skills earn me an average of Sh8,000 to Sh13,000 monthly. However, I am unable to get out of debt and this has led me to fall out with close family members who secured the loans because auctioneers are breathing down their necks. My loan stands at Sh203,000 with Sh70,000 in arrears. Other debts (mobile loans) stand at Sh63,000. Rent is Sh6,000, Shopping Sh3,000, Electricity Sh500, all other expenses Sh2,000. How can I save myself from this hole and how long would it take to get back on track and develop myself?

You are trapped in bad debts which cumulatively stand at Sh266,000 and some are in arrears due to cessation of payment. Debts are emotionally stressful and socially straining for they can lead to family breakdown as demonstrated by your sour relationship with your parents and siblings.

Your income total averages Sh51,500 (net income of Sh41,00 plus monthly average of your side hustle from soft skills of Sh10,500). Your expenditure totals Sh11,500 and a colossal sum of Sh40,000 is unaccounted for. Worse still, you do not save at all which is not only an indicator of financial indiscipline but also lack budgeting and failure to track your money.

To salvage yourself from the financial mess and get back on track, you need to undertake the following three strategic measures.

1. Get a debt management and repayment plan

 Have a candid conversation with your financiers or banks and agree on a debt repayment plan. Start repaying your mobile loans which stand at Sh63,000 by channelling Sh20,000 and in three months you will have completed. Then embark on repaying your bank loan that stand at Sh203,000. If you channel Sh20,000, you will clear the loan in about 10 to 12 months (including penalty arising from arrears). 

2. Start a saving and investing scheme

 Because you are already single, you need to save 30% of your total income (Sh15,450) or even more so that by the time you marry you will have established a robust financial nest egg. You need to identify some wise saving and investing ideas to ensure you do not fall into a vicious cycle of borrowing for consumption purposes. Remember saving alone will not help you to break free from the trap of debts. You need save and invest in financial instruments that generate more passive income such as joining a well-managed Saccos that gives high dividends,  interest-earning money market funds, government securities and real estate. 

Once you learn to track and account where every shilling goes, you will be able to prudently utilise the unaccounted sum of Sh40,000. Assuming you use Sh20,000 to start clearing your mobile loans, you can channel Sh10,000 to a deposit-taking Saccos and the remaining Sh10,000 to an interest earning money market fund that will serve as an emergency fund to cushion you against unexpected eventualities.

Once the loans are cleared by the end of 2023, you will have a disposable income of Sh40,000. Use part of this amount to double your Sacco deposits to Sh20,000 per month, increase your emergency fund to Sh15,000 and use the remaining Sh5,000 to take an insurance policy (health cover or education policy in case of a child). In three years (by 2026), you will have accumulated Sh600,000 (besides annual dividends) as Sacco deposits which will guarantee you a development loan of Sh1,800,000 using the 3x multiplier factor (which you can invest in property). Your emergency fund, if invested in a money market fund earning 9% compound interest, will grow from Sh120,00 in the first year to Sh517,772 in two years and Sh745,461 in three years. 

3. Beware of the high rate of inflation due to high cost of living

Be alive to the growing cost of living and extra needs you might require between now and 2026. Since your side hustle gives you an average of Sh10,500, explore how you can accelerate this to an average of between Sh15,000 and Sh20,000. For instance, should you take on extra responsibilities or wish to improve your lifestyle, your financial plan will be impacted and you will require extra income streams to stay on course.

Online link

https://nation.africa/kenya/life-and-style/saturday-magazine/i-am-a-single-nurse-earning-sh41-000-but-i-am-stuck-in-debt-save-me-from-this-hole-3977226

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