Chachanomics Advice Published in Saturday Nation Magazine on 19th Nov. 2022

Reader's Question

My name is Gilbert. My wife and I are primary school teachers upcountry. We both earn a net of Sh28,000 each. We have two children. One is in nursery PP1 and the other one is a toddler. These are our first jobs. We are excited and anxious not to mess up our money. We have big dreams. We would like to go back to school and scale ourselves career-wise. We would also like to buy a piece of land and build our own home in the foreseeable future. We haven't done much with our first salaries because we don't know how to budget. Please help us draw a budget. We don't have loans yet. Should we also pay tithe and give to relatives at this stage?

Expert Advice

Your total income as a couple is Sh56,000. It is important that you hold a candid conversation with your wife on how to share your financial obligations as a couple and leverage on your dual salary for increased savings and investments. This will help you to overcome any feeling of  financial infidelity, especially at these early stages of your careers.

Use the 50/30/20 rule to help you budget. Pay yourself first before you start spending on other needs and wants. You can automate and diversify your savings as illustrated below:

a) Channel 30% towards Savings. This translates to Sh8,400x2 (Sh16,800) diversified as follows: 

i. Sacco: Sh3,500x2 = 7,000 

ii. Education Policy Insurance: Sh3,000x2 = Sh6,000 (2 kids)

iii. Emergency fund: 1,900x2 = Sh3,800

b) Channel 50% (Sh14,000x2 = 28,000) towards necessary expenses. These expenses should be  shared proportionately with your wife (you can pay house rent, child's school fees and househelp) as follows:

i. Rent: Sh4,000

ii. School fees: Sh4,000 (per month)

iii. Househelp: Sh4,000

iv. Shopping: Sh7,000

v. Transport: Sh2,000×2 = Sh4,000

vi. Utilities: Sh1,500

vii. Others: Sh3,500 (This should help cover deficits arising from the cost of living).

c) Other expenses 20% (Sh5,600x2 = Sh11,200). This may be allocated to your emergency fund, black tax, entertainment and gifting.

When budgeting, consider the following:

1. Monitor your expenses on a daily, weekly and monthly basis to determine where every shilling goes to avoid wastage. Leverage  the pocket-friendly rural lifestyle to grow your financial muscle for investments.

2. Set short-term, medium-term and long-term goals with clear timelines and deliverables at the end of each period under review. The goals should be specific, measurable, achievable, realistic or recorded down, time-bound, evaluatable and result-oriented. Remember, you cannot achieve what you have not clearly defined and written down in your journal or notebook.

3. Diversify your saving and investments.  As a couple, channel part of your savings to a teacher's Sacco, take education policies for your children and save for emergencies. Use the Sacco savings for investment or development projects that can generate more income instead of just getting a loan and buying land and building a home in the medium-term. Invest in yourself and acquire financial literacy skills by enrolling in a financial management program to teach you how to manage your money wisely, and invest appropriately.

4. Review your financial situation. Calculate your net worth after every six months to determine your actual financial position. If your net worth is positive or improving, it means you are doing well (assets outweigh liabilities) but if it is negative it means your liabilities outweigh your assets. The rule of the thumb is: For every 2 assets there is one liability (ratio of 2:1).

Paying tithe is not cast in stone, especially when you are new at work and salary. Out of the Sh11,200 use Sh5,000 to pump to your Sacco savings to Sh12,000. Then allocate Sh2,000 to your personal needs, Sh2,000 black tax, and the rest of Sh2,200 to your religious gifting.

5. Develop a retirement plan. Ensure you have a sustainable future income nest egg that can cater for your medical and other pressing needs when totally inactive, incapacitated through illness or accidents, when you hung your boots voluntarily or retire officially. Take a sound life cover with any insurance company or have an individual pension plan and decide when to retire as a TSC teacher besides the mandatory retirement age of 60 years. Calculate the amount you will need when you retire and how to realise that amount.

6. Scan your immediate environment and find out what skills, services or goods are in high demand. Find your niche and devise a plan on how to solve an existing or emerging problem. A side hustle will supplement your income and help you raise money for further education and fill any budgetary gap.

Saturday Nation Link to the Online Article

https://nation.africa/kenya/life-and-style/lifestyle/my-wife-and-i-are-new-primary-teachers-help-us-manage-our-56k-net-pay--4025342