I earn Sh45,000 but only get Sh22,000 because of a loan I misused. What should I do?

My name is Edith, I am 29. I am not married and don’t have a child. I plan to get married and have one child 10 years from now.

I earn about Sh45,000 net. However, due to Sacco loans that I took, consumed and cannot account for, I only get about Sh22,000. I spend all this paying rent, transport, food and tithe which is usually 10 per cent of my 45,000 pay every month.

I get about Sh15,000 from side hustles, but I can’t account for this money either. I save Sh2,000 in a Sacco but my debts are at Sh450,000.

I also have about Sh15,000 in unpaid mobile loans. Despite these troubles, I have Sh200,000 saved in a bank savings account and I am tempted to dip my fingers into this kitty.

I would like to have a better grasp on my finances and buy land, buy my own car, and start investing. I would also like to start a clothes boutique, because I admire and occasionally buy exquisite clothes from Tukey. How do I achieve my dreams?

Also Read: I’m a mum of two earning Sh65,000 but unable to save anything. How do I budget to be saving Sh10,000 monthly?

Dominic Karanja, a financial and investments consultant

It is encouraging that you are considering your financial future and you have set financial goals you aim to achieve.

Personal financial objectives can be divided into short-term goals, typically achievable within three years, medium-term goals spanning three to five years, and long-term goals, extending beyond five years.

At present, prioritising debt repayment, establishing an emergency fund, growing saving, and engaging in short-term investments should constitute your short-term financial objectives.

Purchasing land and launching a clothing boutique business can be included in your intermediate-term goals, while acquiring a car and constructing your own house can be part of your long-term goals.

To efficiently handle your finances and achieve your financial goals, start by creating a comprehensive financial plan and budget. Budgeting plays a crucial role in effectively managing your personal finances and realising your financial goals.

It is worrying that there’s a portion of your income for which you cannot account. It’s essential to create a comprehensive budget that encompasses your monthly income and expenditures such as debt payments, living costs, and any discretionary spending.

I suggest adhering to the 50:30:20 budgeting rule, where 50 per cent of your monthly income is allocated to necessities, 30 per cent to wants, and 20 per cent to savings and investments.

Necessities are items essential for your survival, while wants are things you desire or would like to have. Savings represent the amount of money set aside, while investment involves utilising accumulated savings for productive purposes.

Monitor your spending habits and identify non-essential expenses that can be reduced or eliminated.

Prioritise establishing an emergency fund, aiming to cover at least six months’ worth of your living expenses. I suggest that you transfer the Sh200,000 currently held in a bank account into an emergency fund that will be invested in a money market fund.

Including retirement savings in your financial objectives is crucial because it ensures a comfortable life post-retirement while also providing potential tax advantages. Keep seeking additional income streams and avenues.

As you’re already engaged in supplementary sources of income, strive to discover more reliable and lucrative opportunities. Explore methods to capitalise on your talents or interests or contemplate undertaking a part-time job.

To address your current debt situation effectively, it is advisable to employ the debt avalanche method, which involves making minimum payments on all debts and allocating any remaining funds toward paying off the debt with the highest interest rate first.

Given that mobile loans are both short-term and expensive, it is essential to prioritise clearing them first. Moving forward, refrain from taking loans with repayments exceeding your capacity to repay.

You must allocate at least one-third of your net income toward loan repayments, which implies committing at least Sh17,250 presently.

However, your current monthly loan repayments amount to Sh23,000, excluding mobile loan repayments. Once you have your debts under control, focus on building your savings and investments.

Allocate 20 per cent of your net pay toward savings and investments. However, you are currently only saving Sh2,000 in a Sacco, which constitutes only three per cent of your net monthly income and average side hustle earnings.

You should consider saving at least 10 per cent of your income with a Sacco and always reinvest your dividends into deposits to enhance your borrowing capacity and increase dividend earnings in subsequent years.

Continuously increase your Sacco savings as your income grows, because it will enable you to borrow in future for land purchases and to finance your clothing boutique business.

To achieve the objective of buying land you need to research and determine the cost of the land you desire, so that you can set up a monthly savings plan specifically for the purchase.

Before deciding to buy a car you need to make sure that you are aware of the down payment required, monthly payments, insurance, fuel and repair costs.

Before launching the clothes boutique, prepare a comprehensive business plan, explore various business financing avenues, and conduct thorough market research.

The business plan should encompass aspects such as the store’s location, target demographic, inventory selection, and marketing tactics.

When considering business financing, factors like initial capital requirements and available funding options should be carefully evaluated.

Additionally, market research will aid in identifying the demand for Turkish clothing within your target market.

Consider starting small and test the market before investing a significant amount of money. You could start online or at local markets to gauge interest and demand for your products. As your business grows, you can expand into a physical store.

Achieving your financial objectives requires discipline, patience, and continual dedication. Monitor your progress regularly, adapt your strategy as necessary, and stay committed. Explore various investment opportunities and consult a financial advisor if necessary.