If you find a working Kenyan who is able to save, consistently, then you have gotten yourself a mentor. That’s focus and discipline right there. I am not talking about the highly (MPs & MDs) paid lot, the “happy” group. I am talking about the group within a salary of Ksh 100,000 per month. This being the average, give and take a few notes above and all the way down to Ksh 15,000. Without any objective verve, lets snoop into the lives of Middle and low income earners. By percentage extension, some high income earners find themselves in the same hole, somehow.
On face value, 100k is a good amount. However, the math that play around income in many countries are direct and indirect. Ignorance of these deductions pervades nearly all households. First of all, there is the income tax at 30%. This is a tax at source, you don’t even get to touch your 30k. From there, nearly all your expenditure will have a 16% tax. VAT is a form of tax that individuals will hardly sit down and account for. Its accounted as part of the cost of the product. Look, is there an alternative to VAT? Yes! It could be lower, zero or exempt but fact is, it only matters because there is a base cost. This makes it an incremental cost, a marginal incidental cost. For this reason, allow me to ignore it just for now. Move to rent. Most of the people earning 100k will most likely pay 20k in rent. This is another whopping 20%. Food, groceries, basic household expenditure, 30% for families and 20% for the singles. 25% on average. Can we add another 20% on entertainment, shopping and miscellaneous expenses? Well, do the math; 30% Income tax, 20% Rent, 25% Household’s, 20% other expenditure. 95% gone! Money that will not come back, it’s not an investment or saving, gone! I intentionally sidestepped piety and failed to account for your 10% tithe. So you only have 5% to save and develop yourself? Woe unto you if you have a loan. Only God knows how tough life is, why you are humble. The silver lining is for your employer who is the beneficiary because, you are faithful to your job. You can’t mess up while in such a hole.
The math around income, savings, and development vs expenditure is more sophisticated than rocket science for the average middle income earner. It is for this reason that I advocate for savings before anything else. I know development and investments are important but without savings, it is tough to plan. It’s your back up plan, your foundation. Without savings as an individual, the frustrations while toiling towards your goal are ad infinitum.
How do you save in such a harsh environment as itemized above? Discipline. Save at source. Spending then saving is only frivolous. It’s prone to indolence. You see the way our government gets its 30% at source? Get your savings deducted at source. Not the fitful irregular methods. Regular and consistent. A standing order would do. Join a Sacco, open a savings account, a chama, anything. Yes, chamas and merry go rounds are saving vehicles until they venture into investments. Topic for another day. So by all means, join a chama or a Sacco. In my personal finance planning career, I have found more success to travel through the journey of investments with people who have a foundation of savings than those with merely huge cash-flows.
Well, another solution exists for the singles, especially the ladies. Get married and the percentages will swing to your advantage. For example, the 20% rent, a little bit of entertainment, funny. Men, what swings for her, swings against you! That’s not financial advice. Just thinking strategically.
