I’m single with 45K salary. I took a loan to build a family home, now I’m stuck in debt

I’m 29 and single with no child. I work as a teacher earning roughly Sh45,000. I have a loan which I will be paying for the next seven years. This loan of Sh800,000 was meant for the construction of a family home, which I completed. After the loan deductions, I am left with Sh31,000. Sh5,000 goes to fixed deposits and non-withdrawable shares. That leaves me with Sh26,000, of which Sh2,600 is for my tithe, Sh800 for church offerings, Sh2,000 for my holiday account savings, Sh3,500 for my parents, Sh1,500 for a monthly merry-go-round chama, Sh3,000 for food. I don’t spend on transport. The rest of the money is used for WhatsApp contributions and paying off other small debts. Although I achieved the home construction, I am always in debt. I have other unofficial debts of Sh8,000. I feel that I messed up on the loans and don’t have control of my money. Please help me manage this.

Emmanuel Mbogholi is a Partner at SFAI Kenya; a strategy, accounting and tax practice helping entrepreneurs grow their businesses.

You first need to adhere to general principles of financial management which are budgeting, your income vs. expenses (list them), tracking your money over a few months, and setting financial goals (short-term and long-term).

Before you focus on investments or additional savings, it’s crucial to build an emergency fund. Given your monthly income of Sh45,000, your emergency fund should ideally cover Sh135,000 to Sh270,000. Start by setting a smaller goal, like saving Sh10,000, and gradually increase it until you reach the recommended amount. You can channel this savings to a money market fund which allows you to earn a decent interest rate while building the fund.

Set up an automatic transfer from your salary account to your savings account each month.

Next, you will need to cut unnecessary expenses. Review your budget for any non-essential expenses you can reduce or eliminate to allocate more funds to your savings, investments and debt repayment.

Debt management:

Loan Repayment: Your Sh800,000 loan for your family home construction is a substantial financial commitment. Focus on paying off this debt. Consider increasing your monthly payments after saving from your reviewed budget. This will reduce the overall interest you’ll pay over the loan term. You also mentioned Sh8,000 in unofficial debts. Target to pay this off within the shortest time possible so as to increase your disposable income. Pay off the smallest debts first to build momentum. At the same time, prioritise debts with the highest interest rates to minimize interest costs. While doing this, avoid new debts.

You mentioned saving Sh2,000 for a holiday account. It’s essential to enjoy life and have experiences, but ensure that you’re not jeopardising your financial stability for short-term pleasures. Consider finding more affordable ways to enjoy your holidays as you focus your money on debt repayments to free up disposable income. From this allocation, within three months you’d have settled your short-term debts.

Evaluate the necessity of the WhatsApp Contributions. If they are not crucial, consider reducing or eliminating them to free up more money. While saving for the future is essential, ensure that your contributions to the merry-go-round chama do not strain your finances, especially if there’s no interest earned.

Of importance would be also to explore opportunities to increase your income. This could involve going back to school part-time, seeking a higher-paying teaching position, taking on part-time work, or leveraging your skills in areas like freelance tutoring.