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There’s certainly no shortage of ways to spend money—rent, food, transport, education, entertainment. With all this, it’s tough to find the formula that’s right, and tougher still to stay on track. 

Financial experts recommend a 50/30/20 guideline to keep one’s spending in alignment with your savings goals. This means 50 per cent of your income goes to essentials such as rent and utilities. Twenty per cent should go to financial goals, meaning your savings and investments. Finally, 30 per cent of your income should go toward flexible spending. These are day-to-day expenses that can vary from month to month such as eating out, groceries, shopping, hobbies and entertainment.

John Kirimi, a financial analyst says the old-age saying ‘failing to plan is planning to fail’ may sound a cliché, but it makes sense. “The biggest mistake we make is not planning. We most of the time don’t live within our means and therefore, struggle to make ends meet,” he says.

It is easy to spend all your money, especially if you are getting it regularly at the end of the month. “Do not spend it all, call yourself to order and prioritise,” he says. 

There’s a school of thought that one should not spend more than six per cent on housing. Kirimi is of different school of thought. “We chose where to live according to our preferences. You cannot really structure your income like that. If you spend more on rent, you will spend less on food and at the end of the day, if you want to live in a Sh10,000 house or Sh5,000 with a salary of Sh50, 000, it is up to you, as long as you are comfortable,” he says. However, the main risk of spending too much on housing is that if your financial situation should suddenly go south, you might find yourself unable to meet your monthly rental payment. This might happen if you lose your job, face a medical emergency or encounter another type of financial setback.

Kirimi advises young people to start investing early. “No matter how meagre your income is, make sure you spare a little for investments. This will even help build your credit capacity when you need to take a loan. Invest. It does not necessarily spell doom, but in the event that your source of income diminishes, you will have something to fall back on a rainy day,” he notes.

Financial discipline

Do not just plan in a hurry and allocate monies. “Delve into the nitty gritties such as electricity, water and even trash,” he says. The whole point is to live within your means. “You do not want to walk around branded a debtor,” he adds. 

Health should also be part of your priority. “If you do not have a health insurance, it is key that you set aside some money every month for such an emergency. Couples should also have this in their plan, especially if they have children. Kids fall sick and need attention real fast,” he points out. 

As a family, especially in the 21 Century when the cost of living is high, it is easier when both husband and wife are working. “Again, sit down and allocate for each need, according to priority,” he says.

With all catered for, Kirimi says recreation should also factor in the planning. “All work and no play make jack a dull boy, spare some money to have fun, but have it balanced. Do not drink it all or spend it all on travelling,” he says. With this provision, it is easy to spend on new clothes and add a few electronics without eating into your rent and savings. 

However, financial discipline is of paramount importance. “You can plan, but without discipline to follow to the letter, it is no use. People who are doing well and are living within their means are disciplined and strict with their coins. It is the foundation of budgeting and if you allocate without following through with what you laid out, you will still struggle with your money,” he advises.