How to make a budget and savings plan

Dear Dr Pesa,

I just got a job a few months ago and moved out of my parents’ home. My net income is about Sh20,000 a month. This was sufficient at first but now, I don’t know where the money goes. My rent is Sh5,000 and other monthly expenses that include electricity and water bills add up to Sh1,000. I have a major issue with budgeting, and I suspect that’s why I am broke by the first week after payday. Do you have any budgeting tips for me? Also, can you help me draw up a budget plan based on my salary?


Dear Wellington,

You are not alone; millions of others struggle to manage their money and it is the subject of motivational talks, books, life hacks, and the list goes on. Money management is a lifelong decision-making process. Therefore, you will not get an overnight quick fix. Instead, it will be a journey of learning and growth, and self-discipline will help you be more fruitful. For effective financial management, you need four tools in your arsenal: an understanding of the value of money, an understanding of your financial needs and goals, a plan to achieve them, and lastly, a system to monitor and evaluate.

Let us begin with understanding the value of money. Money is a powerful means of exchange. For example, while your smartphone may be considered as an asset (something of value), if the shop owner does not want it, he is unlikely to give you a loaf of bread for it. On the other hand, money is universally and easily exchangeable for whatever goods or services you desire. However, it is hard to come by and easy to spend. You mentioned that you are broke the first week after payday even though your rent and essentials account for less than half of your pay. This means that you have started spending money on things that you do not need. Adjust your attitude about money by seeing it as a limited resource.

Secondly, you need to understand your financial needs and goals. The world is actively tempting you with the life you want. Every business wants you to buy something. They spend millions on marketing to shape culture and make you want things. However, one of the tough but necessary lessons is learning to live within your means. You already know how much of your income is consumed by essentials like rent and bills. Everything else needs to be prioritized according to how much money you have left after saving and what your financial goals are. Being in control of your money is about making financial choices more deliberately.

Thirdly, make a plan. Without a plan, you will always wonder where your money went. It is for this reason that you, I and everyone else will need a budget. You have heard of a balanced diet, with enough of each of the basic food groups. Balancing your money uses the same as the general idea. The right amount of this, the right amount of that, not too much of one thing and you have the formula for a sustainable, lifetime plan.

When your money is in balance, you spend just the right amount on each of your major expense categories. First, you allocate a certain amount to savings, because the you want to secure your future in case anything happens.

You also allocate some to the things you need, like buying food and paying rent and other bills. If you have some left over, invest it, so that while you work, your money also works for you. Lastly, what is left over you may spend, if you so decide. 

As you mentioned you earn a gross salary of Sh20,000, here is what a sample budget for your income might look like. However, tweak this to suit your specific situation and needs.

Sample budget plan.

Lastly, monitor and evaluate. As time goes by you need to keep track of your budget and adjust accordingly according to your actual expenditure. You can add a column “Actual cost” so that you are more aware of the expenses that you have incurred. If you are spending more, adjust your habits.

Rita Nyairo

Dr Pesa is Rita Nyairo, who is part of the Investments team at Cytonn Investments.

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