Where did all my money go? Sealing your salary black hole

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"Money is good for nothing unless you know the value of it by experience.”

The famous quote by the late American businessman PT Barnum is one of the soundest pieces of advice about personal finance you are likely to come across anywhere.

But for many people, the lesson comes too late when all their money is gone.

“I feel like someone stole my salary this month. Like, where did it go already?” posted on Twitter user recently.

The post summed up the feeling of many Kenyans, who after settling their monthly bills are left wondering where the rest of their pay went.

In other words, there is a part of their income they cannot account for; it is like a mystical sinkhole that siphons their money.

Elizabeth Nkukuu, a financial literacy trainer, says the problem starts with not having a budget.

“Being Africans, most of the money will go to contributions, which is not in your budget. What someone needs to do is at the beginning of the month, or before one gets paid, you have to document everything and even provide for miscellaneous because I feel that is where most of the cash goes,” says Ms Nkukuu.

She points out that impulse buying also explains the “mystical hole.”

“Especially for us ladies, when you pass somewhere and you see a nice shoe, you will buy and you later ask yourself ‘what did I just do?’” says Nkukuu.

She says it is wise to have a pot of, say five per cent, which will cater for such miscellaneous expenses, and you stick to it.

So what expenses constitute miscellaneous?

Nkukuu says this is something you cannot budget for.

“For example, if I were to contribute for a friend’s wedding or funeral, it is not something you can budget for but when called upon, it is also not easy for you not to contribute,” she says.

“Or maybe you have gone out and while your budget for entertainment is 10 per cent, you have this comrade who comes and you all have to chip in.”

Nkukuu explains this is basically an unforeseen expense, yet a part of your life.

Patricia Kihara, the ICEA Lion Manager, Ordinary Life and Branches, says to ensure you seal this hole, you should record every single cent you spend, including the small tokens and tips you give away.

You should also account for even those coins lying around in your house.

Ms Kihara says documenting every single expense will help you know where your money goes.

One may argue that not being able to keep track of your cash could be a result of your expenses being more than the income.

But Kihara says at the end of the day, money is a personal matter.

“Many of us do not want to be honest with it, but you cannot lie to yourself as an individual,” she says.

“You totally know that my earnings are Sh100,000, Sh120,000 or Sh200,000, but we are never honest with how much we spend on what,” adds Kihara.

She lists mobile transactions as one of the expenses that could be creating a hole in your finances. While this is a convenience, Kihara says, in some instances, it can be avoided.

“An example is sending money to your sister who lives with you through M-Pesa,” she explains.

Kihara says some payments can be made without necessarily using mobile money transactions. Often, she says, we do not document the cost of such transactions.

“Convenience is good, but do you know how much you pay for it?” poses Kihara.

She says while it seems economical to pay mama mboga or other vendors through mobile money, it could be an expensive affair.

Instead, when you go to the bank, withdraw money as per your budget in order to transact with cash. This way, you avoid the unnecessary transaction costs that come with ATM charges and mobile money.

“But we do not sit down to see every single transaction through mobile money or ATM. Yes, it could be Sh10, Sh20 or Sh50, and you might not feel it, but Sh50 by 30 days is Sh1,500. When you multiply Sh1,500 by 12 months, you get Sh18,000,” says Kihara.

“That is money you could put in a Sacco and possibly end up borrowing three times the savings, which is Sh54,000. Can’t this be a down payment for a piece of land?” 

If it costs you Sh150 for lunch, by the end of the week, you will have spent Sh1,050. When multiplied by 52 weeks for the whole year, it comes to Sh54,600.

“But if someone told you that you spend almost Sh50,000 for lunch a year, would you believe them?” poses Kihara.

If you were to put this money in a Sacco, maybe for a holiday, you will be having Sh163,800 by the third year.

“But when you see people going on holiday, you ask ‘where do they get the money?’” she says. 

Kihara says being disciplined is not being a miser.

“If you send someone to buy you something and they don’t give you the balance, you should raise the issue because you are teaching them to be honest,” she says.

If the amount you cannot account for is Sh10 a day, in a month, this amounts to Sh300 and Sh3,600 in a year.