Interesting question. I'll look for the post.

Will you get me out of the rat race: Part 2?

Flashback: James, my good friend was to religiously jot down his daily expenses so that we properly analyze his spending habits.

I made a conscious decision not to contact James so that I gauge his desire to achieve financial independence. Exactly a week before the two months elapsed, he called me and he sounded very enthusiastic. It seems he had some interesting info for me.

I had devised a strategy to make him understand the need to manage his expenditure. On the material day we were to meet, I requested to pick him and we did a drive along Kangundo road all the way to Kamulu. I took him to meet another great friend called Musyoka at his home just a few meters off Kangundo road. This fellow Musyoka has worked as a messenger for one of the UN bodies for as long as I knew him. Musyoka is calm and collected and talks very little rarely giving away any info. He however took us round his homestead and James could not help but notice a very nice Massionette built on a 5 acre piece of land and behind it some green houses and further down he had some very healthy dairy cattle (around 30 of them) goats, and sheep (around 100). Musyoka also had around 800 layers and a few ducks. Towards the end of the farm was a fully equipped borehole and some huge raised tanks. After going round the farm we were given a cup of tea and soon after we left the farm as Musyoka was headed for a church meeting. We decided to get into Mwalimu farm and drove all the way up to some place where there are some waterfalls.

Seated on a rock and enjoying the breeze, I recounted how I ended up knowing Musyoka several years ago after I went looking for land in Kamulu. I learnt valuable lessons from him by way of just observing him. Being a messenger and having achieved so much was astounding to say the least. He was a man of meticulous plans laid down in very specific details. Musyoka not only owns the 5 acre farm he lives in but several other tracks of land off Kangundo road. James could not believe it especially the messenger part. This was a classic case of man in control of his life despite meager earnings, a man who had carefully planned his finances and achieved enormous success. I was just setting the right tone for James before taking him to task on the assignment we agreed he’d carry out.

So I told him to take me through the findings of the analysis of his expenditure. This is what he had to say:

“I embarked on the exercise and religiously accounted for every shilling that left my hands. Surprisingly, over and above the obvious expenses I noted that I actually spend my cash on so many items that I was shocked at some of them. Remember I had told you about the following expenses: Helb Loan 5k, car loan 6k, unsecured loan repayment 7k, rent 13, electricity & water1k, school fees 3k and shopping 8k.
The other expenses which are an average for the two months that I confirmed were quite eye opening: car fuel 3k, soft loans from friends 4k, extra food purchase at home: 2k, gas 3k, house help 3k, daily lunch in the office 2k, relatives 3k, transport to work whenever not using car 2k, wife’s errand and other personal expenses 3k, clothing for family 2k, entertainment 3k and other miscellaneous 2k. In other words, my expenses add up to 75k and mind you I earn a net of 58k. In essence there is a deficit of 17k or thereabout every month. How I managed to survive like this only God knows. I know you are about to tell me that I live beyond my means. To demonstrate how serious I have become I have decided to do a budget that fits the 58k that I earn and here it is:

Helb Loan 3k (I intend to renegotiate the 5k this with my employer and HELB)
Car Loan 4k (I hope to renegotiate with employer for period extension)
Unsecured Loan 7k
Rent 13k
Elec and Water 1k
School Fees 3k
Shopping 6k
Car fuel 2k
Soft loans 2k (until I clear all of them)
Extra food 2k
Gas 3k
Office Lunch 1k
Relas 1k
Fare 1.5k
House help 3k
Entertainment 1k
Wife personal 2.5k
Clothing 1.5k
Misc 1k
Total: 58.5k

I could clearly see that my good friend had acquired a burning desire to get things right. The positives I lauded in his budget were as below:
1. Reducing the debt (albeit slowly).
2. Living within his means (albeit consuming all his net).
3. A comprehensive budget that covered nearly 100% spendings.
However, I also pointed out a significant missing item which was car insurance and maintenance. I went ahead to propose the following steps to further improve it:

1. It was a hard sell but I advised James I never saw the need of him having a car at that point in time. The jalopy was quite old and despite consuming fuel and maintenance (which the budget omitted), it was courtesy of a loan. It was the type that would easily demand you employ a permanent mechanic due to frequent failures. Take note that if this jalopy is sold even for a mere 300k, the amount can offset the car loan balance and eliminate the loan repayment expense as well as fuel; would that amount to killing 3 birds with one stone despite the inconvenience of life without a car? I however promised him that with improved finances, he’ll buy a car at a later date.

2. Wouldn’t the balance arising out of the car sale repay the expensive unsecured loan? This gets painful coz he was to repay a loan which the fruits he never enjoyed. And by the way, he was due to explain to me what happened to the business that flopped. That is a lesson for another day.

After much cajoling, he agreed to sell the car though this happened 3 months later. For those 3 months he was forced to go by his budget; after all he owned it.

James saw the sense in what he was doing and after the car sale, his budget was as below:

Helb Loan 3k
Rent 13k
Elec and Water 1k
School Fees 3k
Shopping 6k
Car fuel 2k
Soft loans 2k
Extra food 2k
Gas 3k
Office Lunch 1k
Relas 1k
Fare 3k
House help 3k
Entertainment 1k
Wife personal 2.5k
Clothing 1.5k
Misc 2k
Saving / investment 8k
Total: 58k

When we met after the car sale, he looked jovial and bubbling with a bit of energy and did not display any annoyance arising from using the matatus or route 11. Of course I had a reason to celebrate. After all, I saw an item that generated quite some discussion. The saving / investment item of 8k was something that in a small and big way showed that James had overcome a very big hurdle. I could not believe it when he asked me what to do with that 8k. I threw the question back to him and asked him what he thought was a good thing to do??
At this point please note that James had already dealt with several little foxes namely:
1. He certainly had a grip of his expenses.
2. He was certainly living below his means and had dealt with troublesome debts.
3. He was now saving / investing 8k per month.
4. Any future pay rise I’d bet my small toe that it’d go towards further investments.

Those who know about budgets will tell you, the budget is nowhere near a perfect one but at least James was getting somewhere.

By the way, even his drinking was no longer targeted at drowning his sorrows but to entertain himself.

However he still had no clear financial goals and no set targets. His net worth was now near zero (at least he was almost crossing towards the positive net worth).

Next post will be on what he decided regarding the 8k per month available for saving / investing, how he set goals, short and long term. I also taught him how to calculate his net worth. With the 8k, he seemed aimed at paying himself first. A turn around for him but he still has a long way to go. I wondered whether he had started enjoying his job but I decided I’ll ask him that much later. From deep inside my heart, I wished him well in his journey of a thousand miles that he’d only taken the first few steps. I hoped that he’ll enjoy the walk and live to tell a story.

Marty...
Quite creepy... feels like u are talking about me....
Good work though....

Where is the "LIKE" boutton when you need one?

@Marty having gone through the new budget of James, i think the savings/Investment should be Kes 10000 as there is included 2K for fuel yet the car is already sold.
Cann't wait to read where the savings has been invested for a few tips and advice.

@Marty, you never disappoint. The thread on how you made your first 1 million Kshs. is on the following link.
http://www.wazua.co.ke/f...spx?g=posts&t=11054

This is a true story. James is real and maybe he is a wazua member. I'll ask him. The name has of course been changed.

@QD. Thanks for noticing the mistake. I am trying to recall the figures, but I remember the fellow had 8k set aside for that. I may not have a photographic memory but we'll learn from this old friend of mine and how he made a turn around.

@Marty,
I believe James could have saved a bit more by
telling his wife to chop her hair!(When I tried telling my spouse to do this some time back,she flatly refused and told me that maintaining short hair is more expensive that going to the salon.Can the ladies in wazua confirm this)?

Pure fiction! Robert kick-you-in-the-sacki makes his money selling books...surprise