“A man with one watch will always know the time; a man with two watches will always be in doubt.” – Unknown

Thanks guys for the positive response we received on our previous post: Living Better Means Living below Your Means. Now I want to put things into perspective and make the previous post more practical and applicable to your financial situation.

Majority of Kenyans live below the poverty line and while this is the case most them tend to believe that they are not living beyond their means while reality speaks otherwise. I personally believe that if you are unable to save some money at the end of the month then chances are you are living beyond your means. Whatever your income is, you should be able to save. To make this clearer, below is a personal finance plan that outlines recommended spending.

Your gross income is the total amount of money you have earned, while net income is the amount you actually receive after all the taxes have been deducted.First it is best to begin by defining what gross income and net income is.

I come from a Christian family and I was raised to believe that if you "Gross" God, He will gross your blessings and if you "net" Him, He will net your blessings, so 10% of my gross income is always tithed. As a social responsibility, you can opt to donate 10% of your Gross to a charity or as a gift to someone needy.

After all the taxes have been deducted you are left with the net income. This is what you basically survive on.

Using the case of an individual who earns a net income of KES 50,000 we shall put into perspective what living below your means entails.

10% of your net income should always go into your savings. It is always good to have some back up money for those unexpected eventualities, so in this case KES 5,000 should go into a savings account.

10% x KES 50,000 = KES 5,000 for savings

Another 10% of the net should be invested. There are different investment opportunities and you could decide to buy shares with this 10% though if you are eyeing a major investment that are not currently able to afford you could opt to save the 10% until you raise the required amount.

This is the controversial part. Housing in Nairobi is very expensive and we all want to live in a comfortable neighbourhood. Your net income dictates where you should live and it is advisable to have no more than 30% of your net income going to your rent. If your house rent is more than 30% of your net income then you are living beyond your means. From the above case, the rent should be KES 15,000. This amount can get a small bedsitter in Westlands, a one bedroom apartment in Jamuhuri, or a two bedroom apartment in Umoja. Your house rent to a great extent would dictate if you are living beyond your means, do the math to see if you rent is beyond your means.

30% x KES 50,000 = KES 15,000 for rent

Transport and food should account for 20% of your net income. It is cheaper to cook as opposed to eating out, and to cut on the lunch money you have the option of carrying food to work. Cutting down on the transportation calls for a lot more sacrifice, fares tend to be lower early in the morning before rush hour. You can opt to leave the house earlier.

20% x KES 50,000 = KES 10,000 should cater for your food and transportation  

Another 30% of your net income should cater for those discretionary expenses. These are those expenses you have decided to have and they could include:-

• Mobile airtime
• Recreation
• Entertainment (Pay TV)
• Clothes
• Gym membership
• Etc

Before budgeting for these expenses you should factor in the fact that they should not exceed 30% of your net income, if and when they do then you are living beyond your means.

Living below your means calls for a lot of sacrifice but yet again you won’t incur the stress of having to live pay cheque to pay cheque. Wealth is nothing more than living your own life and living it as close to your principles as possible. It has nothing to do with the number of zeroes on your bank account. The person who makes KSh 50,000 a month and spends KSh 30,000 is wealthier than the man who makes KSh 100,000 and spends KSh 110,000 a month.  Spending less than you earn is the only way to get ahead with money.