A budget built on your gross salary is a budget you cannot keep. Between PAYE, NSSF, SHIF and the housing levy, the amount that lands in your account can be 20 to 30 percent lower than the figure on your contract. Good budgeting starts with the number you actually receive and then makes decisions about every shilling of it.

Step 1: know your real take-home pay

Open your latest payslip or use the PAYE calculator to see the gross pay, each deduction and the net. If you were offered a net figure, the net to gross salary calculator works backwards. Our guide on reading your payslip line by line explains each item. Use net pay, and treat any bonus as extra rather than as part of the regular budget. Bonuses are taxed at your top rate, as shown in tax on bonuses and commissions.

Step 2: list fixed costs first

Fixed costs are the amounts you must pay each month regardless of how the month goes:

  • Rent or a mortgage repayment
  • School fees or a monthly fees saving
  • Loan repayments, Sacco deductions and insurance
  • Utilities, internet and airtime
  • Transport to work

Add them up. If fixed costs are more than about 60 percent of your net pay, you are stretched, and the answer is usually to reduce one big item such as rent or debt before trimming small things.

Step 3: adapt the 50/30/20 rule

A popular guide splits net pay into 50 percent needs, 30 percent wants and 20 percent savings. In Kenya, rent and transport can take more than half the pay, so use it as a direction:

Group Target share of net pay Examples
Needs 50-60% Rent, food, transport, fees, utilities
Wants 15-25% Eating out, entertainment, travel, gifts
Saving and debt 20-25% Emergency fund, Sacco, pension top-up, extra loan payments

If you cannot reach 20 percent saving today, start with 5 percent and raise it with each pay rise.

Step 4: build an emergency fund

Aim for three months of fixed costs in an account you can reach but will not spend casually, such as a money market fund or a Sacco savings account. Put the saving in as a fixed standing order on payday, because what is left at the end of the month is rarely enough. A savings and sinking fund tracker shows progress towards goals like school fees, insurance renewals or a car service.

Step 5: plan for the irregular bills

Irregular costs cause most overspending: school fees in January, insurance, vehicle licences, festive season travel and annual rent increases. Divide each yearly bill by 12 and set that amount aside monthly. The monthly income and expense planner lets you enter these as separate lines.

Step 6: use tax-smart saving

Some savings reduce your tax. Pension contributions to a registered scheme reduce taxable pay up to the limit, and insurance premiums attract relief. See personal relief and other tax reliefs and pension contributions and tax relief. Check the numbers in the tax reliefs calculator before you commit.

Step 7: track and review

Record spending for one month in a notebook or the planner, using M-Pesa statements to catch the small items. At month end, compare plan against actual and move one or two amounts, not everything. Review every three months and every time your pay changes. If you pick up extra income, such as freelancing, remember that it may need its own tax planning: read side hustle income for employees.

A simple example

Net pay is KES 70,000. Fixed costs: rent KES 22,000, transport KES 6,000, utilities and internet KES 4,000, school fees saving KES 8,000, loan KES 5,000. That is KES 45,000, or 64 percent. Food is KES 12,000, bringing needs to KES 57,000. Wants are set at KES 7,000 and saving at KES 6,000. The plan is tight, so the first target is to cut the loan within a year and move that KES 5,000 to savings.

Keep it simple

The best budget is the one you will follow. Pick a few categories, automate savings and revisit it when life changes. If you are negotiating a salary, compare offers by net pay as explained in gross pay vs net pay.

Frequently asked questions

How much should I keep in an emergency fund? Three months of fixed costs is a common target. Start with one month and build up as your pay allows.

Should I clear debts or save first? Build a small emergency fund of one month, then focus on the loan with the highest interest. Saving while paying 20 percent interest on a loan usually loses money.

How do I budget with an irregular income? Base the plan on your lowest typical month, treat anything above it as a bonus to save, and keep a larger emergency fund.

What about tax on my savings? Interest from many savings products has withholding tax deducted. See the dividend and interest tax calculator before you compare returns.