Enlarge The Pie

Last post we talked about credit cards, and I think it’s fitting that this post is about increasing our income. There’s a story my boss likes to tell, I hope he hasn’t copyrighted it. He tells it best but I will attempt to do the same on here. One day maybe I’ll ask him to do a guest post on here.

He tells us of the late 90s when both Kenya Commercial Bank (KCB) and National Bank of Kenya (NBK) were riddled in non performing debt most of it from the then government and it’s croonies. When the two banks were privatised, their respective CEOs took approaches that have resulted in radical differences in the position of the two institutions today. The KCB CEO’s strategy was to reduce the proportion of the bad loans by expanding the bank’s loan book. As a result, he embarked on an aggressive private sector lending and expansion the result of which is what we see today. KCB does have it’s weaknesses, but it’s growth was impressive, KCB’s the only listed company in my basket of stocks that pays a substantial dividend. This year it recorded a 76% After- Tax profit growth which is impressive for a bank that was in the doldrums less than 15 years ago.

The NBK CEO on the other had took a conservative strategy on his bad loan book. He decided to chase the bad borrowers to recover these amounts and a more conservative expansion strategy which saw the bank miss out on the sector’s incredible growth between 2003-2007. The bank declared a dividend this year, after a drought of more than 12 years, after a 25% growth in After- Tax profits.

What has this got to do with our personal finances?

Sometimes we find ourselves in the same situation the two bank CEOs were and the decisions we take determine our financial future.

When you’re deep in debt, the first and right instinct is to cut back on your spending. Then you get to a point where you’re spending on just the basics, but the effect on your spare cash isn’t noticeable for many reasons; increased cost of living being one. With the fuel prices going up every other month and our inflation rates being at an all time high, even the basics are turning into luxuries. Yesterday on a walk with one of my colleagues, she told me that Hostess maize flour now costs Kshs 129 for the 2kg packet. Unbelievable!

What happens when you cut back and cannot cut back anymore, yet you need to clear your debts? I say, take a good look at your income.

Employment Terms

This is the easiest option. My informal research shows that most of us go to work every day but aren’t really employed, there’s no legal document that confirms your employment, or it’s terms. . As a result, it’s very difficult to plan for your income because you don’t even know when or if you’re entitled to a pay increase. Most employers will refuse to issue contracts to give them the freedom to fire staff at will, but this isn’t even legal.

First step to increasing your pie is to seek clarity on your employment terms. When is the last time you got a pay rise? Between that time and now, what value have you added to your place of employment?

If indeed there has been growth, then it’s within your right to ask for a pay increment. In the next post, I’ll write about how to ask for a pay rise in these hard economic times.

Alternative Income Sources

The second option is to look for other ways to expand your income base. You could take up a part time job in the area you’re skilled at or convert a hobby into a business (more about this in a later post).

Most of us are very good at what we do professionaly, and were we  to get a little bit more focused, we could use the same skills after work to earn additional income. This is popularly known as moonlighting. We are at a point as an economy where there’s an explosion of small businesses, and at the same time a big squeeze in terms of spending such that most of these businesses would prefer to hire you on a part time basis to render a service as opposed to going for a big company.

Employers shouldn’t be reading this, but working for a small business over the weekend can open you up to better career prospects as this businesses grow, or even give you the necessary experience to branch out as a consultant. An example of jobs you can do:

Accountants – Offer accounting services to SMEs. If you’re a CPA you can sit a few papers to qualify as a CPS too and offer secretarial services at a reasonable price as most companies can’t afford to hire a firm for this function. A deeper study on taxation matters could make you a tax consultant to help both individuals and companies file their tax returns.

Information Technology – This is a large feild but my rookie understanding is that they’re interconnected. Every other institution is training in IT and would need part time tutors, cheap web design services for small companies, you could get a few students, train them in IT equipment maintenance and offer this service at a reasonable price etc.

Architecture – You could partner with small construction companies to offer a bouquet of services to potential clients, offer your design services to individuals and small companies looking for interior designers.

I think the possibilities are endless if you get a little more creative than I have been.

In conclusion, reducing  your spending is one way to increase your spare cash, but also increasing the size of the pie is another. Word of caution though: When you do get that pay increase or the side job, save the extra earnings. Our tendency is to adjust our spending to reflect newfound ‘wealth’ which leaves us at the same point we were.

Have you ever taken a side job or started a business on the side? How did it work out? What are you doing to cope with the tough economic times?