Managing costs - Cost of running a home

The cost of owning and running a home in Kenya has gone up significantly over the past years. The increase in owning and running costs was driven by an increase in inflation, loan and mortgage interest payments besides other related factors. Gas, fuel and electricity charges have been rising and a lot of volatility has been observed in such and other related commodities.

Loan and mortgage interest payments are still the single biggest cost of owning a home, accounting for 27 to 66 per cent of the total expenses. Electricity and gas bills are the second biggest cost at 19 per cent, up from 14 per cent, followed by taxes and domestic rates at 17 per cent. Overall, the cost of owning and running a house takes up roughly about 23 to 66 per cent of earnings for someone on an average salary. Suren Thiru an economist said: "With loan and mortgage interest payments increasing over the past year, the annual cost associated with owning and running a home may increase significantly. Such a sizeable increase in the costs of running a home will pile pressure on household disposable income, providing some financial stress to homeowners."

Required

1.Explain the direct and indirect costs of running a home and their impact on the family finances.

(10 marks)

2.Analyze how the above cost information can be used as a basis for planning to save for a family holiday.