Planning and saving, but still frustrated

Oran A. Hall, Gleaner Writer

QUESTION:

I look forward to reading your column every Sunday. I am 33 years old, single, with no children. My net monthly income is J$40,000, distributed as follows: savings - J$3,000; pension - J$3,000; loan repayment - J$3,400; 15-year investment - J$3,400; utilities - J$2,400; travelling, lunch and other expenses - J$10,000; allowance - J$1,000; supermarket - 5,000; and extras -J$8,800.

I started pursuing higher education but had to discontinue because of financial constraints, but I'm currently repaying that loan.

The 15-year investment plan is with a reputable organisation, and the money will be invested in blue chips, with an estimated value of about J$900,000 after maturity date in 2026. Do you believe this is a wise investment?

I also started my pension plan last April.

I make it a personal habit to make a budget each month. I make sure to take out all the expenses that I have listed above. However, I realise that sometimes the extra money that I should have at the end of the month, I really don't see it. I also make sure that I purchase things that are necessary, and I don't waste money. How can I further adjust my budget so that I will still have my extra money left back?

I thought about opening an account, for example, with a credit union, where I would deposit a specific amount for a specific time. This will eliminate the urge to withdraw from the account until it matures. I recognise that I really need to save some more money. I'm willing to make the sacrifice. Is this also wise planning?

I wish to continue higher education but I don't know where to turn for financial assistance. Honestly, I really get frustrated at times because of these issues.

- Malcolm

PFA: Your situation is typical of persons at your stage of life. Even so, you are way ahead of so many, considering that you seem to have a financial programme.

Persons in the early career stage of life have so much to accomplish - completing higher education, starting a family, acquiring basic personal assets - yet there never seems to be sufficient money because of the limited years of work and relatively low incomes. It is not unusual that frustration often sets in.

But you are doing many things right. You operate on a budget and have put the most important items at the top.

You have, for instance, put savings first, followed closely by pension savings, debt servicing, and investment. These items are key to building a solid financial future. Your savings, pension savings, and investment are 23.5 per cent of your net income, and you generally have a surplus that is about 22 per cent of your net income.

Your head is in the right place.

You have recognised the value of education, which is important in putting you in a position to increase your earning power, among other benefits.

The 15-year instrument you mention seems to be for growth, which is useful to combat inflation. Be careful about the J$900,000. It is a projected figure and is, therefore, not guaranteed. Bear in mind that many things can happen to make the final figure higher or lower than what is projected. It is sensible to have a professionally managed long-term portfolio.

It is interesting that although you generate the J$8,800 surplus and generally spend wisely, you seem to let your guard down sometimes and overspend without being able to determine how it happens. Opening an account such as you have mentioned is a good way to counter this, but this approach will only be useful if you resist the temptation to use the funds when they mature.

Separate savings

You may opt to have the funds go straight to an account from your salary to resist the temptation to encroach on your savings. How about starting with the $8,800? You should keep a tighter record of your spending to allow you to stem leakage and identify it if it does occur. Resist impulse buying and make your budget for the full year.

Your expenses do not seem unreasonable, but you are fortunate in that you do not seem to be paying rent. Maintain or increase your savings rate while that remains so.

It is unfortunate that you are not now in a programme of higher education, though you are currently servicing the loan.

The credit unions, banks, and the Students' Loan Bureau, and some smaller financial institutions, offer education loans, but the reality is that such loans are often burdensome. You may want to check on the availability of scholarships or grants, delay your studies while you save more, work and study concurrently, or qualify yourself in stages. Some employers do invest in the training/education of their employees.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial planning. Email: finviser.jm@gmail.com