OMAR DAVIES recently bared his figures to the nation.
In his $210 billion budget presented on April 18, the Finance Minister laid out the shape of things to come for the next 12 months. Since then the country or at least those in Parliament, finance, media and areas dependent on government funding have been abuzz with who got how much and whether it was enough.
Given all the talk about budgets and taxes, Lifestyle decided to look at money matters though in a less grandiose way. We asked three people, one each in Montego Bay, Manchester and Kingston, who are struggling with personal financial issues to tell us how much money they make, how they spend it, and their financial goals. (For obvious reasons their names have been changed). Then we asked money expert Peter Muir for his diagnosis.
Muir is a Harvard University graduate and an independent investor who walked away in 1997 with the Jamaica Stock Exchange award for outstanding performance in the securities examination. He describes himself as a savings fanatic.
LOUISE GRANT, 54-YEAR-OLD TEACHER LIVING IN MONTEGO BAY. SHE HAS ONE CHILD WHO HAS A JOB AND LIVES AT HOME AND ANOTHER IN UNIVERSITY.
TAKE HOME PAY $34,800
Monthly Expenditure
Mortgage $2,500
Travelling 4,300
Food 8,000
Partner A 2,000
Partner B 5,000
Omni investment 1,000
Credit card 1,000
Paid help 3,000
House needs 1,000
Repayment student loan 2,000
Repayment to credit union A 10,000
Credit Union B 3,000
Tithes 3,200
Child at university 1,000
Total Expenditure $47,000
Comments: Some months some bills are paid, some months others are not.
Mrs. Grant's Assets
Savings in bank $ 2,000
Credit Union A shares 14,000
Credit Union B shares 13,000
JTA 7,000
Home 1.4 million
Car 70,000
Comments: Her goals include buying a new car and adding a self-contained apartment to her home. Rental from the apartment is to be used as retirement income.
Peter Muir's diagnosis:
By getting rid of high interest debt (especially credit card) and by doing better with her assets, Mrs. Grant may get some relief and even achieve her goal of adding a new flat to her home which will provide a source of retirement income.
Nothing can be done about the utilities and travelling, although most Jamaicans do waste light, water and cooking gas. (You can lose as much as half of every gas cylinder if you do not turn off after use).
She should not be in a partner. It can only be useful if the person has no willpower to do any savings at all. And, unless you get an early draw you get absolutely no benefit. The only thing worse is putting your money under a mattress. Mrs. Grant's $7,000 in pardner dues would be better spent getting rid of her credit card debt which carries an interest rate of at least 40 per cent. By carrying a balance on her credit card and only paying the minimum, Mrs. Grant is losing her shirt.
She also needs to withdraw her credit union shares on which she is earning no interest and apply these funds to her outstanding loan. She must try as much as possible to get rid of this loan.
Mrs. Grant is thinking of securing a bank loan to refinance her debts, but this could be a mistake in the long term. Bank loans are usually more expensive than loans from a credit unions sometimes by as much as 170 per cent in real terms. The only way that this option makes sense is if the new loan is at a cheaper rate than that of the credit union and if interest is calculated on the reducing balance. This is not likely to be available from a bank, however. She could seek refinancing from her own credit union, using the shares of another member as guarantor.
Forget about the new car, she cannot afford it. As long as the old one keeps rolling and maintenance costs are not too high, keep it.
She made a smart investment when she bought her house. It means that now she is paying a mortgage which is lower than rental rates. Adding a flat is an excellent idea once she acquires some savings.
Mr. Muir's parting shot: The Omni investment is a good thing, but her $1,000 monthly saving might be safer in a Unit Trust and the gain would be at a higher interest.
WINSTON HARVEY, 40-YEAR-OLD
SINGLE DAD LIVING IN KINGSTON
Take home pay $85,000
Monthly Expenses
Rent $25,000
Car payment 13,000
Child care 4,000
Food 7,000
Gas 3,000
Utilities 4,000
Courts furniture store 1,000 (ends November)
Credit card 7,000
Other loans 7,000 (end November)
Miscellaneous14,000
Savings 0
Total Expenditure: $85,000
Comments:Miscellaneous includes entertainment, books, laundry. There are also periodic expenses such as school fees, books and clothes.
His goals include starting short- and long-term
savings plan but his wondering about his best options credit union, Scotia Mint, National Commercial Bank's (NCB) Omni?
Peter Muir's diagnosis:
Mr. Harvey lives from pay cheque to pay cheque and has no long term savings habits. He pays $25,000 for rent a very high amount for a property which is not his own.
Maybe this is the type of residence which suits him. However, if he has a car, he can find apartments which are just as luxurious at half the rent in the hills and other suburban areas of Kingston. Buying his own home would be a good investment for this single Dad. Rents increase but mortgages, as time goes by, will be a smaller portion of your earnings.
Mr. Harvey has a credit card payment of $7,000 each month. He needs to repay the balance before the due date to avoid the high rates. One should never borrow money at high interest rates unless it is beneficial for one's future, as in student loans.
The only way to use a credit card is to pay off all the balance before the due date. The purpose of this means of financing is NOT to get credit and then pay it back at extremely high interest rates. If properly used, you can actually make a profit off your credit card. Use no more than you can pay back, and while your own cash is earning good interest elsewhere, make use of the interest-free money. Using credit cards can also mean that you get opportunities to win free trips abroad or get discount air fares. Make your credit card work for you, if this is not happening, cut it up.
Mr. Harvey's miscellaneous $14,000 is very suspect. Most of it appears to be wasted. Is he spending it on wine, women and song? He appears to believe in a certain amount of enjoyment. However, he will have to learn to sacrifice today in order to achieve a better standard of living tomorrow.
He is thinking of saving with Scotia Mint or other bank insurance/investment products that usually offer interest rates of 14.5 per cent on a minimum balance of $10,000. However, this rate is specified for only a year, what happens after this? The interest is also only on the investment component of these products. If you want to earn interest on all your money, these are not the products for you, unless you need the insurance.
There are no hard and fast rules as to how much of your income you should save. It really depends on the amount of your income. However, if you can put money towards a tie, you can put the same amount in savings. If Mr. Harvey can spend $14,000 on having fun, he can save the same amount.
For serious savings, he should look at a Money Market or Unit Trust Fund. (See article on best and worst methods of savings).
Mr. Muir's parting shot: You must be willing to do what it takes to ensure that your future is better than today.
LINDA BROWN, SINGLE, 30 YEARS
OLD AND LIVES IN MANCHESTER
Take home pay $40,000
Rent $ 9,000
Car payment 8,400
Tithes 4,000
Gas 2,200
Utilities 4,000
Food 2,000
Partner 10,000
Miscellaneous 500
Total Expenditure $40,100
Comments: She has no savings and uses partner draws to cover such things as insurance, giving financial assistance to her sisters, brother and mother.
Her goals include buying an apartment at a low mortgage rate, adopting a daughter in five years and in the same period getting a newer car.
Peter Muir's diagnosis:
My first thought is that no amount of advice or budgeting will help unless she has a mind shift (for want of a better term) regarding savings. Savings to me doesn't necessarily mean money in the bank. It is whatever it takes to secure a better future and involves sacrifice in the present time. Money in the bank can be losing value and can be squandered in a few days.
Savings can be invested to increase in value to achieve a long-term goal education to achieve a better paying job, buying a home to eliminate the expense of rent down the road, starting a small business, or whatever you can think of to improve your value in the future.
No one interested and serious about savings should be involved in a partner unless the partner draw is intended to achieve the minimum amount required to make a sound investment in a financial institution. Until Miss. Brown's current needs and goals are subordinated to achieving the long-term goal of a better life, there can be no true savings.
No matter how little you earn, no matter how inadequate your income for your present needs, you have to find a way to save something for the future from your paycheque every week, every month and every year.
Mr. Muir's parting shot: I haven't provided any of the advice requested because she doesn't seem to be ready for it. When she is ready she may be the best person to advise herself on how to budget and save, then I would be willing to help her to finetune her plan.
