Dennise Williams, Staff ReporterSunday Business challenges the financial experts to give a 'money makeover' to our subjects. The experts will analyse income and expenditure and recommend ways to cut costs or increase income. And so, we invite you to share your money woes with 'Stretch Your Dollar' and get ideas on how to better manage your money. Write to:
'Stretch Your Dollar'
C/o Gleaner Business Desk
7 North Street
Kingston
Fax: 'Stretch Your Dollar'
C/o Gleaner Business Desk
922-6223
Email: 'Stretch Your Dollar'
dennise.williams
@gleanerjm.com
THIS WEEK we look at two case studies from different income levels. Yvonne takes home $31,000 monthly, while the Frankson family brings home $136,000 monthly. Their problem is the same the money is not enough.
Our financial experts this week are Cosmond Jackson, regional vice-president of Dehring, Bunting & Golding and Karen Fitzritson, director of Fitzritson & Associates.
CASE STUDY #1
THE DISAPPEARING SALARY
Yvonne is a teacher who is married, but is the main breadwinner. She is 31 years old. She has two children who attend the school where she teaches and thus her school fee expenses are for her own higher education. She pays a mortgage and not rent and drives a car. Even so, she is dissatisfied with the way in which her money 'disappears' each month. Other than the mortgage payments on her house, she has nothing for retirement or emergency. Her partner draw is just in time to pay outstanding debts.
Income $31,000
Expenses
Food $9,000
Electricity $4,000
Telephone $3,000
Lunch and car
expenses $4,000 - $6,000
School fees $20,000/term
Mortgage $7,000
Partner $5,000
RESPONSE
In instances like these, Yvonne, where you find yourself living from cheque to cheque, the first order of business is to sit down and take stock of what you spend versus what you earn each month. Having done so, your primary goal at this point should be to actively begin amassing a pool of savings that will serve as your emergency fund. That is, look for ways to come out of the 'cheque to cheque' mode. Look for ways to build a sum of money that you can draw on, in the event that you are unable to work for any reason.
How do you go about doing that? By cutting your expenses of course, and yes it is possible.
Here are some solutions that we recommend you use to immediately improve your ability to save some of your hard-earned cash:
SHOP AT THE WHOLESALE
Assuming that you buy your food items retail, you could consider buying wholesale, which could reduce your grocery bill by as much as $1,400.
CONSERVE ENERGY
Seek to conserve on electricity by minimising the usage of certain electrical items, unless they're absolutely essential. Do this with a view of reducing your bill by at least 25 per cent or $1,000 per month.
TALK LESS
You could also aim to limit telephone usage that may realise savings of up to $2,000. Make a note of how much time you spend on the phone and where you call. Make modifications where necessary.
CARPOOL
Spending too much on gas for the car? Look at car-pooling with a neighbour who works in your area, thereby minimising fuel expenditure. Look at lunch options as well. Do you buy lunch on the road at almost $200 a day? Aim to bring lunch from home. The ultimate savings? At least $1,000 a month.
DROP THE PARTNER PLAN
As unusual as this may sound, you may need to look at your participation in the partner plan. Though it can be beneficial, the funds placed in this plan may prohibit you from paying your expenses, so you may want to discontinue participating in it.
NEW BUDGET
Income $31,000
Expenses
Food $7,560
Electricity $3,000
Telephone $1,000
Lunch and car
expenses $3,000 - $5,000
School Fee $20,000/term
Mortgage $7,000
Total Expenses $28,227.00 -$30,227
Given these amendments, your surplus should be between $773 and $2,773 per month.
This much-needed surplus can now be used to begin accumulating your emergency fund, which ideally should be the equivalent of three months' salary.
Once your emergency fund is in place, you can now begin to focus on taking your surplus funds and investing them in products that suit your financial needs. In order to ensure that your investments will help meet your particular goals, seek the help of a licensed financial advisor who can guide you through the maze of options available locally.
Good Luck!
CASE STUDY #2 - TRIM THE FAT!
Joan & Malcolm Frankson are married with two children. Malcolm, 42, is a self-employed businessman who earns $100,000 per month. Joan, 30, is a secretary who earns $36,000 per month after taxes. The couple owns three vehicles. They want to maximise their earnings and travel when Malcolm retires at 65. They want to make sure that they have enough money for their children's university education. They also want to have adequate emergency funds. Please see Chart 1.
RESPONSE
As you will note, their combined income is $136,000. Their regular monthly expense is $134,500, and the pro-rated monthly expense is $33,500.01, thus a total expenditure for the month is $168,000.01. There is a net deficit of $32,000.01.
This is not uncommon in the Jamaican scenario, however, the Frankson's cannot panic, they have to get smart.
THE PROGNOSIS
In evaluating their regular monthly expenditures, the following factors have been observed:
1. 13.24 per cent of their salary is contributed to utilities and maintenance.
2. 7.35 per cent is contributed to lunches for both the children and themselves.
3. 22.06 per cent goes towards their monthly grocery bills.
4. 14.71 per cent of their salaries are contributed towards clothes and shoes.
AREAS TO ADJUST
1. CLOTHES
a. Joan has to shop more economically. There is a fabulous word called 'accessorising'. If her organisation does not provide her with uniforms or uniform allowance, there is that 'darling' magic formula of black, navy blue, brown/beige. Mix and match them with a splash of colour. Every other month add to the collection.
b. For the kids, buy clothes and shoes a little larger so they last longer. Don't get caught up with the fads!
c. Malcolm also needs to create a uniform for himself, although as the head of his organisation he has to dress the part.
Spend no more than $8,000 per month.
2. FOOD
a. Buy in bulk.
b. Cut out the coupons.
c. Look for those sales.
Spend no more than $20,400 per month.
3. UTILITIES
Practice creative conservation. The Franksons need to reduce this line item to between $10,000 and $12,000 per month.
4. LUNCH MONEY
a. Take your lunch to work. When Joan and Malcolm spend $300 per day each for lunch, it adds up.
b. Treat yourself once or twice a week to lunch.
c. Reduce the combined lunch expenditure by half, to $5,000 per month.
5. CREDIT CARD
Reduce this to at least $14,000 per month.
OTHER CONSIDERATIONS
VEHICLES
1. The Franksons own three motor vehicles. I assume one is a company car. If the business can afford it, transfer the titles of all three cars into the company.
2. If one of these vehicles is a spare, consider selling it and invest those funds towards retirement.
HEALTH INSURANCE
3. I also suggest that the company cover for the health insurance for the family. Please see Chart 2.
RECOMMENDATIONS
HAVE A SAVINGS PLAN
Pave the way for your future first! Malcolm and Joan should put aside $30,000 per month for investments towards their retirement.
a. Jamaican dollar mutual funds
There are several options in terms of pooled fund investments to match their risk tolerance. Companies such as Jamaica Unit Trust, Sigma Unit Trust, Barita Unit Trust, JMMB Securities and DB&G offer funds that match investors' risk tolerance.
b. Hard currency funds
In addition, there are US$ denominated mutual funds offered through the Bank of Nova Scotia, NCB Capital Markets, the AIC funds and Grace, Kennedy Co.
CREATE AN
INVESTMENT PLAN
Consider investing directly into the stock market.
a. Low risk tolerance
Start by investing in income stocks and blue chip instruments as these equities have a high dividend yield.
b. High risk tolerance
Consider investing in aggressive growth stocks where their performance on the market matches or surpasses the performance of the JSE Index. These securities are good long-term investments and they have time on their side.
PREPARE FOR
THE FUTURE
Savings of $11,500 should be invested in an educational fund for the children to pay for annual school fees, books/uniforms and also to fund their tertiary education 10 years down the road. Financial institutions such as NCB, through their Omni product, and BNS, through their Scotiamint product, offer this type of facility. One also has to be mindful that many insurance companies today provide investment policies geared towards these needs, therefore this is also an option worth investigating.
