Dennise Williams, Staff Reporter
OUR READER this week is a potential homeowner. Let's see how his finances pencil out.
Dear Stretch Your Dollar,
CAN I get a mortgage within the next 10 years? I am a 36-year-old electrician and my wife is an auditor. We have no children. Our total monthly income is $134,000 before tax.
Monthly Income before Tax: $134,000.00
Tax @ 25% $33,500
Net Salary $100,500
Expenses:
Rent ($23,000)
Utilities / Food ($15,000)
Loans ($26,500)
Total Expenses ($64,500)
Funds available $36,000
Total Savings $21,000
Monthly Savings consist of:
My JMMB $15,000
Joint JMMB $1,500
Credit Union $2,500
First Caribbean Bank
$2,000
We also have two cars; I am currently pursuing an Engineering degree. We would love to own our home within 10 years possibly through a mortgage.
Can you advise on a plan to achieve these goals?
Sincerely,
Michael Grant
RECOMMENDATION BY PETA-ROSE HALL OF BARITA INVESTMENTS LIMITED
These individuals are saving 21 per cent of their after-tax salary of approximately $100,500. This is a significant percentage. Their aim is to save the deposit for the purpose of buying a house in 10 years. This length of time is long enough to support a mixed portfolio one which has both interest-bearing instruments and equity (shares).
An important factor to be considered is how to ensure that over the next 10 years, the value of their savings is not eroded by inflation. Currently all their savings/investments are in interest-bearing instruments.
The data shows that over long periods of time, interest-bearing instruments perform poorly against inflation, and that equity over long periods of time far outperforms inflation and other assets.
This young couple should concentrate on growth in their investments. They are in the prime of their working years and ought to take some risk, as they can recover from potential declines in the stock market. They need to introduce equity into their mix of assets. Equity will allow them to hedge inflation effectively.
Diversification by asset type will help to balance risk and return on the portfolio. A concentrated portfolio of any type is the most risky. The potential returns on a mixed portfolio are sure to be greater than just holding interest-bearing instruments alone.
An experienced portfolio manager such as Barita Portfolio Management can establish a portfolio to meet their needs.
ACTIONS TO TAKE NOW
Look to pay down debt.
Take funds that went to monthly debt to increase monthly savings/investments.
Consider investing in the stock market to achieve growth required.
Make an appointment to speak to a financial adviser about the right stocks to pick and other types of investments.
Sunday Business challenges the financial experts to give a money makeover to our subjects. The experts will analyse the income and expenditure and recommend ways to cut costs or increase income. And so, we invite you, the public to share your money woes to '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 Business Desk
922-6223
Email 'Stretch Your Dollar'
dennise.williams@gleanerjm.com
