Are you living beyond your means? Reduce expenses to create wealth
Published: Sunday | March 8, 2009
Sharon has two very important goals. First, she wants to ensure that her three children get the best start in life. Second, she wants to build on land that the family already owns. Fortunately, Sharon has a strong support system that frees her salary from rent, food, car maintenance and insurance. This has allowed her to focus on savings and her children.
However, Sharon has the burden that we all are familiar with - high-interest credit-card debt, which represents 31 per cent of her budget. Additionally, she is well advised to review her portfolio and ensure that she is getting the best return on her investments for her risk profile.
Here, she gets some advice from the personal-finance team at Mayberry Investments on how to reconfigure her spending habits.
Mayberry presents three suggestions to assist Sharon in growing her portfolio over the long term.
business@gleanerjm.com
Client: Sharon
Age: 34 years old
Profession: Communications officer
Goals: 1. Ensure university education for her three children
2. Build house on land held
Analysis of Income and Expenditure
Income: $90,000.00
Outflows % of total Expenses
OMNI (one-year-old child) $2,500.00 - 3
OMNI (three-year-old child) $2,500.00 -3
OMNI (five-year-old child) $2,500.00 - 3
Guardian Life Policy $2,500.00 -3
Credit card A ($100,000 balance) $23,000.00 - 27
Credit card B ($24,000 balance) $3,000.00 - 4
LIME $2,500.00 - 3
Jamaica Public Service $3,000.00 - 4
National Water Commission $1,200.00 -1
Partner $25,000.00 -30
Total expenditure - $84,367.00
Surplus $5,633.00
Debt on credit cards 31%
Suggestions to build wealth:
Suggestion #1: Grow and protect funding for education. Work with your financial adviser/banker to ensure the highest returns with the least risk for your children's university savings. Note that with the OMNI product the returns available range between 6.5 per cent and 15 per cent. This affects the amount that will be available for your children as they begin their tertiary education. Future value of OMNI Policy @ 6.5% Payment per period: ($2,500 X 12) $30,000 Number of periods: 12 Interest rate per period: 6.75% Future value: $528,823 Future Value of OMNI Policy @ 15% Payment per period: ($2,500 X 12) $30,000 Number of periods:12 Interest rate per period: 15% Future value: $870,050 Future Value of OMNI Policy @ 6.5% Payment per period: ($2,500 X 12) $30,000 Number of periods: 14 Interest rate per period: 6.75% Future value: $664,648 Future Value of OMNI Policy @ 15% Payment per period: ($2,500 X 12) $30,000 Number of periods: 14 Interest rate per period: 15.00% Future value: $1,215,141 Future Value of OMNI Policy @ 6.5% Payment per period: ($2,500 X 12) $30,000 Number of periods: 16 Interest rate per period: 6.75% Future value: $819,429 Future Value of OMNI Policy @ 15% Payment per period: ($2,500 X 12) $30,000 Number of periods: 16 Interest Rate per period: 15.00% Future value: $1,671,524 Suggestion #2: Maximise monthly savings to build dream home. Sharon has developed the discipline to save $25,000 per month. However, we note that partners do not pay interest and this is a key component to wealth creation. We note that, at a conservative interest rate of eight per cent, the growth of the $25,000 would be enough to pay for the building of her home in less than 10 years. Future value of $25,000 per month ($300,000/year) Investment per year: $300,000 Number of years: 10 Interest rate per year: 8.00% Future value expected: $4,345,969 Suggestion #3: Make an extra payment to bring down credit-card debt. In order to remove the high-interest debt, we suggest that Sharon stop using her credit cards and concentrate on paying down her debt. Again, we point to the discipline of making payments of $27,000 per month and suggest that she take the $5,663 surplus in her budget to make at least ONE extra payment on each credit card. Credit Card A
Extra Payment No Extra Payment
Current payment: $23,000.00 $23,000.00
Current interest payment 48% 48%
Current balance $100,000.00 $100,000.00
Extra payment $5,000.00 $ -
Total time to pay off debt 4 months 5 months
Total payments $112,000.00 $115,000.00
Total interest $12,000.00 $15,000.00
Email queries for Mayberry to Dennise.Williams@mayberryinv.com.
