Dennise Williams, Staff ReporterDear Stretch Your Dollar:
I AM REALLY, really desperate for your help. I am 23 years old. I live with my mom and baby sister. I do not pay rent. The only bill I pay is a phone bill and this runs up to about $3,500 sometimes.
I am working and currently going to school. My school fee is $26,000 in all but I am paying it on a payment plan basis where I pay $8,000 down and $3,000 for 7 months.
I am also in two partners, one where I pay $5,000 every month with will finish in November and another where I pay $1,000 per week, and this finishes in February.
I have a bank book but no money in it.
I make $22,669 per month. I do not know how to save. My problem is I just hate living this way, hand to mouth. Please advise me of some ways that I can manage my money better. As you can see I don't have a lot of responsibilities so you must be wondering why I can't save. So you see I am really need of help.
MY FINANCIAL PICTURE
Salary $22,669
Phone bill $3,500 (max)
Partner (1) $5,000/month
Partner (2) $1,000/week
School $3,000/month
Yours truly,
Camrin Lopez
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PAUL CHEN-YOUNG & CO STOCKBROKERS
Dear Ms. Lopez,
Step 1: Cut Back
It is my observation that your phone bill is high, which could be reduced considerably. Talk is expensive. Those funds could be used to invest and grow your money over the long term.
Step 2: Save then Invest
Several options are available to you:
Unit trusts which offer a variety of unitised funds tailor-made to meet your unique risk tolerance.
The stock market which provides a high return for the risky investor.
Fixed income deposits, available through financial intermediaries, such as, money market brokers and stockbrokers; credit unions, insurance plans.
Local indexed funds JMMB Select Fund which will provide a passive entry into the stock market since the valuation of the fund is based on the Jamaica Stock Exchange (JSE) 15-most liquid stocks and mirrors the movement in the JSE index.
That said, unit trusts are usually safe for small investors who do not want to take on the other riskier investments such as the stock market. Unit trusts provide a sort of buffer as these institutions invest in a number of asset classes, for example real estate, fixed income securities and equities, or a combination thereof. Local unit trusts include Jamaica Unit Trust, Pan Caribbean Asset Management, Barita Unit Trust and Dehring Bunting & Golding Unit Trust.
Step 3: Rethink Your Partner Contributions
In order to avail yourself of more funds, it will become necessary to withdraw from the February partner at its end. Partner plans are an excellent way to save. However, given the time value of money, it would be in your best interest to get an early "draw" so it can be invested early to gain more returns. Once you are out of the February partner, you will have an extra $4,000 per month for investment purposes, which could increase your wealth, if placed in the right investment vehicle.
Step 4: Be Disciplined and Pay Yourself First
One cardinal rule which we should always remember, is to pay ourselves first, once we get that monthly pay cheque. This can be achieved via monthly deductions to any one of the following: money market brokers, unit trusts, credit unions and stockbrokers as mentioned before. Insurance payments are usually done through salary deductions.
Based on the foregoing, and without knowing your risk profile, I suggest you restructure your monthly disposable income as follows:
YOUR NEW BUDGET
Salary $22,669
Nov. Partner $5,000 per month
Credit union $2,000 per month
Equity linked
unit trust $3,000 per month
Phone Bill $2,000 per month
School $3,000 per month
Fixed Deposit
A/C with a
money market
broker $5,000 per month
Miscellaneous $2,669 per month
At the end of the November partner, that $5,000 per month could also be used for investment purposes to generate an even greater return by investing more in unit trusts. As you become more confident and learn more about investment options, then certainly you could venture into the stock market having accumulated some amount of money in your fixed deposit account.
Donette Falconer-Johnson
Senior Equities Trader
