Home' Trinidad and Tobago Guardian : January 4th 2015 Contents JANUARY 4 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | 5SBG
considered a choice area may be above
his current salary.
Both Williams and Dean said that a new
car may also be out of reach for Jimmy and
they thought he should consider a pre-
Regarding Jimmy s savings programme,
Williams said Jimmy should set up separate
accounts, one for receiving his salary, one
for his spending and another for his savings,
preferably without ATM access.
"If he decides to put aside $1,000 to buy
the things he likes (clothing and electronics),
when that money is done, it is done. Because,
if he develops the habit of co-mingling his
funds early in life, he could be setting himself
up for a vicious cycle," said Williams
He also said Jimmy should consider getting
"It is a system of systematic savings. It
will cost less as he is in the best of health.
It can be used to acquire his home later. If
I were a bank manager and I saw Jimmy
paying his policy over five years, Jimmy
would look better in my eyes."
Dean said Jimmy may be forced to pri-
oritise what he really wants most: to move
out of his parents house, get a new car or
have the latest fashions and tech accessories.
"He has to bear in mind also that the bank
would not allow his monthly payments to
cross 40 per cent of his gross salary (debt
service ratio), that is if they decide to extend
such a facility to someone in his position
without a credit history, no savings or a
brief job tenure. He needs to demonstrate
to a lender that he can (of his own volition)
inculcate good money management habits."
Debra, 31, has accumulated a huge amount
of debt. A little more than half of her
$20,000 a month salary goes toward paying
debts that total $100,000. Student loans
make up some of her debt. Meanwhile, others
are connected to credit cards and to a busi-
ness investment that did not pan out. Then,
there is her car. It is five years old and she
is still paying off the loan she used to buy
it, but wants a new one. However, she also
wants to make a significant dent in her level
of debt. What should Debra do ?
Williams said Debra needs to be careful
since her situation is serious and, if not
handled properly, could entrap her perma-
Like Jimmy, he said a new car was out of
the question for Debra.
Both Willams and Dean advised Debra to
consolidate her debt.
"One approach is to consolidate all debt
at an overall lower average interest rate for
a fairly long period of time, which would
free up disposable income for savings. Some
of this savings will also come from the reduc-
tion in interest cost from eliminating expen-
sive credit card debt..Another approach that
Debra can take is to try to systematically
pay off each loan starting with the smallest
one, then rolling its payment over into the
next, higher one," said Dean.
Dean also said Debra could consider con-
verting any other financial assets she might
have whether they be fixed deposits, shares,
mutual funds or insurance cash values to
accelerate her pay off rate.
Debra may also want to negotiate a "pre-
payment" provision when she consolidates
her loans, said Williams.
"That will allow her to make excess pay-
ments without incurring a penalty."
The reasoning here is that if Debra has
extra funds during the month, she could
put them towards paying down her debt.
Debra also needs to make a serious lifestyle
"She has to also look at her level of con-
sumption. If she is an avid shopper, this
may have been the root cause of the problem
and will also be the root solution. Regarding
her car, a five-year-old car is still a new car
unless it s in a bad state of repair. So running
down another depreciable asset is not a good
wealth-building strategy," said Dean
Larry is 57 and is approaching the final
years of a long stint in the public service.
Having been appointed as permanent sec-
retary---the highest position in the public
service---he has been able to give his family
a high standard of living.
He is worried, however, that his pension
may not be enough to maintain his family s
lifestyle. While his three children are adults,
he still supports the two younger ones as
they finish their tertiary education. Although
his wife works, she too will be heading into
retirement soon and throughout the mar-
riage, he has been the primary breadwinner.
Larry hopes to increase his savings to create
a buffer for when he goes into retirement.
He is also not against consultancy work dur-
ing his retirement, although he hopes he
would not have to. Is Larry s strategy heading
into retirement realistic and is there anything
else he can do to ensure his comfort?
Williams said a term Larry must imme-
diately become familiar with is the "retire-
ment income deficit."
This is the gap between Larry s last work-
ing salary and what he earns during retire-
ment. Depending on how wide this gap is,
Larry may have to make adjustments to his
"The reality is even though Larry s ego
may have been bolstered by being man of
the house, he and his wife need to have a
serious conversation and soon. They must
look at their fixed and discretionary income
and decide what things they can continue
to do. If they dined out twice for the month,
they may only be able to do that once now.
They may also have to consider their mem-
bership at clubs and the like."
Williams said if Larry s children are pur-
suing under-graduate studies, he needs to
inform them that he will not be able to fund
any post-graduate work. Dean said the chil-
dren may have to look to other options to
fund their studies such as scholarships.
To fill the gap between his previous and
retirement income, Larry could also consider
converting parts of his home for rental or
even consider a reverse mortgage.
"Scotiabank now pays you a monthly
income based on the equity in the property.
When you die, the property goes back to
Scotiabank," said Williams
Depending on the size of Larry s retire-
ment income deficit, Williams said Larry
may have no choice but to go into consul-
tancy, in which case, he should keep his
expenses low. He can also engage in other
kinds of work, one option being a part time
at his old company.
Dean said before he leaves full-time
employment, Larry should work out a busi-
ness plan and be sourcing work through his
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