Home' Trinidad and Tobago Guardian : March 8th 2015 Contents MARCH 8 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
FINANCIAL ROAD MAP | SBG7
Savitri is a widow with two
teenagers Mandy and
Vani. She is 48 years old
and has been working for
the Government for the
past 12 years. Just before
her late husband Prakash
died, he managed to
complete the roof of their house. The couple
financed the construction from savings and
Savitri decided to give up renting, moved
into the incomplete house with the girls and
continued building in phases; again using
loans, savings and then the proceeds from
Prakash s $20,000 life insurance policy.
Savitri is also very frustrated with public
transportation and dreams of having a car but
doesn t see how this is possible. She also des-
perately wants to finish the home and have
money for her girls education.
After deductions, Savitri takes home just
under $5,000, but she has been living from
pay cheque to pay cheque for years. Her
employers are about to increase her pay by
$750 plus a retroactive of $35,000. This is a
welcome windfall especially as she wants to
upgrade some furnishings, treat the family to
a trip to Tobago and put some money in an
annuity she started two years ago at $200 per
Out of the monthly increase, she wants to
increase to $3,500 her deduction to a credit
union, where she has $90,000 saved in shares.
Savitri has a renovation loan of $75,000, which
she is scheduled to repay in four years.
Savitri is not clear how to balance her goals
with her finances and wonders what will be
her fate at retirement.
Nick's Assessment & Advice
Whilst the information above gives insight
into Savitri s situation, it is not completely
adequate to render meaningful advice and we
need to make some educated guesses to come
up with a workable strategy.
One of the most important missing pieces
of this puzzle is the nature of her ownership
of the property.
According to some traditions children are
allowed to build on part of a larger parcel of
land owned by their parents without any doc-
umentation. This means that seeking financing
from a financial institution using the property
is virtually impossible.
Furthermore, if there are no approvals from
regional corporation and Town and Country
departments, this presents an added challenge
to getting capital. Could this have been Savitri
and Prakash s dilemma?
On the other hand, some people believe it
may be cheaper to use savings and small
loans---usually at much higher rates for shorter
periods of time and at higher monthly pay-
ments per $1,000 borrowed---rather than using
a long-term mortgage financing, which affords
them much more comfortable payments and
lower interest rates.
For this reason, many people live in houses
that are completed only when they retire and
what they save in interest they may have paid
in inflated labour and material cost if done
over on a piecemeal basis.
If Savitri had a clear and straightforward
property title with proper plans and approvals,
she may be able to approach a lender to clear
off the existing loan and obtain additional
funds to finish the project and even have
money to purchase a car or pay school fees.
In fact, as we have mentioned in previous
columns, rent income is one of the best sources
of retirement income. If Savitri could adapt
the building to accommodate an apartment
or two then she could make up for her modest
Maybe the loan she has for renovations is
actually backed by a mortgage if so she can
simply refinance and extend the period to
reduce the monthly payments.
Experience tells us that if a person has sub-
stantial savings at a credit union, more than
likely the debt they owe will be at this insti-
tution. In Savitri s case it is not unreasonable
to think that a major part of the $3,500 credit
union deduction relates to such a debt and if
that is so then she could use her shares to
offset the loan and free up her cash flow.
Putting more money on shares actually
increases her borrowing power meaning more
debt (some credit unions offer 2:1 loans---two
dollars borrowed for every dollar saved).
If Savitri were to do this, she may actually
have a higher debt load as opposed to leveraging
her property as collateral.
Credit union share-based-loans are better
suited for shorter term, smaller needs---for
longer term or larger needs they could offer
mortgage financing---leaving savings free and
Available funds (savings, lump sum
& salary increment)
Savitri disclosed that she wants to use the
lump sum to upgrade furnishings, go to Tobago
and top up her annuity but she also has other
competing goals of completing the house, pur-
chasing a car and funding the girls education.
Luckily, in T&T education, is virtually free so
Savitri could rest assured that this goal is cov-
The money she has in savings, over and above
her debt ($90,000-$75,000=$15,000) in addi-
tion to the retroactive payment (if after tax)
will avail her of $50,000 ($15,000+$35,000).
The $50,000 in no way could satisfy all of the
items on her list and so she has to clearly identify
her needs versus her wants.
Windfalls often stimulate our wants to the
extent that we overlook our needs, so Savitri
has to really ask herself: Which of these items
are truly needs and which are wants? She has
the difficult choice between the things that
would give her short-term pleasure and the
longer-term things that provide enduring: joy,
comfort and peace of mind.
A lump sum is a great opportunity to fast
track some goals. Putting some money on her
annuity is a great idea but may not achieve as
great an impact as putting money towards pur-
chasing a car to save on time and stress; again
if this is a need and not a want. She also has
to leave enough funds for emergencies. In this
case, she could set aside at least $10,000 leaving
$40,000 for the highest most impactful goal.
Retirement & life insurance
Apart from the possibility of collecting rent
and annuity proceeds, Savitri s main retirement
income will come from her government pen-
sion and National Insurance at age 60. So it
is instructive for her to gather information on
these two benefits to give her a clearer picture
of the future.
One thing that is absolutely important as
a single parent with dependants still in school
is having adequate life insurance. Savitri is no
stranger to the loss of a breadwinner as all
she collected from Prakash s passing was
$20,000. She should ensure that her insurance
portfolio is reviewed by a professional and
possibly direct part of her increment to this
Nicholas Dean (Cer-Fa) is a financial coach
and mentor who is the managing director
of the Financial Coaching Centre. He can
be contacted at:
Balancing goals and finances
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