Home' Trinidad and Tobago Guardian : June 7th 2015 Contents Client Situation
amantha, 30, recently had
a falling out with long-
time roommate Julia to
the extent where she is
considering leaving their
apartment. Her share of
the rent is $2,000 but an
apartment in the same
area will be on the market for $3,500 in two
week s time and she thinks she can afford it.
Sam really wants to live on her own, but imag-
ined that when she finally moved, it would
be into her own home.
She makes a decent salary, currently $15,000
after statutory deductions. Samantha enjoys
travel and her annual trips would take her
credit card from zero to $24,000 in two weeks
flat. She would usually spend the rest of the
year bringing that number back down to zero.
As a young professional she also has a very
active social life and goes out up to three times
per week, each time, having dinner and down-
ing two glasses of wine.
While she is something of a cooking enthu-
siast, Samantha never unpacked her pots from
their boxes since she moved in with Julia. She
eats out almost every day having a protein
smoothie for breakfast, salad or soup for lunch
and dinner at a not-too-fancy restaurant on
She "must" also look the part, so every six
weeks she visits Melissa for a hairdo and has
a facial and manicure as well, costing $1,200
each time. On Saturday afternoons she is often
seen at the mall with a shopping bag in hand
and a $300-$500 outfit inside.
When her car loan of $3,500 stopped 18
months ago, her plan was to increase her
$1,500 annuity (started five years ago) by $1,000
and continue paying $600 in insurances but
that never materialised. She still cannot fathom
where the money is going.
The car she drives gets filled up once per
week with $150, plus she does a service every
six months costing $3,000. Her annual car
insurance is $6,000, due every June. Other
regular bills include Internet, cable; phone bill
and utilities averaging $1,800 per month.
Samantha has absolutely no savings except
her insurance policies and wonders if she is
being realistic about accumulating $150,000
in two years to get into the housing market;
especially if she moves out on her own.
Nick's Assessment & Advice
Beginning with the end in mind
For Samantha to save $150,000 in two year s
time, she needs to set aside $6,250 monthly
(assuming zero interest), which is 42 per cent
of her monthly disposable income. If she is
serious about being a homeowner she will
need to become accustomed to living without
this amount, since, if or when she achieves
her saving objective, she will have to make
Either way, she will need to start thinking
about adjusting her current lifestyle to accom-
plish this or any other goal. How badly she
wants to tell Julia goodbye will certainly influ-
ence her level of motivation to stay the course
over the next 24 months. If she truly embraces
this goal, whether she achieves it or not, she
will still be better off financially at the end of
How to say no
"No or not now" are words Samantha needs
to include in her vocabulary. She has to find
creative, even fun, ways to tell her friends:
"Sorry girls but I m working towards my house.
You understand right?"
By closing this door and putting it behind
her, she will be opening another to a brighter
future. Nicely wrapped up in each "no or not
now" is a confident "yes!" to a better life.
While we have not been given much data
on other aspects of her spending, the numbers
could be imputed from her daily, weekly and
monthly habits. Samantha s lifestyle---or more
precisely her behaviour---will ultimately deter-
mine what is in her bank account. Changing
her behaviour will change her bank balance.
Table 1 makes some estimates of her food
and entertainment bill. We multiplied the aver-
age cost of the items and multiplied it by the
frequency of each activity.
This information is then plugged into Table
2 along with the other known expenses.
Analysis & recommendations
From Table 2 it appears that Samantha is
spending more than she is earning. However,
this may not be actually so in that she has no
savings to draw on and the credit card is maxed
out only for travel.
What is probably happening is that she
swaps out some expenses to cover others in
order to balance her budget.
The main culprits in Samantha s case are
food, entertainment, vacations and clothing.
She does not know where the money is going
because she has neither set up a spending
plan nor a tracking system to ascertain if she
is over or under budget.
The simplest system is writing it down in
a small notebook. She needs to make a list of
planned expenses for the month, then note
each purchase and tally it up at the end of the
week to see if she is on target.
It is a proven fact that people who write
down details of their financial plans are the
more likely people who achieve financially.
While there are myriads of apps and computer
programs that capture this information, nothing
is as effective as pen and paper.
Table 3 offers some suggestions on the
changes Samantha can make to move from a
budget deficit in principle to a balanced budget
and a budget that includes savings. The pro-
posed savings of $5,900 (short of $6,250 by
$350) may be a big jump from where she is
now, but at least knowing the adjustment she
needs to make and from which areas is a very
good place to start.
You will notice that we have reduced her
insurance figure by the amount of her annuity
payment. This is a temporary move meant to
preserve her protection against risk while
reducing her costs.
Regarding the annuity, she can most probably
suspend payments without penalty. When we
stack up saving for home purchase next to
annuity payments the more immediate need
would be the former. If she stops her annuity
contributions she needs to make adjustment
to her taxes by filing a new TD1 form with
Inland Revenue; if she claims the benefit
Finally, as a last resort, depending on how
much money she needs to make her purchase,
she may be able to surrender the annuity and
utilise the cash value minus taxes. If she has
been saving $1,500 a month for five years, she
should have accumulated $90,000 (assuming
no policy charges or interest).
This minus 25 per cent tax would leave her
with $67,500 in hand.
F C C
JUNE 7 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCIAL PLANNING | SBG7
All about lifestyle changes
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