Home' Trinidad and Tobago Guardian : July 20th 2014 Contents Client Situation:
Marie is a 29-year-old single graphic
artist earning $8,900 after tax. She
lives rent-free at her parents home.
After deducting her car payment of
$3,300 and monthly bills of $2,700
she directs the balance to a money
market account. She has $25,000 in a separate bank account
set aside for emergencies, which she absolutely does not
She has been trying to save $100,000 as a down payment
on a home for the past three years but always seem to dip
into the account to deal with things
that come up every so often. Most
of these additional expenses are
actually not surprises. She knows
she has to pay them but only remem-
bers a month or two before they fall
due; she is oftentimes forced to bor-
Every August, Marie travels to the
US for vacation and spends on aver-
age $7,000 give or take a couple hun-
dred dollars. She has car insurance
to pay in June; the last premium was $4,800. The car needs
to be serviced every three months and usually costs around
$1,500 each time.
Her boyfriend s birthday and their anniversary are in
October and she could shell out up to $2,400 not to mention
the $3,600 for Christmas presents. When Carnival rolls
around she could spend up to $3,000 if she has the funds
in the money market account.
The only thing her parents ask of her is to pay the light
and water bills, which are usually $500 and $300 respectively.
Marie is a bit frustrated because she cannot get a handle
on these expenses and they upset her goal of purchasing
She is willing to make the necessary sacrifices but wants
to know how to plan better so she doesn t have to touch
her house money.
Assessment and advice:
Marie s situation is not unique because everyone has to
deal with these so-called "surprises." It is when we are not
prepared for them that we find ourselves in debt or tapping
into long-term savings.
The thing is, we know when and how much these expenses
are so ideally it should form part of our total monthly budget.
It is only after we account for the monthly impact of these
expenses then we will know how much we could truly save.
The challenge is to take these variable expenses---which
pop up at different times and in different amounts---and
come up with a regular monthly figure that is simple and
easy to stick to and one that will avoid putting us into financial
tailspin when we see our savings mov-
ing up and down like a rollercoaster.
In Table 1 we have plotted Marie s
expenses across a calendar year. We
then tallied up each line to come up
with an annual figure then we divided
that amount by 12 months to see what
she should set aside each month for
In Maria s case, she has to allocate
$2,600 monthly out of her salary to
meet these bills.
This table is very similar to a cash flow projection that
businesses use to plan their annual expenses or to know
exactly when there will be shortfalls because of the timing
of some expenses. Once they know that they can put measures
in place to deal with these shortfalls.
In Marie s case, we have suggested that she establishes a
separate account at her bank to facilitate these payments.
She should transfer $2,600 each month from her salary to
this account then make withdrawals accordingly as expenses
come up. What you will notice is that some months she has
less than what she needs to pay.
To solve this problem she can open the account with about
$1,600, which will cover the greatest shortfall. This can be
likened to a float that cashiers use at the beginning of each
day. At the end of the year she should have the float for the
next year because her total annual deposits will equal her
total annual withdrawals.
We can now see how this impacts her monthly budget as
shown in Table 2.
After accounting for these periodic expenses Marie s true
surplus is $300, which is why she is not making much
progress with her home purchase goal of $100,000. At this
rate, Marie would probably take about 28 years to save for
that goal ($100,000 divided by $300 = 333 months).
If Marie wants to fast track her house savings she needs
to make some decisions regarding her expenses. If she can
reduce, eliminate or defer (RED) any of these expenses she
will be able to increase her monthly surplus. Additionally
when she pays off the car loan she will see a dramatic improve-
ment in her cash flow.
A cash flow challenge
JULY 20 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCIAL ROADMAP | SBG9
It is only after we account for the monthly impact of these expenses then we
will know how much we could truly save.
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