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Financial Adviser | My savings are depleting. What am I doing wrong?

Published:Sunday | December 13, 2015 | 12:00 AM

QUESTION: I run a small online business with sales of around US$7,000 to U$$11,000 monthly, from which I have been earning around $400,000 salary monthly for the past twelve years. My monthly expenses are: rent $90,000, grocery $89,000, vehicle expenses $70,000, socialisation $80,000, plus miscellaneous expenses. Each time I try to save towards a house, I end up going back into the savings, whether owing to illness, education for kids, etc. The most I've ever saved is $4.5 million. Now I don't even have $2 million in savings, and it gets more and more scary as I get older and older. The business isn't expanding, and my savings seem to be diminishing. What am I doing wrong?

- Dan

FINANCIAL ADVISER: It seems clear to me that you are not budgeting.

From what you have stated, four items of spending account for more than 82 per cent of the money you earn. What is positive is that you seem to know how much you spend on certain major items, but items such as savings, health-related expenses and the education of your children have no structured place in your spending plans.

Also positive is that you have saved in the past and even have some savings now. Your challenge is how to find a way not to encroach on your savings.

You must make a budget immediately, and savings must be the first item on the spending side. This should be a real figure, and not one that you put down for the sake of putting down. In fact, you should find a place to put your savings, perhaps in an investment account or savings account, and leave it there.

What you budget for the education of your children should also be put away. Put it out of your reach to protect the education of your children, and discipline yourself not to encroach on funds you have identified for these very important purposes.

It seems to me that you should reduce spending on the items you have mentioned. I am intrigued by the item that you call "socialisation". It seems you are having a whale of a time socialising. Surely, you can visit this item and reduce its prominence in your spending.

Perhaps you are not separating your business expenses from your personal expenses. If this is the case, you should immediately correct the situation to be better able to understand what is happening to your money.

And since you are self-employed and are rightly concerned about getting "older and older" - like the rest of us - you should commence saving for your retirement years.

You are clearly earning significantly more than many persons in the society, but you need to make managing your spending a priority. If you want to maintain your level of spending, you must find a way to increase your income to a level that can justify such spending.

Bear in mind that your income is not steady or guaranteed. A budget will help you put aside the surplus you generate in some months to balance any shortfalls in other months.

Overall, it seems to me that you need to make some serious lifestyle changes. Otherwise, you will only dream about owning a home. I suggest you open an account with a financial institution that grants mortgages, and put yourself in a position to qualify for a mortgage from the National Housing Trust.

Sit with your family and discuss your situation seriously. They may be able to give you ideas about how to improve the situation, but it is critical that they buy in on the actions to be taken. They would have become used to a particular lifestyle, but they must understand that life cannot continue as it has been so far if some goals such as home ownership and education of the children are to be realised.

Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel.