Financial Adviser | Personal financial portfolios in a weak jobs market
QUESTION: I read your article regarding managing your financial plan in The Sunday Gleaner of January 24 and it gave me some insight as to taking steps to do likewise. This I thank you for. The questions, however, I find that I was unable to answer all or if I could, the result was not to my liking. Therefore, I wanted your advice on how to manage my personal finances.
First, I'm a recent law graduate who has since found a job, for which I am grateful, but the income is not satisfactory. Now, you mentioned in your article as it relates to one's debt being reasonable relative to one's income, that it could be addressed by either cutting expenses or increasing income. Persons like me, though, have to take the latter approach as cutting expenses would not be wise (student loans, rent, insurance, etc.)
It is understood that there are options such as finding a supplementary source of income, but the problem really is that it is not so easy finding another well-paid job, much less a second job in this economy, and taking on investments, which require a minimum of three figures to open an account. What do you then suggest to a young graduate who's building her work experience?
FINANCIAL ADVISER: The early career period of the life cycle can be very challenging, particularly for persons not fortunate enough to benefit from a jump-start from family or other sources. The process of growing through that and other phases can be slow and sometimes painful, so you must be patient.
I really appreciate that you took time to answer the questions I posed in that column. You have made an excellent start. Don't worry that the results were not what you wanted. Of importance now is that you know where you are. The next step is to chart a path for the future, but you must be fair and reasonable to yourself. And you have to be realistic.
Maintaining a reasonable debt load is critical. Aim to make the repayment about 30% of your income. With student loan included, that could be tough, I will concede. You do not want to risk being burdened with too much debt as that would set you back in other areas. It is important to keep current at all costs.
Further, while maintaining debt at a reasonable level is important, it is committing to managing it well that matters. Increasing income or reducing expenses are ways to improve your ability to service your debt satisfactorily if you have challenges doing so.
I hope you are using a budget. Managing it well is the key to successful money management and the basis on which you will realise your goals.
If you find it challenging to manage your debt and are not able to make additional income, your only option is to reduce your spending. Otherwise, you could find yourself in a financial tornado that could destroy you financially and otherwise.
Looking at the examples that you have cited in regard to your expenses, you have little discretion with your student loan, but what about rent? It is not generally cheap, and as a young attorney, I can understand that you would want to live in an environment which reflects your professional status. In doing so, though, you would need to strike a balance between cost and image. Beyond that, identify the expenses over which you can exercise discretion and make adjustments.
I note that you are making a common mistake - believing that it takes a lot of money to start an investment programme. If you have real estate in mind, I can understand, but should let you know that you do not need sums in excess of $100,000 to invest in unit trusts and stocks, for example. It is true that some investment dealers have higher minimum transaction levels than others, but there are many more that cater to small investors. Can I tell you that it is possible to buy as few as 100 units and invest less than $1,500 in unit trusts depending on the type of fund and the unit trust?
I suggest you commit yourself to invest a designated portion of your income each month. It does not have to be significant initially. Set aside some time to check what is available in the market or to identify a fund manager who would be willing to welcome you as a client.
My suggestion is that you act now on what I have shared with you and that you consult a qualified financial services professional if you need further help.
n Oran A. Hall, the principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. firstname.lastname@example.org