Oran Hall | Young cop seeks financial independence
QUESTION: I'm a 23 year-old who is seeking some financial advice. I've read some of your articles and have found them to be very motivating, to say the very least. You see, I've often been told that I want to achieve too much too soon and, perhaps, that may be true.
But I'd like to own my house by a respectable age and give back to my community and the nation at large. I'm a young member of the Jamaica Constabulary Force, and quite frankly, the salary can hardly sustain me. But I'm willing to maintain my integrity and not become a 'dirty cop', and that is why I'm writing to you.
I currently own a motor car, which I bought with the help of a loan, and I was also thinking of purchasing either another motor car or a bus to operate as a public-passenger vehicle. I've also considered medium to long-term goals such as investing in stocks and bonds, or even real estate.
I'm a business-minded young man, so I'm always seeking out investment opportunities. I would appreciate if you could shed some light on my blurry path as I seek to move towards financial independence.
FINANCIAL ADVISER: The time of your youth is the best time to make your plans, and I believe you are on the right path. You have a goal and a plan to achieve it, although there are some gaps to be filled.
One very positive step that you have taken is soliciting advice to determine if you are on the right path. You have not stated when you want to achieve your ultimate goals and the others between now and then, so I am not qualified to say you want too much too soon.
Although you are at or close to the base of the ladder now, if you work hard and seize opportunities to further qualify yourself, you can go far in the police force - and in a reasonable time. This would mean better remuneration as you progress up the ladder.
You recognise the value of using other people's money to acquire assets, which comes with a cost. A motor car for personal use is essentially a wasting asset as it loses value over time, even while you are still paying for it. But you clearly want to move beyond that.
Your plan includes purchasing another motor vehicle, not for personal use, but to earn additional income. The success of this venture would improve your financial position and help you to move to the point of financial independence as it could provide the means to acquire other income-earning assets.
You have also mentioned stocks, bonds and real estate. You clearly appreciate that the best investment portfolio is one that is diversified. You reduce your risk when you invest in different types of assets, although it is also possible that this may also lower your chances of reaping higher returns.
You do not need to have much money to invest in stocks nor wait too long to make that type of investment as long as you understand how such investments work and you do not encroach on money that you need to take care of your living expenses and other commitments.
Bonds will not give you the kind of return that stocks and real estate are capable of giving, but they give some stability to an investment portfolio. Real estate is likely to pose the greatest challenge because the deposit and initial costs are high, and a small income will put a limit on how much you can borrow.
You know what you want to do, so determine the sequence in which you would like to achieve each goal as well as the time for doing so. The cost of each will bear strongly on whether you succeed, but be prepared to be flexible.
Be realistic as you make your plan and implement it, and bear in mind that every investment has some risk. You have one big advantage over many persons: You are business-minded.
I sincerely hope that you reach your destination of financial independence rather than just moving towards it. Be patient, and accept you may have to sacrifice short-term gratification to achieve long-term success. And continue to maintain your integrity.
- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. firstname.lastname@example.org