Sun | Sep 24, 2017

Am I headed into financial trouble?

Published:Friday | January 18, 2013 | 1:00 AM

Dear Counsellor,

Q . I am a 21-year-old professional male who has been working for about two years. I think I am doing reasonably well financially. Every month, I pay the minimum payment on my credit cards. My monthly cheque balances are usually in the 'black'.

Every month, I pay all my bills including rent, telephone, water and food and I am able to go to a good party, sometimes every week, and other entertainment activities. In addition, it is only twice I have ever asked my boss for a salary advance; because of sudden illness, and the other time to help out a relative.

A very close friend of mine told me that I am heading into a financial storm, because I am not putting away any money for a rainy day. However, I am part of my employer's health scheme and I told him that I save money because the company withdraws from my salary money for pension and a group insurance policy. Am I heading into a financial storm? Is my friend correct?

AIt is good that you are able to and in fact pay your rent, food and telephone and water bills. However, your declaration that you pay all your bills is misleading and not the whole story. Although you pay the minimum payment on your credit card, you are only paying a minimum. Therefore, you are amassing a huge debt because the interest rate on credit card balances is much higher than credit unions' loans.

You need to amend your expenses so that you can pay off the total balance on your credit card bill as soon as possible, because your principal balance must be very high by now. You also need to be aware that surveys show that persons with credit cards tend to spend about 40 per cent more than if they had no card and had to use cash. You also need to determine whether you can manage only one credit card. Credit cards are good when you use them wisely and you can always pay off your total bill.

Furthermore, it does not appear that you are engaging in any savings. You need to be saving at least 10 per cent of your income. It is good that you are a member of a pension scheme and a group insurance policy, but you need to save and also have some investments. Have you thought of investing in stocks and shares and other investment options? You need also to consider buying an insurance policy. You need to consult a financial adviser.

Salary advances should only be requested based on sudden, unexpected and large expenses as in the case of your sudden illness, but be careful of borrowing to lend someone.

And if you want to clear off the principal debt on your credit card, then you need to speak with your employer to determine if you can do overtime or find a better paying job or evening part-time work.

Your friend seems to be correct that you are heading into a financial storm based on your trend. Perhaps you should consider using a debit card or chequing account since you have a problem with managing and spending.

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