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Should I be worried?

Published:Tuesday | February 16, 2010 | 12:00 AM

I am a young man who has been working for a little more than a year. I think I am doing reasonable well, financially. Every month I pay the minimum payment on my credit card. My monthly cheque balances are usually in the black. I pay all my bills including rent, utilities, food and still able to go to a good party almost every month. I have asked for a salary advance only once.

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

It is good you are able to pay your rent, food and utilities bills. However, your claim that you pay all your bills might be misleading.

Although you pay the minimum payment on your credit card, you are accumulating a big debt as the interest rate on the balance is very high. You need to adjust your expenses so you can pay off the total balance.

Furthermore, you are not engaging in any savings. You need to be saving at least 10 per cent of your income. It is good you are a member of a pension scheme and a group-insurance policy.

Having taken a salary advance is not a good sign if it was for regular expenses. Using salary advances for regular expenses is similar to using your savings to pay bills that normally would come from your monthly salary. A salary advance should only be requested based on sudden, unexpected and large expenses.

It seems you need other income streams if you are going to maintain the lifestyle you have been accustomed to for the last year. You need to speak to your employer to determine if you can do overtime or explore whether a hobby could become a source of income.


Furthermore, you need to be thinking about investing in stocks, shares and other investment options. You also need to consider buying an insurance policy. These ventures will cost more money.

Your friend seems to be right that you are heading for trouble if you continue to manage your financial affairs in the same manner. If you continue like this, you might soon go into overdraft to pay everyday bills. At this rate, when you start to take out a loan to purchase major assets such as a house and a car, you will not be able to service your loan and will be seeking extensions on debts. You will then get notices from creditors. You could find yourself scrapping to find money including trying to borrow on your insurance policy and wanting your pension early. You need to change course now and manage your finances much better.

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