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Coping in a difficult economy

Published:Sunday | July 13, 2014 | 12:00 AM

Oran Hall, Contributor

How are you coping with the challenge of living in Jamaica in 2014? The financial situation is extremely difficult for many, particularly those without jobs, are underemployed, or in jobs that do not yield the same income as jobs previously held.

Even persons whose income levels have not declined will argue that life is difficult.

Starting a business is often presented as one way to change the situation. While this could be true for some persons, it is not the solution for all.

Business makes sense if there is a service or product that people are willing and able to buy, which is not the same as having a product or service to sell. Further, business is for people who are willing and able to take risks, are patient, among other things, and business does not necessarily generate returns in the short term.

If you do not believe that owning and operating a business is right for you, do not let it affect how you see yourself.

Budgeting assumes great importance in today's harsh economic environment. I hear quite a few persons talking about their budget these days. Establish your priorities and manage your budget tightly.

Family discussions

Have regular family discussions and share with each other how the financial affairs of the family can be kept under control. Appoint a financial manager for the family if there is none.

If it is difficult to pay the bills, there are several approaches that may be considered. Negotiate with school administrators to pay fees in instalments if that facility is not now available and honour your commitment. Pay other financial obligations similarly if the facility exists.

Manage your credit card. The convenience it offers can cause great inconvenience and heavy burdens. To the extent you are able, reduce or eliminate such debts with lower cost debt.

Sometimes when it gets really challenging, it is tempting to use savings and investments to meet current needs. Insurance policies tend to be a ready source of funds in such circumstances. The income earned on them is generally tax-free. There are other sources of tax-free income such as some unit trust products and long-term savings accounts. If circumstances are such that principal or income has to be encroached upon, let it first be for those instruments that do not generate tax-free income.

Selling assets

If it becomes necessary to sell assets, then do so. Weigh the benefits of selling them against keeping them before deciding. Some time ago, I conducted one-to-one counselling sessions with some employees of a certain company. I got a pleasant surprise. At least two young men told me that they had sold their cars and reverted to taking the bus because it was costing too much to maintain a car.

It might make sense to extend the life of some assets and appliances if they are in good working condition rather than replacing them now - worse, by incurring debt in the process.

Maintain your risk-management programme; do all you can to retain your insurance coverage - life, health, disability and property. If your family loses you, they should be able to have some income to carry them in your absence. Consider the cost of medical care and of replacing assets lost to various perils and theft.

Young people may want to defer leaving their parents' home. It reduces their expenses and adds more to the ability of the family to cope in these times, but this is not advice for those who chose to get married. This set should 'leave and cleave.'

Remember to do less of the following: eating out, using the cell phone, travelling, using electricity, off-budget spending and more of the following: taking advantage of discounts by buying in bulk even if it requires joining with others, spending on needs rather than on wants, and making purchases using cash. Think about this: build and maintain good relationships with your neighbours: it can open the way to sharing, support enhanced risk management, and perhaps more wholesome and cheaper entertainment.

For some persons, it is a case of 'this too shall pass'. How much this becomes a reality depends on how the current situation is handled, and as challenging as it is, keep up your efforts to find a source of income or to increase your earnings.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of'The Handbook of Personal Financial Planning', offers free personal financial advice and counsel.finviser.jm@gmail.com