Financial planning is essentially creating a blue print of how to manage your money. Establishing a plan for your money will help you in the following ways:
For many of us, we have goals for ourselves and for your family – to buy a home, purchase a car, to send our children to university. These goals can be achieved by managing your finances – however, sometimes, this process might be challenging for some of us. Don’t be disheartened, the team at Advisory Services are here to help you – you don’t have to do it alone.A Financial Advisor can provide assistance in:
The creation of a budget is the core of every financial plan and is critical in achieving your financial objective, regardless of your income. A budget will help you to improve your relationship with money as it allows you to understand how much money you have (income) and where it goes (expenses) with the objective of allocating your funds in the best possible way. (See our Budget Calculator).
While the cost of tuition for tertiary level education is subsided in Trinidad, there are still other costs that students incur such as transportation, room and board and purchasing the relevant texts for the various courses. A lot of us may not have the money to meet such costs and may source a student loan from a financial institution. If you have the opportunity to attend university overseas, your student debt will be significantly higher.
Whether you choose to attend university at home or abroad, for most of us, after three (3) or four (4) years, we leave the educational facility with not only a certificate or degree, but with a debt burden. It is highly recommended that you try and pay off your student loan as quickly as possible and as such, once you are successful at securing your first job, you should immediately create a budget.Creating a budget is simple :
You can use our Monthly Budget Planner to assist you in creating and maintaining your budget.
Marriage ushers in many changes to one’s life – one of the biggest change is the financial aspect as it affects every other aspect of the new couple’s lives. Instead of dealing with one set of financial goals and debt, there are now two sets of goals and debt burdens to consider, yours and your future spouses’. While this change may prove challenging, planning ahead is critical to ensure a sound financial foundation for your family. The following is a list of areas that you and your spouse must address:Bank Accounts
One of the immediate challenges surrounds bank accounts – should you maintain separate bank accounts, merge all financial resources into a joint account or have a combination of both joint and separate accounts? You should have a discussion with your future spouse prior to getting married and decide what route both of you would prefer. It is highly recommended that the latter be considered – you and your partner should maintain your individual bank accounts and create a joint account for family expenses such as mortgage payments, rent, groceries and utilities.A Couple’s budget
It is critical to create a family budget as the inclusion of additional persons will significantly alter your inflows and expense levels(See our Budget Calculator). The combined sources of income and debt burdens must be considered with the objective of creating a budget that will suit both yourself and your spouse’s needs. Be mindful that in a marriage, you assume each other’s debt and assets – hence there will be a need to shift away from viewing assets and debt as yours to ours.
It is also important to set financial goals together, some common goals include saving for a down payment for a house and saving for a college education for your future kids or current kids (See our Savings calculator).
Once the budget is created, you and your spouse should have monthly meetings in order to keep abreast of each other’sfinancial activities and to ensure that both of you stay on track. Marriage also brings new expenses into one’s life such as life insurance. Most single persons don’t see the need to have life insurance since there is no one to depend on their income, however, when you get married, your spouse and future children become your dependents.
As a couple, there is a need to have a budget, however, once you have a child everything changes, including your expenses and financial priorities. It is wise to create a new budget with your spouse as soon as you realize that you are going to have a child. While your revenue stream may remain the same, your expense levels will rise exponentially and you will see the changes nearly immediately. Prenatal care is expensive so doctor bills will rise, then depending on where you seek medical attention, there will be a need to have funds to cover the costs for delivery. When the baby is born, you will have additional bills - pampers, formula, clothes, visits to the pediatrician and daycare services.
There will also be a need to acquire health insurance or increase your coverage when having children. Your medical cost will rise – pre-delivery due to prenatal care as it is normally costly and for the delivery (if you decide to seek private medical care) and post-delivery as insurance coverage will be needed for the child.
You can use our Savings Calculator to assist you in creating and maintaining your budget with our spouse.
Ideally, the best time to begin planning for your children's education is the day you learn you're going to be a parent, any other time is too late. The longer you wait to save, the less time you will have to accumulate the assets needed to pay for your child’s university education (See our College Education Planner Calculator).Historically, tuition costs outpaces the rate of inflation and this is largely due to:
Equities are a great inflation hedge as they have great potential to appreciate in value. As such, with a long investment horizon of roughly 18 years (assuming you start to save at the time of your child’s birth), equities can represent a large percentage of your investments. Since you may not need the funds in the near to medium term, you can withstand the occasional dips in the stock market and have sufficient time to recover any losses that may have been incurred. For prudence, it is recommended that you invest a small percentage of your investments in safer investments such as bonds.
As your child grows, it is wise to shift your asset allocation and reduce your exposure to equities as there is now less time to recover from any declines in the stock market and into more bonds and income orientated assets.
The teenage years will warrant a further shift in asset allocation as you will soon need to access your investments. With the majority of university degrees spanning three (3) to four (4) years, there will be a need to move a fraction of your funds into short term instruments for easy liquidity. The majority of your investment portfolio should remain in fixed income securities while maintaining a small percentage in stocks to hedge the portfolio against inflation.
You can use our College Education Planner Calculator to assist you in determining how much money you will need to fund your children’s education.
Another important expense will be mortgage payments as you and your spouse acquire a home to start your family. Buying a home is one of the largest and most important transactions you can make and it is also the largest asset an individual can acquire during their lifetime.
The first step in the home acquisition process is determining how much you and your spouse can afford, which is largely influenced by your current income and debt burden. By rule of thumb, many financial institutions will only allow customers to borrow up to 35% of their gross income – this ratio is called a Debt Service Ratio (see our Debt Service Calculator).Essentially, your total monthly debt payments (including the mortgage) should not exceed about 35% of your gross income. It is strongly recommended that if you cannot afford the home you want, you may consider renting a bit longer or looking for a more affordable home (See our Mortgage Qualifier Calculator).To increase your chances of qualifying for a mortgage, you can:
You can use our Debt Service Calculator to calculate how much additional money you can borrow. There is also the Mortgage Qualifier Calculator that can help you determine how much money you can qualify for, and indirectly, the value of a home that you are able to purchase.Hidden Cost
It is strongly recommended that you undertake some detailed research before entering into a mortgage as often, there are hidden fees. Hidden or additional costs and fees are considered to be expenses relating to the purchase process. If buyers are not fully aware of what this process entails, they’ll run the risk of confronting a shortfall in savings required to fund the up-front costs of purchase. Please see below some of the hidden fees that you may encounter (See our Additional Fees Calculator):
You can use our Additional Fees Calculator to ascertain a rough estimate of the legal fees and stamp duties that you will be liable to pay.Managing Your Finances
Mortgage payments are normally one of the largest monthly debt payments for an individual. Hence, in an effort to ease this burden, please see the following tips:
TIP 1 : If possible, try and pay extra on your monthly payments. By prepaying your mortgage, the additional payments goes towards the principal, effectively reducing your overall interest expenses and reducing the repayment period (See our Mortgage Prepayment and Prepayment Comparison Calculators). Note, some financial institutions require advance notice from the borrower to accommodate the additional payment and charges a fee if there is no notification.
TIP 2 : You can also ease the debt burden by reducing the repayment period. A shorter number of years will significantly reduce the interest cost on the amount borrowed (See our Mortgage Terms Calculator).
TIP 3 : Before you commit to any particular financial institution, it is wise to shop around. Different financial institutions offers different interest rates – thus, the objective is to obtain the best rate possible (See our Mortgage Terms Calculator).
We cannot work forever, thus, retirement is inevitable. Since retirement is inescapable, it is highly recommended that you start to save as early as possible – the sooner you start saving and investing for retirement, the less aggressive you will have to be when you are older to save. Assuming you retire at the age of 65, you have roughly 47 years to save when you get your first job out of university.
For most of us, we would like to enjoy the same standard of living in retirement as in our peak career days. To accurately determine how much you need to retire comfortably on you can use our Retirement calculators.
In Trinidad & Tobago’s 2014/2015 fiscal budget, it was proposed that the maximum allowance for contributions to Approved Annuities / Pension Plans be increased from $30,000 to $50,000, effective January 1 2015. Many of us will have pension plans with our employer and depending on the monthly contributions, may have not fully benefitted from the existing $30,000. The proposed increase in this deduction should encourage you to save more fervently for your retirement.
In many organizations, employers usually have a matching program – contributing the same amount that the employee contributes to their retirement savings. This program is very useful as it allows the employee to save more at a faster rate at no cost to them.
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