With the national budget having just been presented in Parliament, all eyes are on government spending. Analysts are reviewing budget allocations to see what they might say about the Government’s priorities and the country’s economic future. Likewise, making a personal budget can help you define your priorities and set up your financial future, too.
For most people first entering the job market, thinking about budgets can be overwhelming, since this is probably the first time they’ve had any money to manage. Personal finance is rarely taught in schools, and information online can often be confusing and contradictory. Furthermore, a lot of the resources cater to U.S. audiences, and it might take some extra digging to find out which specific financial strategies would work in Trinidad and Tobago.
In this article, we look at some expert tips for taking charge of your financial life at the onset of your career. If you are starting your first job, now is the time to start building good money habits.
Plan your spending
Ramit Sethi, author of I Will Teach You to Be Rich, suggests creating a Conscious Spending Plan that divides your spending into four categories: fixed costs, investments, savings and guilt-free spending.
Sethi recommends spending about 50 to 60 percent of your take-home pay on fixed costs such as rent, utilities and cell phone bills that must be paid every month.
The next 10 percent should go to investments, according to Sethi. In T&T this could include stocks, bonds, mutual funds, and individual retirement plans, such as an annuities.
Next is savings, which Sethi says should take up 5 to 10 percent of your take-home pay. These savings would be for specific goals, such as buying a car, making a down payment on a house, buying Carnival costumes or building an emergency fund to cover unexpected expenses.
Finally, with the remainder, Sethi says you should spend guilt-free on things you enjoy such as clothes, fêtes, liming and eating out.
Keep fixed expenses low
When just starting out, it is a good idea to minimise as many of your fixed costs as possible. That could mean living in your parents’ home or sharing rent, taking public transportation, eating in more or shopping around for the best cell phone plan.
People often speak of good debt and bad debt. Good debt is debt you take on for something that increases in value, such as a mortgage for a home. Education loans are also considered good debt, since education can often translate into higher income. Bad debt, on the other hand, gives you things that do not increase in value, such as car loans and most credit card debt.
Nick Dean, a financial coach and columnist with the Trinidad and Tobago Guardian, advises avoiding bad debt, especially credit card debt. In fact, he suggests only using credit cards when you can clear the balance at the end of each month.
As for car loans, Dean recommends saving for a large down payment for a car that doesn’t have all the bells and whistles. “You may have to buy a car,” he says, ”but don’t buy too much car.”
Washington Post columnist Michelle Singletary also warns that you should avoid car loans with long repayment periods, and instead opt for a term of four years or less.
Of course, if staying debt-free is truly a priority and you are good at delaying gratification, you also have the option of saving for a used car and buying it with cash.
Start planning for retirement now
Many T&T employers offer company pension plans, and your NIS contributions ensure that you will see a pension from the government as well. That doesn’t mean that you shouldn’t start planning for your retirement. The power of compound interest means that now is the best time to start investing for the long term. Find a trusted financial adviser and learn about investing in annuities, mutual funds, and stocks and bonds.
You also should consider investing in property, according to Dean, who says you should start saving for a downpayment of at least $150,000 as early as possible. The median house price in Trinidad and Tobago is around $1.2 M, so aim to save between 10 and 20 percent of that. “Even if you plan to live in your parents home forever,” he advises, “buy your own property, as it can double as the absolutely best retirement plan!”
He prefers real estate as a retirement investment, because with rental property, unlike pensions and annuities, the value of the asset could increase with inflation.
When you start your first job, don’t be tempted to put off financial planning. Get a head start on developing good money habits to build the future you want.