There has been much discussion on the Barbados Budget, such as the article by Ryan Straughn discussing what he would do if he was the Minister of Finance.
Thus, instead of discussing the Budget, I turn my attention to what the public could do after the Budget.
I have “enlisted” the help of an American magazine –– Black Enterprise –– by reproducing its Ten Wealth For Life Principles, which I will make reference to in future articles.
I believe that all Barbadians and Caribbean nationals could benefit from reviewing these principles:
1. I will live within my means.
2. I will maximize my income potential through education and training.
3. I will effectively manage my budget, credit, debt and tax obligations.
4. I will save at least ten per cent of my income.
5. I will use home ownership as a foundation for building wealth.
6. I will devise an investment plan for my retirement needs and children’s education.
7. I will ensure that my entire family adheres to sensible money management principles.
8. I will support the creation and growth of minority-owned businesses. (Note Black Enterprise is referring to African American businesses.)
9. I will guarantee my wealth is passed on to future generations through proper insurance and estate planning.
10. I will strengthen my community through philanthropy.
Today I will discuss the first life principle: I will live within my means.
If you are spending more than you earn, and going deeper and deeper into debt, you are not living within your means. Changing your relationship with your money will require planning and discipline.
The first step is to create a budget; add up your income and expenditures in order to determine exactly how much money you have coming in and where you’re spending that money.
Areas where you spend your money may include mortgage or rent, utilities, transportation, food, insurance, medical bills, repayment of debts, savings, clothing and entertainment.
Consider where you can spend less and earn more in order to live within your means.
Here are some steps you can take towards that end:
1. Question your needs and wants. What do you want? What do you really need? Do you want to attend that event or do you need to attend that event?
2. Set your priorities. How can you reduce these expenses? For example, if you have credit card debt, it may be better not to place money in a bank savings account that will give you a return of one per cent. It might be better to use that money to pay off your credit card debt where you are being charged 22 per cent interest (the interest rate charged varies from bank to bank).
If you are making a cash withdrawal via credit card, the interest rate may be as high as 25.99 per cent (interest
rate charges vary from bank to bank). Think hard about what you do with your money.
3. Track your cash. You need to track where your money is going. Try writing down every cent, or rather every five cents, you spend to see where your money goes. Once you start tracking, you may be surprised to find you spend hundreds of dollars a month on eating out.
Can you cook more meals to save money, and pay off your debts sooner?
Be in control of your money. Don’t have creditors calling you to find out why you missed another payment! Strive
to live within your means.
Good debt versus bad debt. For some Barbadians their most valuable asset is their home, made possible through entering into a mortgage or some other type of loan debt to finance its purchase. Similarly, large purchases such as a vehicle and household furniture are often acquired through some form of credit or lending facility.
The use of debt can be a positive process when it is used to achieve goals, provided this debt is managed responsibly and loan repayments made as and when they fall due.
For this reason, a debt or loan should always be considered as part of a larger financial plan to ensure it is used to its greatest effect.
Debt can be viewed in two ways:
1. Debt undertaken to buy goods that depreciate in value, generate extra expenses and have no long-term financial benefit to the borrower. This type of debt needs to be kept under control and only entered into when absolutely necessary.
2. Capital expenditure: debt used to finance income producing assets that appreciate over time and can support wealth accumulation.
Debt requires careful management, both to keep costs under control and to avoid excessive risk. When managed carefully, it can become a potent force for anyone wanting to build wealth over the long term.
Which debt are you endorsing?
(To learn more about OurInterest’s financial products and receive financial tips follow OurInterest on FaceBook (https://www.facebook.com/OurInterestINC). For access to our quarterly newsletters simply email email@example.com)