SUNBIZ

To Save Or Borrow

Why debt? We enter into debt because we make large purchases that we cannot afford something with what we currently have. We have debts because we want to own a
30 Dec 2018 10:00
To Save Or Borrow
Shoran Devi

Why debt?

We enter into debt because we make large purchases that we cannot afford something with what we currently have.

We have debts because we want to own a house, a motor vehicle, to pay for unpredictable events such as funeral costs, to pay for wedding expenses, a holiday and the list goes on.

But the question is, “Are we able to live without some of the purchases we make or are some of the things we take a loan out for, actually matter?”

As a rule of a thumb;

  • Your life today – it should be a need and not a want
  • Your life tomorrow – savings plan and not a quick loan
  • Your life in the future – a revenue generating asset and not for consumption

You may long to own your own home by 30.

You may want to open a practice by the time you are 35.

The first step toward turning your financial fantasy into an achievable goal is calculating the dollar value of your dream. Take for instance:

A home- The minimum household income needed to purchase a home in Fiji for example is priced at

$50,000 attracting a loan repayment of approximately $170.00 a fortnight. A home priced at $100.000

would basically double to $340.00 a fortnight and so on.

This is based on a typical 25-year, fixed-rate mortgage at 7.25 per cent and assuming a 10-20 per cent down payment.

A basic calculation for the value that one can afford is 3 times your annual salary.

Meaning one got $10,000 a year they may qualify for $30,000 home.

A new car- Expect to make a down payment of 10-20 per cent on a new automobile.

To buy a $20,000 car, you will need to have from $2,000 to $4,000 in cash. $150 a fortnight as a minimum repayment which will depend on variables like; number of years of loan ranging from three to seven years, interest rates averaging eight per cent and the type of vehicle.

An emergency saving fund- Generally, an emergency fund is equal to at least three months’ worth ofliving expenses.

The amount will probably guard against a total or immediate disruption of your life, for example you are laid off from your job.

Accumulating enough savings for a financial emergency is something you should consider a necessity.

Total reliance on your pension or kids is irresponsible.

After paying for the basics such as food, mortgage, and etc. most people are not sure where the rest of their income goes, hence, they use credit cards to supplement their income during a month of high expenditures and so the concept of saving becomes unrealistic. Some of us are impulsive buyers, just have poor money management, gamblers, religious and cultural commitments.

Saving too little or not at all or are not financial literate so we keep getting deeper and deeper into debt and we try to get another loan to pay off other debts.

To manage your debt, a crucial factor in taking control of your finances is “discipline.”

Below are a few tips to manage your debt and this will enable you to gain control of your finances:

  •  The most important tip is to plan a budget for yourself so you know where and how you will be spending your income before receiving it.

This is the best way to take control of your money and make changes to your financial situation.

  •  Stop paying interest, try and pay off your bills as quickly as possible to avoid interest charges, when you are not paying interest, you can save some money.
  •  Make it a priority to stop using your credit cards and keep it only for emergency purchases.

A way to do this is to stop carrying your credit cards.

  •  Write down all you’re spending for at least a week, so you are aware how your money is spent and you may begin to categorize your spending and identify areas that you can cut.
  •  Set up automatic transfers to savings on each pay, this is the simplest way of avoiding unwanted debt, by preparing for unexpected expenditures or rainy days.
  • Use religious observations to save and be healthy.

Example vegetables during lent or Ramadan or no grog and smoking etc.

In summary my personal opinion is that as a local we have many cultural gatherings and Religious obligations.

Thus the key driver is how you would feel if;

  •  It were your mother’s birthday and you didn’t have money for a gift.
  •  It were a non-pay week and your car tyre blew and you have to buy a new tyre.
  •  You got unexpected visitors and then you couldn’t offer them a drink or food.
  •  You forgot to pay an electricity bill and the authorities are there to disconnect and you have no

money.

  •  A family member is sick and you need taxi fare to take them to a free government hospital.

Or a death in the family and we have to borrow to attend.

These are key reasons why a savings plan is important as they help you in the dire moment when you

are facing the world alone.

This fear or happiness is why savings is important. Now choosing an account that suits.

Compare and research basics below;

  • Your age group and what banks are offering, example junior savings or senior citizen.
  •  Fees charged to maintain account
  • Interest paid to you or earned
  • Accessibility and ATM fees as an example

Conclusively the general new account requirements are;

  •  TIN Letter
  •  Birth Certificate
  •  One of the following Passport, Driver’s License or Fiji Voter Card
  •  A deposit of minimum $10 is the usual.

Start today!!! Pick an amount generally the first number that comes to mind and start.

The amount after long periods of say 6 or 12 months will be large and will be a motivator in itself.

Feedback: maraia.vula@fijisun.com.fj

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