with Raziah Ahmed
one of the most fascinating things about flying to London
is the fact that you can fly into the sunrise. The sunrise
actually takes a rather long time, during which light unfolds
in profound spectacle. But equally fascinating is how as the
plane hits the ground, you return to the mundane and match
plans for the day, with money in your pocket.
Months ago, we embarked on a journey to put enough money in
the pocket, following a pattern: Step 1, organising personal
Step 2, was goal setting. In Step 3, we identified issues
and problems, followed by Step 4, where we recorded assumptions,
about income, returns, taxation etc. We listed assets and
liabilities in Step 5, and in Step 6, we looked at cash flows.
Then in Step 7 we learnt about tax shelters, and National
Insurance benefits, and in Step 8, we looked at risks and
Today, we move to Step 9, in the 14-step plan to financial
independence. This is the development of a savings plan. Saving
is that portion of income that is not used up in consumption.
It includes, but is not limited to, instalments on vehicles,
mortgage payments, insurance premiums, pension contributions,
credit union shares, mutual fund units, bank saving, CDs,
debt and equity instruments.
Many young people have a vague idea in their heads about becoming
a multi-millionaire one day. The fastest way to realise such
a dream is to write it down, and to conceptualise a plan of
action, with contingency factors.
The common practice is to spend first, and save whatever is
left over. But that is a poor prescription: the human disposition
will buy everything we think we need. In fact, we buy stuff
we dont need, and quickly lose sight of the larger goal,
which is financial independence.
A better starting point is to determine exactly what percentage
of after-tax income we must save every month. We must determine
exactly what we are saving for, since saving for savings sake
is not a motivator.
Common savings objectives are: vehicle, house, education for
self, marriage, childrens education, vacations, other
property, and investments. Many objectives are a combination
of these. Determine the sum and an estimated date for reaching
Set intermediate targets so you can invest savings and make
the money work for you as well. Consider what else you may
need to have in order to achieve the goal.
If you want to purchase a car in two years, get married in
four years, buy a house in six years, have you considered
that with marriage may come more consumption, housekeeper
expense and a two-income situation? With a car, will come
repairs, and in order to get a mortgage loan you will need
to pay life insurance premiums.
Put pencil to paper and joggle the figures, this is a fantastic
way to jump-start the process of writing a plan.
Can you purchase a small starter home, and then move to a
residential four-bedroom six years after? In addition, consider
what kind of leverage your income may allow with respect to
Young single people, or empty-nest couples should save 20
per cent to 30 per cent of income; young couples may be able
to save 15 per cent; with school children, maybe ten per cent.
Then you can spend the rest on food, entertainment, vacations
There is no easy way, but it is a disciplined journey. The
fruit is enlightened financial security, and thats the
most comfortable pillow upon which to rest you head when the
night falls, on a long flight to see the sunrise.
n Raziah Ahmed is a registered financial consultant