with Raziah Ahmed
heard a pop song on radio last week that goes: If
I was a rich girl, nan, anan, anan, anah, Id have
all the money in the world, if I was a wealthy girlrlrlrl
And Pop King, Michael Jackson was found not guilty on all
ten counts of conspiracy and indecency toward a minor, despite
media opinion of his guilt and imminent bankruptcy.
The debate today focuses on how accumulated wealth could
be wasted. This does not implicate MJ in any way. The media
hype is merely an indictor that things happen!
Wealth accumulation requires effort. This effort begins
with a written plan, which translates dream into intention.
Conservation and preservation are terms in financial planning
which involve strategic interventions in wealth management,
that foolproof your assets.
Two examples may illustrate how these strategies work. If
you take a mortgage loan to purchase your home, the lending
institution will hold the property, until such time as you
pay off the loan in entirety.
If you die before you have time to pay off the mortgage,
the lender can evict your family if the survivors cannot
The money you would have paid, for whatever years you would
have paid installments on the loan, would result in little
or no immediate value to your family, since the lender will
not prioritise your family above their bottom line.
Build cash values
The property may be seized, and put up for sale at market
value. It is expected that when sold, the lender will satisfy
itself with respect to the indebtedness, and you may be
entitled to some refund.
However, because most mortgage loans are structured in such
in way that you pay off the interest first, in the final
years of the mortgage, should you default, you may very
well be caught still owing, the larger part of the capital
Techniques to preserve your estate, in such a case, involve
transferring this risk to an insurer, who will pay off the
mortgage loan if you die before it is paid off.
Your family will not be evicted and the benefit of all the
money you have paid over the years will not be lost.
The second example to illustrate preservation and conservation
is the strategy of building cash values on the life insurance
policy used above.
As your property gets older, the cost of routine maintenance
can escalate. This is the scenario with many retirees living
on a fixed income.
The build up of cash values can be used to maintain and/or
upgrade and thus conserve the property value.
Tax efficiencies are another method of conservation.
Take inflation, as an economic factor. The most recent quote
on the inflation rate was in the vicinity of 6 per cent,
and food prices rose by some 18 per cent over the previous
12-month period, as published by the Central Bank of Trinidad
In this economic environment the average discount rate on
Treasury bills is 4.95 per cent. The T-bill rate is a fair
average of the rates of return on secure savings. So if
inflation in at 6 per cent, and investment return is at
5 per cent, where does the additional 1-2 per cent come
from, just to make ends meet?
But we can always can turn on the radio, and sing along
to the tune of a another pop song that goes: all I
can say, is my life is very plain, I like watching the puddles
Continued next week