Is the taxi business a wise idea?

Oran A. Hall, Contributor

I recently stumbled upon an article in 'The Sunday Gleaner' about how to acquire a loan through the NHT and decided to write to you. You see, I am in the same position of thinking to get a house of my own by age 30, and I want to get a loan from the NHT whether it be to build or buy, whichever option is available to me or would be the more affordable choice, so to speak.

I am 27 years old and I make j$42,000 monthly and from which I try to save between J$10,000 and J$15,000.00. At times I fall short of that mark. I also have insurance coverage which I put savings to and I am also attending college. Recently, I have been thinking of heading into the taxi business to generate additional income, or to just continue to save up for when I am ready - which won't be long from now.  Can you advise me if this is a wise idea to venture into to achieve my goal? Or should I continue as normal?

- Anne

FINANCIAL ADVISER: Let me commend you for taking such a responsible approach to the managing of your financial affairs. It is encouraging that you are earning an income although you are at college. This takes some discipline and I hope you are doing well in your studies.

What I like most about how you are proceeding is that you have made saving a priority. You clearly have set savings goals and it is not unusual that you occasionally fall short. Do not allow that to deter you, though.

Insurance is good, especially for persons who have dependants. It can be particularly useful if the policy is one that generates good cash or investment value.

Low level of returns

Buying insurance at a young age is good because premiums are relatively low and that is when you are most likely to be in good health.

Given the relatively low level of returns on savings and income-generating instruments, I can understand why the taxi business would be attractive to you.

You have not said how you plan to finance the purchase of the vehicle but, if you are planning to use debt, you should bear in mind that the cost of debt is still quite high. Debt servicing would therefore be one high expense item.

Additionally, I doubt you will be able to operate it yourself, so you would need a driver - a very honest one - who has to be paid, Consider the other expenses associated with operating a taxi service.

There are many taxis on the road, so it is a very competitive business. You would have to consider what would be a profitable route. If all goes well, you could see very handsome returns but this is a risky business which could cause you serious financial headaches.

You need to do some serious research before making a decision. If you decide to go ahead, set up a proper business, keep a special account for expenses related to operating and maintaining the car as well as good, clear records relating to income from it and the expenses directly related to it so that you can be fair to yourself and the Government when you pay your taxes. In that case, I trust that it will generate more than enough to help you achieve your goals.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers free counsel and advice on personal financial planning. Send feedback to finviser.jm@gmail.com