Investing on a meagre salary

Oran Hall, Contributor

QUESTION:  I'm a recent college graduate with no savings or savings plan and need your help please. I'm 22 years old and I have no children. I am currently on the JEEP programme where I earn a meagre $6,000 per week. I need help choosing a savings plan that will work for me.

I tried saving at the bank but I withdrew the money shortly after. I also tried stock buying but that didn't work out either. My goal is to buy my own home in the next few years as well as to be financially stable and I'm interested in knowing about different saving instruments

- Georgia

FINANCIAL ADVISER: You have at least two things going for you. You are young and have an income - a small income - but an income nonetheless.

But, as you have rightly said, you need a savings plan. It seems to me that you need a plan into which your savings plan would fall.

You have not said much about yourself. For instance, you have not revealed anything about the level of your living expenses and how you meet them. Do you have any loans? If so, are you servicing them?

You have said that you have tried saving at the bank and have tried investing in the stock market but have discontinued both programmes. Have you identified why you discontinued these programmes?

What else do you want to achieve apart from home ownership in the next few years?

If you can identify why you abandoned these initiatives, you could be on the way to establishing a sustainable savings and investment programme.

I must commend you, though, for trying but you should aim to sustain what you start.

Is there anything you can do to increase the level of income that you earn? As a college graduate, in which field are you trained?

I doubt you are expecting JEEP to be a long-term source of income so you should be thinking of other options - although, I must admit, it is hard to source employment in Jamaica today.

Perhaps you would succeed in saving and investing if you made up your mind to do them rather than just 'try' to do them. You need to be fully committed to what you are doing but must first recognise that it takes time to grow your financial resources.

If you expect to have a lot of money overnight you are going to be sorely disappointed.

It is important that you understand what you are doing before you commit yourself to any savings or investment programme.

Did you, for instance, understand what you were getting into before you bought stocks? Bear in mind that it is unwise to buy stocks with money that you cannot afford to risk or money that you may need in the short term.

I recommend that you make a plan for your life and draft a budget to support it. Where do you want to be five years from now and 10 years from now? How do you intend to get there? What financial commitments do you need to make to get there?

After you have made your realistic budget showing your income and expenses, including how much you will be saving, execute your plan.

In terms of available options, you will not get an attractive return from a savings account at any financial institution.

A certificate of deposit will give you a better return but nothing phenomenal. In any event, you would need to meet the minimum levels set by the institutions to make use of that option.

Treasury bills give a better return, as do repurchase agreements. As one starting with a small sum, initially, you would not be able to access these instruments.

As I usually say to new investors, and particularly small investors, a good place to start is with unit trusts.

Unit trusts are not as available to the general population as they should be, but that is changing. The two largest banking groups have a wide enough network to bring the unit trust products of their subsidiaries to the wider population.

I suggest you start with the money market unit trust. You can invest small amounts on a systematic basis and get a rate of return that is better than what the commercial banks offer.

If you are to realise any level of financial stability and your dream of owning a home, you must exercise discipline.

Liquidating your savings and investments will not get you anywhere.

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. Email finviser.jm@gmail.com.