PLANNING FOR A TOUGH YEAR - PART 1

WITH THE RECENT coverage in the media it should be clear to most persons that 2004 will be a tough year for Consumers. Jamaica, like many other countries, is faced with a series of difficult decisions in order to be productive and to improve its economy. Simply put the amount of revenue being generated in the country, usually measured as gross domestic product, GDP, is being outstripped by the cost of providing services, paying public sector salaries and the cost of other developmental initiatives. Collectively, these may be described as expenditure. Beyond these there are other areas and parameters of the economy that will make for a potentially difficult year, included in these of course is the management or payment of debts.

The Householder’s Economy
For the householder the situation is much the same. To ensure that expenditure or spending is less than income or earnings and that there is still something to add to savings. There are some areas that we know month to month we must spend on. And in many instances the amount we spend is dependent on our consumption rate or our consumption patterns. These are the areas we can control, one such example is the use of the telephone. The amount of telephone calls we make and the time spent on each call will impact on the amount we are billed for this utility in any given month. The more calls we make, the higher the bill. If we reduce the number of calls and the time spent on each call, then the amount we pay reduces commensurately. On the other side of the budget we know what our income is likely to be. Many persons are in fact on a fixed income. That is we will earn the same salary this month that we earned last month and the month before. In these circumstances it is critical that we create a budget. A budget compares our usual or recurrent expenditure with our income or earnings with a plan to minimize expenses so that we acquire wealth or savings.

Expenses vs. Earnings
Typically a householder has the following expenses:

• Rent or mortgage
• Utilities (water, cable, telephone, internet, electricity, cooking gas)
• Grocery
• Transportation
• School Fee or other tuition
• Loans servicing (credit cards, car loans, home loans, students’ loans)
• Entertainment
• Health (visits to the doctor, dentist or pharmacist)
• Clothing and Incidentals

Typically the householder has the following income or earnings:

• Salary - pay from job(s)
• Remittances (money sent from relatives or friends overseas)
• Grants or gifts (money received as a present)
• Loans (money burrowed for a specific purpose or from a credit card account)

Usually the only income one can be certain about in terms of the amount is one’s salary. As the other forms of income may be seasonal or occasional, such as a cheque from a relative abroad for your birthday. It is therefore best if salary is considered as the only source of income and your expenses matched against this amount.

Rationionalizing your expenses
For the areas that we must spend on from month to month, recurring expenditure, it is often felt that there is little or nothing that can be done to control the amount we spend. This is not true. What is required is that we rationalize our expenses. This may mean that instead of two persons in the same family from Spanish Town driving two vehicles to their jobs in Kingston, one person drives and a route is planned that minimizes time spent in traffic, and by so doing a saving is made on fuel, as well as wear and tear on vehicles. This can be extended to your friends as well. Say a group of five persons living in Old Harbour and working in New Kingston decides to car pool, using one vehicle instead of five and each sharing the costs for fuel. It may go further where a person decides not to go to the movies as frequently but to do at home entertainment instead, watching the movies on cable, which you already pay for.

(to be continued next week)

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