Carla Seely Column: Financial Reality Check

[Written by Carla Seely]

I, like about 90% of the world’s population, would quite happily see the door closing on 2020. I am tired of hearing the words – lockdown, COVID-19, elections, Brexit, 5G and all the conspiracies associated with them.

There is no doubt that this year has been a tough year for almost everyone. Never in my lifetime did I think I would be navigating my life, my family, my finances and my career through a pandemic. I firmly believe that we have all been impacted in some way, whether directly or indirectly. However, one thing is certain: we have all been humbled, and from this point, we will never again see things in the same way.

On a personal level, whether it is my age or life’s disruption from the pandemic [full disclosure - until COVID-19 I did not know the difference between an epidemic and a pandemic], I have become acutely aware of my finances, what I am spending, how much I am saving. I am hyper-focused on my end game – retirement.

For the past two decades, I have preached to the choir about saving for your future, working because you want to, not because you need to. Those words haunt me now, perhaps because I am far closer to retirement than ever before. I enjoy working, do not get me wrong but this pandemic has made me reflect on my life, my goals and my happiness and I have recognised that whether my life is short or long I must develop a robust retirement strategy to close the gap between my working years and my retirement years.

For me, it means that I really need to start looking at how I spend my money and asking myself ‘Am I frivolously spending on unnecessary items that provide me with short-term happiness without thinking of the long term consequences?’

When it comes to money management, people need to be realistic. If you cannot afford to pay your bills in a timely manner, then splurging here and there is an issue. If you are in the red on your credit card[s] or 60 days in arrears on your basic utilities, then going on a girls’ getaway to Miami for a long weekend or purchasing the latest iPhone is an issue. In the long term, poor choices can lead to bigger financial problems.

No one wants to be told what to do with their hard-earned money, but the fact is if you do not start applying some simple methods to manage you money better, down the road, when you need it most, you might struggle to find any money behind the sofa.

So, where do you start?

1. Create a monthly budget

• a. Write down all your monthly expenses – include all debt payments

• b. Write down your monthly net income [the money that hits your bank account]

• c. Deduct your expenses from your income and see if you have anything left
  • i. If you do not have anything left – look at ways to trim down your expenses
  • ii. If you do have money left – look at ways to trim down your expenses to squeeze more from your resources

• d. Once you have some savings, you need to figure things out
  • i. Is the cost of servicing your debt more than what you can make in investment return?
  • 1. If yes, allocate at least 60%–75% of your savings to paying down the debt. The remaining amount should be placed in an emergency fund or be deducted directly from your earnings and put into voluntary savings for your pension.
  • 2. If the answer is no, then 50% should pay down the debt and 50% should be saved.

Both ways will allow debt to be paid down and money to be saved. It is important to note that paying down debt does not mean ‘racking’ it up again next month. It means paying down and eventually paying off your debt, having a zero balance and also having some savings to fall back on in tough times.

2. Determine what you want your long term financial goals to be. Some of the most common ones are listed below:

• a. Buy a house/pay off a mortgage
• b. Be debt free
• c. Build an emergency fund
• d. Fund children’s education
• e. Retire early

The one thing they all have in common is that they require proper money management in order to complete the goals, and, for most of us, they are often linked to the personal sacrifice of today’s guilty pleasures for the sake of a comfortable tomorrow.

At the end of the day, one thing this pandemic has taught us is we are not invincible, things happen good and bad, but how we prepare for it is one of the best things we can do.

- Carla Seely is the Vice President of Pension, Life and Investments at FM Group. If you would like any further details, please contact her at cseely@fmgroup.bm or call +1 441 297 8686.

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