PLANNING MAJOR PURCHASES
GUIDE TO MANAGING YOUR CREDIT SPEND WISELY
DO YOU CONTROL YOUR SPENDING OR DOES YOUR SPENDING CONTROL YOU?
It's easy to get caught between what we want and what we can afford. With too many spend and borrow moments, we can easily lose sight of life's bigger goals as we focus on the day-to-day tasks of making ends meet. Getting back in control starts with taking an honest look at your current situation and your goals.
Take the 'Wise Spending' test.
- I have a home mortgage
- I have a car loan or personal lease
- I have a personal life of credit
- I have more than one personal credit card
- I currently have more than $3,000 total on all my credit cards
- I save less than 10 percent of my income each year
- I am too young to have a retirement plan
- I want to have a boat, second home or extended trip in the near future
- I am planning a home renovation in the next two years.
If you have six or more of these, your spending may be controlling you rather than the other way around. You may also find you don't have the money you need for important moments in life.
IDENTIFY GOALS, SET PRIORITIES
Some major life changes are inevitable, such as retirement, family education and housing. Your top priority should be to plan for these events.
With these major needs met, look at your personal and family goals and start planning to reach them. Spend some time thinking and talking with family members about what you would like to achieve.
Other goals might include:
- Change careers, take a sabbatical or continue your education.
- Make a significant charitable contribution.
- Pay for your children's weddings and honeymoons.
- Start a small business.
- Take the family on an extended vacation.
With these amounts in mind, look at your assets and determine whether you have what you need to cover your costs. Most people find a gap, so you'll need to determine how best to the fill the gap.
SAVE OR BORROW - WHAT'S YOUR PLAN?
It's time to put together a plan that optimizes a mix of borrowing and saving to finance major expenditures.
SCENARIO ONE:
I need $20,000 this year for a home renovation.
Because you need a significant amount of money soon, you will either have to borrow or invest to achieve a quick capital gain. This second option is relatively risky and could fail to get you to your goal. Talk to your Sagicor Producer about your short-term options.
SCENARIO TWO:
We need $200,000 for a second home in 12 years.
With some years to plan, you might be able to assemble a sizeable deposit in 12 years. Just $400 per month for 12 years, even at a conservative six percent rate of return, could provide almost $97,000 towards your dream home.
SCENARIO THREE:
Our family needs $10,000 for a family trip next year.
Since the timeframe is short, consider diverting some funds away from another expenditure and stepping up your savings plan for the year. Try to put away a few hundred dollars each month and then use a line of credit or your credit card for the remainder. Avoid putting the whole trip on your credit card if you think you'll need more than a few months to pay it off.
AN INFORMED BORROWER IS A GOOD BORROWER
Need help navigating the credit landscape?
Wise use of credit can help with your goals.
Credit Cards
Credit cards are ideal for short-term spending needs, especially if you pay off your balance each month, giving you, in effect, an interest free loan. For major purchases, however, the higher interest rates of credit cards make them unattractive when compared to personal or home improvement loans.
Line of Credit
A line of credit offers access to a pre-determined amount of cash when you need it. You pay interest only if you use it and only on the portion that you use. Generally lower interest makes it a good choice if you need to carry a balance over a number of months.
Personal Loan
A personal loan allows you to borrow a specific amount and repay it over a specific period. Interest rates tend to be higher than those charged on a line of credit, but lower than those charged on credit cards.
Increasing Your Mortgage
If you have equity in your home - i.e. the current market value of your home is more than what you owe on it - you may be able to borrow against it to cover other costs. Your Sagicor Producer can provide you with the full details.
HOW YOUR SAGICOR PRODUCER CAN HELP
Your Sagicor Producer can provide the kind of sound advice you need to help you better understand everything that goes into making a major purchase so that you can be better prepared and informed. Call 1-888-SAGICOR now, and see how Sagicor can help you.
