I am 28 and have total debt from my mortgage and car loan of 1.5 million baht. I want to save 1 million baht starting from now. Which option is best to help me achieve my goal?
1. Try to be debt-free as soon as possible: I have done a rough calculation and if everything goes as planned, I will be free in nine years, but I would have no savings.
2. Keep debt repayments as scheduled and save 10% of my income, as I can do that without affecting my debt repayment and use these savings for investment.
ANSWERED BY... Teera Phutrakul, CFP, chairman, TFPA Ideally, your total monthly debt payments including your mortgage, car loan and credit cards should not exceed 36% of your gross monthly income. That's one factor bankers consider when assessing the creditworthiness of a potential borrower. The challenge is learning how to judge which debt makes sense and which does not and then wisely manage the money you do borrow.
The first thing you should do is set up a rainy-day or emergency fund to cover at least six months' worth of living expenses in an easily accessible account. Then you can start thinking about clearing your debts. If you have any credit cards or personal loans, then you should start with these, as they have higher rates of interest than your mortgage. Furthermore, interest payments on mortgages are tax-deductible.
With a rainy-day fund in place and more expensive loans shrunk, it may make sense to consider reducing your mortgage. You will need to check that repaying will not cost you more than you save, as there may be some penalties for early repayment. A fixed-rate mortgage without penalties for repayment is quite rare. However, many banks will allow you to repay up to a certain amount, typically 10% of your outstanding balance per year.
For it to make sense to invest your money rather than paying off your mortgage, you would need to achieve a higher rate of return on your savings than you pay on your mortgage. That would be no mean feat given current low interest rates and the volatile stock market.nnn I will be 45 this year and have almost 1 million baht in a provident fund, with 400,000 to 500,000 baht invested in gold. What is the proper financial plan for a single woman like me? Do I need to save more than married women since I'm on my own? I lead a very simple life, have few expenses so I don't think I need a lot of savings. I'm also free of debt.
ANSWERED BY... Teera Phutrakul, CFP, chairman, TFPA When it comes to financial planning, men are from Mars, women are from Venus, so I am told. Women tend to live longer, earn less and have different insurance needs, although this generalisation does not apply to all women. In fact, I know of several wives who earn more than their husbands, but in general women are still held back by the so-called glass ceiling.
If you excuse the pun, there is an element of truth in the old Thai cliche about how women age more easily and live longer than men. On average, they live eight years longer than men but typically earn a third less.
As a result, they have fewer retirement assets such as provident funds and retirement mutual funds and a higher risk of outliving them due mainly to frequent interruptions to their careers to care for children or ageing parents. Women also need health insurance more than men since they live longer and often outlive their spouses.
In a way, being single is a blessing in disguise. Having no dependents to care for is a big plus financially, but in old age life can be somewhat lonesome. With retirement looming in 15 years, you need to get that 1 million baht in your provident fund working as hard as possible. A comfortable retirement can cost anywhere from 10-30 million baht these days.
In the event that things do not work out as planned, be prepared to work longer (if possible), save more and keep your employment skills up to date if you exit the job market.
The Thai Financial Planners Association is the Certified Financial Planner (CFP) trademark licensing authority in Thailand. It is a self-regulated, non-profit group of financial advisers and experts from various organisations set up to give advice to investors. Questions can be submitted through firstname.lastname@example.org or the TFPA webboard, www.tfpa.or.th
About the author
Writer: Thai Financial Planners Association