Revisit your financial plan as inflation remains high

The government and the Bank of Thailand are working hard to tame inflation and minimise the negative impact on the econo¬my. Nonetheless, despite all efforts, we will face a tough situ¬ation - a soaring cost of living while our earnings remain rela¬tively flat. This is a wakeup call to revisit your financial plan or to create one if you don't have one yet.

Let's see how inflation disturbs our plan. For a 40yearold pro¬fessional woman who plans to retire at 55 with Bt50,000 monthly (at today's value) to spend until she is 75, Bt18.7 mil¬lion will be needed on her retire¬ment if inflation remains at 3 per cent. It means that, with a 5percent return on investment, she needs to save Bt70,000 a month from now until she retires.

Should inflation jump to 8 per cent and persist for five years before falling back to the normal level of 3 per cent, she will need Bt23.7 million in her pocket on retirement to enjoy a similar standard of living. To get there, she needs to pay Bt89,000 a month to her retirement fund, 28 per cent more than initially planned.

Combined with rising daily spending, she needs to do something to live today and in the years ahead.

For the pres¬ent, we need to increase saving capacity by adding cash inflow while streamlining cash outlay. We may try parttime jobs or work¬ing harder to get higher commis¬sions and overtime payments. Simultaneously, we need more discipline in our spending, including saving on electricity and phone bills, using mass transportation and reducing lux¬ury activities.

Working on tax is also a help. We should max¬imise our tax savings through retirement mutual funds, longterm equity funds and life insurance, as much as we can afford and allowed by law. In addition, accelerating debt repayment is also helpful, especially when our savings earns less than interest charges.

For our retirement, there are a number of parameters we can consider. For example, we may delay our retirement. Instead of retiring at 55, if we work until 60 we will need Bt20.6 million at retirement to live until 75. Paradoxically, to get Bt20.6 mil¬lion, we have no need to save more. We can save only Bt50,000 a month since we have five more years to continue our fund accumulation.

Alternatively, we should seek higher returns on investment. With inflation at 8 per cent, making a relatively safe return on investment of 5 per cent means getting "sure" dilution on our purchasing power. Therefore, the risk of taking no risk is high¬er. If we are to maintain our wish to retire at 55 and maintain our savings at Bt70,000 a month, we need to earn a return of 7.8 per cent on investment.

With varieties of investment available, we can achieve our targeted return by diversifying our portfolio. We may, directly or via mutual funds, add equities, commodities, gold or property to our investment. But bear in mind that certain volatility comes with higher returns.

So, we still can have hope under these nearhopeless cir¬cumstances. Rethink and act now.