“I am really confused about how to make ends meet in these times. The cost of living is at an all time high, my salary can’t pay all my bills, and the returns on my investments are a joke. I really need some practical advice on how to make some more money to survive.”

If you haven’t already figured it out, we are living in tough economic times. The global financial markets are experiencing a frightening meltdown that’s affecting both multinationals and mom-and-pop stores, small savings accounts and large investment portfolios, consumers and retirees.

Here in Jamaica, the financial heads have admitted the obvious – we’re all going to be impacted by the international monetary woes in one way or the other.

Under normal conditions, making enough money to meet all our needs can be difficult. In this financial landscape it may seem almost impossible. Let’s look at some of the challenges that are currently impacting the standard ways of making money:

Making money in your job

Many people seek the security of a job to provide the money needed to meet their requirements. Once you are in a salaried position, you expect to get regular pay cheques and benefits that will help to make your life reasonably comfortable. While a job is vital to pay bills and build your foundation for monetary growth, depending on your nine-to-five to provide financial security in these times is actually a risky position.

The reality is that businesses are consistently looking for ways to reduce overheads and become more efficient at providing their products and services. Unfortunately, staff expenses are some of the highest costs, and are therefore subject to constant review to see how they can be reduced. That means businesses will often try to cut back on unnecessary employee perks, and even replace jobs with technology which can do the job better and cheaper.

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Another drawback with the job income is that it often is eroded by the effects of inflation. Inflation, the sustained increase in the general level of prices for goods and services, affects you by decreasing your spending power. Jamaica’s average inflation rate at the end of 2007 was 16.8 per cent, which means that you would need 16.8 per cent more money to buy the same amount of goods.

The challenge is that your employers would probably find it difficult to raise your income by the same amount as the inflation rate, because they are also faced with rising costs which negatively impact their operations. You might have felt lucky if you received a salary increase of eight per cent last year, but after the effects of inflation, that raise actually left you nearly nine per cent poorer. That’s why the job income is just not enough for most people anymore.

Making money from your investments

When our earning power from physically working is insufficient, we often try to make our money work for us. It’s a good idea to look out for investments that can supply additional income or create future wealth. The problem is that if you have very little money to start with, there aren’t many investments that will be able to turn over enough cash to make a big difference to your monthly income.

The picture for practicing investors is just as difficult. Although current interest rates on Government of Jamaica securities are trending upwards, the net return is still less than the inflation rate, so your money is actually losing value in these safe investments. Many people flocked to the unregulated investments with the hope of generating attractive returns, but most have been burnt as these entities have been unable to pay back as promised.

As stock markets around the world are being buffeted by the current financial storms, investors are facing heavy losses in portfolio value and new market entrants are staying away. One of the worst effects of these times is the loss of investor trust in previously robust institutions. As the stories evolve, we realise that the present financial crisis could have been averted had there been more prudent investment strategies and stricter regulatory practices in the global financial marketplace.

How can we survive?

With all this doom and gloom in the financial world, is there any hope for our survival? Or should we just accept the expected decline in our standard of living for the next couple of years?

As the saying goes, ‘When the going gets tough, the tough get going.’ The only solution to money shortages is to become disciplined in cutting back on expenses and to get creative in making extra income. Gone are the days of carefree spending as if money was no object – if you continue that lifestyle you’re headed to the poor house!

Next week I’ll outline the steps that you can take to survive in these tough economic times.

Copyright © 2008 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, October 16, 2008

Cherryl is a financial consultant and coach, founder of Financially S.M.A.R.T. Services. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl