NOW THAT IT’S finally summer, it can be pretty easy to leave your budget in your coat pocket, invest in a suite of one-time-use garden furniture and see a discount supermarket’s ‘luxury spa pool’ as a once-in-a-lifetime kind of investment.
Being strict with your spending is hard, no matter what time of the year it is. That’s why this week we’re considering everything from the Japanese art of kakeibo to small changes that have worked for real people to help you get a bit more smart about your money.
But what does an expert have to say? “The main thing is discipline – mathematically you can usually achieve what you want to – it’s just about having the discipline to do it”, says Brendan Kelly, owner of FinancialPlanner.ie.
Here he shares how to be smart about your spending, whether you’re years into careful saving or just starting out.
Like most financial advisors, a realistic but reliable budget is the best starting point of any savings endeavour – but be smart about it. On the flip-side to avoiding impulse purchases, Kelly advises not to focus too much on repetitive savings advice surrounding your caffeine intake:
It’s a bit pointless to be tracking lattes, you just need to be more conscious overall of what you’re spending. That kind of advice is a bit condescending. It is up to you, just decide on a discretionary or ‘miscellaneous’ spending of say €20 a month for them and stick to it.
So this week, instead of restricting yourself completely or indeed, over-swiping for coffees, just allow yourself a limit over the week that you can actually stick to.
This is a simple but powerful budgeting test that Kelly recommends all of his clients try out, particularly when they find themselves in expensive shops – “next time you’re in the likes of Brown Thomas, ask the simple question – ‘do I really need to buy this thing or could that money go into my pension?”
So if you can’t avoid these shops completely this week, just make sure that anything you buy is absolutely necessary, because chances are it isn’t. And if it is, you’ll have a chance to save a little before you do.
When you’re sifting through your expenditure this month, try to pull out the expenses that you’re getting little or no use from, particularly from your ‘entertainment’ category: “I have clients who are paying €150 a month on Sky.” He urges readers to consider things like ‘do you have multiple Netflix accounts? Do you need certain streaming services?”
The same goes for that unused gym subscription, you might be relieved to know – Kelly says that he’s seen people pay €100 for a gym they aren’t even using. “Once you track your budget from month -to-month, you’ll see things you can eliminate”, he explains. “There’s always something you can chop every month”.
“Debt can be a major challenge in this country, which eats into disposable income and kills any financial planning”, says Kelly. He has seen clients who might have a monthly wage of €4,000, of which €2,000 goes on debt. You should try to keep this figure below 20% ideally, says Kelly. While your number one rule should be sticking to your budget, number two should be killing off short-term debt.
So, if you’ve a few debts – how should you tackle them this month? “Go for the highest interest first – this is usually your credit card, followed by your car loan, then your overdraft and then your mortgage”, explains Kelly. It’s also worth looking at your debt as constructive (loans for college or a small business), or destructive (going on a holiday you can’t afford).
Working out what exactly you should be saving this year is a lot easier than you think – Kelly recommends to his clients to aim for a figure of 1-2% of your gross income each month (so €1,000 for a €50,000 gross income if you opt for 2%, for example). In your second year of saving, increase this to 3%, in the third to 4%, and so on.
The best way to ensure that you stick to this is to get rid of your short-term debt, which Kelly says you’re better to pay off before you begin. “Another thing that people don’t realise is that debt is after-tax”, shares Kelly. This means that it’s “highly inefficient” when compared with say, putting the same amount into your pension. So make this year the one that you officially become as debt-free as possible.
When you’re deciding how much you want to save in 2019, it’s also worth thinking about what form you’d like to save it in, says Kelly: “If you want savings, do you want them in the form of your pension, assets or cash?” And it’s about more than just your deposit account. “Seek decent returns on your savings – it’s not just about deposits, other stuff can make you money.”
For those who haven’t invested before, Kelly shares that the average interest rate is 5-6% at the minute, and anything higher could be too good to be true. He also urges people to stick to investment and pension providers: “Only seek out regulated investment providers – if a non-regulated firm goes down, you’re not protected.”
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