Get money motivated for the New Year
Let’s make a resolution not to splash so much cash
ONCE Christmas Day is done, my thoughts always turn to the New Year with all its challenges and changes.
New Year’s resolutions traditionally have a bad rep, and surveys show that, by February, 80% or more have been canned or are but a distant memory.
The problem with resolutions is that people who make them are not making them from a position of knowledge or insight or motivation. By this I mean that people make them on a whim or in the pub or to impress friends or on the spur of the moment.
Rather than resolutions, setting money goals for the New Year is a better way to frame your good intentions. Goals need to be carefully considered, have a time schedule, be realistic and achievable, and of course be so specific that there is no room for misinterpretation or confusion.
I often ask clients to estimate how much money they will get in their lifetime. In the UK I saw an estimate of £1.2million as this average figure.
Let’s for argument sake say this is €1.4m with inheritances, gifts and earnings over a 40-plus year period. This is the figure I want you to focus on. Let’s call it your lifetime income.
This is all the money the average person will get in their lifetime. This puts a limit on it and makes you think more about wasting it or mismanaging it or buying stuff you don’t need.
It makes you think about personal fritterings or wasteful spending.
For example, “Do I really need to buy a bottle of fancy spring water for €2 when there is a tap available?”
This is €2 from your lifetime income. Substitute any spend and any euro amount for water and it might make you think twice.
It also makes you think about using your income wisely. This could be for your retirement for example. Money saved and invested over time of course will bring compound interest to increase this lifetime income.
So it’s your money, your income, your responsibility. One mistake people make is to take on too much and over-commit to change, which can overwhelm and disappoint.
If you take on one or two changes with your money, do them well and completely so you have success.
You are then able to move on to another thing, and equally do it well. Read a book about this concept called The One Thing by Gary Keller and this will explain how to succeed and how not to overwhelm yourself.
Now, how to get started? Below are some pointers on hitting the ground running.
1) SET UP AN EMERGENCY FUND
Easy for me to type these words as many are struggling over Christmas with a stretched budget and rampant cost of living over the last two years. Financial resilience is strengthened by at least having some rainy day fund available for unforeseen circumstances. Look to set one up, with a few quid or whatever you can put away. Putting money in a place that is not readily accessible will ensure you don’t tap into it. Can you start saving towards €500? Can you build it up in time above that? Everyone is different. What it does is it prevents you from the increased cost of borrowing and paying interest on credit, not to mention the stress of unforeseen expenditure.
2) LOOK AT YOUR DEBT
Working in debt management for the last 10 years has given me an insight into the damaging effect debt has. It can creep up and take over a person’s life and hamstring their decision-making. Get to know your debt. Get to hate it and get motivated to change it. Know how much you owe, at what cost or interest rate, and how long you have to pay it back.
Those three elements will go towards determining the cost to you from your lifetime income. The bigger the debt, like mortgages, the bigger savings you make over the term by switching or making changes.
3) TAX
Do you know what and how much you are entitled to? First off, ensure you are getting the correct tax credits, the correct social welfare payments and entitlements and not overpaying tax.
Minimising tax will increase your lifetime income. Are you claiming back tax on medical and dental expenditure, education, children? My tip here is to contact Revenue to get a steer if you are unclear on anything. Their website and the Citizens Information site are great sources of information.
4) CREDIT CARD
Give it a rest. It is no wonder they say the third Monday in January, or Blue Monday, is the most depressing day of the year. The Christmas credit card bills start coming out around this time. If you cannot manage day to day spending without borrowing on your credit card, you need to look at this quickly and take action.
5) DECLUTTER
This really helps and anyone who has done this feels motivated and has a great sense of satisfaction. It also gets you in the mood to attack any money task you may have been procrastinating over. Clear the attic, sell off anything you can if you don’t need it, or bring it to the charity shop. They will need and use it and love you for it. Adverts. ie is a great place to turn a few quid on unwanted stuff. Failing that, local freecycle sites and Facebook pages are good outlets to do some good for the circular economy and environment.
6) GET A BETTER DEAL ON THAT THING IN YOUR HAND
If you are out of contract on your mobile phone, you own your phone so think about if you need the new fancy phone tied into another contract just yet. Why not look at the less expensive sim-only alternatives like 48, Clear mobile, Gomo where you can get mobile coverage for under €15 per month. Check out Switcher.ie or one of the comparison sites. Make the change.
7) TURN OFF THE MARKETING NOISE
Give spending a rest and don’t look at the marketing messages about sales, new phones, new this and new that. We are hit with over 4,000 marketing messages per day and they want your money; they want some of your lifetime income. Ask yourself, is it important enough to spend some of your lifetime income just now? After I feed my kids their dinner at home I announce “the kitchen is now closed” so just tell everyone “the wallet is now closed.”
8) UTILITIES
Leaving the Government energy credits aside, which are so welcome, check when your renewal is for gas and electricity. Find out how much you pay for a kilowatt hour of energy so you can see what is better. Energy prices are coming down so don’t miss the boat here. Check out the Commission for Energy Regulation (CRU.IE) to get started and of course other sites like Switcher, Bonkers and other comparison sites.
9) PENSION
As I say to people worried about pensions, it is never too late or too early to start a pension. If you have an occupational pension at work, join it and you may get employer contributions which is free money for you. Otherwise private pensions like PRSAS are ideal mobile savings plans with tax relief available. Remember you will not pay tax on the money you put into a pension, otherwise the nice people in the Revenue will get either 20% or 40% of what you earn in income tax.
10) JOIN THE LIBRARY
It’s free and it’s good for you. You can search and request books you want to read for you and the kids and they will deliver to your local branch if they don’t have it. You can also download audiobooks and ebooks. Check out libraries.ie. What’s not to like? They’ve even abolished fines!
11) STREAMING AND APP SPENDING
I have looked at mine recently and I noticed for reasons like sporting events and certain box sets, I have too many streaming services. I used to have just Netflix. It slowly crept up to me having four. I am cancelling two in the new year. Take a look at your monthly outgoings here and multiply by 12. It may surprise you.
12) FOOD
I could fill up another page on dos and don’t around needs and wants with food shopping. Quantify it as much as possible as an average and look to where you can make changes. This is where the marketing machines do their best work. I bought 12 potato waffles for the kids the other day and the own-brand shop version was approximately one third that of a well known brand with a nice bearded man on the front of the box. For essentially an identical product. Increasing your awareness here will bring benefits.
‘‘ One mistake people make is to take on too much and over-commit to change..
Got a question for Morgan?
13) CAPITALISE ON SAVINGS
When you save money on any of the above, what will you do with it? The term lifestyle creep comes to mind, where your expenditure rises towards your income. If you save €50 a month on say, streaming, utilities or takeaways, you might see it disappear into something else. What is the best use of this savings? Pension, savings habit, accelerating debt payments? That’s how you get ahead and win at this personal finance game. So, in summary, it’s your income and a limited one at that. Keep it close to you and only let it go if you are clear on the options. Pick one thing and do it properly. Do some research. There are limitless resources and websites that can help including MABS.IE, for debt and budgeting and CCPC.IE for comparisons. Books like Money Doctor or TAB guide available in shops (or indeed in the library) are also great, up to date references.
Morgan O’connell is the first financial coach in Ireland holding the Certified Financial Planner Accreditation. He specialises in goal setting, time management and financial education. Contact him at morgan@arrowcoach.ie.