Liam Croke: No such thing as a free lunch, but it can be cheap!

I was carrying out a financial review for a reader of the Leader recently – let’s call her Mary – and I got her to carry out an exercise of tracking what she spent her money on each month.

I was carrying out a financial review for a reader of the Leader recently – let’s call her Mary – and I got her to carry out an exercise of tracking what she spent her money on each month.

The reason she wanted me to review her monthly outgoings was because at the end of every month there was very little, if anything, left.

This was troubling her because she didn’t feel she was overspending each month and she wanted to start saving as well, something she had been unable to do.

Her question was simple: “Where am I going wrong?”

Most people like Mary believe the key to having more money left at the end of each month is by increasing their income. But ask anyone who ever got a raise and ask them if they saved more money and they will probably say NO. And the reason for this is generally the more we make the more we spend.And let me ask you a quick question: if you wanted to have more money at the end of the month do you think earning €1 is better than spending €1 less, or is there no difference?

Well, bet your life there is a difference – if you earn an extra €1 and you pay tax at the marginal rate then the €1 you earn is actually only worth €0.48 cent.

If you spend €1 less then that is worth €1 to you, so when you compare them, spending €1 less is worth 109% more to you than earning €1 more.

Back to Mary, because when I analysed her outgoings nothing really stood out to me that suggested that she was overspending – except for one area that did look a little bit more than the norm, which was the amount she was spending on her lunch each day.

“I’m not very good in the mornings,” Mary told me, so she never has time to get up that bit earlier to make a sandwich or a coffee. Her immediate thought was her laziness was costing her at least €1,880 in shop/cafeteria-bought lunches over the space of a year if what she spent last month was anything to go by – and she admitted it was. (The €1,880 was worked out over 47 working weeks – if she was to work out what the amount was over a full year it would be even worse!)

To find out exactly how financially lazy she was, she went through her bank statements just to make sure she wasn’t missing anything or being too hard on herself.

She was spending €4.50 on a sandwich each day, €2 on a coffee, €1 on a Diet Coke and €0.50 for a piece of fruit. On Fridays she would buy a magazine as well for €3 but we didn’t include that in her “lunch” expenses.

If she bought her lunch every second day to work and invested the amount she didn’t spend in a regular savings account she would have €975 in her account at the end of the year.

The average amount we spend on lunches during our lifetime – and that is based on just two shop-bought lunches per week – is about €22,500 (this was study carried out by O2). I told Mary that this meant if she continued spending as she was, she was on course to spend closer to €40,000. Her jaw dropped and then she laughed and said that the first thing she was going to get on her way home was a loaf of bread, a pack of cheese and five slices of ham.

The moral of this story is that most of us are guilty of wasting a lot of money on “small things” every day, and that money adds up to big amounts. Every day without thinking we spend money on small daily expenses that drain away our cash,.

We don’t realise that if we saved that money, it would quickly add up to a significant amount that can be used to pay down debt, repay our mortgage faster, retire quicker and more comfortably or pay new bills like the upcoming water tax without having to come up with new money.

What Mary gained by carrying out this exercise of tracking what and where she was spending her money on each month was awareness. She learned what she was spending her money on and was then able to redirect what she called was “wasted cash” on other areas of her life that were more important to her.

Simply knowing what she was spending her salary on each month made a huge difference to her finances.

I suggest you do the same thing as Mary did – mentally walk through what you spend on a typical day. A best guess will do fine, you don’t have to be exact.

Write down what you buy from the morning coffee, newspaper, sandwich or whatever and multiply that by five to see what you spend each week. Multiply that then by four to see what you spend each month and then by 12 – and you will see just how those small amounts add up over a year.

Maybe, like Mary, you will see areas that you might be able to cut back on (not entirely give up). This will help improve your cash flow each month.