Liam Croke: Chip away at fixed costs, then you can raise a glass

I was asked to review the monthly cash flow of a new client of mine recently. The reason she was seeking my advice was because she wanted me to analyse her monthly outgoings.

I was asked to review the monthly cash flow of a new client of mine recently. The reason she was seeking my advice was because she wanted me to analyse her monthly outgoings.

Because no matter what she did or how hard she tried, she just couldn’t figure out where her money went each month and given she didn’t, in her own words “have much of a life” she didn’t think there was much hope for her finances going forward and this was a problem for her.

The reason she wanted to get a handle on her finances was because she needed to save money that was required to pay Revenue.

You see this woman was self- employed and was not putting aside a portion of the money she earned that would go towards her tax bill due at the end of next month. Anyway, that was her reason to reach out and look for help.

My starting point with her was a simple exercise – I gave her a monthly cash flow sheet and asked her to write down every cent she spent in the month ahead. So, once I knew where her money was going I would then know what she and I were up against which would allow me recommend a course of action that would create a monthly surplus for her.

Fast forward a month and we met again, and I asked her how she got on. She began to laugh at first but then I could quickly see that she was a little bit uncomfortable and embarrassed. She said one area in particular literally jumped off the page when she was looking at what she was spending her money on and how much.

And, it was on alcohol.

She calculated that she was spending around €40 each week on two or three bottles of wine during the week along with a couple of drinks with her friends on a Friday or Saturday night. So, she was spending c. €2,080 each year or about €173 every month.

She thought I was going to think not only had she money problems but now also had a drink problem as well – she didn’t by the way. Anyway, the amount she was spending on alcohol isn’t and wasn’t particularly high because a couple of years ago a national alcohol survey found that as a nation we spend about €6.3 billion each year on alcohol – incredibly 7.7% of a households expenditure is on alcohol which is more than we spend on clothing and footwear.

When the survey was carried out in 2012, the population here was about 4.5 million, so our alcohol spend for every man, women and child was €1,400 per year – that was €26.92 per week for every citizen living in the country.

And when you strip out those people who don’t drink and according to Alcohol Action Ireland, about 20% of us don’t and those under the age of 18 who are not allowed to drink that accounts for about another 25% of the population.

Of course I know a percentage of this sector does drink regularly – apparently a third of 15 and 16-year-olds binge drink at least three times a month.

So for the purpose of this exercise I am going to guestimate that 5% of the under 18s drink on a regular basis – which means that 60% of the population accounts for the €6.4 billion we spend on alcohol. So the real figure we spend on alcohol per person is more like €2,300 each year.

Back to my client - “could you give up alcohol?” I asked “Jesus no”, came her reply, “It’s what gets me through the week” she laughingly replied.

And she wasn’t altogether joking, but here’s the thing, we all complain about not having money at the end of each month because we don’t earn enough and/or the cost of some things keep going up each month and we are barely able to make ends meet, there is simply no way we can find anymore savings.

But is this altogether true? In the example I have just referred to, my client was spending €2,000 every year on alcohol and if you were to ask her to guess how much she was spending on this area, and I did, she said very honestly to me that she would have thought it was about €500.

So, there are some categories in our monthly outgoings that we greatly underestimate, because it comes out of our accounts in very small incremental amounts. So we then think we spend very little on them, and they can’t be improved upon, so why even try?

Do we have to me more honest with ourselves? And more aware of what we are spending our money on each month? I know from analysing people’s finances every day of the week, it isn’t always the case that we can’t squeeze more savings out of our monthly budgets – we can but some of us choose not to, for whatever reason that is.

But I have a theory why this could be the case.

If you want to save more money each month, you can do it in probably two ways – (a) cut back on those categories that you spend too much money on i.e. alcohol, take aways, coffee etc. or (b) get better value of those fixed monthly expenses like home insurance, life assurance, health insurance, term loans and so on.

Cutting back on the amount you spend on food or alcohol or whatever it is, is a sacrifice for many, absolutely it is. But the thing with doing this is, in order for you to continually save money each month you must continue to make this sacrifice.

That is a very hard and big ask and why so many people start off with good intentions of spending less but after a while can’t continue and so give up.

You can get better value on your life, health or home insurance premiums, for example, by making some phone calls or by researching the market yourself.

Our health insurance policy was due for renewal this month and my wife, Roseann made three phone calls regarding the premium we were being asked to pay for the year ahead and was able to reduce the premium by €1,500).

The saving achieved requires no sacrifice to our lifestyle – there is no effort involved each month after that initial work to get better value is done. Cheers.