Last week I spoke about setting yourself some financial goals for the year ahead. Deciding what the goals are is the easy bit and now we can go into putting a plan in place that will help you achieve them.
So let the hard part begin; it starts with finding out how much you need each month to achieve your goal
and then identifying what resources you have at your disposal that can be applied to your goals.
Your resources is that surplus you have at the end of each month that can be used to overpay your mortgage, pay down debt, save for your summer holiday or whatever your financial goal may be.
If, for example, you want to save €200 each month but your surplus is €50 at the end of each month, then you know what your shortfall is and unless you can make it up, then your goal will not be reached in the time frame you want. In many cases it is never reached, because people think they will never be able to make up the difference.
For many people it is fine having all the goals in the world, but they have no idea where or how they will create that surplus each month.
Just when you have all the motivation in the world, you then you look at your income and outgoings and, bang, you feel it’s a hopeless cause.
Let me be very honest with you: unless you create a surplus each month, financially you are going nowhere, so there is no easy solution.
If you can’t earn any more money, then you are going to have to spend less. And I don’t mean to sound patronising when I say that because I know many of you are already committed to that fact.
But the challenge to those who are already doing this and to those who haven’t yet, but need to, is to rethink and rework your monthly budget so there is money left over at the end of the month - the amount you need that you can put towards your 2014 financial goals.
Before you can start to change and improve your monthly finances, you need to know exactly what you are up against and what it is you need to change and improve upon.
So, you need to analyze what your income and outgoings are each month. I am going to help you with this by making a household cash flow worksheet available to you (just send me your email address and I will send it to you) and what I want you to do is complete it slowly and carefully.
After you have done this, I then want you to put the following letters opposite each spending category – PERK – and they stand for:
P = Postpone
R = Reduce
K = Keep
This is an idea developed by a man named Robert Pagliarini who is convinced that people can dramatically reduce their monthly outgoings by spending (excuse the pun) sometime analyzing and categorising where they are spending their money.
It is a very simple process and it is one I have used myself and I know it really can help you save money each month.
POSTPONING means putting off incurring an expense like changing the car, buying a new computer, home improvements etc. where you create more money straight away that can be used towards your savings or debt repayments.
A client of mine was thinking of changing his car this month just because his existing loan was coming to an end, but why take on another debt when the car was running perfectly fine, so the €395 he is repaying BOI is now going into his savings account instead – he simply postponed taking on a new loan.
ELIMINATE means looking at those monthly expenses you can get rid of and are things you won’t miss if you do.
What are those small monthly costs you incur each month (weekly fees for weighing yourself – weigh yourself at home, or the gym membership you don’t end up using) that when added together actually add up to be quite a bit?
When I read about Pagliarini and the PERK system, he made a very good point by saying you need to spend time on this area and things that made sense at one stage in your life, don’t anymore and haven’t for a while so it’s time to let them go.
REDUCE your budget - this is the one big area where you can make real savings. Can you reduce the amount spent on takeaways, your weekly grocery shopping.
What if you brought your lunch to work one day per week? Can you reduce the amount you spend on home insurance or life assurance premiums?
According to a report published in September of last year, the National Consumer Association found that almost half of consumers in Ireland never bother to compare prices to see if they can get better deals with utility providers.
We have no problem switching supermarkets but we are very slow in other areas and those that don’t, according to the NCA, are leaving about €1,000 behind them each year.
And finally, I want you to look at those spending areas that are very important where you put a K opposite them.
KEEP those expenses that you absolutely have to, like car, home and health insurance and other expenses such as mortgage or rent repayments etc.
Doing this PERK exercise is all about becoming aware of where your money is going and what you are spending it on each month, which, in my opinion is what people lack the most.
And, yes, it is a pain in the ass sitting down and going through what you spend your money on each month but just keep those goals in mind when you do, because, I promis, it will all be worth it in the end.