People of Limerick urged to calculate their 'monthly nut' to aid financial planning

I MET someone last week and their monthly nut was €4,500. I met someone else and their nut was €9,000 and someone else thought theirs was €5,000 but he wasn’t sure.
And not knowing what his monthly nut was a problem and more of this to come shortly but first let me tell you what a monthly nut is.
And very simply it’s the amount of money you need to cover all of your monthly expenses.
It includes everything from mortgage and rent payments, transportation costs, food, clothing, utilities, debt repayments, insurance premiums and so on. It’s literally the cost of all of your monthly obligations, both fixed and variable.
And the term monthly nut has its origins going back to the 19th century when carnivals would come to a town. The local sheriff would remove the nut from the wagon wheels of the carnival folk and he wouldn't give it back to them until they settled all of their bills upon leaving. And when they did the nut was returned to them and off they went, but if they didn’t they couldn't go anywhere without that nut for their wheels.

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So, the wheel nut was an insurance of sorts to make sure any credit given was paid back in full.
And I’m going to come back to why it’s important to know what your monthly nut is but first let me tell you about the gentleman who wasn’t sure whether his monthly nut was €5,000 or not.
You see he reached out for advice because there were rumours going around his workplace that some voluntary redundancies were going to be offered, so he thought now was as good a time as any to check in on his finances to see if this offer did come to pass, was it something he should apply for.
And knowing the type of advice and answers he was going to be looking for, I asked him to complete some documents and provide some information to me in advance of our first meeting so I could review them before we met. And he did send back one of the documents I asked for but not the other.
And the other was what we call our spending planner which is basically a monthly budgeting tool which helps capture what your monthly outgoings are.
And the reason I asked him to complete this document was because there were probably going to be a number of areas that I would end up reviewing and focusing on for him and using someone’s current outgoings as a benchmark is an excellent reference point as it validates all of the numbers for each of the areas we’d look at i.e. how much did he need to earn if he left his current employer, how long could he be out of work before he’d have to return to work, what impact redundancy would have on his pension and so on.

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And the numbers we could produce using his existing outgoings as a reference point were going to be his numbers and not generic ones.
It’s a really useful exercise to do and anyone who’s ever completed it have always said two things (1) they weren’t really looking forward to doing and that was probably because of what it might uncover and (2) when they did, the majority said it was one of the best and most insightful things they ever did from a financial perspective.
But having said all of that and after putting what I thought were some good reasons in front of this gentleman, he chose to ignore me.
He said there was no point in filling out any forms because he knows how much he earns every month which was €5,000 and he also knows how much he spends each month, and that number was also €5,000.
If he knows both of these numbers, he thought why does he need to track where he spends his money.
He said he gives his wife €2,500 every month and he spends the rest and he laughingly said he has no idea on what.
Which I thought was a big problem because if you don’t consciously know where you are spending your money each month, then obviously you have no idea whether you are overspending or underspending and you have no idea if you can improve your situation or if what you are doing is fine.
You don’t want to discover at a later date how wasteful perhaps you have been or maybe how too frugal you’ve been when you don’t have the time to recover from either scenario.
I mean how awful would it be to discover that for example you were paying €100 more each month for a life assurance policy but you’ve only found this out after 10 years when you’ve paid €12,000 more than you needed to. And you can’t time travel back 10 years to repair the damage.
But look there’s never any judgement from me, if he didn’t want to do it, he didn’t want to do it, but I was disappointed that he wouldn’t spend 5 or 10 minutes completing this very simple form.
Because understanding what your monthly nut is important in so many ways.
And your expenses will fall under two headlines, fixed and variable and your fixed expenses are easy to calculate because the amount doesn’t change much if at all every month i.e. mortgage or rent repayments, utilities, loan repayments, life assurance premiums, pension contributions etc.
And then there are your variable expenses and these are the ones you need to watch out for because they are the ones that trip most people up and that’s because they can change every month. They include things like groceries, transport, children’s expenditure, clothes, eating out/lunches/take aways etc.
And there’s actually a third category that’s just come to mind that you need to be mindful of as well and you could call them irregular expenses and they are the ones that don’t occur every month but are still part of your spending. And they include things like, annual insurance premiums or annual membership fees, annual property tax, anniversaries and weddings and Christmas and holiday costs, a car service or repairs, house maintenance and so on.
When you know how much you are spending in each area, add them altogether to get your total number. And you might be surprised at how high it is and you might be shocked at how much you are spending in some areas. It might be far higher than you thought it was and on the other hand you might be pleasantly surprised at your number and it’s lower than you thought it was or what you thought it would be, but regardless I say just find out what your number is.
Because it can help with your finances in so many ways and I’m going to give you a list of my ‘it cans’ just to show you why and they are:
-It can help with eliminating wasteful spending
-It can help reduce fixed costs that you can get better value i.e. lower mortgage rates, lower insurance premiums
-It can help determine what your retirement number is which can influence when you can retire
-It can help free up money that can be redirected to paying off a debt or a mortgage earlier than planned saving thousands in interest payments
-It can help with increasing your savings and pension contributions by again re-directing money on areas or things that give you no joy or add any value to your life
-It can give you peace of mind knowing that you aren’t doing anything silly and you’re managing your finances just fine
-It can help make decisions around applying for a voluntary redundancy offering or not
-It can have you prepared if you get that tap on the shoulder should an unexpected compulsory redundancy occur
-It can help with determining how much life assurance your family would need should you pass away i.e. you know how much income needs to be replaced
And I could go on and on and give you more reasons but I’m hoping something on the list will resonate with you as to why it’s something you should be doing.
I know this is very boring advice but it's more than important that people know what their monthly nut is, good or bad.
If it's bad, the problem could be that your monthly nut is simply too big for your income. Which means that you have to either earn more, spend less or a combination of both. And sometimes people think that earning more will solve their cash flow problems but they should look at their spending habits first. Because spending €100 less each month and earning €100 more each month aren’t the same thing. If you spend €100 less, you save the full €100, and if you earn €100 more what you end up getting after taxes could be just €48, so as you can see, they’re not the same.
And I’ll leave you with this.
There are many clients of mine who know what their monthly nut is and they have a pretty good idea of how that number is made up. But they don’t obsessively track their spending on a daily or monthly basis either, but they do know to a large degree where their money is going because they are consciously sending it where they want it to go.
And the reason they do this is because it gives them security and because they know how critical their number is to achieving financial success, whatever that means to them.
Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie