“The secret of getting ahead is getting started” - Mark Twain
LAST week I was telling you that year after year, no matter what research or study is undertaken, there are always three areas that come out on top of our new year financial resolutions and they are to save more, spend less and pay down debt.
All excellent goals, the problem with people that I encounter is that while they want to achieve at least one of them, the chances of success are only ever more than a pipedream because the goal they set themselves is too vague, easy to fudge and even easier to ignore.
For example, I asked a relative of mine last week, what financial goal she wanted to achieve next year, and her reply was to save money. That’s great, but how much did she want to save? She didn’t have a reply for me - she just said she wanted to save more money.
When you set a goal, whatever that is, if it isn’t specific or measurable then it isn’t a goal and it won’t work. If my relative was to put €20 into her account at the end of next December, then she would have met her goal by saving more money than she did the previous year but it will make no difference to her finances, is not productive and certainly not challenging.
If you want to save money for the year ahead, set yourself an amount you want to save each month or how much you want to have saved over the course of a year, and when you figure that out, decide where you will put it and open that account.
And commit to this by putting it in writing, something like this:
Today (January 14) I have saved €x …. In one year I will have €x in my account … in order to make this happen I need to ...
There is no point in committing to a goal if you don’t follow through and take the necessary action, so make sure you take the time to open that new account.
When you know how much you can and need to set aside to make that goal a reality, the best way to stay on track is to make it non-optional.
What I mean by this is where you set up an automatic transfer to a savings account the day your salary is lodged to your current account.
If you want to spend less this year, then your first step is to know what you are up against and it’s as simple as writing down how much you spend each month and on what.
If you don’t know what you are spending your money on, you don’t know what you are possibly wasting it on and no way of knowing what you need to cut back on.
A lot of monthly money management is about cutting back on spending or getting better value for things like insurance premiums, eating out less, bringing your lunch to work and so on. But all the small cuts in the world won’t help if you are prone to spending unconsciously so it is important to know what your spending triggers are.
Spending triggers are those moments or circumstances when you pull out the credit or debit card that break the rules of your budget. If you want to cut back on spending too much, take time out to identify what are your triggers and come up with a plan to eliminate them.
If, for example, you can’t resist spending money on websites offering massive discounts on whatever it is they are selling, when promotional emails from them appear in your inbox, then unsubscribe to them.
Sometimes people think they are getting a great deal when something is reduced by 50% but unless you really need it and will use it then resist buying it and, so, get a 100% discount.
When it comes to paying down more debt it's like saying you want to save more because if you say you want to pay off more debt this year and leave it at that then you will get nowhere.
You need to be more specific and like having a savings goal, write it down and when you do it should look something like this:
Today (date) I have €x amount in (credit card or mortgage) debt...in 1 year the amount I owe will be €x ... in order to make this happen I need to ...
Sometimes people have an excellent goal which might be to pay off their credit card debt but they are doing it at the expense of saving. If you are diverting all of your extra funds to pay down a debt, at the expense of putting money into your emergency fund, when you don’t have one in place, then suddenly an unexpected expense pops up and you don’t have the cash to cover it, you might have to resort to using your credit card again or getting a term loan, so you are back to square one.
Iif you have multiple debt, and provided you have an emergency fund in place (equal to at least three months’ of your net monthly salary) you should focus first on your most expensive debt.
For most people that debt comes in the form of a credit card which can carry crippling rates of interest. So, focus on paying that debt off first, with minimum payments on all other debt, and once that high debt is repaid first, then transfer what you had been paying to the next highest costing debt and by doing this you are creating a snowball effect which will clear your debts off in a much faster time period.
Remember, every achievement and every action you do in the year ahead has to be maintained. If you lose weight you still have to exercise and watch what you eat, to work at keeping down those extra pounds you lost.
Your finances are the same - they need attention and need to be worked on if they are to stay healthy, and improve. And no matter how tight money might be right now or whatever your situation is, things can change if you put your mind to it.