5 reasons why everyone should analyse their budgeting and spending… at least once.
Ever wonder where the money goes? Ever experience financial stress when you look at your bank account in the middle of the month and feel sick? Ever dread the credit card bill date and worry about debt? Well you are not alone, by a long stretch.
As the Covid-19 crisis rumbles on and changes daily, financial anxiety and uncertainty is threatening many. It is not a bad time to do some analysis of your income and spending. Interestingly, the pandemic has curtailed a lot of consumer spending as there was nothing open in the lockdown. Some made up for it by shopping online but in general spending was way down. Many are now looking at their finances and debt in a different light.
I am using the terms budgeting and spending to mean the process of recording your income, expenditure, assets, and liabilities on an average month to get a snapshot of where you are.
Those who have gone through the ringer with the banks in the last mortgage arrears debt crisis will attest to how painful the process of filling in the SFS (Standard Financial Statement) is. This is a Central Bank 12-page document itemising income, expenses, debt, and assets. Completing an SFS properly takes careful attention to detail and a lot of sighing. I guarantee you will think differently about your money one way or another if you take the time to do it though. Why is it so uncomfortable? Well, it is like standing in front of a mirror and confirming what you do with your money, confirming the truth about your debt, and admitting to bad money decisions that you would rather not.
The good news is that tools and templates to record and analyse debt, cash-flow, and spending are easy to find. The hard thing is being able to commit to completing them properly.
Why would you bother though? Here are a few reasons:
- To get educated and do not get caught with your financial pants down: Warren Buffet said, “When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience”. Very insightful, as are many of his quotes. I agree. Those who are not somewhat educated about debt and personal financial matters are at a disadvantage. They are vulnerable to making incorrect and badly thought out decisions about their financial wellbeing. If you do not know what is “going on”, you are a sitting duck. I have sat with too many clients who say: “I didn’t know what I was getting into” when discussing their spending and debt. Take this (uncomfortable) step first before you do anything else. It is vital to know where you stand.
- Decision-making around finances cannot be just about what feels good or feels right. Having some figures in front of you will make it easier to decide on spending, saving, debt repayments, giving children your money or even what kind of car or house to buy. Knowing what you have and what you can afford is vital.
- Stop fighting about money: In the US and UK, the number one reason for marital breakdown is fighting about money. Mostly these fights are not about having too much but the opposite and the allocation of limited funds. Start with the facts and figures and it is at least a common base for discussion (before you start throwing plates). Get educated by visiting educational sites like www.mabs.ie or www.ccpc.ie to get informed.
- Make spending comparisons: A few years ago, Grant Thornton did a look at costs some major retailers were charging on a basket of 72 like for like goods. The cheapest basket came in at €65.04 and the most expensive at €95.50. For the same stuff. Wow! (See point 1). You can guess which supermarket was the cheapest. It was Aldi. Knowing your spending patterns gives the insight to enable better decision-making.
- You think differently about consuming. Those who know me say, as I get older, I veer towards the grumpy old man with regards to unnecessary spending. I disagree of course. I feel I am not that old. I do, nevertheless question spending patterns and what drives us to consume and spend. Consumerism is fuelled by pressure from peers, banks, marketing, media, and cultural pressures, all looking to get their hands on your personal pot of money. We are surrounded by stuff a lot of which we never use. Garages, attics, rooms, sheds full of stuff, you know the scene. Knowing your spending patterns just gets you to think “do I actually need this?” and if there is an alternative. I encourage clients in trouble with debt and overspending to stop and look at their cart, online, and in-store. Ask the question and abandon the cart if it is not what you want or you need. It is not too late to reverse a decision to buy. This insight is strengthened by knowing what is going on in your budget.
- Getting in debt: Picture yourself sitting in a new car in the showroom. The feel and smell of a new car is fantastic. The price is “affordable”, and you can make the payments according to the bank (see point 1). The reality down the line may be different as the bite it takes out of your lifestyle chokes you. Having a good view of the monthly ebb and flow of your money will enable you to stress test such decisions and make you less impressionable and vulnerable (see point 1)
- Getting out of debt: I help clients get out of debt. That is what I do. I help them get out of debt so they can live a better life without anxiety. I know the angles involved and I know how hard it is. Some come to me after they decide they do not want to be pouring interest payments into their lenders’ pockets (point 1). They want to accelerate their repayments and devise a strategy to become debt-free. They want to change habits and behaviours. How much they can commit is again a matter of what is comfortable. This can only be determined by knowing your basic financial background. It is simple but not easy.
For a consultation on getting out of debt, spending, and financial behaviour, or your habits and emotions around money, give me a call. This first call is at no cost. Do nothing and nothing will happen.
Morgan
