I recently read an article written by a well-known financial advisor about getting on top of your finances.
He outlines a series of 30 things that we “should” do to cut costs, save money and live a better financial life.
Do readers really act on these suggestions though?
When looking to make some forward progress with your finances, why not focus on a single change? Ideally something small, achievable and meaningful.
Stick with this single change until it is achieved and embedded into your daily life. Don’t get into the habit of half doing lots of things, which inevitably leads to a higher rate of failure.
As an example, if you want to clear some credit card debt, then make this your primary goal.
Remind yourself regularly of the remaining balance (write in on your fridge or a notice board) and chart your progress.
Keep it constantly in your view to keep your motivation and momentum up.
Focus your mind and you will achieve your goal.
Read More: Morgan O'Connell's money column: Debt ratio, impulse buying and financial supports
Mortgage interest rates going up?
To offset the inflation we are experiencing, It is inevitable the European Central Bank (ECB) lending rate will go up before the end of 2022.
This in turn will have a knock-on effect on your mortgage and, if you are on a tracker rate, you will most definitely be affected.
So, say you have a 1.5% tracker over the ECB rate, which is 0.5% from its current 0%, your new mortgage rate will be 2%.
Taking this in context, this means an extra €70 per month on a €300,000 mortgage over 20 years.
If it rises another 0.5%, then your repayments are over €140 per month more.
Now a full 1% rise is unlikely to happen this year, but 0.5% in two increments is a distinct possibility.
This, of course, will have a knock on effect on other types of mortgages.
Variable rates will inevitably rise, while fixed rates are fixed for a defined term.
Look under the bonnet of food costs
I recently presented to an employee group on personal finances during these inflationary times.
Part of the remit was to discuss food consumption and grocery shopping in general.
We are exposed to over 4,000 marketing messages daily in different forms, in an effort to influence what we buy.
There is so much information flooding our thoughts when food shopping, it’s a wonder we make it to the checkout!
When operating on a budget, we sometimes forget how we end up paying added value costs, which in many ways are unnecessary and certainly avoidable with a bit of insider knowledge.
Processed food
This term conjures up packaged, plastic food laden with E numbers and, while this is true to an extent, to me processed is any way the food is altered, from the food our grandmothers would recognise (as the saying goes).
The more the food is altered, added to or changed, the more you will pay.
Food is sliced, cooked, breaded, squeezed, dried, powdered, canned, frozen, pouched, portioned and changed in so many ways that must be paid for.
Yes there is the convenience, but paying 20% more for a sliced chicken breast “for stir fries” over the actual same weight of unsliced chicken breast? Really?
Air miles
Not strictly processing of course, but added costs accrue due to transportation of the food.
The more food travels, the more it will cost in general, barring interference from the retailer.
So look at the country of origin and keep it local if you can.
Portions, sizes and weight
I perused the porridge products in a leading supermarket recently to see how they were priced.
I was surprised that the cheapest, relatively unprocessed organic oats, at 99c per kilo bag, cost over nine times less than the same weight of porridge, packaged in an individual portion in an individual plastic pot with a nice colourful foil top and a nice picture of porridge on the side.
Yes, you can whip the pot out at work and just add boiling water, but at over nine times the expense, could you not just buy some Ziploc bags?
Ditto for sliced and miniature cheese, sliced, cooked meat, packaged coleslaw, and egg mayonnaise, to name just a few. I get the food wastage argument but there is a balance.
Most supermarkets have the handy “price per kilo” shown on the label on the shelf; check it out and make an informed choice.
Stores
This is not related to the actual food, but where you buy it.
Picking a “few things up” in the corner shop always results in overspending.
Unless you are strong-willed, items seem to just jump into your basket.
These shops are substantially more expensive so try to keep the corner shop for just the newspaper and the occasional litre of milk.
Take away and eating out
The ultimate of food processing, in which others process your food to order and likely attract a significant premium, whatever the quality of the food.
Yes we love them, but if you are looking to keep costs down, then give them a miss for the moment.
Your mind playing tricks on you with money
The term mental accounting may not be that familiar to most, but we practice this almost daily when we think about money and make choices about purchases.
Mental accounting is a term coined, pardon the expression, by behavioural economist Richard Thaler to explain the way we categorise money and spending patterns in our heads, depending where the money came from and what it is earmarked for.
Sounds a bit highfalutin and not for you? Think again.
Some examples of mental accounting:
1. You drive for 20 minutes to get a fiver off a €20 euro purchase, when you wouldn’t think it is worth it to do the same for a €200 purchase.
2. You keep an unhealthy balance on our credit card which incurs sky high interest rates, while on the other hand saving furiously into an account that pays no interest.
3. You treat a tax refund as a “windfall” or a gift, but you should not.
It is your money and should be treated as normal income.
But people view it differently and spend it differently.
4. You go into the bookies with €5. You are on a roll and your horses keep coming in and you bet the winnings again and again. You end up with €800.
You put it all on a “sure thing” but it loses.
In your head you feel bad but ultimately you reassure yourself you are only down €5, not €800.
You might be behind on your rent but, as this was “free money”, you don’t feel so bad.
5. You treat bonus and larger income payments as gifts and windfalls, but again these are just your income, even taxed the same way.
I once worked for payment every three months, and while the payment was not more than three times my previous monthly income, it was difficult not to splurge on things I wouldn’t normally buy once the payment came in.
The solution? Treat money as “fungible” in that you must think of it as not earmarked for a particular function, but treated the same, no matter where it comes from.
Money is money, no?
See www.arrowcoach.ie for more or to contact Morgan
