It’s easy to become frustrated at the end of a month when a payslip comes up short and one is faced with living on a shoestring budget until the next payday. This is especially true at the start of the year after the Christmas spending splurge.
2019 Budgeting Tips from MoneyWhizz
As a society, we are being moulded to a culture of spend-it-when-we-have-it. Equally, good intentions often fail because there is a lack of suitable long-term planning and adequate contingencies accounted for at the start of a personal budget plan.
MoneyWhizz has focused on some of the most common traps families fall into which impede their personal budgeting plans but once they recognise those traps, will be better positioned for financial success in the year ahead.
1. Master of the detail
There is no doubt that modern technology has made paying for services much easier than ever before. In fact, the pace of technological innovation is making use of cash a thing of the past. But while the convenience of paying for services grows, the visibility of how we spend cash and pay for those services falls in tandem. Because of this, it is now more important than ever families put aside ‘budget time’ to review and understand the detail of how they spend, and what they spend their cash on. Doing so will return the knowledge…and control over personal spending. Detail really does matter when it comes to spending across a vast array of services including insurance, utilities, fuel, groceries and so forth. Ultimately, the devil is in the detail, mastering the detail of a personal budget will reap long-term financial rewards.
2. Harness some ready cash
A rainy-day or some ‘ready cash’ is a small amount of ready-cash specifically designated to eliminate the need to borrow when little emergencies, such as a car repair bill, a broken appliance or an emergency trip arises. For example, if and when a car repair bill does pop up unexpectedly, this can force families to rely on high-cost alternatives such as moneylenders and credit cards to pay the cost. But such borrowing options reduce personal wealth due to the high cost of interest. Developing a rainy-day cash reserve eliminates high cost alternatives and also creates an opportunity for families to review their short-term financial needs and develop a healthy relationship with money. For example, saving just €11 per day can yield €1,000 in just 90 days, more than enough to fill an emergency cash need.
3. Build that S.O.S fund
Unlike a rainy-day fund, the purpose of an emergency fund is to cover larger, longer-term living expenses for at least 3 – 6 months including housing, food, heating, insurance and so forth in the event one may lose a job. In fact, if one gets into the habit of saving for the ready-cash, they should look to keep their savings going but before they do, some serious financial planning needs to take place first, including itemising all of those living costs that will need to be paid and developing the financial discipline to build the cash reserves. Finally, because the emergency fund can be called on at any time, it is vital that money is readily accessible which precludes any long-term savings and investments which may have restrictive access or apply penalties. Remember, one of the biggest reasons families get into serious financial difficulty is due to illness and unemployment. Putting the financial structures in place to get one through a difficult period will pay dividends in the long-term.
One last note, with the European Central Bank scaling back on an era of ultra-cheap money, the next phase of money will see interest rates increase (unless Brexit turns everything upside-down). So, for anyone with a mortgage, it is essential they have the ready cash to pay higher mortgage costs.
4. Link to Personal Goals
Personal financial planning should be set against personal goals. If there are no personal goals, achieving a successful outcome will be much more difficult. For example, when it comes to developing a personal savings plan, for those in their twenties, it could be something as simple as travel or perhaps something more substantial, including savings towards a home purchase. But the steps to meeting that goal should be incremental and allow for life’s little hiccups. So, if you plan to put a set amount of cash aside each month, it’s really important to also allow for situations where other financial needs may dictate a short (one or two-month) break from the plan. With a financial plan and contingencies in place, that personal plan will have a much higher success rate.
5. Be Truthful…with yourself!
It’s not unusual for some people who set out to establish a personal budget to fail because they are in denial about some habits, including smoking. A successful budget is absolutely dependent on those undertaking it to be completely honest with themselves and what they record. Not doing so is a sure way for early failure.
Now is the time to sit down and plan ahead. Download our personal budget planner to get you started to financially fit you in 2019.
Frank Conway is a Qualified Financial Adviser and founder of MoneyWhizz.org, the financial literacy initiative.