Making the Most of Your Money

Image courtesy of Wikimedia Commons

One of the good things to come out of the recession is a renewed awareness of re/upcycling and making due with what we have around the house.  Even though we've had to get on with less, we still live in an overwhelmingly consumer-based society and can probably withstand doing more with less while still being happy for it.

I'm currently having to trim the fat from my own budget and, as such, I'm grateful I've managed to allow some financial wisdom to seep into my subconscious after working in that sector for 7 years. I'm also lucky that I was raised by financially savvy parents who were into saving and not into keeping up with the Joneses.  I'm not a certified financial planner and I don't suggest there is an one-size-fits-all solution to financial health, but there are some common sense approaches we can all take to improve our financial position.

1) Spend within your means.  This sounds simple but how many of us don't do it? How many of us engage in magical thinking and buy that holiday/new handbag/electronics while thinking, "I'll manage to pay for it somehow."  No.  If you do not have the cash to buy it right now, you cannot afford it (exception: purchasing a house or other large scale item which requires a mortgage/loan).

2) Have a budget.  This sounds boring, right? Actually (and maybe this is just me) its really exciting to see your incoming / outgoing all laid out in front of you, to see what you really can afford and what purchases need to be delayed.  Having a budget puts you in charge of your finances.  And they're actually very easy to make.

If you have MSOffice and a basic knowledge of Excel (or even if you're banished from the MS world as an Apple user, as below), you are well on your way to becoming a budgeting god/dess.





3) Save.  I was raised to save for two purposes: A) always have three months living expenses saved in an easy-to-access account for emergency purposes and B) if you are going to buy a house, put down at least 20% as a deposit and have mortgage repayments equal less than 35% of your income.  Otherwise you can't really afford the house.

4) Pay your debt off first & do not take on debt you cannot afford to repay. Using credit to replace a broken washing machine is a good use of credit.  Using credit to go on holiday because you're broke and need something to cheer you up is a really bad use of credit.  When you return, you'll still be broke, even more in debt and need to pay off the interest as well.

If you prioritize paying off your debts first, you maximize your saving in two ways: A) by not extending interest payments and B) by compounding your own savings.

5) Pennywise and pound foolish. I have a couple friends who love a bargain more than anything.  They love bargains so much they have houses full of bargain items they never use.  Which equals a massive waste of money. Regardless of how much of a bargain something is, if you don't use it then you have wasted your money.

Plus, if you are surrounded by things that don't add value to your life (excepting the brief rush of excitement buying them produced) you might be surprised at how liberated you feel getting rid of all the clutter.  You could even pick up a few bob on the way by selling your gently used items on Gumtree, Adverts.ie or Craigslist.

There are an infinite amount of other tips when talking about personal finance.  We frequently have an emotional relationship with money.  By acknowledging what type of relationship we have with money (typically scared to spend vs those who get a rush out of spending & overspend) we can improve how we use it.

For household bills, its a good idea to make a list of all household bills and then decide which are 'must haves' and which are 'would likes'. Electricity is a 'must have'. Internet access is more increasingly a 'must have'.  A tricked out cable package w/hundreds of channels? You can live without it.

Phone plans are another great way to hemorrhage money.  I've never had anything but a pay-as-you-go plan.  Because this, at least, enables me to have some control over the amount of money I put towards my phone provider.  I typically spend €40/month.  When its gone its gone and that's that.  No surprises.

So now that you've gotten your own financial house in order, how do you impart good skills to the next generation? There are many positive ways to talk to children about money and get them off to a good economic start.  This article talks about teaching children how to save for the items/toys they want.  This book is a fabulous way to explain compounded saving to kids. In our house, I've enacted the 'one in, one out' policy re non-vital purchases.  For any non essential item purchased, one item has to leave the house. This is important to me (especially after Christmas) as we have more stuff than we absolutely need and I want to teach the younger generation to really think about potential purchases and not be consumed by the desire to spend, spend, spend.

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