Making Cents: What’s it gonna be?

 I’m going to kick off the year with an article about new year’s financial resolutions. But I’m not going to patronise you with the usual blurb that’s regurgitated every year from other outlets and writers who claim that you can transform your finances and save thousands of euros if you follow a few simple steps.

I’m going to be a bit more direct and real with you because I’m sure you want to know from the outset what actions you should and must be taking if you want to set yourself up for success in the year ahead.

And what I’m not going to tell you is what your financial goals for the year ahead should be. You should know them yourself. What I would say though, is please don’t imitate or follow what other people are saying and doing.

It’s easy to just follow everyone else but when it comes to setting goals, there’s no standard list, they’ll vary from person to person, as they should. You must come up with your own set of goals based on what you value most and what you want to achieve most.

Just following what others do, and what others suggest may not be in your best interest. You’ve got to think about what’s most important to you. And as an aside, one of the reasons the failure rate for new years’ resolutions is so high is because people follow what everyone else is doing. Your path is unique, and it’s yours to follow, and I’d say don’t follow anyone else’s.

Okay, to get started the first thing I would recommend you do is write down perhaps four or five things you’d financially like to happen this year. And it doesn’t matter if they are big or small, just write them down. And they could be things like saving more, buying a house, paying off debt, earning more, managing your money better, retiring early, getting a better return on your savings, reviewing your insurance coverage, making a will and so on.

From that list, I’d suggest you whittle it down to no more than three and forget about the others because they’ll just be a distraction and they’ll only take time away from the ones that are really important to you.

Okay the next thing you need to do is put a cost alongside each of your goals.

You have to run the numbers to see if what you want to achieve is possible, because what you don’t want to happen is think the goal is either too easy or too difficult and you end up in a state of flux and fast forward another year, and you still haven’t done anything.

And with some goals you won’t need extra money e.g. wanting to manage your cash flow better each month or getting a better return on your savings, but you’ll have other goals that will and the amount required will depend on when you want them to happen.

For example, if you need an extra €10,000 in savings for a deposit to buy a house and you want that money in October then you need to save €1,000 per month. If you have €2,000 worth of debt and you want that paid off in two years’ time that will require €83 each month.

When you work out the amounts, you need to put them into your monthly budget to see if they’re feasible or not.

If they are too much because you either (a) can’t find that extra money even after cutting back on other expenses or (b) earning more right now isn’t an option, then you may have no other option to extend the timeline for yourself and that’s okay by the way, it’s better than just giving up altogether.

So, whatever goal you’d like to achieve, whether it’s a short-term goal i.e. something you want to achieve in the next 12 months or a medium-term goal which is something you want to attain in the next five years, or something far off in the distance and is 10 years +, you need to run the math and see what needs to be done.

Once you know what you’re aiming towards, and how much it’s going to cost, you can then see if it fits into your time frame and more importantly, into your monthly cash flow and your current lifestyle.

And in that regard it’s helpful to review your current spending habits. If you don’t shape and adjust your monthly spending to account for these newfound expenses then it’s unlikely you’ll achieve the goals you set yourself, so you need to understand your current financial position.

When you know what you’re spending your money on each month, you can make the necessary changes, because you can’t change what you can’t measure, right? Which is why becoming familiar with your present monthly outgoings is so important because it has a direct impact on achieving your financial goals.

After analysing your monthly spend and adding the cost to each of the goals you want to achieve, it will help you zoom in on those categories that you may have to cut back on or eliminate altogether, which might mean saying no to spending money on things like clothes, holidays, nights out etc. because you’re saying yes to saving that money or using it to pay down debt or towards your mortgage or pension fund.

The last thing you need to do is to get a system in place that makes sure you follow through with your plan and it doesn’t have to be complicated.

You know the amounts, you know what they’re for, and it could be as easy as opening up a separate dedicated account for that particular goal and setting up a standing order and lodging the amount you’ve assigned to it each week or month. And ideally, have that standing order set up on the day you get paid, so that when your salary lands, part of it leaves as quickly as it arrived.

I’ll leave you with these thoughts.

Don’t make the mistake of making the exact same resolutions you didn’t follow through on last year. If you do, you’ve got to do something different this year.

And that begins with:

1. Deciding what you want to happen this year and whatever that is make sure they have meaning to you. When things get difficult, you’ll dig that bit deeper for goals you really want to achieve, because you know what output your actions and effort will create for you.

2. Cost each of your goals and build them into your monthly cash flow to see if they’re possible.

3. Get outside help if you’re not confident you can create that plan or feel you won’t hold yourself accountable if you do, and,

4. Follow through with your plan. Decide on what actions you need to take which could be setting up a new account, increasing a standing order amount, or making an appointment to see your financial adviser or solicitor.

And changes to your finances don’t just happen, they require sustained action. They will take you out of your comfort zone, so what’s it gonna be?

Are you going to do something about it or just daydream and wish things will magically happen. You’re going to be frustrated if you do, because I guarantee nothing good will happen, if you don’t take ownership and take action. It might be a challenge and if it is, get help but trust me when I say great things will begin to happen even when you take the smallest of baby steps.
My very last piece of advice is to not fall into the trap of moving forward too fast.

Radically altering your behaviour e.g. saving too much of your income, could affect other areas of your life causing your plans to derail. Yes, it can be frustrating if you don’t see immediate progress but focus on those smaller steps because it’s easier to stick to them and they will increase the likelihood of long-term success.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmon5ics.ie