Step-by-step guide to saving the clever way
Frank Conway provides a step-by-step guide on how best to make those big money savings...
WHEN it comes to money these days, one thing is for sure, accessing it is no simple matter.
Whether it's applying for a credit card, securing a car loan or buying a home for the first time, accessing credit is very tough.
Developing a savings culture has taken on a lot more significance than merely saving money. For a start, it demonstrates personal organisation and financial discipline.
So, how does one plan to save for the things that matter?
Well, this depends on what one is saving for. But if we take a house purchase valued at €300,000, the all-in cash amount to buy that house - which includes the mandatory deposit, legal fees and costs, property valuation and so forth - a figure of €48,000 would just about get you in the door of the mortgage lender.
Let's call this your big money goal.
Putting the structures in place
Now that you have set your big money goal, the next thing is to work out how you are going to get there.
Well, there are a number of key documents you will require, those are:
• A budget planner
• Income statement/payslips
• Bank statements
• Credit card/debit card statements
Figure out your net income each week/month (after taxes, deductions are paid). You can get this from your payslip and broadly, for most people, it should be about two thirds of your gross income. This is your financial base.
Identify all of your costs and expenses. This is critical as doing so puts you in the driving seat. You see, money has this amazing way of disappearing when you don't track it but it's amazing what happens when you put a spotlight on it, or to put it more precisely, when you map out where your money is going.
This is where the bank statements, credit card/debit card statements and receipts come in.
One other important point, when it comes to spending, you must ask for a receipt each and every time.
This is really important because if you rely on credit card/debit card statements, you do not get the precise detail of what you spent your money on, and you must get this! You will need this detail for your budget planner.
Begin recording. Do this on a monthly basis and do so for at least three months to establish an accurate spending baseline.
Take stock. Review how your money is being spent and where. Best advice here is to divide your spending into two lots: needs and wants. Needs are food, fuel (electricity, gas, petrol etc) and other essentials that you need to live and work.
Remember, you need clothes but you may want style. You may need transport to get from A to B, but you may want a top-of-the-range statement car. You get the idea.
Ask yourself if your spending can be divided into needs and wants.
Even as you review your receipts, ask yourself this very simple question: need or want? Does a particular spend satisfy an essential life need (food, shelter) or does it make a statement?
Start paring and saving. Using the needs and wants labels, it's now time to start paring costs. Be merciless.
Think of your 'big money goal' and start slashing where you can. After month three, you will have visibility provided that you are honest with what you record. Coffee cost? You should have this number on the tip of your tongue.
Smoking? You should be able to exhale it with your next breath.
Gambling? Bingo, this figure will be right there. What you can slash from your budget will become a saving towards your big money goal.
Automate your savings. This is critical. Think, out of pocket, out of temptation - if you can remove the financial temptation through automatic pay deduction into a savings account, you'll have less available cash to spend on stuff you can do without.
This will serve you well and over a few months, you'll not even miss that cash burning that big hole in your pocket!
Set your timeline and put the plan in place. If you can save €1,000 per month, remember this will still take 48 months or four years to reach the €48,000 big money goal.
Double that and you half the time! If you can live at home and avoid paying rent, even better but remember to take mom and dad out for a thank you dinner every once in a while.
Review and adjust.
This will be the challenge. If you continue to monitor your big money goal and its progress, if you get a raise or promotion at work, pay into your goal with a corresponding rise, this will get you to your big money goal faster.
If you suffer a loss of income, try and reduce the automated payment each month but try not to abandon it.
Keep some payments going; you'll be glad you did in the long run.
Keep tracking your finances and if you are strong, you'll find ways of getting back on track.
A range of global studies point to a trend among millennials which sees many of them being highly resistant to taking on personal debt. For many, witnessing the problems faced by friends and family following the global financial crash of 2008 was an eye opener.
There is little doubt that debt is risky, but it is also necessary, especially when it comes to buying large ticket items, such as a home.
On this basis, citizens today are well advised to combine selective use of debt with a lifelong habit of saving as a route to growing their own personal wealth, and protecting themselves against the unexpected (as well as the expected).
In the event of buying a home, that purchase should still allow enough financial space for families to continue savings for a rainy day fund, savings for retirement and so on.
Even when life events take hold, having a healthy financial cushion that covers short-term and long-term financial needs will place families in a far stronger position. It means that they can weather financial storms better and protect their homes, their wealth and their families.