Remember that old adage “A penny saved is a penny earned”? It may feel rather antiquated now, when we can pay with one-touch cards, phones & even watches. These days, it’s all too easy to lose count of the smaller purchases we tend to make all too often. However, no matter how many pennies we actually manage to spend or save, it is still very true that it all adds up. In my opinion, we all need to consider how we can manage our pennies better.
Do you look at your bank balance daily or wait until the end of the month with a resounding ‘where did it all go?’. Debit and credit cards paired with online shopping can be counter-productive, if you don’t keep on top of them. Banking has become so easy that many of us are complacent and lose sight of our cashflow altogether. Successful investors need to understand their spending habits. It is a key pillar of good financial planning to know what you are spending, and this includes your ‘pocket money’.
With time for travel, hobbies and living to enjoy ourselves, retirement can actually be much more expensive than pre-retirement.
As a financial professional, one of the biggest misconceptions that I regularly challenge is the amount of money that people think they are spending. I often hear people say “I don’t spend any money,” but when quizzed they admit that they just don’t know what they are spending it on. Likewise, people also underestimate how much they think they will spend when they retire. Many of us imagine that we will need less money to live on in retirement, but it is often the opposite. With time for travel, hobbies and living to enjoy ourselves, retirement can actually be much more expensive than pre-retirement. So, whatever stage you are at in life, it’s important to think ahead and set budgets. (Of course, you also need to stick to them!)
Knowing what you should spend based on your planning goals will help to support your savings and investments. It’s very simple to set weekly ‘pocket money’ allowances, either going ‘low tech’ by withdrawing cash weekly or monthly then dividing it into envelopes, or ‘high tech’ by setting up a separate current account for weekly ‘allowance’ payments. You may want to consider setting-up a separate current account for both yourself and, if you have a partner, another for them too, especially if you have a primary shared account.
Once you have a ‘pocket money’ account, set-up a weekly standing order to transfer your allowance into your account. Use this account for your Apple Pay or other ‘virtual cash’ payment methods.
This may seem like a lot of work but really it isn’t. If you already have online banking, you should be able to do this within minutes. Having a separate account for your weekly allowance makes sense because it allows you to keep money in your regular account for household expenses, mortgages, bills and other ‘bigger’ things, like holidays!
Your ‘pocket money’ account should not be used to make regular payments that have already been budgeted – we are trying to reduce spending on all those little things that are adding up each month that just seem to disappear. This is all part of the bigger picture of better financial accounting. You don’t put all your paperwork into the same folder, so why not set-up different bank accounts for different spending purposes?
Having clear and transparent goals and finding a system for budgeting that works for you will go a long way to achieving that happiness.
Of course, if you go down the ‘high tech’ route, make sure to keep an eye not to incur overdraft fees, which are really a waste. Most banks offer instant access for current accounts via smart phone apps. These are a great way to keep track of your remaining balance. At the end of each week, you will have only spent up to your set budget.
This practice does require discipline and ‘back to basics’ thinking. If you are finding that you can’t stick to the amount, then take a look at your other spending and consider if you can increase the amount, or if you need to change your habits.
Wealth managers are there to help – not only with the big, far off, future for retirement but to help you achieve the lifestyle that makes life enjoyable today. Having clear and transparent goals and finding a system for budgeting that works for you will go a long way to achieving that happiness. And remember, you can only spend it once!
If you’d like to learn more about financial planning, please do feel free to get in touch.
p.s. As a parent of a two-year-old, I must admit that innocent smiles from my little one will persuade me to part with cash without a thought. It is difficult to go to the shops and not come home with some sort of a toy, sticker, clothes, or snacks, and the weekends are worse trying to find entertainment at soft play parks and farms. I’ve recently been reading a book called Playful Parenting. It makes a good point that as an adult we think of these elaborate things that we could do to amuse and play with our kids when simple things can be just as much fun for them, and less stressful for us!
This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections.