On Making Financial Change


What gift will you give yourself?


I was chatting to a friend of mine over a cup of coffee one day when we got around to the topic of spending. He mentioned that his father had a phrase he would say to his mother on occasion. When she was thinking of buying something new, he would turn to her and say, ‘well dear, what do we have to throw out to make room for that?’

With this question, my friend’s dad had interrupted his wife in the middle of what marketers call the sales funnel and brought her back into the reality of her life. Somewhere the marketers try to take us out of. Instead of thinking about what could be, the dream that we are sold, her husband had grounded her in the reality of what is – and whether there was any room for this potential new purchase in their life.

This conversation highlighted a very important part of financial planning – how we spend the income we currently have.

As part of the big question that we ask our clients, we also ask them what has to change financially to ensure that they can reach their goals. The money we spend is an enormous resource that we rarely examine. When we do look at it, we can tend to do so in a negative way. However, examining our spending patterns can provide us with an opportunity to make considered decisions that can be potentially life changing.

Our income is usually a finite resource. If you work for somebody you know that at the end of each month you will take home X amount of money. You may get a bonus at the end of the year, which is Y and the two of them combined is the amount of money you have available to you. If you run your own business, you may be able to draw more income, but you will have to drive your business harder to achieve that extra income.

When we talk to someone about reviewing their expenditure they usually begin with the obvious expenses. They look at their utilities, the interest rates on their lending, their phone and internet providers to check that they’re getting a good deal for their money. There are always deals to be had when you shop around. These expenses usually show up on our bank statements at the end of each quarter and so are easy to remember as recurring expenses. But what about the cash?

It’s not so easy to see where cash goes and what we’re spending it on. Some of us stop at a cash machine multiple times in a week, we may withdraw twenty or fifty quid and before we know it, it’s gone – and worse, often we don’t know where it went. Finding out where that money is going is of vast benefit when trying to get a handle on our finances. This pattern of spending is so ingrained in our daily activities that we don’t even notice the action of putting our hand into our wallet and taking out the cash at the train station, while grabbing a bottle of water on the way to the gym, having a coffee mid-afternoon, or even in the evening when we pick up some groceries on the way home from work. We spend on auto-pilot much of the time and that liquid resource seeps through the cracks without us even realising it.

When you make the decision to record where you are actually spending your money – instead of estimating, or guessing where you spend it, many people find it is a liberating activity. Yes, it takes time and effort, you need to record each and every purchase, down to the tiniest detail, such as a packet of chewing gum.

The process by which we encourage our clients to record their spending is as low-tech as you can get. But it works! All you have to do is collect your receipts, just as you would if you were spending petty cash belonging to your company. Take two empty jam jars and at the end of every day deposit your receipts into the jar for household expenses or for business expenses. You may find that even if you are an employee, at times you shell out your own cash to cover work expenses, if you do, that’s something you need to be aware of.

In order to get a thorough picture of your spending patterns, a week’s record here or there won’t suffice. You need to commit to this for a three-month period to really see where you are spending your money. You may find that during the first few weeks of your experiment, you don’t spend that much outside of what you had budgeted for, much like on the first weeks of a diet we behave ourselves, we’re full of enthusiasm to do this right, but before long our resolve weakens and we slip back into our old habits – and those are the habits you want to record, even though they may be a little uncomfortable to acknowledge. There is great power in knowing just how in or out of control our spending is. As long as we keep our heads in the sand about how we spend our money, the less chance there is that we will achieve those things in life we want for ourselves.

At the end of the three months, allocate some time to sit down and go through the receipts. You can either input them into a spreadsheet, or a record book, if that is your preference. Create as many categories as necessary and input all expenses into the relevant section. There is no need to be critical at this point, you are simply capturing the information to see where you are right now.

Having collected the raw data and put it into a digestible format, when you do begin a review of your spending it should not be about berating yourself or others for this resource was used in the past. It is about how to use it better in the future. It is not productive to focus on the negatives here. Try to be as objective as possible and learn from what you see rather than judging it. You can ask questions of yourself, such as ‘do I want to spend that much money on a given expense going forward?’, ‘Do we get the benefit of that money?’, ‘Would we prefer to spend that money in other ways?’

You may also discover that you are spending money that you didn’t even realise, there may be a standing order that you forget about for a subscription service you don’t bother with anymore. When you discover these expenses, you essentially get more money in your pocket as now you can make considered decision about how to use this resource.

This exercise is not intended as a way of reducing your capacity to live a good lifestyle. It is intended to help you make informed decisions about your lifestyle, eliminating elements that are not important in order to make way for things that are.

For example, there’s a deli counter nearby where I could get a sandwich made up on a daily basis for under €5. They have a ‘meal deal’ where I can add on a drink and a packet of crisps for an extra Euro. That’s fine, except that I would normally choose water, which I could just as easily take from the tap and I don’t need the crisps. And, I’m not actually that fond of the sandwiches. If I was a little more organised, I could make my own, more enjoyable lunch each morning and save the money. That doesn’t restrict my lifestyle, it enhances it!

Having done all this hard work of examining where the money is spent, and clawing back some funds for yourself to spend elsewhere, it is important to put a plan in place so that you can make the most of that surplus you now have access to. Whatever you decide to do with it, you want to feel some real benefits as a result of this choice. The benefits must be tangible, so that you can feel and appreciate them. Otherwise, what’s the point?

This task is not exactly fun for most people, it’s a chore to have to remember to collect receipts, but if you can capture and reallocate some funds for you and your family and choose carefully what to do with them, the results can be life changing.

Sometimes, it can help to get an independent person to help you make the decisions around what to do with that hard-won money. We all need encouragement and support from time to time and it can be of benefit to work with someone over a sustained period of time who understands the goals that you’re trying to achieve. They can also nudge you to continue when it would be easier to fall back into your old familiar ways.

Small consistent changes are the things that change lives. It is not one big act that will take you from where you are today to where you want to be, but consistent action every day. The cash flow models that we use enable us to show our clients how the small changes they make today can yield huge benefits in terms of lifestyle changes in ten or fifteen years down the road.

Rome wasn’t built in a day, but a solid foundation today can pave the way for a bright future tomorrow and in the years to come. What are you waiting for?



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