Thursday, 1 June 2017

Weekly Column: Penny wise, pound foolish

Penny wise, pound foolish

Many of us feel that we’ve tightened our belts in recent years. We’re spending less than ever and, now that some jobs are returning, a sense of normalcy is back, too. So, with the return of an income and the reduction of spending, why is it so hard to make ends meet, much less get ahead?

You watch the grocery flyers and plan your weekly meals around the meat and produce that’s on special, right? You eat your leftovers and use a rewards card that accumulates points or cash back. 

You’ve stopped eating at the drive-thru and haven’t bought yourself anything in ages. You’ve even gotten ambitious and examined your bills and plans to reduce fees and extra charges. You’ve gone paperless to avoid paying for the paper bill that comes in the mail, while also bundling or downsizing services.

You’re doing all the smart, budget-savvy things, so why don’t you have more money to show for it? Why are you still spending ALL THE MONEY every month, when you feel like you’re working hard to save?

There’s a sad reality many budget-conscious folks are waking up to—saving those pennies, nickels and dimes gets you no further ahead if you don’t do something with the dollars you’ve saved.

In other words, if you don’t move those savings out of your general account, you will spend them on something else. And when people feel like they’re scrimping and saving with nothing to show for it, many will eventually stop trying.

Luckily, a few simple steps will help you turn things around and hopefully give you results in no time.

The first thing you must do is take the time to look at your bank and credit card statements. Are there places you could continue to trim your spending? How much are you saving with the reductions you’ve already made? Come up with a realistic figure that represents this unspent money.

Let’s say, for example, that you cut your $100/month satellite package down to $80. You are saving $20/month. If you’ve eliminated your landline for a savings of $60/month, you now have $80 to do something with, right?

Make it automatic

This advice is not new. David Bach wrote about this years ago in his book “The Automatic Millionaire”. But the strategy still applies: take the $80 you’re saving and have it automatically transferred out of your main bank account before you have the chance to spend it. Make sure that you have a low or zero fee option for automatically transferring money between accounts.  Keep an eye on your bank balances and make sure you aren’t running yourself into the overdraft by doing this—you mustn’t begin spending more loosely because you know there is extra money. The point is to put that $80/month to work.

You may think that socking away $80/month won’t have a huge impact on your financial situation but, the point is, it’s still $960 a year that might otherwise have trickled through your fingers.

What to do with it?

Sticking with our example, you are now consistently saving $80/month. What is your most pressing financial goal? Have you got credit cards that need paying off? Any loans? What is your highest interest rate? 

If you drive an older vehicle, perhaps you should start saving for a newer one, or for the inevitable maintenance and repairs on the one you have. If you haven’t started saving for retirement or your children’s education, you may want to begin now. Likewise, if you don’t have money set aside for emergencies—whether it’s a dishwasher that springs a leak or an unforeseen layoff—your $80/month is at least a start.

Start small, dream big

Stashing away $80/month might seem, to some, an ineffective amount of money. To others, it might seem a lofty, far off goal. No matter your situation, don’t be discouraged by how small you have to start out. Watching a bit of money grow is sure to inspire and motivate you to further curtail your spending and find other ways to save. And when you do, be sure to automatically transfer that money and put it to work for you.

If you were offered an extra hour of work, would you do it for the money? Why not get up an hour early one day and examine your statements and accounts to find out where you are leaking money? 

For most of us, it is simple things like snacks and meals for the kids and impulsive purchases when you aren’t thinking of your goals. Cut these entirely from your budget and transfer that money to another account where it is either invested, saved, or put against debt.


Accumulating month after month, these automatic transfers are your ticket to a better financial situation.

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