Spending power

23 October 2009 8:00 am

BEST ADVICE Yvonne Goodwin

I have completed my expenditure questionnaire and details of all my income during your factfinding process which states that Ishould have £500 a month left over for savings but I haven’t - what should I do?

One of the most important aspects of financial planning once you have identified your goals is making sure you know what you spend on average. Without this knowledge, you will not reach your financial goals, nor will you know what you can and cannot afford to buy or do - whether you can afford that holiday or that car or whether you will be able to retire when you want to.

Importantly, you will never be comfortable with your financial situation.

This does not just apply to people that are over-spending, it also applies to people who are not spending enough. Yes, that’s right, many of my older clients are so afraid of overspending that they deprive themselves of a lifestyle they could easily afford. So, assuming that you have never regularly tracked your spending, then I recommend you do not start doing this - it is a negative influence which takes up a lot of time, reinf-orces the fact that there is an issue and it just is not any fun.

Also, some people feel so negative that they feel they cannot change anything anyway so inertia sets in and nothing changes.

Your current account bank statement is the key as it tracks how much income comes in and details all your expenditure. Try to avoid having more than one account as it complicates the issue and contributes to that out-of-control feeling.

Get out your last 12 months of bank statements and either start an excel spreadsheet or draw up a chart with just two columns for each month - income and expenditure. Working on a full 12 months’ cycle will identify all those one-off payments that people generally forget when they are trying to calculate their expenditure.

“This does not mean you have to do without your cappuccino - sometimes a £2 drink in a coffee shop can save you thousands with a therapist.”

At this point, it does not matter what you spend it on, you are just trying to get an average of what you spend and whether it is more or less than your income. This may take you 30 minutes or so and then commit to spend five minutes a month updating the spread-sheet when your statement arrives. You will then have a powerful visual reminder as you will start to see a rolling average of your spending.

If your rolling average is increasing and you are not saving enough, then at this point start looking at the detail and talk about it with those that are involved with the household/family finances - it is actually quite remark-able how everyone gets interested in saving towards financial goals.
Instead of parents being good cop and bad cop, each family member can make their own decisions on what to cut independently towards the future goal.

Now even if you need to curb your spending to reach your goals, this does not mean you have to do without your cappuccino once in a while. Sometimes a £2 drink in a coffee shop can save you thousands with a therapist. And as the recent Aviva survey of people “at retirement” showed us, there was a huge amount of regret for not having saved more. As for my client who asked the question above and who was not spending enough, tackling the problem empowered her to travel first class on her regular trips to see her grandchildren in the US.

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