The Freedom Kit: ‘It’s not your salary that makes you rich, it’s your spending habits’

Financial resolutions will never be as exciting as planning to climb Mount Everest or learning Mandarin or Tai Chi. But, careful money management is the route to financial freedom, and to peace of mind, so don’t underrate it.

Many of us fail to future-plan our finances, focusing on the here and now, as a priority. Savings and income protection are your ‘life jacket’ for short-term emergencies, the money for children’s college fees, or income if you stop work due to illness or redundancy, or, worse, if someone dies prematurely.

When you work so hard to earn your money, it makes sense to ensure your earnings are working hard to protect you, and your family, from life’s slings and arrows.

Here are five simple things to do to ensure you are in a better financial position this time next year, as we head further into 2024.

1. Your household expenditure review

As Charles Jaffe said, “It’s not your salary that makes you rich, it’s your spending habits”. With this in mind, my advice is to kick start the year with a rigorous review of your spending habits.

Print out a bank statement for a typical month, or two (not December!), and examine the outgoings. Look at ways to make savings, asking these questions:

1. Can I save any money on the big-ticket items – when was the last time I reviewed my mortgage and life insurance policies?

2. Am I getting the best deals for health cover, car and house insurance? There are easy comparison and switching websites worth checking.

3. Do I have high-interest credit cards or other loans? Can I pay these off as soon as possible, or get a lower interest rate?

4. Can I spend less on things like grocery shopping, where online shopping and home delivery avoid impulse buying, or by switching energy provider?

5. Are there subscriptions I am paying that is not being used anymore, like phone apps, kids' sports or the gym?

When policies or subscriptions become due, we tend to just automatically renew, rather than face the hassle. Examining everything now puts you in a better position to make serious savings, going forward.

2. Build a savings buffer

Once you have reviewed household expenses, you should be spending less, which paves the way to start saving.

Before you start saving for ‘wants’, the priority should be a savings fund to cover unexpected expenses or emergencies. It should, ideally, be at least four times your monthly net income. A deposit account is best for this type of fund, as you can access the money more easily.

After you have covered an emergency fund, look at larger items you may need in the next five years, like changing the car or home renovation. This also should be in a deposit account.

Next, establish longer-term savings goals, like helping your children through third-level education, or saving for a comfortable retirement.

To potentially grow this money as much as possible, within the time frame, investing in stock markets may be a better option than a deposit account.

The best way to prepare for future goals is to have some money on deposit, and some invested. Work with an experienced independent financial advisor to explore your options, and how much you can afford to channel into different savings pots.

3. Make 2024 the year you get debt free

Use all of your spare cash and any windfall amounts, like an inheritance or pay increase, to get rid of personal loans, credit card balances that are accumulating, or car loans.

It is generally a good idea to pay off the smallest loan first, then the next smallest, as motivation to keep going on debts. But do check the percentage interest being levied on the different debts, and tackle the highest first, such as a student loan, credit cards or store cards.

If you can afford to make extra payments, overpaying your mortgage means you pay less interest overall, and clear the mortgage sooner. The mortgage interest rate you’re paying, and your savings rate, plus whether or not you may need the money elsewhere, help determine whether to pay off your mortgage or save. Using a windfall bonus to top up pension savings is also a good idea, depending on your current financial needs and situation.

4. Check your tax allowances and entitlements

Not many of us take the time to ensure we claim the correct tax reliefs and credits, or social welfare benefits we are entitled to, especially if our circumstances change.

For example, women returning from maternity leave should have increased tax credits, reflecting the fact that they are no longer receiving maternity benefits.

There is tax relief on medical expenses, and the Treatment Benefit Scheme, linked to PRSI payments, allows for some free dental, hearing and eyesight checks and procedures. And, on the subject of routine healthcare, which gets expensive with kids around, check your health insurance policy to make sure you get all the small entitlements on GP, physio and dentist fees that are often allowed on family policies.

On revenue.ie (My Account), you can claim tax back on medical and dental expenses from last year. From A&E charges to fertility treatment, there’s a raft of allowable Med 1 expenses you can claim for, and you can go back four years.

You may be allowed tax relief on the additional costs of working from home, such as electricity, heat and broadband. And check out other allowances, like the home renovation incentive and the Cycle to Work scheme too, while you’re online, revenue.ie.

5. Get a pension

Make 2024 the year to start a pension, if you don’t already have this essential financial security blanket for when you retire.

A pension is basically tax-advantaged savings; and, in the world of personal finance, it is probably the best value for money we will ever enjoy. Not least for the generous tax relief of up to 40 per cent, compound growth of fund interest, and, for some who can avail of an employer’s pension scheme, a matched contribution by your employer into the pension pot.

Find out about employer pension schemes in your workplace; contribute as much as you can from your monthly paycheck, and then sit back and dream about retirement. Or book a free chat with an independent pension advisor to review current pension funds you already have, or to start contributing to a new personal pension suited to your needs.

About HerMoney

HerMoney provides tailor-made financial solutions to self-employed professional women and service contractors all over Ireland. With offices in both Cork and Dublin, the business is a sister company to the long-established CWM Wealth Management.

Carol Brick is Managing Director of CWM Wealth Management and HerMoney. A qualified financial advisor, she specialises in the area of Asset and Wealth Management. See hermoney.ie or cwmwealthmanagement.ie for more details.