Limerick financial planner looks at tackling the cost-of-living crisis

I want to pick up from last week’s article where we finished by looking at target number 1 which were those expenses that account for the highest % of our income. This week I want to look at targets number 2 and 3 and finish the article by bringing them altogether.

Target Number 2 – Fixed Expenses
Sometimes we take these areas a bit for granted and think they are what they are and can’t be improved upon but perhaps they can.
And one of those fixed monthly and annual expenses you should target are insurance costs.
It might be worth spending some time on price comparison websites to see if you can get the same level of cover but at a cheaper cost for things like car and home insurance and if you can’t perhaps increasing the excess on policies might help reduce the cost.

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And the same applies to health insurance.
If this is a cost you pay for yourself it might be worth spending 10 mins looking at websites like www.hia.ie who have a comparison tool. You can compare your existing policy against others and if you’re able to save money then great and if you can’t at least you tried and you know what you’re currently paying is fine and can’t be improved on and you move on to another area.
And don’t forget having a look at your life cover costs. This is an area I always find people are paying more than they need to because they either have the wrong policy or the wrong level of cover so give that a review as well.
One individual I encountered recently did just that and discovered they were paying €41.66 more each month than they needed to and changed their policy easily and quickly. And that was an annual saving of €500 that could now be re-directed towards other areas without them having to come up with any new money or use their savings to bridge their deficit.
And it’s important to say that switching utility or insurance providers is unlikely to counteract the increases we’re currently seeing. It’s more likely that the savings you achieve are only one piece of your plan and you’ll probably need savings in other areas. When asked what people should do, I often hear commentators say they should switch energy providers and other utility providers as if that will solve people’s problems. Of course you should move if it reduces the cost but on its own it won’t do very much for you.
I’d also consider reviewing your debt repayments if you have any.
Can you get a better deal with another provider? Again, if you don’t ask or find out you’ll never know.
A friend of mine told me recently how he moved a personal loan from a Bank to a Credit Union and saved €78 per month in the process. He didn’t tell me how much he owed or what the difference in rates were but regardless it was certainly worth his while making that move.
So, along with focusing on those areas that account for the largest % of your income, focus on those fixed costs as well and see if you can reduce them because if you can the savings occur every month without any effort on your part.
Once you have, now it’s time to move on to those variable expenses.

Target Number 3 – Variable Costs.
This is very often the area where people spend more than they realise and are often surprised to learn how much they spend on clothes, entertainment, coffee, subscriptions, lunches, take aways etc.
You need to put your monthly spend alongside each of these areas. And you need to be as accurate as you can be and leave no stone unturned and don’t fudge the numbers because you’re afraid of what they’ll reveal. Be honest with yourself because you need to know what changes have to be made to compensate for all these extra costs and you need to identify what outgoings need to be prioritised and what don’t.
Once you do, I’d then break down your variable outgoings further by putting each expense under a heading of negotiable and non-negotiable.
If coffee out every day and lunch is non-negotiable that’s fine, put it under that heading for the time being. It may need to be on the table later if you haven’t found the difference in other areas.
And under negotiable could be things like eating out or eating out less. During Covid and the various lockdowns we got used to spending less and the areas we spent less on typically were, eating out, recreation and culture, health and household furnishings. So maybe these are areas some of us need to review again if we’re looking at ways at reducing our monthly spend.
But this of course will all depend on how much we’re spending in these areas each month anyway.
One area I identified that I was spending way too much each month came under my negotiable outgoings and they were coffees and lunches.
I was surprised because I thought it wasn’t that much but when you add up small amounts every day and add them together over the course of a month, cumulatively they certainly add up.
So, now I bring my own coffee and lunch to work four times a week and on Friday, I buy them.
By doing this I save about €25 per week. Admittedly, not a life changing saving but it’s still €100 per month and it doesn’t wipe out the extra amount I’m spending on petrol, but it helps, nonetheless.
Bringing the packed lunch to work suggestion often gets the roll of the eye’s reaction but back in 2013, Board Bia produced a report that showed we spend on average, €7.77 at lunch time. If that number is still the same, and I doubt very much that it is, then over a 46-week working year we would spend on average €1,787 every year at lunch time.
But those who brown bag their lunch their annual cost apparently is about €450.
So, there could be savings of at least €1,340 up for grabs in this area. And it’s just an example of an area where the outlay is small each day and you might think its insignificant but when you crunch the numbers over time the savings could be good.
The purpose of doing this exercise is being aware of what you’re spending your money on each day and week and as I said sometimes your perception and your reality are poles apart i.e. you might think you spend very little on takeaways/eating out for example, when in fact you are spending quite a lot so it’s worth recognising there are a number of areas you could save quite a bit of money without much effort or much change to your lifestyle.
I remember reading somewhere but I can’t recall where that consumers in Europe apparently spend about 5% of their income on subscriptions i.e. music, TV, sport, papers, and magazines etc. which is c. €130 per month.
Again this is just another example of an area where money might be found.
So, review how much you spend on weekday drinking, coffees, clothes, gym memberships, TV subscriptions, home furnishings etc. and put each of them under the heading of what’s up for grabs and what’s not.
And then see if the savings you can achieve by eliminating one or two or three in the negotiable category are enough or not.
If they’re not then something you’d like to have kept spending money on will have to give they just will.
And most of the choosing what to cut back on has to come from you, you must prioritise what’s most important to you.
But try and find those areas that are ripe for reducing right now. And I’ll repeat myself again, once people know what they are spending their money on and by what amount they can focus on those areas that aren’t necessary. They may be nice but they’re not essential and wouldn’t be missed if they were gone.
And to help you with this, ask yourself three questions when you list those discretionary expenses that are under consideration:
1.How much do I use this?
2.Do I really need it?
3. Can I live without it?
The answers might help you make up your mind
Cutting out or reducing down expenses takes time and effort and you need to be focused and intentional and it’s not a nice thing to have to do, but what you have to do right now is born out of necessity rather than choice and sometimes the hardest thing is just getting started.
But the good news is that maybe cutting things out for 6 or 7 months might be enough and if and when things begin to ease you can bring those expenses back into your monthly spend at a later date or maybe you’ll just forget about them altogether.

Bring it all Together
Okay, as I said it’s unlikely that you’ll find the savings you’re looking for in one area.
They’re most likely going to come from a number of different ones. If you need to save €300 per month, it might be identifying 5 areas where you can save €60 from each, or 10 areas where you can save €30 from each.
I’ll leave it up to you to make those decisions but you might end up with something like this:
Target to save €300
Savings Identified:
Insurance (Life) – Reduced monthly cost by €25
Mortgage – Moved to fixed rate and lowered repayment by €75
Lunch – brought to work for 4 days a week €25
One Less takeaway each week €25
Suspend Sports/Movie Subscription €50
In the example above, you still haven’t bridged the deficit and €100 still remains but maybe you’ll be able to find that €3 every day from other areas you spend money on, that will make up the difference.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie

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