This week (as the title suggest) I am going to talk to you about the importance of planning ahead when trying to get finances under control. This is a crucial step in the process, but, this is one of the most overlooked aspects of money management. Sure it sounds like common sense and you may not need me telling you this, but hear me out and maybe there is something that you can implement into your life after you hear the mistakes that I have made in the past.
As we have seen previously (in the Budget blog), we try to plan ahead perhaps a fortnight or a month at the time. We do our budget for that month and then we try and stick to it and if it works out at the end of the moment then we rejoice and admire all the euros in the bank account and create another budget for the next month and go again. Right? Good, that’s what we should be doing. However, this blog is going to take this principle a step further. No matter what age you are, at what stage of life you are or what your financial status is, we all need to plan ahead in order to stay in line regarding our finances.
So I have seen it happen to so many people (including me), wanting to spend money as soon as it hits your pocket. I am sure you can agree with me. Its in our nature, spend, spend spend. Especially in this social media world where we are brain washed by ads everywhere we go. However, maybe you can learn from my mistakes and it might help you to re-think your spending habits, please keep reading.
As soon as I got my first engineering job (over 2 years ago), I was on cloud 9. I knew that engineering was reasonably paid job and I knew I would be receiving my pay check on a monthly basis. Prior to this job I was a like a “kid in a candy shop” but with no money. Now I was like a “kid in the candy shop” that was flush. I had a reasonable pay check hitting my pocket every single month. So this is how my monthly cycle played out: Every pay day it only meant one thing, rush of blood to the head in search for that adrenaline rush that comes with buying new things. Lets be honest, everyone loves shopping and having new things. I would rush straight to the shop and buy the most unnecessary things (well, they were necessary in my eyes at the time), purely because I had money in my pocket and new “Beats by Dre.” Headphones were only €200 a pop, so I had to have them. It was the same story with the new designer clothes/shoes, new gadget, holiday splash, week long take away marathon etc. I didn’t “need” any of those things, but, I wanted them, again, I was in that “instance gratification” mode. Foolish. I know….now. As expected after the adrenaline rush wore off and I look at my collection of 15 headphones and 23 pair of “cool” shoes, and pizza boxes stacked as high as the ceiling that adrenaline rush feeling quickly turned into fear and panic. I quickly realised that I had to put fuel into my car, rent and bills were due, my brothers birthday was coming up and I have to book my flights for a holiday in a matter of days. With only few hundred of euro left in my bank account. Ooops! It very quickly dawned on me that I splashed majority of my pay check to chase that adrenaline rush of buying new things just so I can feel like a king for a day. That’s all it was, a day, if even. I would then scramble and struggle for the rest of the month with the little money that I had. It was horrible and it was painful. However, every month I just about survived with small help from my friends with a small loan here and there. However, at that time no amount of tech, clothes, shoes, pizza in the world, would make me feel better if my bank account is empty and I have a mountain of responsibility to deal with. However, the cycle kept repeating itself and every month I was facing new financial challenges. This was mainly because I had to repay loans from previous months as well as dealing with the stupid decisions that I have made in the past too. Whether it was a holiday I needed to book, present for a sibling, concert tickets, new piece of tech, take-aways every night etc. I was making foolish mistake again and again. I was spending money I didn’t have again and again. A lot of my expenses I could have easily cut out but that required sacrifice and a bit of hard work, but, that was something I was too stubborn to face.
At one stage I even needed to apply for an overdraft with my bank, as I had zero in my bank account and I needed to pay for my holiday that I foolishly agreed to couple of months previous. This was a horrible experience. Sure its great to go on a holiday, but you just know that once the holiday is over you be thrown back to reality and money issues will never leave you. As I sat in my uncomfortable plane seat I quickly realised that I was slowly but surely spiraling out of control and needed to get my shit together. I couldn’t live like that anymore. I couldn’t keep spending money on flashy things of little substance and rely on my bank to bail me out via an overdraft or a loan that will then pay back with a hefty interest. I quickly started thinking of alternative options, I couldn’t turn to my parent (I was old enough to get my self out of this mess myself), I couldn’t turn to gambling (that was a dark dark path that I never want to be on again), I couldn’t ask my friends (they were short on money too) etc. There was only one option available , staring at me right in the face and that was I had to put the work in myself and I had to do it quickly.
After that holiday I put a whole weekend aside, just to sit down and study my spending habits. It didn’t make for a good reading. I was frustrated and angry with myself for putting myself into such position, but after banging my head off the wall being angry with myself for most of that weekend I soon came to a conclusion:
“The past is the past, learn from it and keep moving forward. Tomorrow is another day”
I started focusing on my future, I knew I needed to put the work in, to plan ahead so that’s exactly what I did. I wrote down all my ongoing expenses, such as rent, electricity, Spotify membership, Car insurance etc. I wrote down the figure that I expect to pay for each and how often such bill is due. Something like shown below:
This was important. Budgeting is very important but budgeting only allows you to plan for one month at the time. Expenses such as Weddings, Car Insurance, House Insurance, Car service, College Fees etc. only come around every now and then and a lot of the time they come “at the worst possible time” when money is hard to come by. So to avoid stress and frustration that comes with having no money when such expenses are due, you got to plan ahead. That was a huge help for me when it came to compose my monthly budget. I knew exactly how much of my pay check I must (at all cost – excuse the pun) have in my bank account to ensure everything was paid for and I didn’t need to borrow money. I soon noticed that I needed at least 55% of my monthly pay check to pay for everything that I needed to pay for any particular month. This allowed me to play around with 45% of my pay check on whatever I wanted. However, due to my ability to plan ahead was a lot better now, I decided to put some money aside (10%) to spend on whatever I want, pizza, clothes, tech etc. and the rest 35%, I decided to save as I knew my car was due a service, Christmas was coming up etc. so having money left over is not a bad thing, it will be used at some point, you just have to be wise where and when you can use it.
I will give you an example where planning ahead has benefited me recently. You see, my parents are crazy for travelling and going on holidays whenever they get a chance. Few months ago my parents asked me and all my brothers and sisters if we wanted to go on a skiing holiday at the end of January 2018. I was of course was very excited about going on skiing holiday since I love it so much. I haven’t been skiing in years. However, before I screamed yes to the idea, I stopped myself and just thought about what kind of expenses I am due around that time. Straight away I had an issue, I knew that my rent and bills are due at the end of the month. That was one issue. On top of that I needed to pay my annual car insurance and car tax at the end of January. I was slowly but surely getting on top of my financial issues few months previous and I didn’t want to wipe all my hard work out in just matter of weeks by agreeing to a holiday as well as paying all of the other bills that were due. So I politely declined and stayed focused on building a financial cushion for myself and not get stuck with pesky car insurance monthly payments (as I did last year) that made it very difficult for me to save any money. So although, I would have loved to go skiing, I saved myself almost €1,000 for not going (yes, skiing holidays are very expensive). Now I can focus on saving money and perhaps next year when I have money built up in the coming months, I can comfortably go for the skiing holiday and not put myself under pressure financially with rash decisions just so I can feel that adrenaline rush again. I am still young and I have plenty of years ahead of me to go on holidays so its “OK” to say no sometimes and not put yourself under huge amount of pressure just because you want “instant gratification”. Hope that makes sense and I made it clear enough on the importance of planning ahead.
I hope ye all enjoyed the blog this week. It is sort of a continuation/part 2 of the Budget blog. I will be however, posting another blog on Thursday. It will be the first blog of my view and experience with gambling. Hope ye all come back and read that blog as I am very excited to share my story with you. Its going to be very personal and I would love to hear from ye if you or anyone you know that has experienced something similar. As always I welcome any feedback via comments regarding this weeks blog or any other topic on money management. Hope ye enjoyed reading it and hope all or some of ye have learned something based on my experience.
Thanks and I will talk to ye guys on Thursday.