Consistency and Planning, boring yet effective.
24 Jan, 2021
When I started thinking about what to write for my first blog of 2021 I started noting down a heap of ideas. But at the same time that I was creating my list, I was also answering a lot of emails from people who had a lot of questions about just good general money management. Time and again I was explaining similar things to people about how to set money aside to save up for things you want, instead of relying on debt or good luck to get there. So, I thought I would start the year with something that I think is a mega important topic if you want to get your finances in order: Consistency and Planning. Both are boring yet effective.
As always, I like to share what I’m up to and what works for us, you can then take from it what you will. A few years back I implemented a few simple things and today I’m reaping the rewards of my consistency, planning and good habits. You can do the same, but you do need to start today.
I’m often asked by people how they can “quickly find the money” to get something that they want. They might be trying to replace their car, save for a house, save for a holiday, replace the carpet in their home, pay for their university fees, create an investment portfolio or simply start saving for a retirement that is now quietly sneaking upon them. They pretty much want to know how they can access cash NOW to make it happen NOW because in many cases, they have just thought of it, right NOW.
To which I say, as diplomatically as I can, ‘you should have thought about that 12 months (or more) ago’. Of course they could slap their expense on a credit card, draw down on their mortgage yet again, use after-pay or take to stealing but they have each read enough of what I write to know that I’ll be giving an alternative option because I don’t do debt, no matter how convincing the math or interest rate looks.
Mid last year I wrote a blog on Sinking Funds and how we use them to fund many expenses we have coming up. At any one time I have several on the go, they are separate bank accounts for each thing I’m saving for:
Sinking Funds for each thing I’m saving for.
Automatic is the key
There are other accounts that come and go and the amounts we pay into each account vary as well but the key is ‘consistency’. Every single week, without fail, we pay into these accounts via automatic transfer. The fact that it’s automatic is the key here because if I were to rely on my memory it would never get done on time or I would find another use for that money! Because that is the thing with good money management; human behaviour and emotion can really muck up your good intentions.
You have not heard much from me lately because I’ve been on holiday. We decided sometime in December that we would like to take a couple of weeks off in January and circumnavigate the South Island. It was awesome, particularly the lower West Coast area, such a stunning part of the country. We have just returned and the trip cost us about $2,000, plus the expense of $400 to board our pets because, frustratingly, our house sitters changed their plans.
Blue Pools on the Haast Pass
The Franz Josef Glacier is behind the cloud.
Walking on the Tree Top Walk near Hokitika.
Booking a last minute trip is what can often get people in trouble financially. At short notice they decide to go, which doesn’t leave them enough time to save, so they pay for it on their credit card, spend with no budget in mind and then suffer the consequences in the following months as the bills roll in demanding payment.
Not so with us.
For all of 2020, every single week, I’ve moved $100 into another bank account called “holiday”. So for us, our last-minute trip was fully funded long before we even knew we were taking a holiday. We created a rough itinerary plus a rough allowance each day for food and sightseeing and that way we knew we would be spending about $2,000. In my mind, that’s the way to take a holiday, you can relax and enjoy it without any financial worries.
Before we drove out the gate I’d transferred $2,000 into our cheque account and off we went! When I came home, we collected our pets from the boarding kennels, they handed us a $400 bill and I reached over into the “pets” account and paid the bill out of that. I then sat down and categorized my transactions in PocketSmith, worked out that we spent $1983 (plus $400 for pets), therefore working out our exact holiday costs. And now I have even more useful information of what a New Zealand based trip costs for the next time we choose to do it. There are of course two more islands in New Zealand to explore!
Now that we are back in town, getting our daughter ready for school is on our agenda so we went and bought all the school supplies our daughter will need and you guessed it, we just reached over and paid for it from the “school expenses” account, money that we have been steadily setting aside just for this purpose.
What with holidays, pets and preparing for school we have spent A LOT of money in the space of just two short weeks but there is zero stress associated with doing so, because all of that money was already sitting waiting for us, it was just a matter of handing it over.
What I want you to take out of this post today is that you need to plan ahead to make your life easy in the future because it will save you scrambling for cash when the actual event is upon you. Jonny and I don’t make a lot of money and that’s our choice, we could both work harder, but we choose not to because, well, we have found a really nice work/life balance. So, as a result, a little bit of planning and a consistent approach to saving goes a long long way and it stretches our income a whole lot further meaning it’s very rare for us to be hit with a financial emergency. No bother if we do though, we have an emergency fund for that! Emergency Fund: Poised for Action
I can’t overstate the peace of mind that comes from having financial control and I see first hand in my place of work the panic in some customers eyes when a bill is presented to them that they just can’t pay. Although I feel for them, I also know that it could have been avoided.
Take action
So, take action. Do you want to celebrate Christmas in December 2021? Yes? If so, what did Christmas 2020 cost you? Go back and look at your bank statements and add up every single Christmas related expense from the gifts you purchased, through to the Christmas crackers and champagne you bought and the petrol you used to drive to your holiday spot. If it was $1,000 then, with 49 weeks remaining until Santa comes, you need to set aside $20.40 each week in order to have enough money to celebrate Christmas 2021. Create an account, call it “Christmas” and start an automatic payment that repeats every Monday.
If you think about the costs you might have coming up in the next 6, 12, 18 or 24 months, you can start planning for them right now. Just take the total cost, divide it by the weeks until the event happens and start an automatic payment or transfer to set money aside into another account.
It’s slow to build
It’s a slow start with these accounts, at first the balance is tiny, but these saving accounts just have a snowball effect, they just continue to grow and grow. Early on, particularly when we were still able to travel overseas, Jonny would ask if we had enough money so he could book a holiday. For a long while the answer was no, but now, due to COVID-19 that account has built up quite nicely and even after the nice break we have just had, there is enough there to book another. That brings me a great deal of comfort.
You can tap into them when you need the money and then they will just start to build again, as if by magic. If your plans change and you no longer need the money in a fund you have set up, well, you just give it a different name and start saving for the next thing instead. Or you can do what I do and send money that is not needed off into investments.
If you KNOW you have expenses on the horizon, it might be IS NOW time to get cracking and start planning for them. This is the most simple thing you can do and whether you have just six sinking funds like I have or 20+ like Mandy did in this podcast episode, 36. Divorced and Determined Budgeting Queen the point is that it’s entirely up to YOU. And for those of you whose bank limits the amount of accounts you can have, just go and open accounts with another bank as well. Problem solved.
I’ll often tell people that being good with money is all about forming good habits, creating consistent behaviours, committing to doing it and then just doing more of the same. And if you don’t want to end up broke, well it pays to learn to enjoy consistent saving as well because if it’s a chore then you are never going to stick to it.
Yesterday I was walking home from work and I passed a van that had five kids strapped in the back. The van was full of gear and they were towing a trailer full of holiday paraphernalia. Both parents were struggling with getting the trailer hitched on correctly and both looked kinda harassed with a “what the heck have we done” look on their faces. Because I’m Ruth and I think about PF 24/7 I instantly wondered what their holiday was costing and how they were paying for it and whether they would end this holiday with nothing but great memories, or with a lingering debt.
It is my greatest hope that it’s the former and that is what I want for you too.
