MAKING CENTS: Your monthly financial calendar

As promised my next instalment of things to do in the second half of 2023.

July

This month I want you to do two things:

- look at your savings rate and see if it can be increased, and

- assess your emergency fund.

Ideally, you should be saving somewhere between 10% and 15% of your income which is separate to whatever you’re contributing to your pension each month.

If you’re struggling to save anything at all, rather than focusing on say 10%, look at perhaps 1% or 2% or whatever you can, and gradually increase your savings rate over time. And to help identify how much you can save and where it will come from, record what you spend your money on over a 60- or 90-day period and that will give you a good idea of those areas you could perhaps reduce your expenditure on.

In relation to your emergency fund, now is the time to check in and see if the amount you have saved is adequate. Unexpected expenses occur all the time and you need to be prepared for them regardless of what age you are or what income you earn.

Holding somewhere between three and six months of your net monthly income is a good number to aim for. Once you have that amount, lock it down and ring fence it because it’s not for spending or investing, its only for rainy days.

And the key to achieving your emergency fund number is your savings rate.

If for example, your monthly income was €3,500 and your monthly savings rate was 10% (€350) and you wanted to have 3 months of expenses in reserve it will take you 27 months before you reach that target ie. three months of expenses amount to €9,450, because if you are saving €350, then you are spending €3,150 so €3,150 x 3 = €9,450.

If you save 20% of your income, it will take you just 12 months.

And it’s that much shorter because when your saving rate increases to 20%, your spending rate goes down to 80%, which means not only are you saving more but you are spending less as well.

August

Make this the month you commit to:

n stop adding to your existing debt if you have any, and

n start destroying what debt you already have.

Debt is the biggest enemy to wealth creation. It impacts your monthly cash flow and takes away funds that could be applied to other areas of your finances, so the quicker you are debt free the better.

The big advantage to getting out of debt is not the interest saving, and yes of course that’s an excellent consequence, but for me it’s being able to use that money you’d otherwise be making towards loan repayments and applying it to other areas of your finances like paying off your mortgage earlier, building up your children’s future education fund, increasing your pension contributions, earning less etc.

September

This month I want you to put your estate in order.

And that begins with making a will if, you haven’t one in place already, or updating the one you have.

Ask anyone who’s experienced the death of a family member who hadn’t made a will and the difficulty with trying to locate accounts, the time involved going through the grant of probate process, the conflict it can create with other members of the family and so on.

It’s quite inexpensive to engage with a solicitor who will draft a legal will for you, and I would recommend you reach out and get expert advice when doing this. You could do it yourself, but you want to be 100% sure that what you have in place is correct and legal and would stand up in a court of law if ever challenged.

October

This month I want you to bump up your regular pension contributions or make lump sum lodgements to it, by way of AVC contributions.

Rule Number One, when joining an employer sponsored pension scheme, is to contribute enough that will at least capture any match your employer is promising.

But that doesn’t mean you can’t contribute more than that, and the chances are good you’re probably not contributing as much as you can. And if you’re not maxing out the amount you’re allowed to, now is the time to at least increase the amount you’re currently contributing.

November

Hopefully an end of year bonus is just a month away and regardless of its size, finding what the best return for it is, and what type of account suits you, is something I would spend some time investigating this month.

How much of it can I spend? How much of it should I save? Is the best return on investment paying down debt? Should you use some if to, top up your pension fund? If making an investment, what term can you commit to? What capital guarantees do you need if any?

You need to find the answers to these questions in advance of making any decision and if you’re not sure or trust yourself in finding out what’s best for you, reach out and get help.

December

This month your task is to reflect on how things went during the year.

It’s a busy time of the year, and it’s time maybe to take a break from your finances for a month. But I would suggest you set some time aside during your Xmas break to review what you accomplished during the year. How many of the tasks you set yourself did you follow through on? And the ones you didn’t make progress on, why was that?

Doing this, you’re getting a jump start in the New Year and your hitting the ground running so to speak in January.

You’ve done your reflection, and you’re ready to get things moving quicker in the year ahead.

I hope you found these monthly tasks helpful. And as I said last week, switch the order to whatever way works for you, and/or include other tasks that I haven’t mentioned like planning for your summer holidays, setting up a new regular savings account for your child’s future educational costs, claiming back tax reliefs, overpaying on your mortgage, reviewing your net worth, getting ready for a new mortgage application, buying a car etc.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at [email protected] or www.harmonics.ie