As the cost-of-living crisis bites, we’re all looking for ways to reduce our outgoings. Here, financial experts share their top tips for cutting costs and getting more value for money.
1. Set a household budget
It might sound obvious but all money-saving endeavours start with a clearly laid-out plan. “A household budget doesn’t mean you can’t spend money. It means you know where you’re spending it,” says financial advisor Paul Merriman of Pax Financial. “I think when people hear the word ‘budget’, they think they have to go on a money diet and stop spending. But that’s not the case.”
A budget should detail all your incomings and outgoings for the year. But Merriman says people often underestimate the amount of money they have coming in.
“When people do a budget for the first time, approximately 80pc forget about the children’s allowance. If you have two children, that’s €280 a month or €3,500 over the year [*he’s factoring in the double week with this calculation] and that’s a lot of income to be missing when you’re trying to plan ahead for the year.”
2. Understand your money script
Money-saving tips will only get you so far. If you want to transform your finances, take some time to uncover your unconscious money beliefs and how they might be impacting your financial decisions.
According to father-and-son financial psychology researchers Drs Brad and Ted Klontz, our attitude to money is developed during childhood and early life events, and it fundamentally shapes our adult behaviour, whether we realise it or not.
The four main ‘money scripts’, according to the Klontzes, are Money Avoidance, Money Worship, Money Status and Money Vigilance. Taking the time to discover your money script will help you understand your relationship with money and your personal spending triggers.
3. Always get a second quote
Whether it’s an electrician or a life insurance policy, financial advisor John Lowe, aka The Money Doctor, says savvy shoppers always get a second (third and fourth) quote.
“People’s lives are so busy nowadays but it’s important to sit down and look at your outgoings, one at a time,” he says. “Don’t just pay the renewal. Find out if you can get a better deal and ask them to match it.”
It’s equally important to determine if you’re overpaying for your insurance policies, he adds. “I always maintain that you should have life cover until your children’s third-level education is complete. But I’ve encountered people who still have life cover and their children are 40 and they’ve flown the nest. In that case, I would advise them to stop paying life cover. So it’s about watching out for those opportunities.”
4. Tackle your debt (starting with the smallest one first)
“If you sign up to a personal loan, you’re basically securing some of your income to go to a lender rather than your bank account each month,” says Merriman. “What we always like our clients to have is 100pc of their money when it lands — the only direct debits should be for mortgage and other monthly bills.”
Debt reduction should come before any investment, Merriman adds, but the mistake people often make is tackling their larger debts first. “If you start with the biggest one first, it can feel like you’re getting nowhere. But there is a psychology to debt repayment. I always advise people to tackle the smallest one first because that gives you the momentum for the next one and the next one, plus you can use the repayment set aside for the smallest debt to tackle the bigger ones. It’s called the Debt Ladder approach and it really helps.”
5. Build an emergency fund
A rainy-day fund will give you peace of mind but it can also encourage saving behaviour, says Merriman. An emergency fund of €1,000 is usually enough for those who are in their twenties and still living at home, he says. However, parents and those who are self-employed should aim towards an emergency fund of €10,000. “You need to have that fund in place before a pension or investment account, in case anything goes wrong and you need money that you can easily access.”
6. Ask for a pay rise (and explore new income streams)
While Bank of England boss Andrew Bailey famously told workers not to ask for a pay rise in 2022, citing the impact of inflation, Caz Mooney of Irish Budgeting says it’s just as important to adjust your incomings as it is to adjust your outgoings. “Your main job is probably your biggest income so prepare to ask for a pay rise in 2023. I know a lot of women in particular struggle to ask for what they are entitled to. So it’s important to create a plan, organise a meeting and explain why you deserve one.”
Mooney also suggests finding new income streams in 2023. “Look at side hustles, which is any extra income you can bring in, whether it’s a second job, selling second-hand furniture or doing paid online surveys. There’s only so far that we can cut our spending so we need to look at all streams of income.”
7. Claim your tax back
Hundreds of thousands of Irish people are due tax refunds by not claiming the tax credits they’re entitled to. If you worked in Ireland for part of the year and now live abroad, you may be due a refund of tax. Similarly, you may be due a refund if you have undertaken a fee-paying college course or paid medical expenses.
Lowe says some people don’t realise they can claim tax back on pension contributions. “This is especially for people who have set up a pension plan themselves because the employer doesn’t offer one. They’ve got the certificate from the insurance company but they sometimes don’t send the certificate directly to the tax office. The onus is on you to do that and it’s a fantastic saving, especially if you’re paying the higher rate of tax.”
8. Shop with a set amount of cash
To prevent impulse buying at the supermarket, Mooney recommends writing a list before you shop and bringing a set amount of cash to the till. “If you only bring €100, it makes spending decisions a lot easier. That’s what I do and it means I can’t impulse buy because I have a strict budget.”
Mooney also recommends the cash-envelope system for monthly budgeting. “When I do up my budget, I leave money in my account for bills and direct debits. Then I take out money for my variable spending which is expenses like food and diesel. I take that out in cash and I divide it into categories — it makes it a lot more tangible. My husband does the same, only he uses virtual savings jars, which a lot of banks and credit unions now offer.”
9. Save €2 coins for a Christmas payday
If you’re looking for a savings method that will encourage children to save too, Mooney recommends the €2 challenge. “If you fill a Pringles tin with €2 coins, it apparently comes to €1,000 when it’s full. A follower shared the idea with me during the summer and I thought it was a great one”.