A maxim is a short pithy statement expressing a general truth or rule of conduct. When it comes to finance - and let's face it, it can be a boring subject - hearing one liners or maxims that encapsulate a strategy or a philosophy to succinctly support your own financial dreams and aspirations can be inspirational in itself especially in these challenging and uncertain times.
John Lowe of MoneyDoctors.ie takes a look at five statements that may help guide your financial life.
1. You need a budget and you need to budget
You really should start every year with a budget plan. To know how much it costs you to run your life (and your family) for a month - every month.
Any surplus goes to a saving plan to coincide with your goals and longer term plans. If you have no plan, then even to plan for the season ahead will be a start. If your plan is shy of income, then you have three choices – cut costs, earn more or prioritise (it’s why over 300,000 people stopped paying health insurance over the last five years).
Income is your number one asset and you need to safeguard it. Use a money diary to keep track of your daily spend – lattés, taxis and takeaways mount up. You will be surprised how easy it is once you start. Email me for a free easy to use, simple budget planner spread sheet that has all the categories and even tots itself up.
2. Never spend on impulse
If every trip to the super market sees you aimlessly wandering around with an empty shopping trolley instead of sticking to a shopping list, it only makes sense that you are going to be tempted to splurge. That’s why you should never shop on impulse.
If you have a list, you might be able to gauge what the total cost will be and just bring that amount of cash with you or do not exceed that amount on your debit or credit card.
3. Your financial life rests on the gap between your income and expenses
As I said, income is your number one asset and it has to cover everything both now and in the future. That gap between your expenses and what you earn is important to know especially if it is a surplus. It is with this surplus amount of money you can plan.
Planning for your holidays, that lump sum you want to repay the Personal Contract Plan (PCP) for your car, your child’s third level (total cost exceeds €42,000 per child) that attic conversion, that once-in-a-lifetime dream holiday, not to mention that home deposit... The list goes on but all those are paid from the gap between your income and your current living costs. So start saving – it’s a must!
Ideally, you should have between three and six months joint net income in a Rainy Day Fund for that emergency, sudden loss of income or investment opportunity.
4. Every euro should have a purpose
If you don’t have that purpose for your money, then it’s up for grabs and who knows where you will end up spending it. It is important, therefore, to check that list – not just your grocery list – and ensure your money is going to the right place. It can have a long term nature too – your children’s third level costs, changing the car in five years’ time, saving up for that special anniversary, etc.
5. Bet big when the odds are in your favour
Well, that’s what they say in betting circles. I am not a gambler, but there are certain factors I do take on board when it comes to betting big - especially on the stock market.
I. The stock market is easily the best return of any asset class over any period of time. As Warren Buffett once said: the stock market is a mechanism for transferring wealth from the impatient to the patient.
II. The 26th Bull market (rising) was matched by the 26th Bear market (falling) last March 2020 when Coronavirus hit. However, it has virtually all recovered and since the lockdown certainly half of the country who were in employment were saving huge sums of money just itching to be spent as soon as they were allowed.
III. With interest rates still low, it could be assumed the stock market will continue to rise and at worst stay where it is. From 1991 to 2020, the average annual growth in the stock market was 10.72%. There are some savvy investment funds worth considering, unless…
IV. Gold, the barometer of volatility, reached a new high in price in April 2024 of €2,431 per troy ounce (troy slightly heavier than our school-days avoirdupois). When the stock market falls or gets nervous, the price of gold rises. The feeling is that it could go as high as $3,000 per troy ounce. They say that 10% of your wealth should be in a precious metal (gold, silver, palladium – the main component of the catalytic converter hence the recent thefts ) but take advice.
V. Cryptocurrencies are extremely volatile at the moment. My advice is if you can afford to lose whatever you invest in Bitcoin, Ethereum, Stellar, Litecoin, Ripple or such like, then go ahead. But be prepared for a very bumpy ride.
For more information click on John Lowe's profile above or on his website.
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