'You can knock three years off your mortgage by changing one daily habit' - Liam Croke

With it being Halloween this week, I thought I’d write a Halloween themed article and when I set out to write it, I thought what do I encounter from people that frighten the life out of them? And it isn’t the thought of Michael Myers or Freddie Kruger knocking on their door, from a financial perspective it’s the amount they’ve saved for retirement, or how much their mortgage rate has increased by in recent months, or how much debt they are carrying or how little savings they have and I could go on and on.

But there’s one area in particular that really scares the hell out of people and that’s when they look at what they’ve been spending their money on in recent months.

And if they didn’t know and they took out a Ouija board, because they wanted to communicate with the other side to find out where all their money has gone, and for some they probably weren’t expecting the planchette to first move towards the letter C and then to O, and over to F and back again to F and then twice again over the letter E.

They wouldn’t believe what they were seeing and wouldn’t be convinced otherwise until they look back on their list of transactions and tot-up the amount they spend in different areas. I asked a client of mine recently how much they thought they spent on coffee each week and they estimated it was about €8, when in fact from their bank statement it was €26.

Not a life changing difference but it’s just an example of how much they thought they were spending and how much they were actually spending. There was a much bigger difference when we looked at how much they were spending on insurance premiums and take away food and those actual amounts really did make a difference and that’s where their blockage lay, not the amount they spend on coffee.

And when I refer to coffee, can I be absolutely clear that I’m only using it as an example of something which is reasonably inexpensive that we purchase most days. I could replace the word coffee with bottled water, magazines, newspapers, lunch at work, kids, kids pocket money or school related expenses, pets etc. anything really that costs probably less than €10 a day.
And people only discover how much these small amounts add up to when they really review and record what they’ve been spending their money on. And when I say really, I mean really spending the time accurately recording the amounts they are spending in different areas, not just guessing.

And when you place the cost of something small against a mortgage repayment or a car repayment, or the costs associated with putting kids through school, they pale into comparison. And you might think, how could a small amount spent once a day have any impact on your bottom line?

And for some it can and for others, probably not so much.

I guess saving €20 a week for one person could be huge, and small for someone else.

The key though is knowing what the future impact of that €20 each week is.

And when you do, you can decide whether you continue to spend it or whether you pivot and decide to make small changes and save the money instead.

If you decided to save it, we know in five years with a moderate investment return you’d increase your savings by €5,621 and in 10 years’ it would be €12,120.

Or, if you decided to use that €20 every week as an overpayment against your mortgage, it would reduce the term on a €300,000 mortgage with 30 years remaining by three years one month, saving you over €25,000 in interest payments.
Lots of good reasons to sit up and take notice and for some people perhaps the reasons aren’t big enough, it really depends on your perspective. Some people would rather not give up their daily coffee or whatever it is they spend that small amount on each day, regardless of the impact it has on their savings or how much faster it will repay their debt, and that’s okay as well, it’s their decision to make.

And small indulgences make us happy. I really like cappuccinos and it’s probably the one area I’d try not to cut back on if I had to, because I like them. But there are other areas I find easy to cut back on like buying overpriced and underfilled sandwiches at lunchtime. Now I make my own and it doesn’t feel like much of a sacrifice and if anything I think I’m now eating better.
Long story short, I think we just need to find that balancing act of spending money on things we like and not wasting it on things we don’t.

During Covid we got used to spending less on things like eating out, on gym memberships, on lunches, on coffees, so maybe some of these areas are ones we need to review if we’re looking at ways at reducing our monthly spend.

And of course, this will all depend on how much we’re spending in these areas every month anyway.

When you analyse your monthly spending, and it’s a pain in the ass carrying out this exercise I know that, but if you did spend the time, some numbers will stand out as being too much, and others maybe not enough, but whether you decide to cut back or not, will really depend on your situation. If you carry little or no debt, and are saving at a good rate, then you can eat out every day if you want to or have as many coffees as you want, the key to what you do is based on your current situation.
My point in writing this article isn’t to get people to stop spending their money on small things that they may or may not like, it’s more to bring to their attention the amount they are spending each week that they can’t readily account for.

It’s their ghost money. Because it disappears from their account without a trace and they’ve no idea where it’s gone. But it doesn’t magically disappear either, with a small amount of work, they can easily find out where it’s gone and it’s probably in places where they least expect to find it.

And when they uncover what’s going on, what they choose to do with that is their decision.

But I think putting some options in front of them can help, like telling them they’ll have 37 months of fewer mortgage repayments if they either buy three fewer coffees each week or if they bring their lunch to work on a Monday and a Wednesday.

Or forget about paying off their mortgage faster or saving more, if being able to reduce their outgoings makes getting to next month’s pay day a little easier and makes them feel less stressful in the process, then all the better.

Look, it’s rare that money suddenly vanishes. It’s usually drained away over long periods of time, in small amounts that are hardly noticeable. They may not haunt you now, but they might when you’re older when you regret all the things you could have done if you only took more notice of your spending habits.

So, I’d say have a look at your current account transactions over the past two or three months and have a look at how much you’re spending and on what, and you’re probably going to be surprised at what you find.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie