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Why Now is the Time to Get Your Finances in Order

By Carol Glynn, Finance Coach, Chartered Accountant

Are you feeling the effect of the high inflation rates everyone seems to be talking about?

Are you feeling a financial pinch? Does pulling up to the gas station to refill your car create a knot in your stomach?

I am regularly hearing from clients and friends about how the negative and foreboding financial news is making people anxious. If all the doom and gloom has you worried and confused as to what to do, you are not alone.

It feels as though inflation is rising by the day. Reports are showing inflation rates never seen in our lifetime. And it’s not isolated, it’s global. Phone calls home will inevitably include a discussion about the price of petrol and groceries. Summer is the time many of us ex-pats travel to our home countries to see families and friends. This year I have seen a spike in online chats where people are talking about how flight costs are the highest some have ever seen and they are looking for advice or tips on how to fly for less.

But what is expensive is relative. The cost to refuel my car has doubled. Yet when I mention this to my friends and family in Ireland, they will point out how it’s still cheaper per litre than what they pay in Ireland. It almost feels like a competition as to who has it worse!

According to the Office for National Statistics, in the UK, inflation hit 9.1% in May. This is up from 2.1% in May 2021,

Meanwhile, in the US, the Bureau of Labour Statistics reports that inflation has surged to a 40-year high of 8.6% in May 2022.

The increase was broad-based, but the most significant increases were in the categories of housing, fuel and food. Food and energy tend to be the most volatile but most significantly, they are the areas that will impact consumers most.

They are categories we cannot avoid.

In the US, it was reported that energy costs rose 34.6% in one year while groceries increased 11.9%.

Next to housing, these tend to be the two largest costs I see in my client's budgets.

Now we understand a little more about the reality of what is happening. That is, in short, three of the most unavoidable expenses in our day-to-day lives are increasing dramatically.

I often get asked, ‘but why are they increasing’. I could answer that, but I’m not an economist, oil expert or statistician. And to be frank, does it really matter to the average person?

How will understanding why inflation is increasing change your daily decision-making when you are considering driving versus taking the bus, shopping in the closest convenient supermarket versus a cheaper supermarket a few miles away? I would guess it doesn’t. In my experience, trying tends to leave the average person feeling more confused, stupid, frustrated and helpless.

Rather than trying to understand why it’s happening, I would prefer to put my brain power, time and energy into what I can control and take action to react to the increasing inflation in ways that work for me and my family.

I have a degree in Accounting. I am a Fellow of the Irish Association of Chartered Accountants. In what feels like a previous life now, I was the regional head of finance for multi-million dollar, sometimes billion dollar groups of companies. When I listen to all the debates, expert opinions and discussions around why this is all happening, I find myself tuning out. So much is hearsay, personal opinion or for me, downright boring and irrelevant to my day-to-day life.

Understanding it doesn’t change my financial situation. So why put mysel through that? If I was interested in it as a topic and loved to debate it, discuss it and think about all the various opinions and perspectives, then great! I would invest time and energy in that. But I’m not, so I won’t be engaging in a deep and long conversation about it over dinner.

Let’s put it in perspective. As individual consumers, there is little we can do to control what is happening to the economy.

However, we can control how we react to it, which means that now is an important time and opportunity to focus on your cash flow plan or budget.

So, what do you do when two of the largest categories of your budget are increasing so dramatically?

It is a great time to figure out or revisit your values, ambitions and goals. Then build a cash flow plan in line with those values, ambitions and goals to ensure you allocate your resources to the parts of life that are most important to you.

Now is as an important time as ever to put your money behind your values.

This does not guarantee there will be enough money to do everything that you want to do, but it will help to ensure that you are making the best use of what you do have.And ensure you are aware of any shortfalls before it’s too late and you find yourself living pay cheque to pay cheque or in debt.

This is powerful knowledge that you can use in many areas of your life.

As individuals, we have little to no control over what happens to the global economy. But we have control over our money choices, behaviours and mindsets. As the old adage goes ‘Charity starts at home'. Apply this to our finances and it rings true too. We can play our part by using our money consciously and with intention. And not letting our fear-driven emotions run the show.

Gaining clarity over the reality of your finances may also motivate you to ask for that pay rise you have been putting off, look for a new, higher-paying job or set up a side business that you not only love but one that will bring in extra income to help you prevent debt and have more choices.

When reviewing your spending, remember to remain positive. This is a fact-finding exercise to find areas where you can reduce costs, and reallocate money to areas that are more in line with your values and ambitions. Given the rates of inflation impacting groceries and fuel, it would be wise to start with those areas.

You can save money by shopping in cheaper supermarkets, for instance. It also helps to have a shopping list prepared to avoid unnecessary purchases. Stopping shopping online and using delivery apps can also save you money.

Limiting your driving is not only good for the environment but will also help to reduce the cost of running a car. Using electricity-hungry appliances, such as washing machines and dishwashers, during certain times of the day when the charge per unit is less can lower your energy bill.

But also looks to areas you are spending that aren’t that important to you. There will always be somewhere you can reduce and save. Maybe it’s one less lunch out per week. Eating out less, or socializing at home rather than in expensive restaurants or bars.

Be creative and involve the family. My children love it when we set a family challenge! When involving the children, it’s important to be positive about it, and make it fun so they don’t worry or think something is wrong. Talk to them about inflation and how you are being proactive and taking charge of the situation rather than just letting it happen to you.

Having a cash flow plan is like using a GPS system to plan your route. It allows you to see where there are bottlenecks or tolls so you can avoid them and get where you want to go in the best possible way for you.

But what if you aren’t really feeling the increase in prices. Maybe your income can easily absorb it all? That’s fantastic. Acknowledge it and be proud, grateful and happy about it.

But remember, we cannot control what happens in life but we can do a lot to control how we feel it financially. Let this is a timely trigger to assess if you would be ready if your fortunes changed, such as losing your job or facing a large, unexpected bill.

Do you have an emergency fund in place? Are you making the most of your income? If your savings are not invested, now is a great time to start.

But remember: fretting about the doom, gloom and fear we are hearing in the news will only increase our stress levels rather than our finances.

Instead, allow the noise to be your motivation for positive change and take charge of what you can control by focusing positive energy on your income and cash flow plans.

Because we never know what is around the corner for us.

Studies show that the emotionally negative impact of financial loss is far greater and lasts longer than the emotionally positive impact financial success generates. Our brains are wired to remember bad experiences and suffering much more vividly and readily than positive experiences.

Many of my clients are reporting how they feel stressed and fearful about what's going to happen. They are recalling how they felt in the past when they or their parents suffered financially. Some are still carrying financial trauma from 2008.

But ever the optimist, I believe there is always a glimmer of hope or positivity if you look hard enough.

I acknowledge fighting inflation of 9.1% is a daunting task. I’ve talked about cutting costs and spending as an important and powerful way to prevent debt in times of high inflation. But there is another financial tool we need to add to our toolbox.

That is investing.

If you are an investor, you are unlikely to get relief from all the negative financial noise at the moment.

We are facing a bear market where share prices are falling. What is a bear market? It’s when share or market prices are declining for a prolonged period. It is usually declared when prices fall 20% or more from recent highs

And this is the glimmer of hope. The silver lining.

If you have extra cash, over and above your Emergency Fund and it’s just sitting in a zero or low-interest bank account, it’s effectively losing 9.1% in value.

Now is the time to consider putting your excess cash to work so you not only retain its value and beat inflation but take advantage of the bear market. Excess cash is any money over and above your Emergency Fund and savings you will need for the next 2-5 years.

A bear market means investments are on sale. The best investors will advise that now is the time to buy. This is a significant opportunity for investors in the accumulation stage of their investing life. That is, for those that are investing now for the long term, not needing the money for at least 10 years. Buy cheap now and let the magic of compounding do its work.

If you are already investing, be mindful of your emotions. It can be stomach-churning to see the value of your investments decrease but don’t panic and sell. If you have done your homework and have a well-diversified portfolio you likely will have planned for this. Stay the course and if you have extra cash, invest it.

It’s not the time to be speculative but in my humble opinion, there is never a good time to be speculative. Make it as easy as possible for yourself and research exchange-traded funds (ETFs) and index funds with built-in diversification.

Remember Warrens Buffets' advice ‘Be greedy when others are fearful and fearful when others are greedy'.

Take advantage of the investment opportunities at the moment but do your due diligence. Find someone experienced, level-headed and who isn’t receiving commissions who you can discuss your investment ideas with.

Think long-term. Impatience is detrimental to your money and investments. Think like Warren Buffet when he says ‘the stock market is a device for transferring money from the impatient to the patient’. Investing is a marathon, not a sprint. Invest now and reap the rewards in 10+ years.

Your future self with thank you for your calmness and patience during in these potentially difficult times.

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