The historic route of the word February is to do with purification and so we are motivated to talk about a clean-up of the finances. Apparently, februa refers to a purification feast held in this month. Who knew?
Intentional spending will design your future – unintentional spending could wreck it!
We need to be aware of spending. Billions of pounds are spent by companies enticing us to buy things that promise a fix or an uplift. It can be quick and easy to set up a regular payment for something that seemed relevant and worthy at one point and within months it is out of date and surplus, but do we remember to cancel the subscription?
As human beings we are hugely impacted by something called Present Bias which we may recognise more easily as one of these:
- I want it now and I want it delivered. (This is one of my favourite fridge managements!)
- Stuff retirement – I might not live that long!
- I can’t see that one little holiday/handbag/trip to the theatre (or whatever immediately gratifying purchase is tempting you) is going to make a difference in the long run.
- You only live once!
- Go on… you’re worth it!
The actual definition, without getting too wrapped up in the science of behavioural economics or hyperbolic discounting (yes there really is such a thing!) is something like this:
“Present bias is the tendency to settle for a smaller and immediate reward rather than waiting for a bigger future reward.”
We effectively undervalue future gains in favour of immediate gratification.
Being as this is natural behaviour, it takes effort and discipline to interrupt it and make decisions in favour of longer-term outcomes, but the first step is knowing we suffer from it.
The next step is taking purposeful action to ensure we are spending purposefully and our Direct Debit Detox is one of the tools in our Money Housekeeping Calendar toolkit to help you.
Direct Debit Detox
The February ‘Direct Debit Detox’ is a practical step we can take to keep things fresh and relevant. We have prepared a Direct Debit Planner which is available to those who sign up for our monthly topical tip and email update at Women’s Wealth
As busy people who know how to engage automation to save ourselves time and hassle. We have become accustomed to setting up direct debits and standing orders to make repeat payments, but have you ever had the embarrassing moment when you look at a transaction and think “I have no idea what that is for”?
Don’t worry. It seems that it happens to a lot of us and it highlights the importance of having a periodic review of routine transactions to make sure they are all still appropriate.
Here are some of the discoveries that have resulted in savings:
- Gym membership unused for months. Check if the charge for a daily pass would have been less than a year’s membership (The gym can tell you how many times you attended as they keep electronic records, but they may be reluctant because they know the truth – most people don’t get good value from gym membership!)
- Mobile phone insurance policy and/or travel insurance when the cover is provided under a premium banking package.
- Annual pet insurance collected for a beloved pet who passed earlier in the year, but no one remembered to cancel the insurance.
- Financing two lots of car insurance, having transferred to a more competitive provider, while the persistence of the auto-renew function meant the old cover was still in place.
- Subscription for magazine delivery when online reading has all but replaced the paper mags that just hang around for a month before going in the recycling unread.
Online banking and mobile phone apps make it easy to check our balances frequently and have replaced the need for a monthly trawl through the paper statement to check on the transactions that have happened during the month. Is this preventing us from doing a deeper dive into the continuing relevance of regular transactions?
We have some very well organised ladies amongst the Women’s Wealth members who do thorough monthly penny perfect reconciliations. We have others who just check daily what the balance is because they have a running total idea in their head and they only drill down if the balance seems off. Some ladies feel a quarterly check is ample. Many rely on balance alerts, auto top-up from one account to another and other tech-based money management tools. However, there is no tool for taking an honest look at the range of direct debits and standing orders and asking yourself honestly:
Is this expense still relevant?
Is this routine outgoing overdue for a test to see if it is available at a better price?
Managing Routine Outgoings
When I bought my first flat it was essential for me to have my Direct Debit planner on the fridge. I was unused to so many DDs and the budget was tight. In fact, my mum frequently bailed me out in those early years because I misjudged things. With a few years’ experience, I learned, but then things got more complex as I became responsible for family budgeting and cash calls for clubs, trips and must-have fashion items, so my monthly planner became important again.
These days we have a yearly planner for the business as some of the bills we must pay are whoppers and without planning, we could have cash flow problems. Given how useful a Direct Debit planner can be, we have designed one for you. The added bonus of the effort involved in filling it out gives you the ideal opportunity to review each of the entries for appropriateness and competitiveness.
Good luck with your DD Detox.
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