Financial expert Lorraine Donegan offers her simple tips to getting your finances in order
Q: I’ve just moved to another rental property, and the rent leaves little room to save for a house. How can I get my savings on track?
First of all, thanks for sending this question in – it’s certainly topical! For years, I’ve worked with a number of successful, well-paid clients who are in exactly this predicament. They earn a good salary, their careers are on an upward spiral, but instead of coming home each night to somewhere they can call their own, they’re stuck in a cycle of rental properties because they can’t afford to save for a deposit.
At least… that is what they tell themselves!
The first step
If you feel you are stuck in the same predicament, my advice is that your first step needs to be to change your mindset.
After all, if you convince yourself that you can’t save because rent it so high, how do you ever expect to pay a mortgage and all the ancillary costs that come with owning a home, such as heating, network, bin collections, upkeep, etc?
Of course, your rent accounts for a big part of your monthly outgoings, especially if you live in Dublin, but there are always ways to save. All you need is a little organisation and dedication.
Time to start
Start tonight. Access your online current account and download all the details of your spending in April, or better still, look at your income and outgoings over a three-month period. Then you can calculate your average income and expenditure per month.
Group your spending into at least one of these four categories (add more categories if you need to, but make sure to account for all your spending):
- Expenditure: Rent and associated rental bills (heat, electricity, etc)
- Expenditure: Other bills and loans (phone, car, etc)
- Expenditure: Savings
- Expenditure: Other (including all shopping and social activity)
Total the amounts for each category and calculate the percentage of these totals against your monthly income.
What does this information tell you? What percentage of your monthly income are you actually spending on rent?
If it’s more than 30% of your income, you are paying too much and may need to think about alternative options, such as:
- Looking for something cheaper.
- Room/house sharing.
- Paying cheaper rent back home.
- Offering to paint/maintain your rental property in exchange for a better rental agreement with your landlord – after all, you should never underestimate the benefit of a great tenant.
If your rent falls below the 30% mark, then you can obviously reduce your spend in other areas.
A quick solution
There are myriad ways to do that depending on your lifestyle, but the quickest solution is to link a direct debit savings amount to the date you get your salary every month. That way, as soon as you are paid, €X is transferred from your account to a secure savings account.
What value €X is, is up to you. But my advice is to estimate what you think you should save and then add at least €50 to that amount.
Take these simple steps, and you’ll be snuggling up on the couch of your own home before you know it – what PJs, munchies and wine options you choose are up to you.
Keep the questions coming!
Until next month,
Lorraine Donegan, aka the Money Muse, is the managing director of Donegan Financial Services, which is regulated by the Central Bank of Ireland. Lorraine will be writing regularly for IMAGE.ie in 2019, so if you’d like to ask any specific questions about any finance-related topic, send an email to [email protected] or [email protected].