How to Be Good With Money

By Eoin McGee

Do you want to know:
How best to spend the money you have?
How best to get out of debt?
How to start saving for the things that matter to you
How to look after your financial future?
How to retire early?
Join author, TV host and financial planner Eoin McGee, as he shares his complete programme for financial well-being in this life-changing book.
By discovering the rules of spending and saving, you can feel safe in the knowledge that your money will support the life you want to live. Whatever your budget, you can create a solid financial plan, allowing you to rest assured that the future is well looked after.

• Language: English
• Publisher: Gill Books
• Release date: Mar 20, 2020
• ISBN: 9780717186730

Eoin McGee

Eoin McGee is a financial planner, the founder of Prosperous Financial Services and the host of RTÉ’s How to Be Good with Money.

Book preview

SECTION 1

DAY-TO-DAY SPENDING

The basics

It doesn’t matter if you have lots of money or struggle to meet every single pay packet. You need to get the basics right. In this section, we look at how to manage your day-to-day spending. These are the foundations: get it right and the wealth creation will be built on solid ground. Get it wrong and you may get away with it for some time but if you hit a bump in the road you will hit serious problems.

Being conscious with your money

People sometimes ask me, ‘If I were to change one thing to make me better with money, what should that be?’ The answer is being conscious. Being conscious is about spending your money on the things you want. In all the TV shows I have been involved in, and in all the client engagements I have had over the last 20+ years, being conscious is the one thing that ties the people together who are having issues with their money: they simply don’t know where it’s going.

This problem is not salary-level specific. My private clients who earn hundreds of thousands per year can very easily fall into this trap, as can a person who earns minimum wage. Not knowing where your money is going or not having a handle on what you spend means you’re blindly walking through your financial life without any real idea of what is going on. You need to take control – and it’s much easier than you think.

I want you to try this challenge. For a week don’t change a single thing about the way you spend money, but do one thing extra. Every time you spend money, take out your phone – or a notepad, if you prefer – and write down exactly what you spent that money on. There are some serious tools and software out there that can do this for you but for the purpose of this challenge, let’s keep it simple. For example:

Sandwich and coffee – €8.50

At the end of the week, take out that notepad or phone list, open a spreadsheet on your computer (or use a clean piece of paper and fill it out as below) and start to analyse your spending. People are often shocked as to where their money is going and just how much of it they spend on certain things. Keep this analysis really simple. Don’t get too drawn into categorising every penny. Making two categories, such as ‘Had to buy’ and ‘Wanted to buy’, is a really good way of doing it. For example:

When you’ve completed week one, repeat the exercise for another week. Again, don’t plan changes, just spend as you would normally. At the end of week two, again transfer all your spends from your phone or notepad onto a new spreadsheet or piece of paper.

This week, however, look at the expenditure and really think about it. If you were planning your spending for the next two weeks, is this exactly how you would choose to spend your money?

Coffee is always targeted by the media: ‘Stop drinking coffee and you’ll be rich.’ But what if you really like coffee? What if coffee is your reward during downtime, your treat to yourself? How the hell are you supposed to get rich if you have to give up your one, small luxury?

I’m not going to tell you to give up coffee – or beer or crisps or taxis, or whatever your guilty pleasure is – but you might want to have a think about what it means to you.

The Three-Question Challenge

This is where the Three-Question Challenge comes in. I want you to look at your analysis and work out whatever your guilty pleasure is costing you.

Question 1

Let’s imagine you spent €30 on coffee, pints, wine, or whatever you enjoy during the week. Ask yourself this: is it worth €30 to you?

If the answer is yes, move on to Question 2.

Question 2

If you had €1,560 in your hand right now and somebody asked you to hand it over to cover the cost of your coffee for the next year, would you hand it over or would you think twice about it? €1,560 is just €30 per week over one year. What else could you do with €1,560? When was the last time you had a weekend away or even a summer holiday? Would you prioritise your treat over a holiday?

If the answer is yes, then you really are showing that this guilty pleasure is worth a lot to you. But let’s move onto the next question.

Question 3

I want to think about the tax you pay. If you’re a higher-rate taxpayer, then you need to earn roughly €3,120 per year to end up with €1,560 in your pocket after tax in order to pay for your treat. If you’re a standard-rate taxpayer, you need to earn around €2,000 to end up with €1,560.

Let’s assume you’re a 35-year-old paying tax at roughly 50 per cent. If you work until you’re 65, you’ll be using €93,600 of your future earnings to fund the cost of a treat. That’s almost €100,000 between now and retirement that you’ll blow on your coffee or whatever it is you spend just over €4 per day on. Not only that, but the cost of your coffee is going to go up between now and when you turn 65. Now if that doesn’t piss you off, then you really do love your coffee – but you also need to consider this.

Time is money

Let’s stick with our 35-year-old paying higher-rate tax. Let’s assume you earn €50,000 per annum, which is significantly above the average wage. During your working life you’re going to work 3,893 hours, or 486 days, or almost two years, just to pay for your €30-per-week guilty pleasure.

If you still don’t care and you still want to keep the treat, congratulations. I am genuinely happy for you, because you’re using your money on something that brings you real joy and you deserve it.

But now do the same maths for all the other stuff in your ‘wanted to buy’ box above. Too often we spend our money on the things some clever person in a marketing department wants us to spend our money on. Stop that cycle. Be conscious.

Budgets

I hate the idea of budgets: the idea that you scrimp and scrape all month long and then at the end of that month you get to ‘reward’ yourself by putting extra money in your savings account. It’s as depressing as going on a diet and, at the end of the month, getting to look at and smell your favourite full-on take-away and then having to put it away for some time in the distant future.

Budgets are painful but being broke is also painful. Choose your pain.

Whereas ‘budget’ conjures up feelings of restriction, thinking of it in terms of good spending rules means that you take control of your money and decide how it’s going to be spent. The key to setting up good spending rules is to stop all the guessing. Too often when people go to tackle their day-to-day spending, they sit down, they plan all the money they are going to get in and all the ways they are going to spend it. Inevitably what happens next is life. Life happens. You don’t get paid what you expected, or the car breaks down, or you’re invited to a wedding and your budget is a failure and you give up.

Look at what money you have right now and work out when you next get paid. For the sake of argument, it’s Friday; you have €100 and you’re getting paid on Tuesday. Now apply the spending rules. What do you want this money to do for you between now and next Tuesday?

You look in the press and find you need to spend €25 on food. You’ve promised the kids you’d get takeaway on Saturday night and watch a movie – €25. You need diesel but €25 will do until Tuesday and you have to pay for swimming on Monday for the term for one of the kids – that uses up the last €25. Congratulations! You have taken full control of your money. You have allocated a role for every penny you have, and you know what you are going to spend it on.

The alternative here is that you do the opposite and plan nothing and hope you get through. Maybe on your way to get the takeaway you stop off and get yourself a coffee or a pint and, come Monday afternoon, you realise you don’t have enough for the swimming and you end up putting it on the credit card and the cycle continues. But you’ve taken control, and this is what being conscious is all about.

Marketing departments are the enemy

Being conscious has absolutely nothing to do with being tight, but has everything to do with winning the battle against marketing departments. Winning the battle means spending your money on things you want to buy as opposed to spending your money on things some marketing manager wants you to buy.

There are large departments of marketing teams in every major company in the world. Their job is to both directly and indirectly influence how you spend your money. They literally spend their entire working days finding ways to get you to take your money out of your pocket and give it to them. It is their sole purpose during their working hours. They do it consciously so that you spend subconsciously. Why are we willing to pay more for one item than we would for another item of the same quality? Marketing.

Selling water to fish

A perfect example of marketing tactics was when my fourteen-year-old daughter went on a school trip: she and over a hundred other fourteen-year olds headed off with a handful of teachers to the UK for five days. When she came back, she was all about some bottled water everybody was drinking. The interesting thing was when I asked if it was sparkling. It wasn’t. Now, there’s a slight possibility that two different sparkling waters are different. I always find some brands have smaller bubbles in them than other brands!

But this was still water – with a cool bottle, mind, but still water all the same – and it was the only brand these teenagers were willing to buy during their five-day trip. The craziest thing was the price of this water was about 30 per cent more expensive than an ordinary brand of water. These kids were Irish. It rains in Ireland – it rains a lot. This was literally selling ice to Inuits.

Now why was that? Why were these kids all of a sudden brand conscious when it came to water? Why did they have an affiliation to one water brand over another? It’s only still water, after all!

First of all, there was some herding going on. They were following the crowd. They didn’t want to be different, and this can be extremely powerful. In a well-known test scenario, three people are in a waiting room, two of them actors and in on the secret and one not. The room starts to fill with smoke (harmless smoke) but the actors don’t budge and continue waiting. The poor randomer can be seen on video looking at the others and beginning to panic. But because they don’t move, the guy doesn’t move either. Why not? Because the urge to belong is more important than the urge to save his life.

At some point one, or more likely two, of these teenagers succumbed to this cool-looking bottle (marketing), with the expensive price tag (marketing) and remained loyal (marketing) to this more expensive brand for the entire trip, thus bringing others along with them on this journey of subconsciously spending almost £2.50 a pop on what started out as a simple thirst-quenching exercise. Would a cheaper brand of still water have done? Of course.

But that’s not the point. What happened on that trip was a perfect example of what happens to us each and every day. We buy stuff because we’ve always bought that brand. Or we buy stuff because somebody else has it or ‘it’s the best’. But we also buy stuff we don’t want or need, but that we buy because we’ve succumbed to marketing.

Shop marketing tactics

Every time you walk into a shop, you spend money. How often do you come out of the shop with just milk? If you want to save money, stop going into the shops. Shops are designed to get you to spend money. It’s in-your-face marketing. All the essentials like milk and bread are at the back so you have to walk by all the promotions to get them. Down to the music played in-store, all is planned: when the shop is quiet, they play relaxing music and you walk slower. When the shop is busy the tempo goes up because they want to push you through.

Smells are another tactic. One supermarket chain (that no longer trades under its original name) is famous for its bakery. This is partly because their bakery genuinely produces lovely goods, but also because it is believed they pumped the smell of the bakery into the car park. You were thinking about bread before you even got into the shop.

Smell is an important one for marketeers because it is believed to be very good at subconsciously stirring up old memories. Have you ever walked by somebody and smelt their perfume or aftershave and thought of an old boyfriend or girlfriend? That’s the power of smell. What happens when you smell something that reminds you of something positive is that it opens you up to subconsciously being receptive to buying stuff.

A well-known American retailer, particularly popular with teenagers (probably because they’re the only ones with eyesight good enough to see the clothes, the stores are so dark) has patented a smell, which they pump into all their stores. Not only do all their stores look the same, they smell the same, feel the same and, guess what, they also tend to employ young, attractive male and female staff too. None of this is by accident. It is to get your money out of your pocket and into theirs. They have thought the whole thing through. Our problem is we probably haven’t. ‘I just wandered in for a look and I ended up spending a fortune.’ ‘They had some great bargains, but I spent a fortune.’ ‘Every time I go in there, I end up leaving with twice as much as I went in for.’

Remember, this isn’t about depriving yourself of the things you really want. This is about being conscious. It’s about spending on the things you really want, really need, and putting your money to work providing you with the life you want to have.

Online shopping versus actual shopping

Walking into a shop that smells, looks and feels good is something that you now know will cost you money. The more times you walk in, the more money it will cost you.

But there are some advantages to walking into a physical shop. The marketing department has to work much harder to get that money out of your pocket because you have so many opportunities to stop yourself from buying stuff. Think about it – you’ll have to drive, walk, cycle, get the bus – it doesn’t matter, you have to get to the shop in the first place. And all the time you can be thinking, what am I looking for? Do I really need it? Can I afford it?

You then get to the shop, you start to look around, you pick something up and start to see what the fabric feels like. You’re thinking – is it what I’m looking for? Do I really need it? Can I afford it? These are all your weapons against the marketing departments. You have time to think and consider. Then you walk to another rack and find something else. It throws another conundrum at you. Is this one better? Is the colour what I was looking for? Which one is the better option? Do they have my size? All your weapons against the marketing teams!

You pick the one you like best and go looking for your size. They have it and now you have to queue up to try it on. Weapons.

It fits and you like it. It makes you feel good, but you have to take it off again and queue up at the till. Weapons.

What happens next is really interesting. You go to pay.

A well-known fast food restaurant wanted to test the use of contactless in one of their restaurants before rolling it out across the entire world, so they introduced contactless in only one of the restaurants, then sat back and watched. They found that people who ‘tapped’ spent between 10 per cent and 15 per cent more than those who were paying in cash.

Why this is? When we physically pay with cash we reach into our pocket and we have to remove the cash. We can touch it, feel it, we can even smell it. But we have some sort of attachment to it. It means something to us. We value it more than we do a piece of plastic that we tap quickly and stick back in our pockets and days later we might notice the transaction on our banking app. There is little or no connection.

This is of particular concern for the younger generation. They are growing up in a cashless society. As a kid I remember doing a job for a