Besides the cash you currently have in hand, every cent you have earned to date you have given to somebody.
Looking at it from this perspective may help you to accept fuller responsibility for how you spend the funds you earn, and take greater responsibility for keeping financially fit for the New Year.
Over the next couple of weeks, this series of articles will examine how you can dispose of your income; this will encourage you specifically to observe how you are currently spending your earnings. The ultimate exercise will involve evaluating whether your spending is consistent with the goals and objective you have for your life.
Before you even get it, your pay is assaulted by statute – the National Insurance Scheme and Pay As You Earn (PAYE) – compulsory giving to the Government. Also, before you get your pay, you give to those company programmes which you agreed to become members of, such as group life insurance, group health and the group pension plan operated by your employer. Then, if you have already agreed to give some of your pay to your mortgagee, to other debtor and/or toward other investments through payroll, those sums are also given to those debtors and investors before you get your net pay.
Your net pay is then either delivered to you in cash, by cheque and/or by direct deposit to a financial institution; you only get the part that is paid to you in cash, if any, otherwise all of your pay is given to someone else.
Typically, you can reclaim any amount of your saved accumulated net pay in cash from where it has been deposited or invested, provided there are no encumbrances. However, unless you are holding it in actual cash, you have someone else holding it for you.
Then either from cash or by drawings from your place of deposit, you may spend, save or invest your funds, giving to a wide range of people for consumables needed for everyday life, for entertainment or for some type of investment.
Your money is fully expended when given for consumables or for entertainment (including gambling and giving to your church, charity or to causes you support) and becomes fully someone else’s. To the extent that it is just held on deposit or it is invested, it remains yours and may actually grow in amount through interest earnings, commerce or capital gains. The amount you hold in investment tends to depend on affordability, on the stage in your work life, on your assessment of the risks you are willing to bear and on your ability to access cash when you may need it.
The point is that all your earnings except what you hold in cash are fully given to someone else. You should therefore be satisfied with the amount fully consumed. However, to the extent that you have a deposit or an investment, you should demand that the person holding your funds give you a suitable return. Such amount held and its rate of growth should also be satisfying to you.
The crux of the problem is that most of us make implicit choices about our money; we give away more than we intend because we are not keeping track. We spend much time getting physically fit and virtually no time at all examining our finances, keeping financially fit.
So the first exercise is simple: just make an assessment of how much you consume as a percentage of your gross pay. Write this percentage down and let’s discuss further next week.
• Louise Fairsave is a personal financial management advisor, providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek personal counsel about their specific circumstances.
