How to avoid the pay-cheque-to-pay-cheque loop in early 2024

As far as months go January has an unshakeable bang of Lent off it. The previous festive period was for indulging ourselves physically and financially.

“Go on it’s Christmas,” we say, shoving another Quality Street in our mouths or putting another round of overpriced cocktails on the credit card. It’s our Pancake Tuesday. Because we know come January we’ll have to atone for our sins and miraculously snap into self-discipline.

This is the month of accusatory card statements, big heating bills and a longer-than-usual wait until pay-day. So among the pledges to get back into the gym and meditate more, new year’s resolutions to manage our money better tend to take top billing.

In order to fulfil the promise made to our bank balances that this year will be different, we asked some personal finance experts for their resolution recommendations and what money habits we should ditch.

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Don’t let loyalty or laziness cost you money

Whether out of loyalty or laziness, we tend to stay with the same providers instead of hunting for better deals.

That friendly introductory rate that phone, internet or TV providers used to entice you may have expired or a new health insurance plan offering similar coverage at a lower premium with a competitor could be available.

In these cases checking, switching and saving offers an “easy win”, says Deirdre Robertson, a behavioural economics expert with the Economic and Social Research Institute (ESRI).

“We’re creatures of habit and tend to stick with what we’ve always done and always known,” she says. “Switching to a different provider with better rates for some or all of these services will often save you money without you having to make big changes to your own behaviour.”

In some cases you may not have to switch as existing providers have been known to offer discounts or enhanced terms when you threaten to leave as part of their customer retention process.

Daragh Cassidy, head of communications for comparison site Bonkers.ie, says “there is an element of truth to the 80/20 rule which says that businesses make 80 per cent of their profit from 20 per cent of their [loyal] customers”.

“Don’t be part of the 20 per cent that’s making all the profit for a business by overpaying. Switch and get a better deal,” he says.

He recommends switching providers “at least every few years” because “if you’ve been with the same provider for three or four years you can be almost guaranteed that you’re paying more than you need to”.

When it comes to savings accounts with banks, consumers should be particularly vigilant about getting the most bang for their bucks.

“Irish households have about €150 billion resting on deposit at the moment and the vast majority is in accounts that pay little or no interest,” says Cassidy. “This is despite rates of 3 per cent now being on offer from the main Irish banks and rates of 4 per cent and higher on offer through platforms like Raisin or Trade Republic.”

Don’t forget your pensions either. Dig into the fine print to make sure your hard-earned money is working as hard as it can for you in return.

“Ideally you should aim for 100 per cent allocation on your contributions and a fund management charge of 1.5 per cent max,” says Cassidy. “If the charges are too high, look at putting your pension savings somewhere else.”

Do plan ahead and be patient with your financial goals

One of the “most achievable” new year’s resolutions when it comes to money is accepting and understanding that you might not achieve your goals in 2024, according to Mark Hedderman, a certified financial adviser and director of the Financial Planners of Ireland.

Hedderman says people need to understand the value of long-term financial plans instead of expecting immediate gains. “Setting up a 2024-only game plan is like saying I’m going to start going to gym in January but when I get to the 21st, look in the mirror and don’t see change I’ll pack it in because I think it’s not working,” he says.

Hedderman recommends people move “towards a minimum” of three-seven year timelines when setting goals and making personal finance plans involving savings and investments.

Understanding how to take advantage of compound interest when investing or saving with “a manageable timeline” is “where you’ll really see progress”, he says.

While people should always keep an eye on their money, checking it constantly for results can lead to impatience, performance anxiety and impulsive decision making. “It’s like planting a seed for a tree and going out every day to see if it’s appeared yet even though over time we know it’s going to grow,” he says.

While forward planning can help us grow money, it can also help us save it.

By figuring out what big expenses are coming up in the year and putting away some cash to meet them, we can avoid having to borrow money at some point to cover the costs.

“People are thinking about holidays now that it’s dreary January so now is a great time to start saving for them to pay them off instead of having to take out a loan as in previous years,” says budgeting expert and author Caz Mooney.

“Start by thinking about what income is coming home and how you can put a little aside each pay cheque.”

Mooney recommends setting up separate sinking funds covering different goals or expenses like holidays and siphoning off a dedicated amount into them each pay-day until you reach your target amount, making it much more achievable than coming up with the lump sum all at once.

If you don’t have one already Mooney suggests building an emergency fund of at least €1,000 (or more for those not on a steady income) to cover life’s unexpected and expensive hiccups like a car breakdown or a medical bill.

“That way if anything crops up, it takes the urgent financial stress away and it will just be an inconvenience,” she says. “Have it in a place that’s easy to access if you need it but are not tempted to spend it.”

Do spend intentionally

“Doing something with intention” sounds like a new buzzword but it’s just another way to remind us to ask ourselves if there’s a purpose to our actions or did we just do it out of habit.

Did we buy something because we needed it or were we having a bad day and spent €30 in Flying Tiger to make us feel better?

Mooney’s advice is to get a handle on emotional and impulse spending, two things she says often overlap especially when that overdue post-Christmas pay financially hits the bank account.

“When you’re going through a period of struggling financially and then you do get money, it’s so tempting to treat yourself and buy things you don’t need,” she says. “That was one thing I struggled with when we were struggling, then you end up in that pay cheque to pay cheque loop.”

Her solution is marking out a few “no-spend” days on the calendar to encourage thinking about what you actually need to buy versus what you fork out on without thinking, like that daily flat white on the walk to the station.

“It’s amazing how introducing one or two no-spend days can change your habits or make you just have a bit more of a think about what you actually want to spend [money] on.”

While cutting down on coffees might be the right financial advice for some, Heffernan stresses solutions should be tailored to individual circumstances and priorities. “Everyone is playing a different game,” she says. “People need to work out what makes us happy and where we want to invest our time away from money – for some that’s going on a five-star holiday every quarter, for others that’s buying a coffee walking Bray seafront every day.”

So what money resolutions should we be making in 2024?

Shop around and save on providers from bank accounts to refuse collection. Get time on your side to make your money work for you and try to spend it on the things that will serve your future self.

Interestingly, when we asked our experts what their personal resolutions were this year, none of them said it was about making more money. Instead, they talked about using what they had to spend more time with family, cook healthier food for themselves, and avoid overconsumption.

Basically, making sure their money worked to make them happier. Not the other way around.