SPENDING

The focus of most financial advice is on what people might do with their disposable income or disposable capital. In this context the term disposable means surplus to cost of living requirements, for instance excess income or capital.

The fundamental problem with this is that for many people, the idea of disposable income is a dream rather than a reality. And for those with disposable income, given the choice they would always like more (or feel they do not have enough).

So in reality, one of the most important areas of financial advice is to help a client identify which products or services they spend most of their money on, and review the purchase of those products or services by asking the following questions:

1. Can I restrict or stop the consumption of this product or service? Do I need this amount? Can I make do with less? Do I need it at all?

2. Can I get this product or service at a cheaper price somewhere else? Can I buy this directly from a local producer (e.g. eggs, milk or sacks of potatoes from a local farm)? Can I buy utilities more cheaply from another provider?

3. Can I combine my purchase with other customers and negotiate as a group for a lower price? Can I join or form a syndicate to purchase this product or service (i.e. wine, cigarettes, investment club, retail co-operative)?

4. Can I do a deal with this provider (you never know until you ask)? What will you take for cash? What discount will you offer a regular customer?

5. Can I defer my payment on the basis of credit on fair terms? Can I pay you next week or next month? Can I pay you half now and half later (i.e. next week)? (Note - interest free credit deals for 2 or 3 years rarely offer fair terms)

6. Can I barter for this product or service? My grandfather used to grow strawberries and use them to pay for his coal. Do you have a skill or product that might be valued by someone else? Anyone with a vegetable patch, allotment or fruit trees has a definite advantage here!

There is no doubt that this process takes time and effort, but the potential savings you might earn as a result, year in year out, could reward you handsomely.

Balance of control

For many people it will also put the balance of control of their own money back into their hands. They can make conscious decisions about the products and services they want and in what amounts, the providers they want them from and how much they want to pay them. Whereas at the moment it might be argued that the environment in which most retail goods and services are purchased (and especially financial products) puts ALL individual consumers at a distinct disadvantage.

For instance, how detached do credit cards, debit cards and store cards make us from the sense that we are spending substantial amounts of money? The next time you fill up your car, or buy a week's groceries, try paying in cash. See for yourself if you feel the 'pain' of handing over 4 or 5 £10 notes as opposed to an inanimate, sterile card transaction. Scrutinise your direct debits and standing orders and look seriously at changing the basis of these payments to an alternative method. Rather than allow providers to freely take money out of your account, get them to ask you for payment.

Put simply, it has become too easy to pay for goods and services without thinking about whether we need them, want them or can afford them. We need to get back in control of our money.

For details of our Financial Planning Service click here.