💾 Archived View for eir.mooo.com › nuacht › cilld172383482611.gmi captured on 2024-08-18 at 19:15:47. Gemini links have been rewritten to link to archived content
-=-=-=-=-=-=-
Niamh O'Donoghue, 16 Aug
I was working with a couple recently who were having cash flow
difficulties and the culprit wasn’t what you might have expected i.e.
high debt repayments or the amount spent on food or drinks or shopping
etc. it was in fact the amount they were spending on hobbies.
He was an avid sailor and she loved the gym and between both, the costs
were accounting for about 15% of their net monthly income which was
very high. And it wasn’t just the cost of owning a boat or going to the
gym either, it was those ancillary costs i.e. cost of mooring their
boat, it’s upkeep, gym classes, gym clothes etc. that were also adding
to their outlay.
And they never would have thought their hobbies were the problem area
but when they ran the cold hard numbers, it was. I guess their
perception of what they spent and what they were actually spending were
two different things.
Anyway, the general accepted rule of thumb percentage that is deemed
appropriate to spend on hobbies is 5% of your net monthly income but
the individual amount will really depend on a person’s circumstances,
it could be much lower or indeed higher.
In my experience it is often that hobbies are the cause of blockage
when it comes to monthly cash flow but the encounter I had with this
couple brought back a memory to me regarding a gentleman I met a number
of years ago.
He too reached out for help, because his finances weren’t in a great
place. At the time he was 35 and I remember him telling me how ashamed
he was to say he had €0.59 cent to his name and that was it, nothing
else.
He was single, in full time employment and was earning about €45,000
per year so where was all his money going each month? He had no
mortgage, had a small personal loan and his rent was reasonably low, so
what was his problem?
And it was actually threefold.
First off, he admitted to being addicted to buying things on the
internet. He said he was ebaying constantly and just couldn’t stop
himself and the problem may not have been so bad if what he was buying
wasn’t so expensive which was the second problem – he was buying cars.
He would buy a used car and would then spend a lot of money buying
parts for it or modifying it or re-spraying it. He could tell me
exactly how much he spent on a particular car i.e. how much it cost,
what the parts were used for etc. so he was very methodical and very
organised when it came to his cars.
He told me about one car he bought, a 2001 Golf, and my jaw dropped
when he told me that over a 5 year period, he spent €55,000 on this
car.
I don’t know much about cars and I thought I had misheard him, because
I said, you spent €5,000 doing up this car?
No, he said he spent €55,000.
I asked him how he could spend so much, and very quickly and without
hesitation he started listing off what this part cost, what that part
cost, what modifications he carried out etc. and I stopped him after
about 30 seconds because there was no doubt he did spend that amount of
money.
I asked him what the cars was worth now and he said, about €9,200. He
tried to rationalise with me why he spent all of that money and
suggested that he was doing it as a long term investment and that one
day, he would get back what he put into it, and some.
And knowing absolutely nothing about cars, who was I to doubt him. I
asked him where the golf was now and that was his third problem because
he was a bit of a hoarder and the car was at his parents’ house, out in
their backyard alongside the garage where he had hundreds of car parts.
He admitted the golf hadn’t been started in a couple of years and it
actually needed a bit more work because it had been sitting there for
quite a while which struck me that if he thought this car was an
investment, he’d surely look after it better.
Anyway, it was sitting alongside a 1999 Volvo and a 1996 a Ford Taurus
Ghia which he said he bought for €10,000 about four years ago. Not as
much work needed on this one given the original price but he bought it
from Spain and it had to be shipped to Ireland and that cost him
€1,500.
Shockingly he had spent about €155,000 to date on his hobby and
alarmingly at one stage he said he had €35,000 owing on three credit
cards. So, what I think started out as a genuine hobby, spiralled out
of control and his hobby had now turned into an addiction which was
having a major impact on his finances. .
From my perspective it was easy to give him financial advice about how
he could improve his finances going forward, and in fairness it anyone
really would be able to tell him what I said, the blockage regarding
his finances was a very obvious one.
This gentleman needed much more important help and intervention than
financial advice. He needed addiction counselling which was something I
was not qualified to give him, but I think reaching out to me for
indirect help in the first place was his way of trying to do something
about it.
His story and the couple I recently encountered got me thinking about
how people’s hobbies can get them into financial difficulty and how
much should we be spending on them?
Do we even know and do we budget for the cost of them every year? Or do
we leave it intentionally vague because we are worried about what we or
our partner will find out? I know of one person who does.
Her children are into dancing, so I guess her hobby is theirs as well
but the cost of buying a new dress can be anything from €100 to €1,000
and then they travel over to the UK three or four times’ a year for
competitions and when you factor in this cost and food and
accommodation it’s probably costing her c. €5,000 per year.
Their family household income is c. €60,000 so nearly 8% of their total
income is going on this hobby. Sadly, they spend more on this each year
than they put into their pensions. Her husband doesn’t know the true
cost though, because (a) he doesn’t like their hobby and (b) he would
go mad if he knew they were spending that much on dresses in
particular.
Another person I know pays golf club membership of €1,800 per year,
buys the odd club every year and other miscellaneous costs associated
with club brings his annual total to c. €2,200. But he plays twice a
year, meaning each round costs him €1,100!
I don’t want to be a killjoy here, everyone needs to have a hobby, and
if you have one that you love and you are passionate about then great,
spend as much as you can. Just as long as it’s not detrimental to your
current or future financial situation.
And there shouldn’t be a set amount or % of your income that you need
to budget for either as long as you pay your mortgage/ and or rent and
utilities on time and you invest for your future needs, and if 1% is
left over, or 10% then great, spend as much as you can on the hobby you
love and get enjoyment from.
I think as long as you have a positive surplus in your account each
month and you’re not getting into debt to feed your hobby habit and you
are taking care of your long and short term savings, then spending
money on a hobby is an important part of all our lives because what
purpose has money if it’s not used for us to enjoy it.
Just know how much it’s costing you that’s all, it might be much more
than you realise.
Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can
be contacted at liam@harmonics.ie or www.harmonics.ie