Column: Technology vs Common Sense

[Written by Carla Seely]

As the world continues to evolve, so does the technology that supports it. But as technology develops, the side effect is the declining ability to use good old-fashioned common sense. This holds so true when people are dealing with their finances; more people are relying on a mathematical or financial “app” as opposed to using common sense when handling their finances.

Technology is excellent when you need to perform a financial analysis, but it is only as good as the data being entered. Technology provides the answer to the question, but it can’t provide logic and ask the question we have all asked at least once: “Does this make sense?”

Here are three financial facts that are common sense, yet your “financial app” does not have the ability to comprehend the results of the data and the long-term impact.

1. Living pay cheque to pay cheque will eventually become financial suicide

It is a big mistake when you rely heavily on that pay cheque to pay your basic living costs. A person living up to their means over the course of time will eventually begin to live beyond their means. It may not be from large purchases, it may not be from lack of work, but it can end up being simply from inflation [rarely do inflation and pay increases meet in the middle].

If you are living pay cheque to pay cheque, you have two choices:

• a] Increase your income
• b] Decrease your expenses

Once you get yourself in a less stressful situation and devise a more accurate spending plan, part of your plan should be to build an emergency fund. You will need at least 6–12 months’ worth of living expenses set aside in something liquid but not overly accessible [you do not need to be tempted].

2. Voluntary pension contributions will always pay off in the long term

It does not matter whether you have the best intentions to save into an investment account, making additional voluntary contributions into your pension plan is by far the easiest and most effective way to save.

We have all heard the phrase “out of sight, out of mind”, and having an additional amount automatically taken off your pay cheque each month and sent directly to your pension account is ideal. Whether you decide to have an additional 1% per month deducted or a specific amount is your decision, but in the long term, by making voluntary contributions consistently, you will be far closer towards retirement.

3. Debt is bad unless it is to buy a house

Debt is the Achilles heel in anyone’s finances: having to be indebted for a long period of time can ruin a person’s financial stability. We all know someone who has racked up a nice balance on their credit card, making the minimum payment each month while their balance is compounding at 17.5% p.a. in interest. Once you get into debt, it can almost be twice as hard to actually get yourself out of debt.

Now, secured debt is a different story. A mortgage is the debt, but it is secured by the home – which is why interest rates on mortgages are vastly different than that of credit cards or consolidation loans. Buying a home is a great idea, and for the majority, getting a mortgage is the gateway to home ownership. But buy something you can afford to pay comfortably each month and still be able to save for your future. There are great financial calculators out there that will show you how to pay off your mortgage sooner, but they don’t factor in the life sacrifices you must make in order for that to happen.

At the end of the day, you need to think about your future because how you manage your money today will ultimately have a direct impact on your tomorrow. Technology can get your finances organised and provide saving and debt repayment strategies, but nothing is better than good old-fashioned common sense.

- Carla Seely is the Vice President of Pension and Investments at Freisenbruch-Meyer. If you would like any further details, please contact her at cseely@fmgroup.bm or call 441 297 8686.

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