The Cup Method

 

I'm a self admitted workaholic. It isn't intentional and it's something that I have mixed feelings about. I've historically used work to escape dealing with other areas of life that I had less control over. It's allowed me to achieve a lot on paper, but there are negative side effects that I won't go into right now. 

However, I get asked semi-frequently what my 'process' is. How do I find it so easy to concentrate on tasks for so many hours day in day out without getting bored? The answer is, I don't. I would get just as bored as the next person, require copious amounts of caffeine to even function at basic humaning in the mornings and I burn out if I'm forced to work on something I have no interest in for longer than a few hours. If anything, I have less intrinsic concentration skills than most people I've met. The difference is that I realised this at a young age (I'd probably be diagnosed with ADHD if tested now) and was in a very competitive environment where I was expected to perform at consistently high levels or face various forms of punishment. So I had to adapt quickly.

Over the years I've read various 'CEO lifestyle' posts that advise you to get up at 5am while it's still dark outside, have cold showers every day, run for 5 miles before breakfast, etc. Every so often I'll try this for a month or so out of curiosity. It is pure torture. Every single time my productivity crashes, I feel exhausted, depressed, and end up having to play catch up the following month. I've learned the hard way that you have to work with your natural rhythm. What works for one person doesn't neccessarily work for another.

For me, my natural state is that of a night-owl. My routine is completely backwards compared to the stereotypical CEO. I'm useless in the morning and use that time for creative brainstorming. My mind can't focus on one thing and automatically wants to branch off in multiple directions. So I use that to my advantage. I'll wake up around 8-9am, have breakfast, write out what tasks I need to do that day, then take my time getting ready, reading the news, checking/trading stocks, etc. I'll then do any design work, rough sketches or tasks requiring creative thought. I also find it's a perfect time to do any type of therapy or meditation, as I'm already in a semi-conscious state and can more easily deal with certain topics that the logical part of my brain would otherwise fight against.

By around 11am, I'll have consumed enough caffeine to switch on the logic part of my brain and can start working on tasks that require more focus. My concentration and energy levels continue to climb until about 7pm, when I start to get hyperactive unless I go for a walk or exercise in some way to burn off the excess energy. If I try to exercise in the morning (as most PTs recommend) then I feel drained for the rest of the day. When I get back I'll normally return to work for a few more hours. My peak productivity is always late afternoon/evening, sometimes later if I'm really switched on and enjoying the task. Trying to do things the other way around just doesn't work.

My brain also hates being told what to do (even by me!) so I've experimented with various techniques until settling on the below cup method. I have no idea if there are better methods out there (probably), but my philosophy is always 'if it ain't broke then don't fix it'. This method has worked well for me over the years and might be useful for anyone else reading this who struggles to get things done.

After writing out my tasks for the day each morning, I'll cut them up into individual bits of paper, fold and stick them in a cup, and pick one at random. I'll work on that task until it's either complete or I'm bored (in which case it goes back into the cup). This tricks my brain into feeling as if everything I do is a random surprise and I get to constantly switch things up so I'm not forcing myself to keep working on something when I'm out of the zone. I still get everything done, just in a non-linear fashion. This works especially well for really tedious and/or repetitive tasks that I can break up into 30-60 minute blocks and fit around other tasks in the day.

The same method applies to any big projects that I work on that can span 2-3 years. I'll break it all down into minor tasks with a (digital) 'cup' for each of those. I'll then split each task into smaller tasks and add them to the cup. Each week I'll pick a cup at random and work on tasks within that cup until I get bored (at certain times of the month, I'm also far better at technical or creative work due to hormones so that also impacts which tasks I choose - I'll maybe do a separate post on that for the ladies!). There are a couple of other ADHD types in my team find the same method really helpful. The work all gets done, just in a more roundabout way. We've tried other methods in the past and people would work hard-core for a bit, then burn out and quit the project. So far this way of working has been the most successful.

Does anyone use a different technique to stay motivated? Or have you tried something like the cup method and found it beneficial?

Current Music - App Review

 

I'm always on the lookout for extra passive income streams. I don't have time for many of the mainstream ones (the well known survey sites aren't worth the time and energy). But occasionally I'll find something that requires little to no effort on my part that is worth signing up to. 

A colleague pointed out Current to me a few months ago. I've been a long time user of Spotify, as I listen to music all day every day while I work. So the idea of earning money rather than paying a subscription fee definitely won me over. I've experimented with the app for several weeks now and earned enough points to cash out. So I feel confident enough that the app isn't a scam to recommend it to other people.

The Basics

You are rewarded points per song. You can also watch extra 15-30 second video ads to rack up extra points. There are other tasks such as games and surveys, but I've never bothered with those so can't comment on whether they are any good. The points you earn on the songs varies a lot depending on the radio station and time of day and can be anywhere between 0.5 and 114 (I got lucky during an Easter holiday bonus). Once you collect enough points you can cash out via Paypal or order one of the gadgets from their rewards page.

Pros

• It does what it says on the tin. You get paid for listening to music! 
• If you want to complete more mundane tasks to earn money faster, the option is there. 
• It's quick to install and get going, easy to use, and everything seems to work.
• Their selection of stations is humongous and I've found some brilliant retro music via the recommendations list.
  
• The customer service guys are pretty good. I had to contact them a couple of times at the start and they responded quickly.
• You can save music to play offline, which is useful if you travel around a lot.
  

Cons

• The app will switch to 'inactive' mode after 30 minutes of non use. It keeps playing music, but stops earning points. You have to watch one of the video ads to reactivate it. It's not a huge pain in the ass and Current earn their money via the ads, so I can't really complain. 
• Right now the only way to cash out is via Paypal. They are adding Bitcoin and other methods in the near future. But if you're really not a fan of Paypal, then that may be an issue.
• If your internet connection is a bit hit and miss, it won't always credit you the full amount of points for a song. But there is no warning message to tell you this. I only noticed my connection was janky after noticing a string of low point scores.
  

If you are looking to make a LOT of passive income, then Current isn't for you. I can average a few pounds a week in earnings, but that's after listening 5-10 hours a day non stop. For the music junkies out there, this is likely a useful little app that will put a few extra quid in your pocket each month. 

Monthly Budget 2020

A while ago I did a breakdown of what an average month looks like for me and thought it would be interesting to compare how things look today. My life several years ago was pretty extreme. I was sharing a sofa-bed with my ex in someone else's lounge at one point - not something I'd recommend! Things have improved quite a bit since then. But I haven't done a comparison for a while, so this will be interesting for me too...

INCOME

£1943 (Salary after tax and pension contributions)

EXPENSES
 
£600 (Rent, utilities and other household bills - I pay a lump sum for a room in a houseshare)
£10 (Travel - my commuting costs have almost disappeared since getting a job close to home)
£12 (Phone/Internet)
£15 (Clothes/Accessories/Toilettries - I generally either raid charity shops and adjust the items or just make my own from scratch if I need clothes. Slow or non-perishable toilettries I buy in bulk at the start of the year as this gives me a huge discount)
£20 (Work expenses - things like batteries for my keyboard/mouse, a new phone charger)
£0 (Debt / University fees - I paid off everything a few years ago and have paid for any qualifications since then in cash)
£50 (Gifts - Christmas / Birthday presents, socialising and other random expenses - the majority of this goes on presents)

£1943 - £707 = £1236 left for saving / investment

So that's roughly where my money goes each month. I've cut back on a lot of things and have tried to simplify everything else. Being single has helped, as it meant I could easily downsize my living arrangements. And I work within walking distance of my home, so unless it's torrential rain outside then I can walk to and from work (although during lockdown I haven't even needed to do that).

My biggest expense after rent are gifts or social events that I'm expected to attend (birthdays, weddings, etc). I now keep a seperate savings account for these and just siphon away a bit of money each month to cover any random expenses. Anything I don't spend during the year gets reinvested into other assets.

I would still like to increase my salary. I earn an income from investments, but that gets spun back into other assets so I consider that seperate to 'living' money. I have a small hobby company now, but that will take a few years to monetise. So I'm looking into other avenues for extra income in the meantime. If anyone can suggest any (legal) methods then I would love to hear them!

Rolling P2P Streams

Relying on P2P income streams alone is unlikely to make you rich unless you have a big lump sum of cash to begin with. But it's a nice additional way to make extra money with no real work. Consider it a 'background task' to leave running while you focus on other things. You can just set up the accounts and leave them to build, and slowly create lots of little 'pots' of growing investments. For those of you who get bored easily, it makes things a bit more interesting.

I've been using P2P sites such as Ratesetter, Lend Invest and Funding Circle for several years now (note: some of these platforms may be temporarily refusing new accounts during the coronavirus epidemic, so be patient). There are far more platforms out there compared to when I first started, so it's worth hunting around for the best offers.

Bear in mind that the less established platforms may be a bit riskier than those with a proven track record. And not all of them have a security fund to back up investments if (like we saw recently) the economy takes a hit. So do a bit of research before you hand over your money. I only link to platforms that myself and my family have personally used for a while.

How it works

Here is a badly drawn diagram highlighting the basic process...

To begin with, you save up a lump sum to invest. Obviously, the bigger the starting lump sum, the more interest you will earn, and the faster the process will be. But I began with just £1000.

Pick a platform to invest on. I chose Ratesetter when I first started out. Mainly because it was one of the only P2P platforms out there.

Now for the hardest bit: wait for the interest to build up on that £1000 investment. This can take a while. Trust me when I say you will get bored waiting for it to build up and will start chipping in an extra £10 to £50 a month here and there. In the meantime, go away and work on one of your other less passive income streams.

Once you finally have a decent amount of interest (£500, as an example), take out the initial £1000 plus whatever extra you've added over time and open another P2P account elsewhere. Leave the £500 in the Ratesetter account to continue accumulating interest and repeat the process ad infinitum with different platforms until you have multiple passive P2P income streams.

If you've ever played the game Cookie Clicker, that highlights the process fairly well! You'll end up with a field of growing asset shoots that will slowly grow into trees.

Spent (Game Review)

Thank you to the person who sent me this game originally. As promised, I sat down and played it a few times, but still have to strongly disagree with you on its premise of poverty (at least in the west) being completely outside of an individual's control.

Every time I play this game, I end up in profit.

If the point of this game is to highlight how difficult it is for an individual in low paid work to survive (or even save money), then it fails spectacularly. In fact, to me it only emphasises the effects of an individual's bad choices. Sorry, not sorry.

Some of the scenarios it includes just forgo any basic common sense:


"Your family pet is sick and won’t get better without treatment. What do you want to do?"

Who on earth has pets while on low paid, insecure work? Especially when you already have a child to take care of (also a stupid decision to make if you can't afford to look after them). I didn't think of getting another cat or dog until I was on a decent salary, with enough savings to cover long term unemployment, had secure housing, and knew I could afford to take care of said animal even if my financial situation dramatically changed for the worse. I certainly couldn't have afforded to raise a child. You plan ahead for these things or simply don't do them. Having a pet or a child is not a necessity in life. You may really reeeeeally want one (I would have loved to come home to a cute, furry creature after a hard day at work), but adults are supposed to have this thing called self control that stops them acting like self entitled brats after puberty ends! If you can barely afford to take care of yourself, you have no right to be demanding that another living creature be dependent on you.

"Your child’s sneakers are falling apart and it’s time to buy new ones. Name brands are important, but they don’t come cheap."

Why the hell are "name brands" important? Even if I was a super rich parent, I would refuse to waste money on fashion labels. I have money to waste on fashion labels now and still don't. You teach your child how advertising works, how and why so many things are over-priced junk, and why they should save their money for more important things in life than impressing shallow idiots.

"Your credit card kept you afloat while you were trying to hold onto your home. But even though the house is gone, the balance isn’t."

If you over-leveraged yourself on a house purchase (a stupid thing to do in the first place), you should have downsized the moment you realised you were struggling to pay the bills rather than dragging it out and using credit cards to continue living a lifestyle above your means.

"Your payment of $500 for your car loan is due..."

Why on earth do you have a car loan that is a third of your take home pay? Why on earth do you have a car loan at all? If you're broke, you either get up earlier in the morning and take the bus/train (yeah it's rubbish to do, but most of us had to at some point) and/or save up cash for a low end second hand car. And even if you do earn enough money to easily cover a $500 a month car loan, it's far more sensible to just pay in cash so you don't have a debt hanging over you if your situation changes. You certainly don't waste money that's not even yours just to get something 'nicer'. "Oh my god, the stupid, it burns!"

"Everyone is pitching in for a lottery pool. What do you want to do?"

Point out the odds of ever winning a significant amount on the lottery are even less than the odds of becoming a movie star or death by falling out of bed. Basically, too low to worry about.

"A bunch of friends are going to a free concert tonight, and you want to go – but you’ve got a kid to worry about."

Yeah, it's not fun being a parent when you didn't bother to consider if you could actually afford to raise a child. Maybe avoid doing that again and make sure you teach your son/daughter to think about the long term impact of their behaviour.

"Your stress level is through the roof these days. A friend who hears you venting offers you a cigarette to take the edge off. What do you want to do?"

(facepalm)

"Your new apartment is too small for your stuff. Do you want to spend $45 to rent a storage unit?"

Yeah, why the hell not. Fill it with those $100 shoes, lottery tickets, cigarettes and cute outfits for your dog (because you probably waste money on those too)!


For anyone who wants to try for themselves, the game is at: www.playspent.org

Don't Date Millionaires, Become One!

I was sent the below post by a fellow trading vixen the other day and found it hilarious enough that I wanted to share it with the younger girls I know who read this blog (and anyone else who happens to find it). It's a few years old and I have no way to judge the authenticity, but that hardly matters as the response is perfect regardless of who wrote it or when!

I unfortunately grew up with and know many many women that share the same mentality as this lady, as well as several men that were too naive to dodge these women and ended up paying for it years later. I have older women in my circle of friends and family who followed this route and the few marriages that survived are not happy ones. I have also been asked a similar question directly by younger women hoping to bag millions simply by marrying the right man, and it would benefit them to read how most wealthy men actually view them. In fact, it would benefit everyone if men and women were all more honest with each other, but that's a topic for another day.

The post (I have no idea of the original source):


"A young and pretty lady posted this on a popular forum:

Title: What should I do to marry a rich guy?

I’m going to be honest of what I’m going to say here. I’m 25 this year. I’m very pretty, have style and good taste. I wish to marry a guy with $500k annual salary or above. You might say that I’m greedy, but an annual salary of $1M is considered only as middle class in New York.

My requirement is not high. Is there anyone in this forum who has an income of $500k annual salary? Are you all married? I wanted to ask: what should I do to marry rich persons like you?

Among those I’ve dated, the richest is $250k annual income, and it seems that this is my upper limit. If someone is going to move into high cost residential area on the west of New York City Garden(?), $250k annual income is not enough.

I’m here to ask a few questions:

1. Where do most rich bachelors hang out? (Please list down the names and addresses of bars, restaurant, gym)

2. Which age group should I target?

3. Why most wives of the richest are only average-looking? I’ve met a few girls who don’t have looks and are not interesting, but they are able to marry rich guys.

4. How do you decide who can be your wife, and who can only be your girlfriend? (my target now is to get married)

Ms. Pretty

A philosophical reply from CEO of J.P. Morgan:

Dear Ms. Pretty,

I have read your post with great interest. There are lots of girls out there who have similar questions to yours. Please allow me to analyse your situation as a professional investor. My annual income is more than $500k, which meets your requirement. So I hope you believe that I’m not wasting your time here.

From the standpoint of a business person, it is a bad decision to marry you. The answer is very simple.

Putting the details aside, what you’re trying to do is an exchange of “beauty" and “money": Person A provides beauty, and Person B pays for it, fair and square.

However, there’s a problem here: your beauty will fade, but my money will not disappear without good reason. The fact is my income might increase from year to year, but you won’t become prettier year after year.

Hence from the viewpoint of economics, I am an appreciating asset and you are a depreciating asset. It is not just normal depreciation, but exponential depreciation. If appearance is your only asset, your value will be much worse in 10 years.

By the terms we use in Wall Street, every trade has a position and dating you is also a trading position. If the trade value dropped, we would sell as it is not beneficial to keep long term. The same goes for the marriage that you wanted. It might be cruel to say this, but in order to make a wise decision any assets with great depreciation value will be sold or “leased".

Anyone with over $500k annual income is not a fool; we would only date you, but will not marry you. I would advise that you forget trying to marry a rich guy. And by the way, you could instead make yourself become a rich person with $500k annual income. If money is your goal, then this has a better chance of success than finding a rich fool.

Hope this reply helps.

Signed,

J.P. Morgan CEO"



I don't believe this was actually the response of Jamie Dimon or anyone else at J P Morgan. However, it reflects the views of many wealthy men that I have known over the years. Unless they are incredibly naive (unlikely, if they managed to build a successful business), they understand that most of the women chasing after them only want their money. Unless a woman has an independent source of wealth, then they will be on the lookout for an easy path to a nice lifestyle: a man's wallet. It's just the way we are biologically programmed. We are attracted to intelligence, physical strength and material resources to provide for our theoretical babies (even if we never have them). I've met women who live a 'hippie', minimalistic lifestyle and swear they hate materialism, who completely switch gears the second a man comes along with money. Prostitutes should be praised for at least being honest about their intentions.

* I should note that the same argument applies when it is an attractive young man chasing wealthy cougars for their money (although historically it was rare for single women to have that much money, so the opportunity wasn't there for men in the same way).

Despite what many women believe, dating a man for money is a terrible idea for myriad reasons. First and foremost, it creates a completely unbalanced power dynamic like that of a parent and child. Instead of developing skills, knowledge, and intelligence to compete with other humans in the world, the woman just latches onto her husband and learns to whine or complain if they want anything; much like a spoilt child learns to sweet talk or nag their parents if they want a new toy. At 20, this might be cute to some people (or, at the very least, easy enough to ignore). But after years of marriage it gets old fast. A 40 year old whining to their husband that they want a new car, a pretty dress or a day at the spa is painfully awkward to watch! Someone forced to depend on another person out of necessity is one thing. But using someone out of choice because you lack the motivation to compete as an individual is pretty pathetic. Not only does the husband quickly lose respect for his wife, but the wife loses respect for herself. Everyone knows deep down when they are taking advantage of another person and it isn't a good feeling. Over time it damages your self esteem and that of your partner.

I've known a lot of young women who think this lifestyle will make them happy. They view it as a much easier route than having to grow up and work for a living. If they want something, they just grab their husband's credit card and it magically appears. They rarely see the other side of this type of relationship; what this dynamic looks like a decade or so later, when they are both older.

I have.

When I worked in finance I saw it many times and it was pretty sad. The women still hadn't mentally matured at 40. They had an older body, but still thought and acted like entitled 16 year olds and had become dependant on their husband for everything. Except now they had to work harder at demanding things and the 'cute whining' had become passive aggression, insults or constant fights. The second their husband was out of the room, they would be joking about how easy it was to get what they wanted from 'idiot men', how little they valued their husband as anything more than a walking wallet, or complaining that he wasn't earning enough to meet their ever increasing requirements. It wasn't attractive. Their husbands were now sick and tired of dealing with someone who was essentially a demanding brat and were either in the process of upgrading to a new wife or were busy running around in their free time with other women. Divorce was the usual route. After which, the entitled woman was forced to grow up and either learn to manage the finances she was left with (this is where people like me had to get involved, since they inevitably failed) or try to start a new career without any marketable skills or recent experience.

Even during the 'good years' of this type of relationship, the woman doesn't get the perfect lifestyle she expects. Yes, there will be a lot of shiny, expensive stuff. Lots of stuff. If stuff is all you care about, that might work for you. But along with the damage to your self esteem, there will be a lot of boredom. A lot of time spent alone while your successful other half is out working for all that money he has. And since you don't have your own career to keep you just as busy, you will notice all that spare time. Even if you try to fill it with random tasks like shopping, manicures, housework, pets, TV, endlessly redecorating the house, you will notice it. Rich guys tend not to have much time or inclination to entertain you when they aren't busy with clients. They live in a world of busy, successful, motivated people and rush around all day. They will want to relax or do something they enjoy when they finally get home, and after climbing the walls all day you will struggle to spend yet more time doing not much of anything. I frequently heard the same complaints from these women: "I'm bored!", "He never pays me enough attention!", "It's always about what he wants to do!", etc.

And just because a man has a lot of money doesn't mean he will spend it on you. I've known a few women that were appalled to hear that they wouldn't be receiving diamonds on their birthday, despite their partner having enough in the bank to buy the entire inventory of Ernest Jones. The men in my circle of friends and family who have money generally don't throw it around very often. They worked hard to get where they are, understand what it's like to not have much, and don't see the point of wasting their cash on shiny bling. In fact, one of them could be described as incredibly 'tight', so any young woman chasing after him for the money would be very disappointed. He is a gold-digger's worst nightmare, as he will happily give you pointers on making your own money but you'd more easily get water from a stone than get a single penny out of him!

After a few years of her living off his hard work, a husband's attitude towards his dependant wife changes completely. Either she has learned to bring his self esteem down to the same level as her own (in the same way that young girls are taught that most men can physically control a woman, young boys should be warned that most women can psychologically control a man), or he has turned into a control freak. I've seen the latter happen a few times, once the man is frustrated enough paying for his wife's free ride and has lost respect for her. Instead of just ending the relationship, he becomes domineering, aggressive (at least verbally), and angry. Since it is obvious to everyone that she is using him for money, he starts to expect incredibly high standards from her in all other areas to rebalance things. This is where you get the 'trophy wife' stereotype - the rail thin, botoxed, bleach blonde, perma-tanned bimbo with zero personality and a permanent smile, who has to be on call the second her husband randomly decides he wants to do something. Her views, interests and hobbies no longer matter. She is basically treated and viewed as a non-sentient sex toy and berated the second she steps out of line. I've heard the way these men talk about their wives behind their backs, or even in front of them, and always feel sick at the way the women just accept it in return for the continued access to money. I don't feel sorry for them, as they agreed and continue to agree to that exchange, but I could never do it. A gilded cage is still a cage.

The writer of the above response is correct that anyone relying on just their looks will quickly depreciate in value. When judging someone as a potential partner, humans generally consider a range of factors and calculate that individual's overall score - their 'net worth' as a mate. The higher the overall score, the more valued you will be as a potential partner. Appearance and wealth are the two most influential factors, although there are several others that can close the gap if you lack one or both of those - celebrity, charisma, a sense of danger (the 'bad boy' phenomenon), potential future earning ability, etc. Generally, women will date young men for looks and older men for money. Men will date young women for looks and, in today's economy, older women for money (getting propositioned by much younger guys has been a huge eye opener for me since hitting my mid 30s!). But if there is nothing else keeping them with you, then going broke or getting old will usually put an end to the relationship. A bad investment or over-levereging can wipe out a formerly successful CEO even faster than the most experienced gold-digger, and there is only so much that botox can do once you've hit middle age!

Find someone that you would still enjoy being around if they were old and/or broke; someone who makes you laugh, who you respect, with similar intelligence, interests, values, someone who makes you feel motivated and respected and knows how to calm you down and make you smile when everything around you is going to hell. If looks are really that important to you, then money can turn a 5/10 into at least an 8 or 9 (male or female). But you can't buy the rest for any price.

Unless you have an army of young children at home, then there is no good reason to rely on someone else financially. Even in that situation, I know women who run profitable online companies from home that they scale up once the kids are older and less of a handful. They don't just quit the economy because they can, and their marriages are much happier and balanced because of it. They aren't cut off from the corporate world and retain the skills, experience and self esteem to compete on their own terms if they return to a PAYE career later on.

I try to give any young person I meet as many pointers as I can on creating their own wealth, so they never feel as though they have to be reliant on another person. I've seen what the lives of gold-diggers are really like and in the long run they are nothing to be envied. The novelty of expensive restaurants, sports cars, and exotic holidays will eventually wear off (honestly), and once your rose-tinted glasses have disappeared you are left dealing with an empty and psychologically destructive relationship that will struggle to survive.

Wasting Away!

I spent several years working in various finance roles in my 20s, and got to see inside the wallets of thousands of individuals and companies during that time. It always surprised me how they fell into one of two groups pretty neatly - spenders and savers.

I've discussed saving (and investment) previously, but haven't yet covered spending behaviour. Specifically, what are people spending their money on that prevents them from having spare cash to play with at the end of the month? Interestingly (to me anyway), there are certain items that appear again and again on the bank statements of this group. Cutting, or at least reducing, the amount of money spent on these items would help them reach their financial goals much faster.


1. Credit Cards

The number one unnecessary expense for most people is debt; normally in the form of credit cards. Some very lucky people are born with the willpower to successfully manage regular credit card use without ever getting into trouble. I'm not talking to you people. You're doing fine and don't need this advice. I'm talking to the vast majority of people who think they can successfully manage a credit card and quickly find out they can't. The people that the banks rely on to make them money. And the banks make a lot of money from you!

Credit cards are the last thing that most people should be getting involved with. Certainly not if you are already struggling to pay the bills. They are designed to hook you into a debt cycle that keeps growing. Once you miss a payment, interest gets added on and the amount you owe grows. Can't afford to pay back the new amount on time? The bank adds more interest. Now you have an even bigger sum to pay back. Can't pay back the new amount? More interest... and so the cycle continues. Most people struggle to pay just the minimum payments and carry the debt over for years. According to The Money Charity, the average UK credit card debt per household in 2018 was £2638 with an average interest rate of 18.67% (ouch). And it takes up to 26 years to pay back this debt with minimum payments! If you put that £2638 in a 5% interest P2P or another investment asset for 26 years, you'd have around £9,600 with spare change!


2. Appearance

I'm not talking about basic hygiene and looking after your appearance, but the thousands that people waste on keeping up with the latest fashion trends (I refuse to wear anyone's name on my clothes unless they pay me advertising fees), hairstyles (I cut, colour and style my own or get a friend to do it), manicures/pedicures/whatevercures, skin tanning/lightening, high end makeup (most of which does exactly the same thing as cheaper brands), tattoos (then removal of said tattoos), piercings, and a bunch of other stuff that I don't even notice!

Stop trying to impress idiots with 'bling'! The type of people that will notice and care what brand of t-shirt you wear are not the type of people whose opinions you should give a damn about. Trends will go out of fashion (very quickly these days), haircuts/dyes will grow out and fade, you can take care of your own nails (mainly through good diet, exercise, filing them and maybe painting them on a night out), leave your skin alone and learn to embrace your natural look (the world would be incredibly boring if we all looked the same), and learn to use any makeup properly (relying on expensive products is lazy)! I personally don't like most tattoos or piercings, so I'll leave it there. But just don't spend crazy amounts on them.

Buy assets, not 'stuff'. When you are richer and have all the basics covered, you'll then be able to afford to waste a bit on unnecessary things. Or, more likely, you'll no longer care whether you look as if you've just rolled out of bed!


3. 'Short Cuts'

 

Following on from the above, so many people waste money attempting to sidestep time and effort for a quick solution to whatever problem they have. Gym memberships are a classic example of this. Most people are able to walk/jog/run in their local neighbourhood or park. Most people could fairly easily create a basic workout that would tone their body, cut fat and get their heart pumping. But sticking to that routine is reeeeeeeeeeally hard! So they panic sometime around late December, splash out on a gym membership, new gym clothes, books/apps to track every calorie they consume, and then sometimes around March the novelty wears off and they stop using it. The gym sales team loves people like that. 3 months for the price of 12! Fantastic! Even better if you forget to cancel at the end of the year and they get another stash of your cash!

The same goes for 'miracle fat burning pills', 'miracle detox teas', 'miracle muscle building powder'. People are incredibly quick to buy into the dream of getting the perfect whatever without having to put in the hard work. They don't need to buy a product. They need to change their mindset and get into a healthy and continuous routine.


4. Impulse Purchases

(after a few drinks, these magically turn into 

the world's coolest pair of shoes!)

An ex-flatmate of mine used to hand me her credit card if she hadn't slept enough, if she was feeling emotional, or before she went for a night out. She was impulsive at the best of times, but after several glasses of wine she would stumble home in the early hours of the morning and head straight for eBay while waiting for her fried breakfast to finish cooking! Everything seemed like a great bargain through the lens of alcohol and she would wake up the next morning with a splitting headache and her bank account drained of funds. A week later several boxes would arrive full of glitzy shoes, novelty cushions, and random items that we could never quite identify the use of!

The moment you learn to differentiate between needs and wants is the moment where you regain control of your life. If you really can't be trusted to stay away from impulse buys, then at least stay away from easy access to your money. Lock the credit card away or chop it up completely. The few extra minutes/hours of distance between you and your money might give you a chance to reconsider whether you actually need those novelty reindeer gloves!


5. Smoking and Drinking

Addictive behaviour will cost a fortune in the long run. The average cost of a pack of cigarettes in the UK is now over £10 and climbing. So that pack a day habit is costing you around £70 a week, £280 a month, or £3360 a year! Imagine what you could do with that £3360 instead of setting it on fire! Not to mention the damage you are causing to your body, which (if health isn't a good enough reason) will likely cause additional damage to your finances later on in life. Stop burning and drinking through your money and get a few extra years of life as a nice bonus!


6. Gambling

A 2012 study from Yale University found that those in the lowest 20% socioeconomic status had the highest rate of lottery gambling at 61%, and over 70% of the UK population play the lottery on a regular basis. That's a lot of poor people wasting money they really can't afford to waste! On top of that is the large number of people who gamble at casinos, on internet betting sites, on poker phone apps, and all the other myriad forms of gambling available today. Everyone dreams of winning a fortune and retiring to a castle with servants and a fleet of high end cars. However, you have more chance of becoming an A List film star or President of the United States than winning the jackpot, and the companies that run those schemes know it!


7. Wasted Food

Most people have no idea how much food they throw away each week. Without a bit of planning, the average trip to the supermarket results in around 40% of vegetables being thrown away, 17% of dairy products and nearly 15% of the meat and fish. What a waste! And just think how much money could be saved if you spent a few minutes meal planning before your weekly shop. Learn to love your freezer. Pull out those old victorian cookbooks your nan left you and develop boss-level soup making skills with leftover meat.

Pro Tip: Never go shopping on an empty stomach! It will lower your self control and result in poor decisions!


8. Student Loans

This is going to be a controversial one. One of the biggest expenses for millennials (aside from the huge increase in rent prices) is paying back university debt. Especially those that graduated into the start of the recession and didn't start paying back those loans until a significant amount of interest had been added. It may be too late for that generation, but for any younger people reading this blog (hello B) it may be wise to really think about whether £35k of debt is a good way to begin your adult life. There are cheaper ways to get into most careers that won't require you to pay back the equivalent of a house deposit.

If you're not entirely sure which field you are best suited to then take a year or two out of education and get some work experience in different sectors. Even an entry level job will give you the opportunity to network, and most people are willing to let you shadow for a few hours if you show interest in what they do. Not only will it give you the opportunity to test the water, but you'll be able to save up a bit of cash in case you still decide university is the best route.

Research whether you need a degree at all to work in your chosen industry. Many fields only require portfolios or short certifications to get your foot in the door. Once you're in a company, many will even fund further training and education in return for an agreed length of service.

If you still decide you want a degree, then consider distance or part time study rather than attending university full time. Not only will it stretch the payments out further and give you more of a chance to budget, but you'll have free time during the week to go out to work. I went to both brick and online universities (although I don't count the first degree) and found working at my own pace in coffee bars or pubs much easier than having to sit still in a lecture hall waiting for 40 other students to catch up. If you don't HAVE to physically attended classes, then distance study might be the better choice.

Another Year Older

It took a while to get back on my feet after the last redundancy, but I managed to get some contract IT work to cover the bills and although it wasn't great pay and barely covered rent and travel, I added another couple of hundred to the pot, bringing the total to £25,463.40. Not great, but it's something at least. It felt like I was in survival mode the whole of last year.

I did try my hand at starting a business on the side, but really struggled to find anyone who wanted to work with me (and I can't afford to pay anyone). I don't know that many techie people where I am, and those that I do know are already very busy working for someone else. So that quickly fell apart. I'd love to run my own company one day, as there are so many things I want to build that I need extra hands to help with. But until I manage to raise a lot more funds from PAYE work, it seems that I'm destined to work for other people and focus on investing as best I can.

Which is fine, I guess. I'm back to full time work now, albeit still not on brilliant money. I can never seem to get past minimum-ish wage for long, despite having all the skills that employers apparently love and being a happy workaholic. But it has forced me to learn how to stretch every single penny as far as it will go. If I ever did manage to get a well paid job, I'm not sure I would know how to spend all that extra money!

Buy All The Things, All At Once!

Ok, not literally. But I mentioned in previous posts that I've made a habit of buying everything I need for the year (or more) en masse in the January sales. Bulk purchasing items can save you a lot of money in the long run, assuming you follow some simple rules. Failure to adhere to these rules will result in you wasting money, so don't just rush in with your wallet before thinking ahead.

Try before you buy!

This may sound incredibly obvious, but don't buy any items that you haven't already tried and know you like. Splashing out £500 on 30 boxes of random deodorant, only to discover a day later that it leaves the underarms of your t-shirts looking like a bottle of Tippex exploded in the wash is a quick way to lose £500! Only buy products that you have tried in the past and know will be put to good use.

Avoid perishable goods

Another seemingly obvious one, but don't bulk buy anything that will go off long before you get round to using it. 10 crates of blueberries for £20 is a bargain only if you plan to eat, freeze or preserve them immediately. I tend to keep bulk purchases of most food items to a maximum of a few months supply and only do yearly stock ups of items that I know will last a long time. Also, a year of eating the same food can get pretty boring after a while if, like me, you prefer to change things up every now and then. Plan ahead and make sure you can either store or eat anything that could go rotten. Sometimes the amount of time and work needed to properly store it just isn't worth the money you save.

Check you have storage space

Following on from the above rule... if you do plan to store either perishable or non-perishable items, then check you actually have the space to fit it all somewhere. If you live in a tiny bedsit and only have one plastic container and a few empty gaps under the bed, then don't go crazy and fill up the entire place with 1000 loo rolls. Unless you enjoy living in a pretend fortress and want to relive the excitement of hiding in the supermarket stacks as a child (which is entirely understandable). If you're more of a minimalist type that recoils in horror at having a single ornament littering the perfect lines of your otherwise empty home, then make sure you know where all of your supplies will go before buying anything. Having to pay therapist fees for a psychological meltdown will quickly eat up any money you saved!

Shop around or wait for bargains

Buying things in bulk will usually save money anyway, but ideally you want to save additional money buy waiting until the items you need are on offer. Look around for deals before you bulk buy anything. Haggle further if you can, as some suppliers are happy to give you a better deal if you are willing to take a large amount of stock in one go. There are a couple of markets that I frequent where the traders will offer extra reductions if I pay in cash.

The January sales are a good time to pick up a lot of good bargains. Although check you are actually getting a good rate, as some shops will offer 'discounts' that really aren't. Just because the item is included under a big 'SALE' sign, doesn't necessarily mean it's worth buying. Check the price per item first.

For the less mathematically able among us, to calculate the price per item you just take the total price and divide it by the number of items included. For example, if a shop is selling a crate of 80 oranges for £12, then you would divide £12 by 80 to get a cost per individual orange of 15p.

Online cashback or coupon sites

If you prefer to shop online for most things, get into the habit of checking for extra discounts or coupons via sites like Top Cashback rather than going directly to the shop website. Obviously don't buy things just for the cash back, as that defeats the whole purpose. But if you are planning to stock up on an item anyway, then check if you can get a better deal. It's also worth asking around your friends and family in case they have coupons for items they don't use. Sometimes you can swap them for something you won't use. Which leads to...

Network, network, network!

Do you know others in your social circle that are trying to save a bit more money? If so, it might be worth teaming up and buying even bigger stacks of items in one go. You may find you get an even bigger discount if you purchase 40 boxes of something together rather than 20 boxes each as two separate customers. Or perhaps there is an item that both of you use, but you can't justify buying enough of in one go to get any discount. Teaming up with a housemate/colleague/friend/relative could mean that the total purchase qualifies for 5% off, which benefits you both. Just ensure you live close enough that you don't waste all of the money you save on delivering their shopping!

Buying things in en masse can save you quite a bit of money if done right. Just make sure you plan ahead and avoid any hidden costs.

Another Redundancy

I haven't posted in a while as I was hit with yet another redundancy last autumn after my company was bought out and half of our jobs offshored. It hit me pretty hard, as I honestly thought I'd left the crazy up and down swings of employment behind after the recession ended and was planning on several years of playing catch up for all that missed salary in my 20s.

Unfortunately, it was not to be. So in late October I began job hunting yet again (something I'm getting quite good at now). I managed to score a couple of short term contracts over the winter and early spring, but since the last one ended I've been struggling to find another temporary or permanent role within commuting distance. I was lucky enough to be offered voluntary redundancy, so I had a bit of money to tide me over and avoided having to borrow anything to pay the rent. But it seems all of the junior level roles in my industry are based miles away from where I live, and I've invested a large amount of money into my current accommodation and can't just up sticks and move right now. I've also paid upfront for a block of classes at a nearby school and can't get any refund.

So I'm having to make a decision of whether to remain unemployed for another few months and try to live off my savings until I can move home OR change career path yet again and just take any local job I can get my hands on to tide me over.

In the meantime, I've decided to just freeze all of my portfolio where it is and once I have money coming in again I can hopefully catch up to my last total and continue from there.

Sometimes life seems to be a succession of three steps forwards, two steps back!

I'm honestly pretty tired of spending as much time unemployed and job hunting as I do in employment, so while I continue to apply for a new job I'm also looking at starting my own business. It's an incredibly risky thing to do, as I don't have any real experience in entrepreneurship (I even struggle to spell the word) and have no spare money to use as start up capital. The vast majority of new businesses fail, which is a bit scary. I therefore need to start small and look at what I can do without any initial funds. I've worked in both finance and IT, so can at least deal with the book-keeping and technical side of things. I'm not great at thinking up new viable products and don't have a home so I have no space to store other people's products to ship to clients. It will therefore need to be some sort of digital service. An ex colleague suggested I become a Youtube vlogger since everyone seems to be getting rich off Youtube these days, but I lack the social skill to talk incessantly for the length of a video (which is why I have a written blog instead).

I'm still very much in the brainstorming stage, so feel free to send any useful suggestions my way! Any general business start up advice from those who have succeeded on this path would also be very much appreciated! 

Winter's Coming!

This will only be a quick update, as I've taken on extra work to build up a bigger and faster nest egg. I'm also spending a lot of my free time pouring over old economic data for patterns.

However, I've started to pull some of my european investments and switch for cash in preparation for the coming big R. I remember the previous recession incredibly well. In fact, it has scarred me for life - thankfully! In my case, having very clear memories of the year or two leading up to it means that I notice those same patterns when they repeat themselves. When one or two repeat, it gets my attention but the issue normally resolves itself. But right now, all of the economic data is pointing towards a nearing cliff edge. So I'm getting myself ready.

I'll freely admit, I can't predict how quickly each domino will fall. Every recession behaves a bit differently. 2008 was fairly quick to happen and slow to recover. In fact, those of us who started our careers in 2008 still haven't recovered. But we are also hyper aware of changes in the economy, which is to our benefit.

There are multiple signals that I look out for, but the main ones are:

The Housing Market

Property prices have stagnated this year. In most places, they haven't started to decline yet. But London tends to be a catalyst for changes elsewhere and the London market isn't looking great right now. Outside of London, new buyers (the GenY/Millennial/Gen Z crowd) are too strapped down with student debt, low wages and high rents to consider house purchases. So as the older owners are starting to downsize or die off, fewer young customers are queuing up to buy from them. This problem isn't unique to the UK. Australia, Canada, America and elsewhere appear to be suffering the fallout from the same generational divide in wealth. Their housing markets are starting to feel similar pressure. In fact, many are predicting a downright crash and advising clients to stay away for now. Foreign investors in the UK market have started to pull away, leaving only 5% of housing stock owned by overseas buyers rather than 12% in 2010. It could be argued that a decline in house prices is a good thing, as those in their 30s waiting to buy a home and start a family will finally be able to. However, when viewed in conjunction with other economic signs, it suggests a not-so-rosy near future.

Debt Levels

Debt is always something I pay attention to, regardless of how the economy is doing. I have an abnormally old fashioned view of debt compared to most people (all debt is bad), which I don't expect the rest of society to follow. But while I assume there will always be some state, business and personal debt, there is a scale from 'bad' to 'worse' to 'unmanageable'. At present, the Eurozone is nearing the 'unmanageable' end once again. Several debt figures should get people's attention. Individuals already have more debt, credit companies are lending out more debt and state spending is up (and a growing population means that spending will only increase further).

Unemployment Figures

These are interesting, as the data currently shows generally low unemployment. However, the total figures hide the fact that wage growth has flat-lined (as an example, I haven't had a pay rise in real terms in almost 20 years) and 'employed' includes underemployment (forced part time or unskilled jobs), zero hours, temporary contracts, those who have stopped looking for work or claiming job seeker benefits, those classed as self employed (even if not earning), and anyone else who may have simply fallen into the gap. I would be far more interested to know how many people are in full time, living wage or above jobs. And by 'living wage' I mean a salary that can cover basic rent, travel costs, food, pension savings, healthcare, other everyday bills, money to save for a house deposit within 5-10 years and repayment of the average student debt. I don't think those numbers would be so high!

Stock Market Drive

Last year saw big gains for those who were lucky enough to have timed the market correctly. Both the UK and US markets crashed and bounced back up following Brexit and Trump's win and they have continued to soar upwards ever since. The S&P 500 has broken multiple highs and is currently on its way to 2500, and the FTSE 100 has been bumping around the 7500 mark following a similar pattern. There was a market boom just like this before the 2008 crash. Markets were reaching new highs amid cheers from investors, lenders relaxed their standards for lending to buyers (oh, hang on),  the housing market began to cool off, panic set in as the number of mortgage defaults increased, then the problem spread outwards to other parts of the economy.

Today, we have the added problem of massive student loans (small mortgages in their own right), Brexit, the myriad problems in the EU (which has only very recently come out of the 2008 recession), China acknowledging their own debt problems (albeit a different situation) and a new creature in the form of subprime car loans in the US. This all feels like déjà vu to me. With the added fun of already non-existent interest rates, backing the BoE into a corner.

Good luck everyone and see you on the other side!


* EDIT: Shout out to the owner of Spicer Lemonade Stand at the Lovebox Festival and her parents for encouraging early entrepreneurial skills! I started my working life selling home-grown tomatoes along our street with my brother and sister and it was an excellent way to learn the basics of business. I hope to see you on Dragon's Den in the not too distant future!

When Everyone Decides To Gets Married

I began Monday morning by looking over my accounts for the last few years and congratulating myself on managing to pay off all my debts and save £18k during the worst economic period since the great depression, while on minimum wage (or no wage) jobs, and with zero help. That was an excellent learning experience to have at the very start of my working life and something that will likely influence my financial behaviour for decades to come.

Ok, so I'm miles away from my millionaire goal after a decade of living like a Dickensian pauper, but I know of at least two of my peers that are no longer with us due to the toll that the recession took on my generation. So in comparison I think I'm in a pretty good place and can't complain. There were many times where I came incredibly close to joining them, so I'm glad to at least be alive today.

However, since that morning of congratulation I have received invites or notifications of not one, not two, but six major events (so far) that will undo a lot of that hard work. First of all, my sister got married last November. I was just getting back on my feet after another short period of unemployment between contracts (trying to start a proper career at 30 after a series of McJobs is difficult) and it took a while to repay the favours I had to get from family to attend. Following that, I had two 30th birthdays of close relatives, an 80th, and a 21st (all requiring big gifts - my family love big events and presents). Fortunately, since January I've had a break from using up gift money so I've had time to restock my gift account (yep, I have a savings account just for presents). I have another big wedding in the summer for my cousin, which I've had time to plan for. However, I've now discovered that I need funds for two more weddings, a new baby, a 21st, as well as a 30th and two 60th birthdays. And these are all close family members (yay for huge dynasties), so I can't avoid the parties and gifts without being a social pariah forevermore.

But having so many big events so close together is going to hammer my bank account! I don't earn much above minimum wage, so it takes forever to save up. And my family all earn significantly more than me (or have married wealth), and have homes, cars, all the basics already covered (unlike me). So keeping up with them is incredibly difficult yet expected by everyone. I can't count the number of times I've got into rows over non-attendance at 'important' events or have been accused of being cheap because I couldn't afford to go to some party or dinner. It's a difficult balancing act. I'm hoping after the next 18 months is up, that will be it for weddings, babies and milestone birthdays. Either that or I'll have to emigrate!

My Current Budget

I always like to see the exact figures that people use when budgeting their income. So for the sake of fairness, here's mine for an average month (I put money into seperate accounts for the month and if it isn't spent by the end of the year then it goes into investments) :

Take home pay after tax/NI: £1330

Private SIPP: £40
Other pension: £30
Rent (main bills included) for room in houseshare: £400
Commuting costs: £290
Phone/Internet: £12
Food/Household: £100
Clothing: £10 (if that)
Gifts/Charity: £50
Social (weddings/birthdays, etc): £30
Emergency Fund: £25

The remaining £343 goes into savings/investments.

I'm sure that might seem a bit extreme to some people. I don't have holidays or go out unless it's a big family event. Any clothes I get from charity shops if I can't mend existing ones. I have a very basic package phone/internet on a very old second hand model. I also don't own a car. It's difficult, but I want my own home at some point before I turn 40, so I have to make sacrifices now. That's life.

March Update

I received a lovely surprise yesterday afternoon. When checking my bank balance, it seems that a company I contracted for last spring has given me around £1000 tax return. Thank you Past Tense Self! It may sound odd, but I never check my tax figures until right at the end of the financial year, as I consider it a potential savings account. Although I know the money is mine already, getting a random unexpected payment the next year always cheers me up and acts as additional motivation! It's an illogical, but positive psychological boost.

So altogether my net worth is now £17,250 and earnings per day (passive interest) is £1.20. I know it still isn't anywhere near my million pound goal, but when looking at my progress plotted on a chart over the last decade it's wonderful to see the debt total plunge and completely disappear and the assets total increasing on a gradually steeper curve. Considering all the redundancies, moving around the UK to different jobs and homes, living like a hermit and sacrificing everything to get this far... I'm pretty pleased with those figures.

Asset Review - Ratesetter

I don’t like risk. I don’t get any kick out of casinos, high risk betting, short term stock market investments or even putting a tenner on my friend’s ability to drunkenly run up a wall without face-planting the concrete on a night out. I try to take the same low risk approach with other areas of my life. With bank interest rates currently dragging along the floor and inflation gliding around 1.6% as of today (no, I don’t believe it’s that low either), simply keeping your savings stashed in a regular account or under the mattress is guaranteed to lose you money. That’s an incredibly high level of risk. Far too much risk for my liking! So I try to hunt around for safer places to deposit my earnings.

Ratesetter is one of the peer to peer lending platforms that I’ve used over the last few years and one that I would still recommend today due to its lower than average level of risk. It was brought to life in October 2010 and for a few years I carefully watched my family and friends using it to make a regular income before deciding to take the plunge with my own cash. It has a very basic set up (great for newbie investors like me) with options to auto-lend either capital or capital plus earned interest, options for a 5 or 1 year bond (currently offering 3.5% and 5%) or the ability to lend on a rolling basis. Interest starts to accrue as soon as your money is matched to a loan and the capital and interest is paid out when you sell/withdraw funds.

For the very lazy, Ratesetter does offer the ability to automatically lend your money at whatever average rate the market is accepting at the time. However, I personally prefer to check the 1 and 5 year bond rates each week and set my accepted rolling interest rate somewhere in the middle of these two figures. The automatic rolling rates tend to be quite a bit lower than the bonds (around 2.5% currently), so it’s worth checking and adjusting your own rate on a regular basis (although be aware that if you set your rate too high then it will take longer to get a borrower).

I’ve only used the rolling market option, as I like to have the ability to grab my money and run at short notice if need be. So my review is based entirely on that experience. I know a couple of people who use the 5 and 1 year bonds, but the interest rates on these tend to fluctuate a lot and I don’t want to miss out on added interest. There are also exit fees on the longer term bonds of up to 2.5%, which the rolling market option doesn’t have. Bear in mind, there is still a fee of £1.50 if you use a debit card to invest less than £1000 in a rolling account. You can invest a minimum of £10, but I tend to always keep £1000 in my account (mainly because I’m too cheap to pay the £1.50).

Ratesetter has a nice provision fund that can cover any bad debts by 116% if need be, although default rates are pretty low due to Ratesetter’s underwriting team being fussy about which borrowers they accept. Default rates were 2.78% for 2015 and 0.98% for 2016, which is far short of the 116% covered. But the provision fund is nice to have just in case. With the rolling account, I’ve also had loans repaid early by the borrower fairly frequently and I’ve had the ability to exit loans early if I needed to. I like knowing that I have this option as an extra safety net.

While there is always some amount of risk in any investment, I’d argue Ratesetter is one of the safest options I’ve found so far. It does require a few minutes of work each week if you want to get the best rates, but it is worth the effort in my opinion.


To open your own Ratesetter account:

Sign up for Ratesetter and receive a £100 bonus when you invest £1000 or more for 365 days!

Disclaimer: The above bonus applies to new lenders only. If you sign up through the above link, I receive a small referral fee at no expense to you which means I can continue this blog without having to use annoying advert pop ups!

Debt Based Slavery

Modern society is obsessed with debt. Our current economic system runs on the creation and movement of debt across the globe. It’s a modern form of slavery that is propped up by the myth that credit cards, loans and mortgages are an absolute necessity in life; unavoidable and even beneficial to the average person, company and government. We now send our children out into the world chained to £40k+ of student debt before they even start working! I personally find this immoral and pretty disgusting. It’s one thing for an adult (who understands the reality of having to work hard for money) to agree to take out a loan. But for parents, teachers, employers and the government to encourage young people who don’t yet understand the world to get into debt just to get a job is sickening to me. You have basically just sold that child to the loan company for however many years. And the actual return on most degrees is now minimal, so they aren’t even getting a decent rate for their life! Well done, society. Well done.

The Interest Snowball

As a collective, we love to perpetuate the lie that debt is a clever tool that savvy people can use to progress. Despite the risk that it brings relative to its potential leverage. Despite countless examples of people, companies and governments being crushed under the weight of spiralling interest. Despite all the historical evidence to the contrary. Despite all of this, we still pretend that taking on debt is absolutely fine. We grab that 0% car loan and jump on that shiny new credit card like a tramp on chips! We’ll pay it off later. Everyone else is doing it, aren’t they? Even kids! So debt must be okay. If debt was so bad then it wouldn’t be allowed, right?

So you sell your future time, energy and freedom for instant gratification. Your future self can deal with it! Screw them! Present You needs a brand new car. Present You needs a holiday. Present You wants a bunch of letters after their name to feel smarter than other people!

That arrangement would be bad enough, even if you managed to pay off the loan on time. Knowing you HAVE to keep working 40+ hours a week in a job you hate isn’t a nice feeling. Bonus FML Points if you’ve also got an expensive house to pay off miles away from where the better jobs are! Debt chains are invisible, but you still feel their weight.

But in many cases the original debt isn’t paid off in time. Humans on the whole aren’t great at planning ahead (or we wouldn’t need debt in the first place). One bump in the road and they miss a payment. More interest is added. The debt has grown. They miss another payment. A bit more interest is added. And the debt starts to snowball, picking up more interest as it rolls downhill. Lenders rely on this happening and humans rarely let them down.

The Cliff Edge Consequences

Once the debt has grown so big that the debtor is unable to keep up with even the interest payments, then you have reached the cliff edge. The snowball will keep falling straight down out of reach and you’ll never catch up. We used to reserve bankruptcy for this scenario - which was much nicer than the former solution of debtor’s prison, whereby debtors would be forced to pay back debts via hard labour (possibly a cheap kinetic energy solution in today’s world?). In bankruptcy the individual was blacklisted and prevented from taking on any more debts in future (for the good of both themselves and others). That was the idea anyway. For a company who reached the cliff edge, it would mean insolvency and the company being dismantled and sold off by administrators. Whatever value was left over in stock or anything else would be used to pay back staff, customers and anyone out of pocket due to the company’s financial mismanagement. Sounds fair.

In today’s debt-fetish society, the government has taken the approach of propping up certain companies, organisations and even themselves to avoid debtors having to experience any of the negative effects of their bad decisions. This doesn’t get rid of the debt. It simply passes it on to the rest of society via inflation. Innocent people are then punished for the stupid behaviour of others. Not so fair.

With young humans (and dogs), we tend to develop good versus bad behaviour patterns through the understanding of cause and effect. As an example, you learn fairly quickly in life that if you touch a hot flame then you will feel pain. That feeling of pain is generated to make you stop whatever you are doing to avoid damage to your body. Humans generally dislike feeling pain. So you modify your behaviour in future and avoid touching hot flames. You’ve learned a new behavioural pattern due to experiencing cause and effect. That behavioural pattern will prevent you damaging your body.

This is one of those universal laws that can be scaled up or down and used in other areas of life, other places and other eras of history. If you swap the human body for society and swap the flame for debt, then the process works the same way. Debt damages society. A nation will eventually collapse under the weight of debt if it is allowed to get out of control. Bankruptcy, debtor’s prison, business insolvency and other forms of pain used to act as a deterrent to other potential debtors. Everyone understood the cause and effect. In societies where debt has consequences, there is a strong desire to stay far far away from loans! If you want something, then you either save up or just don’t buy it. If it’s an absolute life or death necessity, then you ask family, friends or charity to help you out (and generally someone will, as most humans aren’t totally evil and prefer to keep the streets clear of dead bodies). This has the added effect of motivating people to not go around trashing their community, committing crimes and acting like general numpties, since they may need to ask for help one day.

Reversing Our Debt-Based Economy

Avoiding debt benefits everyone in society. It keeps inflation to healthy levels, since the government isn’t constantly flooding the economy with extra printed money or basing so called ‘growth’ on increased debt interest. That stability enables people, companies and governments to plan ahead more effectively and grow as individuals and as a nation. If you aren’t chasing a snowball of debt all the time then you have the freedom to focus on other things and enjoy life. Everyone's happy!

Dogs are always happy because they don't have debt.
This dog is also carrying a potential asset.
See my previous post to learn how assets can make you happy!

A lot of people are starting to wake up to the fact that our economy (and that of nations across the globe) are in serious trouble and nearing that cliff edge at full speed. There is a lot of noise and debate over what national governments should do to fix the problem. I personally don’t think there is much they can do bar all agreeing to wipe eachother’s debt or everyone selling the global debt to one country and letting that country tank. But individuals can focus on getting themselves out of debt and companies can do the same. That will make anything that happens at government level much easier to deal with.

In the past I’ve been involved with think tanks in organisations that did just that. The same principles apply to individuals. It is hard work and requires a complete and permanent change in behaviour. But it can be done. And removing debt is the first step to building wealth. If ran the UK, I would introduce laws to gradually outlaw personal debt and then work my way up the hierarchy. I’m sure people would hate me and I’d be on at least 50 hit lists within a week! Addicts never react well to having their drug taken away. So the word ‘gradual’ is key here.

Scale Up Method

There are various debt-clearing methods out there. I’m for anything that gets people out of financial slavery and back in the black, so I’d support them all. But I personally like the Scale Up or Snowball method, since it deals with the psychological aspects of debt. Essentially, this method involves lining up all of your loans in order of size and then tackling the smallest one first. You aim to keep the other debts ‘frozen’ by just paying off the minimum monthly interest and begin chipping away at the core of the smallest debt until it’s completely wiped out.

Mathematically, it would make sense to deal with the largest one, but getting and staying out of debt is emotionally hard and the aim is to make the journey as psychologically easy as possible. If you view each loan/credit card/mortgage as a metal chain around your neck, then watching the first small chain fall off is a nice image. It boosts your self confidence. You’ve successfully broken the first chain, so you feel more motivated to start chipping away at a slightly bigger one.

Once the first loan is gone, you take the amount you were paying in interest plus the ‘chipping away’ amount from the first loan and start paying that to the second loan until that’s gone. Then keep going until all the debts are cleared. If you need help in getting the minimum interest payments down to an amount you can afford, then speak to a debt advisor for more detailed advice (National Debtline or Debt Advice Foundation in the UK are both good).

It may take several years and will mean making sacrifices, but the feeling when you get rid of that last £1 owed is amazing. I did this myself while on minimum wage and it was horrible at times, but I know from personal experience that it works and your future self will love you for it! If it helps, make a big colourful poster to stick on your wall and tick off or colour in a box for every £1k that you pay off. It’s a nice visual reminder to keep you focused. If you know anyone else in a similar situation, then team up and cheer each other on. If you have to live like a hermit, walk miles every day, take three jobs, plan every single expense to the last 1p, skip meals, sell everything that isn’t nailed down and shun society for a year or so, then that’s what you do! This is war!

Finally being in a position where you have all of your take home pay to work with each month changes everything! It’s worth the temporary pain! The sense of freedom will be euphoric! Once the debt is gone, you can start doing fun things like saving, investing or starting a business and that snowball begins to roll in the opposite direction collecting money! So throw yourself into this part. The more effort you put in now, the easier the rest of the process will be! DO IT, DO IT, DO IT!!!


n.b. One extra thing that helped me was to read Charles Dickens novels and pretend that I was a character living in one of his Victorian era stories. I also wrote my own mini-novels about people in the 1800s fighting their way out of poverty. Yeah, I’m weird like that. But I have no debt, so ha ha ha!

Dirty Bankers and Their Enormous Assets

Welcome to 2017!

First of all, I haven't added any new posts in a while as I've been busily jumping through hoops to stay employed (such is the new 'gig economy' we have now). Although my 'jumping' has contributed in many ways to the advancement of my financial knowledge, so I now feel as though I have some useful tidbits to add here. Especially to the younger generation, who I feel have been treated incredibly unfairly by pretty much everyone. If any of them accidentally stumble into this blog whilst exploring the deep dark depths of the internet and happen to pick up just a tiny speck of helpful information, then I will feel as if my ramblings have done a bit of good. The education system fails miserably at teaching its charges the basics of money, and today's young people are the ones who will need these skills more than anyone!

So... without going into the boring details, since we last met I've had a big career change, graduated, completed a vocational course at break-neck speed, and I'm now employed to do very geeky things by a nice team of fellow geeks (who I'll avoid naming here in case they throw Lego at me). During my detour I spent some more time within the banking industry (the 'eye of the storm' is always an interesting place) and expanded my understanding of assets vs liabilities, which I will now attempt to explain using the medium of colourful pictures and witty yet informative prose. I apologise in advance for the lack of artistic skill.

Say hello to Ben and Eric...

Ben and Eric are exactly the same age (25), have exactly the same education and student debt (£30,000), began life with exactly the same amount of money (£0) and earn exactly the same wage (£20,000 per year) in the exact same job. Because sometimes life is just crazy like that!

Both Ben and Eric are dating a girl named Jennifer, but we'll avoid that awkward conversation for now.

Both Ben and Eric work hard and are pretty sensible with money. They both decide they want to have as much money in the bank as possible by the time they are 35, so they can afford to buy a house. A small starter home in the local area costs £150,000 and the bank wants a minimum deposit of £25,000. Both Ben and Eric plan to save up the £25,000 over ten years so they can buy the house (they are both equally deluded, but we can admire their optimism for the sake of this story).

Here's a picture of the house: average sized two-bed semi, small garden with patio area, lovely south-facing views from the main bedroom. If you follow me upstairs you'll notice the additional storage space to your left and over there is the entrance to the 2 by 2 square foot attic conversion the owners had installed. Because everyone loves an attic conversion, right? Every self respecting home owner needs somewhere to keep their important-junk-that-will-be-boxed-up-and-undisturbed-until-the-year-2875!

 (I'm aware that it looks like a dolls house - don't judge me!)

Ben and Eric both have £2,000 disposable income left each year after paying tax, rent, commuting costs, bills, food and presents for their always slightly distant girlfriend. Both Ben and Eric are careful to avoid wasting money on any expensive purchases like flashy new cars, holidays abroad, high end gadgets or weekends clubbing. They live like hermits, remaining totally focused and dedicated to the cause. Constantly having landlords sell up and having to move flat gets pricey, so they both decide to live in an abandoned warehouse during the summer months to save a bit extra. Both Ben and Eric know that anything worthwhile in life takes hard work, patience and the odd stint living on the streets. 

For the first three years, both Ben and Eric save £6,000 in a savings account. The interests rates are very low and their savings don't grow all that much. But they keep going, determind to get that house!

However, one cold and frosty winter evening Ben accidentally flicks past a business channel on TV whilst searching for the latest episode of X Factor. The reporter mentions 'assets' and Ben wonders what they mean. He decides to look up that word on a completely nondescript search engine.

'That's interesting', he thinks. After a bit more reading he discovers another useful term: 'liabilities'.

'Maybe I should start buying assets instead of presents for Jennifer?' Ben thinks to himself. 'That way I will still be earning money from my salary, but my money will also be earning money at the same time.'

Ben does a bit more research into the different types of assets he can buy. Many of them are too expensive, but there are some that Ben decides he can afford with money he has saved. Ben leaves £2,000 in his savings account and splits the remaining £4,000 into a £2,000 index fund and £2,000 into a peer-to-peer property investment platform he finds (because he reads that keeping his money diversified is always a good idea). Both assets earn him an average of 7% a month. Instead of adding £100 to his savings account each month, he adds £50 to each of his assets and only £50 to his original savings account.

At the end of year four, Eric has the original £6,000 plus another £2,000 he has saved. So £8,000 in total.

Ben has £2,000 still in his savings account plus another £600 he has added that year. So £2,600 in savings. However, the intitial £4,000 in assets, plus compound interest, plus the £100 a month he has regularly added now total £5,535.65. So altogether Ben has £8,135.65.

Jennifer is no longer talking to Ben. Eric is very smug, but Ben doesn't care. Ben now has a small but growing passive income stream and has entered the matrix of asset growth.

For the next four years Eric continues to add to his savings account. At the end of eight years, he has a total of £16,000. 

For the next four years, Ben continues to add to both his savings account and both assets. At the end of eight years he has £5,000 in his savings account plus his assets are now worth £12,871.55. He has a total of £17,871.55.

After a bit more research, Ben finds two different assets that will earn him a higher interest rate at 8.5% He sells both of his original assets and puts £6,435.78 into each new asset.

Two years later Ben and Eric meet up in the pub one afternoon to celebrate their 35th birthday. Eric is sad because Jennifer has run off with a man she met on holiday named Pedro. Over the last ten years he has saved a total of £20,000. Not enough for a house.

 
Ben is happy because he has saved £6,200 in his savings account and has two assets worth a total of £17,872.07. Altogether he has £24,072.07. Not exactly £25,000, but pretty darn close!

Unfortunately, during this time house prices have risen another 5000%. So neither Ben or Eric can afford to buy a home.

But at least Ben has an extra £4,072.07 to spend on whatever he wants! Or he can leave all of his money in assets to keep growing by themselves while he pays off his student loan. The sensible option.

Ben decides to move to the Greek island of Symi, open up a bar and spend the rest of his days surfing instead.

The morals of this story are all over the place, but the assets part is very useful to know. Whatever you decide to do with your life, if you can make your money make more money while you go off and do other things then you will always be in a better situation financially. At the same time, keep your liabilities to an absolute minimum. Consider if a purchase is going to either depreciate in value or keep costing you more money in the long run. Like many people my age, I was made redundant several times during the recession and learned very quickly that I could never rely on a constant salary. These days I only care about how much I earn while I sleep. Anything else is a nice bonus.