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!

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

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.

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.

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.

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!

Spring Has Sprung

Well, sort of. Then it disappeared again underneath a layer of snow... The weather has always had an obvious effect on my mood and therefore my finances. If it's cold, dark and gloomy outside, then it's always tempting to try and cheer myself up by splashing out on a new outfit, a meal in some posh restaurant, a gym membership (that I will likely never use again) or some other random purchase that will put a temporary smile on my face and leave a permanent dent in my bank account. So Britain is probably the worst place I could choose to live, considering the 3-hour summers we get here!

Hence my lack of update for February. All my willpower and Jedi skills were focused on just getting through the month without going crazy with the salary. And I think I succeeded. I had a couple of birthdays to pay out for, but otherwise I've done well. I reached the maximum limit on my ISA for this year, so opened a high interest savings account to act as a spill-over. I've also organised all my accounts on colourful spreadsheets that calculate how much interest I'm earning per day (still in the pennies, but it makes me feel good at least). Have now surpassed the £5k mark.

Merry Christmas!

December has been a ridiculously busy month, so I haven't had time to update this blog until now. Work has been extra manic with all the flu-induced staff shortages, uni deadlines have loomed, and somehow I've managed to organise everything in time for Christmas (although it's all a bit of a blur, so I may have Santa to thank for that). However, I have managed to rack up some extra cash from all the overtime (always a silver lining). The total now stands at £3733.87, which is a bit more than I was aiming for by this point.

Christmas is always a dangerous time of year for my bank balance. I've never had trouble talking myself out of buying pretty heels or new dress (although there have been incidents where I've bought a gorgeous pair of eskimo boots from French Connection with the sole (haha) purpose of spending the night parading up and down in front of the mirror in them only to get a refund the next day). But I get a massive kick from splashing out on presents for other people (unresolved control issues maybe) and it's a real struggle sticking to a budget. This year I've been good though. I had a list by November with prices and shops, and spent a couple of weeks looking for all the best deals (no last minute panic buying). I managed to find most of the gifts online, so got a few £££ back on TopCashBack (I've used it for 2 years now, so happy to link them - although they should really pay me for the free ad) as well as various online discounts (I'll add a link on the side for the website I use). I should also note the money saved on travelling around shops in person, as most items were free delivery. I actually came in £3 under the budget I had set myself, so feeling very smug! And everyone was happy, so declaring it a victory.

Hope everyone has a wonderful Christmas and best wishes for 2013!