Attitude and money are closely linked

Weakness of attitude becomes weakness of character.

— Albert Einstein

What personal trait will earn you money?

There are several traits we could add here, such as having a high risk tolerance and investing all in equities, or having the trait of delayed gratification, meaning don’t have your cake now, you save it and eat it later.

One trait that we can all do is work harder and smarter. Let’s say your job is to sweep roads. You go through your day, outside in the fresh air, getting lots of exercise and doing something that impacts everyone: you are removing litter from the pavements and roads and sweeping them clean. A noble job.

But, what if you just do an average job? What if you miss the odd crisp packet, leave a sheet of crumpled newspaper? In the day to day, probably not much will happen. But over a week, or a month or a year, your patch of land to clean will look like a drunken student’s bedroom. The residents of those streets will lose pride in them, they may start littering more and it gets worse and worse. Finally your manager is alerted and he or she gives you the sack and you no longer have a salary.

Now let’s turn this scenario 180 degrees. You’re the road sweeper that never leaves a crisp packet. You start work a little earlier than your colleagues and you leave a little later. You clean your equipment every afternoon before you go home so that tomorrow you can start immediately. You’re always friendly with the residents of the streets and they in turn don’t want to make more work for you, so they are more careful with their rubbish. Your streets are noticed by people not living in the area as to how clean they are. Someone even contacts your employer and your manager is told of the good work you do. When it comes to the pay review you are awarded a bigger pay increase and a bigger bonus. You’re promoted at a later date, which again brings a larger salary and bonus. You are asked to teach the new people who join, which you rightly do. They then have the same work ethic as you, and all of a sudden the entire village/town/city is sparkling clean. Your company wins awards and gets more contracts. You are singled out as the person who started this transformation. You’re given a bigger salary and a bigger bonus. Money rolls into your bank account in huge rubbish truck quantities. Life is excellent.

But why? Well, it’s because you have the right attitude. When you are first employed in a company attitude is the only thing you can control. If you have a bad attitude no one wants to give you a salary increase. If you have the right attitude and work hard every day and work smart every day then the pay rises will come. As a manager it’s a lot harder to refuse a pay rise to one of you top performers compared to the people in the bottom sector of performance. And, if the pay rise doesn’t come, or stupidly, gets rejected, you know that you’ve built this work ethic of having the right attitude and you can take that to any job and receive the salary you deserve.

Having the right attitude is something you can control and will help to fill up your bank account far easier than having the wrong attitude.

Try not to spend for a day… It’s bloody hard

“There is a gigantic difference between earning a great deal of money and being rich.”

— Marlene Dietrich

Well it was hard not to spend for a day, yes. At the start, yes. It was hard.

I wanted to reduce my spending on food. Over two months I spent a whopping £770 on food. But that’s not the worst part, it’s not £770 on the family weekly shop, no. This money was the money I spent, just me, on food: breakfasts, lunches, dinners, snacks. I spent a couple of months tracking every penny I spent, and seeing this figure was eye opening. On average £385 a month. Just for me. That money could be out working for me in a Vanguard S&P 500 index fund, going out and bringing its money friends back with it every single night. Yet, for some reason, I thought the money would be of better use spent in the restaurants around my work. Which, might I add on a side note, have doubled in number since my company relocated to our new offices. Even a food market now comes on Fridays to get a piece of my money.

What does that hotdog vendor say in The Simpsons when Marge asks him if he follows Homer around, “Lady, he’s putting my kids through college.”

My restaurant lunch habit has got so bad that if I’m out in the city on the weekend, waiters, on their day off, stop and have a chat with me. If they’re with their family, I know them by name as well!

I decided to force myself to not spend for a day. That would mean: no breakfast at work, between £1.15 to £5. This does not always mean I buy a lot of food on the £5 day, no. The man who serves the food at our work does all his calculations in his head. He’s like the stock market and offers a different price daily. Then I might have a £1 or £2 snack before lunch. Then I’m off to a restaurant where £7 is a cheap lunch, yet I frequent the £15 menu restaurants. Back at work, I’ll treat myself to another snack of around £2, and then if I’m hungry before cycling home, I’ll pop in the shop and grab another snack at around £2.

The day before I decided not to spend, I made sure enough of the dinner would be recycled and used as lunch. I hate eating yesterday’s dinner for lunch, but… £770. On food!

I woke up early, easy for me as I’m an early bird. I went about making banana and oats pancakes for myself and the family. I bagged that and also last night’s dinner and cycled off to work. Luckily, I don’t drive to work, so didn’t spend a penny on petrol.

At work, I enjoyed the breakfast far more than the awful junk served in the kitchen. I was so full I didn’t even contemplate a snack during the day. 2 nil me. At lunch I reached for my wallet and stood up, ready to help some restaurant owner pay their mortgage. We have one French restaurant near my work that I go to so often, that I think, three more meals and I’ll become a major shareholder. But then I remembered I had lunch with me. I heated up my lunch and ate it all. It felt good to not spend and by the time I went back to work in the afternoon, I calculated I’d saved between £9.14 and £22 depending on my hunger. It felt like a £22 day as well. During the late afternoon I once again reached for my wallet, and then stopped myself from buying a snack. When I thought about it I actually didn’t need a snack. Instead I went and had a pint of water from the work kitchen tap. I cycled home, head down, doing everything not to look at any type of food establishment, hence I be tempted by the goodness it held. At home I kept my wallet in my bag and left the computer alone in case Amazon with its shiny wares tried to defeat my closed wallet ritual. Amazon! How you tempt me with your wide selection and excellent customer service!

At night, I reckoned I had saved £25 big ones! The enormity of it made me feel slightly ashamed of myself. I blew a lot of money on a lot of unhealthy food. I then calculated that if I did that only once every week it’d be £100 richer at the end of the month. At the end of the year: £1,200. After 20 years, you better sit down for this: £24,000. And that’s simple saving. If I threw it in a Vanguard index fund offering 8% a year returns, then I’d have £56,900!

Well, there we have it. A couple of months later and I’m having several spending free days a week. Little steps make a big difference. Food is one of the biggest expenses in a saver’s life. If you can cut down on eating junk and spending money on junk you’ll be healthy in your body, and your wallet.

Money challenge

“Every once in a while you need to challenge yourself and learn new things.”

— Amit Ray

You’ve been reading this blog and have understood its lessons and taken action on them. You’ve done the below:

  • You’ve set financial goals.
  • You’ve repaid all your debt apart from your mortgage, if you have a mortgage that is.
  • You’ve reduced your expenses.
  • You’ve got 6 months’ worth of expenses saved up as an emergency fund.
  • You have life insurance and critical illness cover in place.
  • You’ve contributed as much as you can to your workplace pension.
  • You’ve contributed to a low cost index fund such as the S&P 500 from Vanguard via a stocks and shares ISA, in order to get all returns tax free.
  • You overpay your mortgage, if you have a mortgage.
  • Every three to six months you nudge up your contributions.
  • With the money remaining, you spend wisely and don’t blow it on £15 fish ‘n’ chips and a conservatory for the back of your house.

Now, you’re at a bit of a loss. What to do now? You’re in what they call “the long middle”. How do you keep hungry and focused once everything is set it place and ticking along? Well first of all, you’re luckier than the majority of the world. They don’t have the above in place.

Well, to keep you hungry, how about the money challenge? The money challenge is a way to set yourself small goals with your remaining spending money and keep focused.

Try these ten challenges:

  1. Save a pound a day in a old jar and you’ll have £365 this time next year. Take that £365 and add it to your stocks and shares ISA and pump that money into the stock market to that it can make more money for you.
  2. If you’re about to make a silly purchase such as a 12 slice toaster for £50, don’t buy it, but pretend you’ve spent the money and move that £50 into your stocks and shares ISA. Not only have you saved £50, but you’ve improved the planet by not buying another item that had to be sourced, manufactured, packages and shipped. Win win.
  3. Same above but for taking transport. So if you were going to drive 2 miles to the local shops, jump on your bike or walk. The petrol might be £1. So take that £1, put it in a jar and for all trips you didn’t do, save the money, and at the end of the month add that to your stocks and shares ISA.
  4. Same as above, but now going out for dinner. Rather than paying for a babysitter, a taxi both ways, food and drink; stay in and cook food in the cupboard and have a night playing games. The £50 to £150 you saved, push that straight in the stocks and shares ISA.
  5. Give something up and bank the saving. Do you drink, smoke, have a chocolate bar at 3 pm? Whatever it is. Don’t do it, improve your health and save the money up to the end of the month, then put it in your stocks and shares ISA.
  6. If you buy anything, such as a t-shirt, which costs £15.50, round it up to the next £5 level, so £20. There will be a £4.50 difference which you save up until the end of the month and then add it all to your stocks and shares ISA.
  7. Don’t spend anything all week. What you do is you pick a day in the week to be your starting day. Then the night before you get all the food you need for a week. Then the next day you don’t spend anything, not on food, drink, entertainment, clothes, travel etc. You do that for the entire week. At the end take a portion of the money still in your current account and add it to your stocks and shares ISA.
  8. The doubling challenge. What you do is on the first day of the month you save 1p. Then on the next day you times the amount you saved yesterday by 2, so that will be 2p. The day after you times it by 2 again and that will be 4p. You keep doing that until the amount gets so high that you can’t double it anymore. You then take all that money, add it to your stocks and shares ISA.
  9. This is a drinking game, but can be used for saving. Get a pen and paper and watch the 80s classic The Lost Boys film. In this film Kiefer Sutherland’s character says “Michael” a lot. Make a decision or how much you will save every time he says Michael. It might be £1 or 50p or 20p. Then turn the film on and you put a cross on the paper every time he says Michael. At the end you add the number of crosses up and then multiple them to the amount you allocated for each mention. Example if you said 50p for each Michael, and Kiefer said it 20 times, that would be £10. Once you get the total you immediately move the £10 into your stocks and shares ISA. Be warned, he says Michael an insane amount of times. I reckon the scriptwriter was getting paid by the word.
  10. Lastly this is a health challenge. You reward yourself £5 for every session of fitness you do. So if you go for a run one night you pay yourself £5. If you cycle to work instead of the car you pay yourself £5. If you pull the shed out, clean it, put most things away and throw away any unwanted junk, you pay yourself £5, if you clean the car rather than going to the car wash etc etc. Add all that money up at the end of the month and not only will you be fitter, you’ll be richer and can move that money to your stocks and shares ISA.

Good luck with the challenges and remember to make sure you use the money for your future as soon as the month is over.

Congratulations, you’re broke!

There is a difference between being poor and being broke. Broke is temporary, and poor is eternal.

— Robert Kiyosaki

Broke, skint, penniless, pot-less, boracic, however you want to phrase it, you have no money. Sounds awful, but for now, let’s put a positive spin on this. Broke, is one step up from in debt, which is one step up from drowning in debt.

So if you are broke, you’ve either not accumulated debt, well done, billions of people cannot say the same, or you were in debt and you’ve paid it off. Even better, as again, billions of people cannot say the same. Being in debt and repaying it all is of course, not a teddy bears’ picnic, but it does teach you lessons about sacrifice and learning from your mistakes. Plus it installs good habits of putting money away each month to pay off you debt. This habit can then be transferred to putting the money into savings such as an emergency fund, deposit for a house in a Lifetime ISA, or adding it to a stocks and shares ISA via Vanguard and investing in one of their low cost index funds.

So if you’re looking at your bank balance and you’re completely broke, but have no debt, don’t feel down about your financial situation, feel joyous. You’re in the best position to now start saving and investing your money so later in life you will be rich. Billions of people in debt would give their left nut to be in your position.

Put a smile on your face, your financial future starts today by creating your financial goals.

How many pay days do you have left?

“Better three hours too soon than a minute too late.”

— William Shakespeare from The Merry Wives of Windsor

If you’re planning on dying the month after you retire, then there’s no need to read on. But, if you want to actually live and enjoy retirement, this article is for you.

Let’s say you’ll retire at 65 years old. Today, that seems years away, decades away. You’re not even thinking about it. You’re currently doing your best to keep your head above water. You don’t have the time to focus on retirement. That’s for the future. That’s for old people. Once you get the latest financial emergency out of the way, you tell yourself, you’ll start saving for retirement. You don’t need to start saving now because your 65th birthday is a long way away.

But… is it?

I’m turning 40 soon. That means, if I retire at 65, I have a quarter of a century until it happens. A quarter of a century sounds like it will never come. It is a long time, but let’s start dissecting that time frame. A quarter of a century is 25 years. That means in those 25 years there will be 300 months. If you get paid monthly you only have 300 more pay days.

If you save only £1 a month, then when you retire you’ll have a measly £300. Maybe enough to get you through the first week of retirement.

If you save only £25 a month, then you’ll have £7,500. Better, but if you live until you’re 100 that £7,500 needs to stretch for a long time. Impossible.

If you only save £100 a month, then you’ll have amassed £30,000. Better again, but not enough.

£250 a month.£75,000. This looks better. But if you currently earn £37,500 a year, that means it will only be 2 years of your full time salary.

£500 a month, £150,000.

£1,000 a month saved will be £300,000 sitting under the bed. Better, again.

So what am I trying to say with this post?

Time is short, and time is running out. If you’re not saving then you need to start now, and you need to start saving big. The more you save now, the better it will be for your future self.

If you are in debt at the moment, then get that repaid immediately.

If you don’t have an emergency fund of at least 6 month’s worth of expenses, then get saving now.

If your expenses are huge then you need to reduce them now and free up that money to helping with the above points.

If you’re not in a workplace pension, get in it now, enjoy the tax relief and pump as much money as you can into the pot.

As the screenwriter John Hughes wrote in his film Ferris Bueller Day Off, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.”

On pay day

Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like.

— Will Rogers

Pay day is the most important day of your financial month!

Here are some things I do on pay day to set me up for the rest of the month so that I don’t go over the limit of the spending planner.

Automate savings – You should have automation set up on your savings, and if you have it, paying off your debt too. As soon as I get paid I have a standing order that takes the money from my bank account and puts it into my stocks and shares ISA, which is held with Vanguard and I invest in one of their low cost index funds, I also automate the over payment of my mortgage.

Fill up the tank – To reduce expenses don’t own a car. Cars are a serious drain on your financial life. Just think, if you’re crazy enough to put a car on finance, please don’t, but if you did, you have the monthly payment along with the interest, plus you have monthly expenses like petrol, tax, insurance, and yearly expenses like MOT and service. And, all the problems that could go wrong with it, which will cost money to repair. A car is a money burner. Get a bike. I have a bike… And a car. Actually I have a SUV. Or the money pit as I like to call it. Anyway, I fill the tank up to the top so that I know, hopefully, throughout the month I won’t need to fill it up again, so I don’t need to think about petrol costs any more. There’s probably lots of studies about the optimum level of diesel in a tank to get most miles to the gallon, but I don’t have time for that.

A weekly/monthly shop – As I fill up the tank on the car, I then pop into the shops and get a weekly/monthly shop. I buy in bulk if possible, such as rice for the month, and if anything like toilet rolls are on sale I buy in bulk too.

Don’t spend – Then, once my savings have automatically left my account and I’ve filled up the tank and paid for shopping, I try not to spend anything for at least a day, and try and push that for as far as I can get it. The more days I go without spending the better it is for my bank account. If I’m really successful, and towards the end of the month I still have a good chunk of my spending money, unspent, I push a portion of that to my savings as a little bonus to myself for managing my money better. As Tesco say, “Every little helps”. And it sure does.

By doing the above it helps me to manage my money better during the rest of the month. I am able to work out how much I can spend and even break that down by day. It just sets me up nicely for the rest of the month. It works for me, hopefully it’ll work for you too.

What happens when you get rich slowly?

“Because no one wants to get rich slowly.”

— Warren Buffett

The answer to the question in the title of this post is simply, “You get rich.”

Jeff Bezos, Amazon CEO, and richest person in the world, asked the greatest investor in the world Warren Buffett why doesn’t everyone copy Warren’s simple method to investing and subsequently become the third richest person in the world like Buffett. Warren answered, “Because no one wants to get rich slowly.”

How true. In a world where food is delivered in minutes, we can fly to the other side of Europe in hours, we can watch anything we want in a couple of seconds and a couple of clicks, we can pop to the local shops and get the most exotic out of season fruit and vegetables 24 hours a day, we can see and talk to people in other continents as if they were in the room with us, as a society our patience is non-existent.

So if we decide one day we want to be rich, then we want to be rich that evening, or tomorrow at the latest. We don’t care if we’re drowning in debt, have expenses like an American socialite, and not a penny saved. We want to be rich, right now!

So instead of doing our research about how to become rich and finding out that almost every single rich person got rich slowly, we try and get rich with schemes like: the lottery, pyramid schemes, franchises, investing in individual stocks that we know nothing about, investing in bit coin or whatever is the latest tulip craze, gambling, stealing, selling Buckingham Palace to wealthy idiots who think you’re a member of the royal family.

Successful get rich quick schemes are as rare as men giving birth to chickens.

So, we’ve established that it is almost impossible to get rich quick, that then leaves us with only one alternative, and that is to get rich slowly. And how do we do that?

This is how:

  • Financial goals – set financial goals. How much money do you want, by when and how will you do it?Financially organised – get financially organised by knowing how much you receive in income, how much you spend in expenses, how much debt you’re in, and how much you spend with the money left.
  • Debt – pay off all debt as fast as you can. Debt is a right git.
  • Expenses – reduce or eliminate expenses, every pound you reduce an expense by, that’s another pound you can save to get rich.Save – set up automatic saving (standing orders) so that money leaves your bank account as soon as you get paid. The more money you can save, the quicker you’ll get rich.
  • Increase contributions – If you’re saving 15% of you net income, in a couple of months move that up to 16%. Then a couple of months later, 17%. Keep nudging it up as much as you can. And when you get a pay rise increase it again.
  • Increase income – ask for a pay rise, learn more skills, move jobs, get a second job, get a third job the earns passive income. Earn more and save the difference.
  • Invest – invest in the stock market every month, forever. Use low cost index funds like those provided by Vanguard or other low cost providers.
  • Own other assets – own rental properties or businesses to get other passive income.
  • Reinvest – Dividends you earn from investing should be reinvested.
  • Compound interest- as above. The rich person’s magic formula is compound interest. It means the money you earn in interest goes on to earn more money and then that money then earns more money and so on like that forever and ever. An army of money working for you 24 hours a day, every day of the year.

If you do the above, as the years fly by, you’ll discover all of a sudden you’re rich and you’ve enjoyed the process, which also gives you a path of how to continue to build and retain your vast wealth. People who get rich quick don’t understand about building wealth and retaining it. A shocking statistic I heard is that you’re more likely to go bankrupt when you win the lottery than you are if you never won it.

Get rich slowly. It’s a life choice.

Money means options

“Wealth is not about having a lot of money; it’s about having a lot of options.”

— Chris Rock

If you have no savings, or worse, you’re in debt, then your options are limited. Really, you only have two:

  • Option 1 is you be a mug and continue to not save and continue to burrow further and further into the rabbit hole of debt.
  • Option 2 is you set yourself financial goals, you get financially organised and see what is coming in, what is going out and how much debt you’re in. Then you do everything you can to pay off the debt as quickly as you can, and you build an emergency fund of 6 months’ worth of expenses.

If you choose option 2 and become debt free and have a full emergency fund, then you have a lot more options.

You can have fun options, such as you save for a lovely holiday; or save and buy outright a cheap, reliable second hand car; or save up and take a year off to travel Australia; you can save up and have a plentiful Christmas with friends and family.

You can have the sensible options, which is my choice, such as increase your savings rate, invest in the stock market using a low cost index fund from companies such as Vanguard, you can take a higher paying job that enables you to save more money, you can think about your future and start saving for retirement as those days are approaching quicker than you think.

With money comes options. Being debt free and having an emergency fund of six months’ worth of expenses will put you in the minority tier of the population, as people with no debt and an emergency fund are rare indeed. The majority of the population are in debt or drowning in debt and have little to no savings. Remember, 22% of UK adults can’t get hold of £100 immediately. That’s a worrying situation and best not to be one of those adults.

Pay off debt, save six month’s worth of expenses, then go outside and you’ll notice the sun is brighter and warmer, the breeze is cool, the trees are greener than normal, birds sing louder and people notice you because you’re smiling confidently, as if you are worry free and debt free. That’s the power of being out of debt and having an emergency fund.

Money really does mean options.

The Weekend Millionaire

I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too.

—Steve Martin

When pay day strikes, for a lot of people, it feels like the moment when a drowning man surfaces, gasping for air, knowing, finally, after all this time of drowning, he can live to fight another day. In financial terms when pay day lands, the person who had no money gets a satisfyingly large boost. If pay day falls on a Friday, then it’s a hedonistic riot.

What often happens to the majority of those living pay day to pay day is that the first thing they do when waking on Friday is treat themselves to a nice cup of tea and a pastry at the coffee shop near work. Then at lunch they reward themselves to a slap up lunch in a fancy pub or restaurant. They have a couple of drinks straight after work as they’re out with their colleagues in the pubs and bars. Hours later they stagger out the pub, stumble to a night club and buy rounds for everyone. As the night fades into the early hours, they grab a kebab and chips, and plonk into a taxi to get them home.

On waking Saturday lunchtime they’re starving and take another taxi back to town to have lunch in a restaurant. The afternoon is spent shopping for consumer junk, just an excuse to sweat off the booze they tell themselves. In the evening, friends come over, a Chinese takeaway is bought and a mate remembers boxing is showing on pay per view, only £25! They buy the contest and made a raid on the off licence to purchase enough booze to get them through to the fight at four in the morning that lasts only two rounds, which they never saw as they’d been having too much fun boozing.

Sunday morning is a two day hangover and only a full English breakfast at a cafe can sort that out. After, they go to a multiplex cinema, pay weekend prices for the film and buy buckets of Coca Cola and popcorn. After the film there’s one hour left until the shops close and they really need a new something which they didn’t buy yesterday. In the evening, too exhausted to cook, they order a pizza, only a small one and eat in front of the TV.

Monday rolls around, they wake more tired than before they went to sleep. When they check their bank account they notice two things.

  • They haven’t paid a single bill, paid off a single debt, or saved a single pound.
  • They’ve just finished having the weekend millionaire experience.

Total cost of their weekend millionaire experience: approx £330, depending on booze level.

Now let’s look at those who don’t live pay day to pay day. How do they act when pay day lands on a Friday?

  • Pay themselves first. They pay at least 10% to their future in a stocks and shares ISA via Vanguard, in a low cost index fund. Of course they pay themselves much more than 10%.
  • They pay all their expenses, electric, gas, mortgage/rent etc.
  • They eat breakfast at home and bring in their lunch.
  • They go out for after work drinks, but drink water as tomorrow they have an early run.
  • They cycle home rather than take a taxi.
  • They eat dinner at home.
  • The next morning they have breakfast at home then later go for a run.
  • After lunch they meet friends in the woods and have a hike. They cycle to the woods and don’t have to pay for petrol or parking in the woods’s car park.
  • Late afternoon they open their rucksack and eat their dinner they prepared.
  • In the evening friends visit. They share a reasonably priced wine.
  • Next morning, again, they eat at home for breakfast and lunch.
  • The afternoon is spent in the garden, attending their organic vegetables.
  • The late afternoon and evening is spent in the garden reading the latest library book.

Total cost of their weekend millionaire experience, not including food as it was already purchased: 1 bottle of wine, £20, shared between 3 people, £6.66.

£330 compared to £6.66 is a huge difference in money. It is also vastly different between spending the next three weeks worrying about money or not giving money another thought as you know you’ll have plenty left at the end of the month. It is also vastly different as the money blown on the first person’s millionaire weekend is money that’s not being invested.

Put £330 into a Vanguard low cost index fund every month, over 20 years at 8%, and that millionaire’s weekend costs over £187,000!

So think again the night before you get paid. Hold back on that first weekend after pay day. Maybe even pretend it didn’t happen, which results in you finding alternative, healthy, and free ways to enjoy yourself on that weekend.

Murder your expenses

The stuff you own ends up owning you.

— Chuck Palahniuk from his debut novel Fight Club

Decreasing your expenses increases your saving rate power.

Income is money coming into your bank account. It’s your salary. It’s the rent your tenant pays you to live in your rental property. It’s the dividends that companies pay you for owning a share in their business via the stock market. It’s the money generated from other businesses you have. Income is a good thing.

Expenses are the opposite to income. Expenses take money from your account. Expenses are also known as outgoings or liabilities.

The trick to getting rich is increasing your income and reducing your expenses. The more money you have coming in and the less money you have going out results in a surplus of money in your bank account which you can do something with. Such as:

Debt – You can pay off more debt, if you’re still in debt.
Emergency fund – You can save more in your emergency fund until you get six months’ worth of expenses saved up.
Savings rate – You can increase your savings rate and put more money into the stock market to buy more units of low cost index funds, such as the ones Vanguard offer.
Pension – You can add more money to your pension every month to save for retirement, which results in reducing the tax you pay.

Increasing income is achievable; you can ask for a pay rise, you can find a different job paying more money, you can start a small passive income business; there are a number of options. But maybe at this current moment those options are not available. One way to create more surplus money each month is to reduce your expenses.

Reducing your expenses is in your control.

There are two types of expenses.

Fixed expenses – these are usually monthly expenses, such as gas and electricity, mortgage or rent, gym membership, Netflix, curry club monthly dinner, council tax etc.

Discretionary expenses – lunches, petrol, Friday night drinks, visiting the pictures on a Sunday afternoon when it’s raining, buying a new pair of shoes, the daily Mars bar.

What you need to do first is write out all your fixed expenses, down to the last penny. A good document to use is Pete Matthew’s Meaningful Money Budget Planner. Here you’ll be able to plan your entire financial life on a single page. Also, he has a brilliant podcast, that I thoroughly recommend, and an amazing book.

Once you have all your fixed expenses written down, put them in order from highest amount at the top to lowest at the bottom. Take a look at the total amount of what all these fixed expenses equal, I bet it’s a high figure.

Now for the fun part. Your job is to remove or reduce these expenses from your life.

To remove the expense ask yourself a couple of questions, such as when did I last use this product/service and what value is it bringing to my life? An example is Netflix. If you haven’t watched Netflix this month then go to your Netflix account and cancel it. That’s at least £8.99 a month saved from now on. That’s a whopping £107.88 a year. Over 10 years that’s £1,078.88 saved. The famous blogger Mr Money Mustache has a great calculation for monthly expenses. He likes to show you how much an expense is costing you, rather than investing that money in the stock market at 7% compounded. He takes a monthly expense and multiplies it by 173. So if you invested your £8.99 Netflix subscription into the stock market over 10 years, it’s actually costing you £1,555.27! Netflix has some really great content, but even having Nicole Kidman and Leonardo DiCaprio acting live in your living room isn’t worth £1,555.27. If you don’t use it, remove it.

Removing expenses is easy, as you just cancel the product or service. But what if you need the product, such as electricity? Most of us can’t build a solar panel station in our garden to power our homes with electricity. What you can do though is look for a different provider that offers the same service or better, at a lower cost. Use comparison websites such as Money Savings Expert to get information about the best deals. Or simply call your provider and ask for a better deal. Tell them you are considering leaving and want to know what deal they can offer. Always ask for a ridiculously low price, they can either say yes, which is great, or they can talk you up slightly, and it’s still great as you’re still paying less. Or they can say no and you move to one of their competitors and put a nail in their coffin.

This exercise should be conducted regularly as these providers have a sneaky way of nudging up the prices by a pound or two every six months, So, if they can raise them you can also reduce them. You can also do this with debt, especially debt such as credit cards. Call your credit card company, tell them you want to move your debt to another credit card company as they’ve offered you a 0% interest rate for 3 years and ask your provider if they can offer something similar. It costs these companies thousands of pounds to get a new customer. The last thing they want to do is lose an existing customer. If you can get even 12 months worth of 0%, that gives you a full year where you’re not paying interest on the debt, so you can overpay on your principal for that year and get out of debt faster.

Discretionary expenses takes a little more skill. First of all you need to know what you’re blowing your surplus money on. Is it cakes or cups of expensive tea? Is it a vinyl record habit you just can’t quit, is it getting the odd taxi to work when you get up late, is it buying pay per view boxing matches that make you wait up until four in the morning and are over in the first round, is it that three in the afternoon packet of £1.50 crisps that you buy every day?

Whatever it is, you will first need to track your discretionary expenses. Do this for a month, write down every single thing you buy, you can use a credit card or debit card for this and tot it up at the end of the month, but I find writing it down manually either on paper of tapping it into my mobile telephone works better as there are some things that don’t accept credit cards, like the vending machine at work.

Once you’ve tracked how much you spend at the end of the month add it all up and categorise the items, such as any snacks you purchased, call that snacks; any meals out in restaurants, call that restaurants; or however you want to word it. The trick is to group expenses so you can see where the damage is. If you’ve blown £400 in restaurants this month, then immediately that’s a discretionary expense you need to cut. Instead of eating lunch in restaurants five times a week, cook more food at night and bring the leftovers in the next day for lunch. If you buy a tea at an expensive coffee shop in the morning, bring your own tea from home in a thermos, or buy a box of teabags and leave them at work, if, or course, your company doesn’t supply teabags. And if they don’t supply teabags, get out of there quick! There’ll be no huge pay rise coming your way.

Once you cancel or reduce your fixed expenses, and stop or reduce your discretionary expenses you’ll find you’re floating on a sea of extra money that can go to paying off debt quicker, building your emergency fund of six months’ worth of expenses or investing in your pension or the stock market for later in life. And that’s not a one off thing, that surplus of money will be there every month. Your job is to put it to use. Make it work for you to earn more money.

One analogy I like to use is imagine your bank account is a bucket. When you get paid you fill it with water. Each expense is a hold in the bucket and the water trickles out. If you can plug those expense holes then more money will stay in the bucket until one day it overflows out the top rather than through the holes.

Murder those expenses, because they’re doing their best to murder the financial you.