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.

New UK tax law introduced!

“…but in this world nothing can be said to be certain, except death and taxes.”

— Benjamin Franklin

Start screaming and shouting. If the good citizens of the United Kingdom didn’t have enough tax to pay on their salary already. what with income tax and national insurance contributions, a new tax law has been introduced.

This means that people will have less money to spend. This will result in people being unable to by a new car every year that depreciates quicker than the Titanic sinking. This results in people being unable to buy a second TV for the shed. This means that people can only go on holiday three times a year.

Tax, how we do so hate you when we look at our payslip every month.

And now a new tax, which, would you believe, doesn’t even get taken from our gross salary, but our net salary!

This tax was introduced by the American motivational speaker, Tony Robbins, of all people. He doesn’t even work for the UK government.

So here’s how the tax works. From your gross salary the UK government tax a percentage for income tax, either 20%, 40% or if you’re doing really well 45%. Then they take national insurance contributions at 12% and then 2%. These taxes goes to frivolous things like hospitals, schools, fire departments, police stations, rubbish collectors.

Then Tony Robbins’s tax gets introduced. Mr Robbins says once you pay all your government taxes you’re left with your net salary. With this money you need to pay all your expenses and buy lots of consumer junk you don’t really need, like the ninth pair of jeans. But, Mr Robbins says, before you pay your expenses and buy junk, why not pretend you’re getting taxed again and save 20% of your net salary?

Who does he think he is? Taxing our hard earned money and stopping us from buying fidget spinners and singing fish. And what pray tell does Tony recommend we do with this 20% net salary tax? He only wants us to go and invest it in a low cost index fund. I like Vanguard by the way.

So let’s put that to the test just to prove that this is once again another tax that’s eating our hard earned money when we could be spending it on the third Chinese takeaway this week instead.

£1,000 is our net salary.
£200 is the dreaded Tony tax.
£2,400 is the yearly amount we’d get taxed. Disgusting.
£12,000 is the 5 year amount we get taxed. Horrendous.
£24,000 is the 10 year amount we get taxed. Lord have mercy.

So after 20 years the Tony tax would have taken £48,000 of our net salary. And that’s if we never receive a pay increase in 20 years. If we did, he’d tax even more!

Oh, and I forgot to calculate that he wants us to invest it rather than letting it die a death in our minute interest savings account. Let’s look at an 8% return and see how much our taxed money would grow to.

£1,000 is our net salary remember.
£200 is the dreaded Tony tax.
£2,486 for 1 year in the stock market.
£14,588 is the 5 year amount we get taxed.
£36,024 is the 10 year amount we get taxed.
£113,799 is the 20 year amount we get taxed.

I decided to look at the 40 year amount, just to really get riled up. Do you know that it would be £644,215. That’s well over half a million pounds. Almost two thirds of a million!

That Tony tax would live in a stocks and shares ISA, which for once, is tax free… So, £644,215 would be ours, tax free… Oh. Right. Maybe this Tony tax isn’t such a bad thing after all.

Okay, I’m on board. I’m a believer.

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.”

How much should I save?

The first $100,000 is a bitch.

— Charlie Munger

10% is what most people will tell you is a good savings rate. And if you do that, you’ll retire at aged 65-70 with a good chuck on money. Well done.

But… you’ll soon be dead. Even if you have a good innings and make 100, that’s only 30 years. And probably when you’re 97 you’re not going backpacking around Australia, you’re probably doing very little.

So, how can you have tons of money at a young or youngish age? Answer: increase your savings rate.

11% is better than 10%, and 12% is better than 11%. But you should go aggressive. 25%. 40%. People in the FIRE (Financially Independent Retire Early) community do 50%+. Some as much as 85%. Sounds bonkers and not achievable, yet people are saving that much.

To improve your savings rate one thing you can do is look at all your expenses and reduce them. Do you need Amazon Prime, Netflix, Sky, Hulu or can you just have the best one or even the cheapest one? Or better still, how about none? Have you changed your service provider for your electricity, gas, internet etc and got a cheaper deal? Can you walk/cycle to work rather than using the car? Are you eating at restaurants for lunch every day like a mafia boss? Then cook more the day before for dinner and bring it in as lunch the next day. Take a look at all your expenses and see where you can shave some money off. And when you do shave some money off, don’t just use that money to buy a TV for your toilet, add it to your savings rate.

Another good thing to increase your savings rate is nudge it up by small increments regularly. If you’re saving 17% of your net income every month, in three to six months time increase that to 18%. Do the same again in another three months and get it to 19%, and so on until you can’t go anymore. You soon learn to live life comfortably without that additional percent reduction.

And one more quick tip, if you ever get a pay rise, then move all of the amount you received in the rise and add it to your savings rate. The reason is you’ve been living comfortably without that extra money before, so why would you need it now? A 2-3% percent pay increase every year will soon snowball your savings into a Monopoly sized wad of dough.

And lastly, if you really struggle to save anything, then begin with just saving 1% of your net salary. Doing this is better than saving 0%. So if your net salary, the amount in your account after taxes, is £1,000 a month, and you save 1% of that, then you will save £10. When the next pay day comes, you do the same thing. You do this for three months and then move up to saving 2% and you keep increasing every couple of months until you have a high savings rate, and can live in comfort. And when I say comfort, I don’t mean you buy a new pair of trainers every week type of comfort.

Good luck and get saving.

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.

Increase your contributions

Do the best you can until you know better. Then when you know better, do better.

— Maya Angelou

Regarding money, a lot of people like to tinker. They move their savings from one account to another, then maybe put it in a cash ISA, then maybe move it to a stocks and shares ISA in pursuit of a higher interest rate. Then move it to a different ISA provider, then move it to the latest internet bank offering a better interest rate with only a £2 a month fee. And on and on it goes. People love tinkering. And if they are investing, it’s even worse. They sell this stock and buy that stock. They move from stocks to bonds and back again. Then they move their money to currency trading, then peer to peer, then to crypto currency. Back and forth, around and around. This broker and then that broker. All the while picking up expensive transaction fees.

What people really should tinker with is their contributions. They should pick a good returning cash ISA, if they are building their emergency fund, and then stick with it, until their interest rate term changes. If they are investing in the stock market they should pick a low fee stocks and shares ISA with a provider like Vanguard, and then invest in an index fund with great diversification. After that the only tinkering they should be doing is with their savings rate.

If they are saving 10% of their net salary each month, they should then tinker with the savings rate and increase it, on a regular basis. Maybe three months after saving 10% of their net salary they then increase it to 11% or 12%, or be bold and go to 20% or 30% or 50%+. And they should rinse and repeat this often. Your savings rate is one of the most important things you can control in your journey to becoming financially independent.

If you get a pay rise then this should be a mandatory step for increasing your savings rate. You should increase your savings rate by the amount of pay rise you received. This is because you’ve been happily living off your salary before the pay rise, so you’ll continue to live off the same salary as before and bank the increase each month.

This approach should also happen when tinkering with your workplace pension. You should nudge that up regularly as well, and especially after a pay rise.

So rather than trying to be Gordon Gecko and selling high and buying low, as the majority of the smartest people in the world of investing fail to do this, so why should you be any different? You should instead tinker with your contributions and keep increasing them, even by 1%, and it will make a hell of a difference.

To close, allow this example of a 1% difference.

Let’s say as a net salary you earned £1,000.

So a 10% savings rate would be £100. Invest that £100 a month in the stock market and get a 7% return over 40 years and the amount would be: £247,154.20.

Now 11% is £110. Only £10 more a month. Maybe the cost of a pint of beer and a glass wine. Do the same calculation above and the total is £271,869.62.

The difference is a whopping £24,715.42! Just for an extra 1% increase.

Let’s look at an extra 10%. So our savings rate is £20% or £200 a month. Same calculations, and the total is: £494,308.40!

Tinker with your contributions, leave everything else alone. You will increase your wealth and minimise fees.