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.

The real cost of debt

If you think nobody cares if you’re alive, try missing a couple of car payments.

— Earl Wilson

Debt’s bad, debt holds you back, debt ruins lives, blar blar blar. I’ve banged on long and loud about debt and the problems it causes. But even with writing article after article and telling everyone I meet about how bad debt is, I discover debt is still around.

So let’s play a good game. It’s called “The Real Cost of Debt”, with a subtitle of “Money You Like to Earn Then Give Away Immediately to Other People so That They Can Become Rich and You Continue Working Until the Day you Die.” Catchy!

The rules are like this. Make a list of all the debts you have, mortgage, loans, credit cards, overdrafts, pay day loans, late library fees, everything. Put all the names in one column and in next column how much you owe in total. Then in the third column put the interest rate of each debt. Now we’ll work out how much each piece of debt costs us every month. To do this I used various calculators from the amazing calculator.net

For an example we’ll use a fictional person, Wayne, with some debt.

  • Mortgage – £280,000 – 3%
  • Car finance – £20,000 – 4.9%
  • Credit card – £10,000 – 19.9%
  • Bank loan – £5,000 – 3.6%
  • Total debt £315,000

Now let’s look at the amount of interest paid on each piece of debt.

Mortgage – £280,000 – 3%
The mortgage has just begun so Wayne will be paying the highest amount of interest as he has 32 years to repay his debt, and the interest is highest at the beginning of a mortgage.
The first year of interest will cost in total £8,327.59.
An average of £693.97 a month!

Car finance – £20,000 – 4.9%
With his new house Wayne also had to buy a new car that he’s financing over 5 years.
The first year or interest will cost in total £449.72.
An average of £37.49 a month!

Credit card – £10,000 – 19.9%
Wayne bought a load of junk to fill his new house, like a second TV for the kitchen and a rowing machine for the garage, although it’s already full of unused stuff from his previous house.
As Wayne is paying so much back on interest already, he decides that with his credit card he will only repay the minimum payment of £166.
Working out interest of a credit card crashes my calculators. That’s how big it is.
The first year or interest will cost in total £1,705.
An average of £142 a month!
Oh yeah, and just to mention, that £10,000 will take 35 years to repay and cost £59,678.30 in interest alone. Almost 6 times the cost of the initial debt. That 12 slice toaster better be worth it!

Bank loan – £5,000 – 3.6%
Wayne owed some people some money. Don’t ask. So he got a loan from the bank over 5 years.
The first year of interest will cost in total £94.
An average of £7.85 a month.

So let’s finish the game and add up the scores of how much each debt costs Wayne per month.

Mortgage £693.97
Car finance £37.49
Credit card £142
Bank loan £7.85
Total £881.31, just in interest! Remember I didn’t include the principal amount of the debt where he actually pays for his house and car.

That’s a yearly interest payment on debt of £10,575.72!

If you put that in the stock market, and got a 10% return for the next 30 years, and you never added another penny to it, after 30 years you’d have £184,539.99.

That, my dear friends, is how much debt is costing you. And remember, the above is only for 1 year! There’s loads more years of paying back interest when you’re in debt.

Imagine putting £881.31 a month into the stock market with the 10% return and 30 years. You’d end up with £1,818,004.

Debt. It’s a right git, I tell you. Do everything you legally can to get out of it as fast as you can.

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.

Not even £100

Take action, and take action now.

— Brian Tracy

I stumbled across an article today from The Independent, by mistake mind you, as I don’t read or watch the news. But a portion of the article shocked me. It said: “22 per cent of UK adults have less than £100 in savings, making them highly vulnerable to a financial shock such as losing their job or incurring unexpected bills.”

Wow! Not even £100 in savings. You could save 28p a day in a penny jar and have over £100 at the end of a year. Yet 22% of all UK adults don’t have that much money saved.

From a website, I got the following statistics. There are roughly 66 million people in the UK as of 2019. About 53 million people in the UK are adults.

Almost a quarter of all adults (22%), that’s 11 and a half million, don’t have even £100 in savings.

If all those people who don’t even have £100 in savings got up and moved to their own country, they’d be the 77th largest country in the world. Bigger than Belgium, Greece, Portugal, Hong Kong, Singapore, Denmark, Norway, New Zealand, the list goes on.

In the article it talks about these 22% are, “highly vulnerable to a financial shock such as losing their job or incurring unexpected bills.”

There is no way £100 in savings is going to ride the rough sea of losing their job. It won’t even cover a bill such as excess on car insurance if they have a prang. £100 will hardly deflect any type of emergency that comes up. It might deflect a hiccup, such as your only pair of shoes just fell to pieces, or you need a new passenger side tyre. But anything that is “emergency” size, such as losing your job, the boiler blowing up, or your car eventually dies. £100 won’t make a ripple in the ocean.

If you are in this situation, what should you do?

The first thing to do is don’t panic… There are over 11 million others floating around on driftwood in the ocean with you, so you’re not alone. But you need to immediately start looking for land to get some security. You can’t worry about the rest, you need to worry about you.

What you need to do is build an emergency fund… of a lot more than £100.

An emergency fund is a pot of money, that you can get your hands on immediately, such as going to the bank and withdrawing it. This pot of money is magic, as it stops you going into debt to pay off any emergency that arises. The problem for these 11 million adults is that if an emergency happens, they don’t have an emergency fund, they don’t even have £100. So they really only have a couple of options, all are not good.

Option 1, live with the emergency and save up. This might work if your car breaks down and you work close enough to walk, run or bike, but it doesn’t work if your boiler blows up and it’s the middle of winter.

Option 2, borrow off friends or family. This option is not good for relationships and should be avoided.

Option 3, borrow, either in the form of a loan, credit card, or any type of other lending such as the dreadful pay day loans. Option 3 is the worst option, as a £1,000 emergency ends up costing you a lot more when paying interest to the lender. Nope, there really is only one real option, and that’s build an emergency fund as quick as you can, before disaster strikes.

This will take time, patience and a drizzle of sacrifice.

The end goal is to get an emergency fund of at least 3 months of your expenses, but the preference is 6 months. Example: if you add up all your bills: gas, mortgage/rent, water, food, electricity, broadband, gym, etc, that figure will be your monthly figure: let’s say £1,000. You then need to save between £3,000 and £6,000. So for 6 months of expenses you need £6,000.

The odd thing is, once you get that emergency fund up and running and full of money, emergencies stop happening.

Conclusion

If you are one of the 11 and a half million that doesn’t have £100 in savings, I feel for you. But, no matter what’s going on in your life, it’s time to start making some changes and begin to build that emergency fund. You’ll feel mentally and physically better as you begin to save each month and see the fund building up. As your financial life improves, your health and well-being follows suit.

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.