Alan's Blog




Save or Spend?

Saving your Cash


My mum used to say to me, when I was a youngster, something like: "A man who has an income of £1 and spends 19/11d is a happy man. A man who has an income of £1 and spends £1 and 1d (£1.01) is an unhappy man". This was pre-decimalisation, of course. However, the message is the same now as it was then: Spend more than your income and you'll be unhappy. As this applies now to most of the UK population there must be a lot of unhappiness around at this time of the year (Christmas and New Year) when many people will have given their credit cards a good hammering with the prospect of not being able to pay them off until the end of the following year – if at all! The debt figures in the UK are truly horrendous.

Here is something really shocking to consider:

Britain’s household debt mountain has reached a new peak, with UK homes now owing an average of £15,385 to credit card firms, banks and other lenders, according to the TUC (Trades Union Council).

The trade union body said household debt rose sharply in 2018 as years of austerity and wage stagnation forced households to increase their borrowing.

The TUC said in its annual report on the nation’s finances that the amounts owed by British households rose to a combined £428bn in the third quarter of 2018. Each household owed £886 more than it did 12 months previously, it said. The figures do not include outstanding mortgage debts but do include student loans.

The level of unsecured debt as a share of household income is now 30.4%, the highest level it has ever been at. It is well above the £286bn peak in 2008 before the financial crisis, the TUC said. That figure also included student loans, but tuition fees then were £3,000 a year compared with up to £9,250 now.

Courtesy of The Guardian at URL:

And this doesn't include the debt of mortgages!

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For those genuinely trying to save even a small amount of cash for something, or even for a rainy day there are ways of saving small amounts that won't be too taxing for most people. Many years ago, probably around 1995, I started to save a small amount of cash every day. My method was to first find a large glass jar which I placed on the window sill in my bedroom, then, every day when I came home from work, I'd empty my pockets of any coins that were in them and put them into the glass jar. At some time in the future, I noticed that there was special offer on satellite TV equipment – the dish, receiver, LNB, cable and installation for a total of £200. This was a really good deal at the time so I applied and sure enough I soon got my satellite TV system installed and working. To pay for it, I emptied my glass jar of coins and there was enough money to cover this expense and I didn't have to take any money from my bank account or any other fund. Not only that, but I didn't even notice the small amounts of money out of my pocket every day but I would certainly have noticed if I'd suddenly had to shell out £200 from my bank account – or, even worse, paid for it using my credit card.

There are, of course, many ways of saving money apart from having a glass jar on the window sill. One method is the 1p challenge where, at the start of a year of saving you place 1p in your savings pot and increase the 'donation' to the pot by 1p every day of the year.  It goes like this:
Day 1 – 1p
Day 2 – 2p
Day 3 – 3p

And so on:

Day 150 - £1.50
Day 151 - £1.51
Day 152 - £1.52

At the end of the year you'll end up with a savings pot of £667.95 (or £671.61 in a leap year). Not a bad little earner for money you won't even notice donating to your savings pot on a daily basis. You just need to have the discipline to see it through every day. If you made the donation 2p per day you'd end up with an even bigger pot of savings for such a small amount each day.

If you doubled your daily donation as follows:

Day 1 – 1p
Day 2 – 2p
Day 3 – 4p
Day 4 – 8p
Day 5 – 16p

And so on. After just three weeks, you'd end up with nearly £21000 – although that's not a realistic target for most people, but you'll get the idea, I'm sure.

Of course, not having any debt at all is the best way of living but how many people have the discipline to buy something ONLY when they have the funds to do so? It would save them a lot of money on interest payments if they lived in this way – especially if they rely on credit cards to pay for things. Car loans are another major debt problem with about 86% of new cars and many second-hand cars financed by some sort of loan scheme – and deposits often paid by credit card! I understand that 95% of total car purchases are paid for using borrowed money. In fact, most motor dealers add considerably to their profits by commissions paid by the finance companies who provide the customers with the money they need to buy the car – the very customers who pay the motor dealers not only for their new car but also their fat commissions!

A few years ago, I worked as a contractor for a company that employed about 100 to 120 people. Once the main project had been completed the bulk of these people were laid off. Some of these people had been employed on the same site (via different companies taking over etc.) for getting on for 50 years. Many of the younger people had mortgages, car loans and other debts. I wonder how they coped with the sudden loss of earnings. And that was just one company. Many others have gone by the wayside in recent times. No wonder that about 85% of the UK population have debt problems!

A few weeks ago, we had to go to Manchester Airport and on the way home Grace and JP asked me to take them to the nearby Trafford centre. The place was heaving with people buying everything that could be obtained in this huge shopping mall. There was nothing at all there that was of interest to me as there was nothing I needed or wanted. In fact, I said to Grace and JP, that the place we were in was a Temple to Materialism. Apart from a couple of items of clothing for JP we came home having spent very little but could clearly see the attraction it would be for some people to go mad with their credit cards and rack-up a huge debt problem. The bright lights and advertising were just amazing and could easily tempt the unwary into making unnecessary purchases – which of course is what they are designed to do.

The only way to save money is not to spend what you have in the first place – save, not spend, should be everyone's motto to act upon – and remember the enemy of life, but the friend of the saver is: TIME! It is far easier to spend money than accumulate it.

If you save over a long period of time, remember what Einstein is believed to have said " Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. Compound interest is the most powerful force in the universe. Compound interest is the greatest mathematical discovery of all time"

I think about this every time I receive a payment from my private pension fund. I paid into a scheme for about 12 years from 1977. I was a young man at the time and didn't really miss the pension contributions from my salary. When I started paying into the scheme, I was only earning about £5000 / year (gross). When I stopped paying into the scheme, I was aged 39 and earning about £18500 / year (gross). I guess my pension contributions would be about 10% of these figures. At the age of 61 I started drawing my pension, realising a nice lump sum and a monthly income. Overall, I have benefited hugely from compound interest / investments made by the pension fund and have received far more from the fund than I paid in – and that will continue even after I've passed from this world into the next for the benefit of Grace (and JP if he's still under the age of 18). I just wish I'd continued paying into the fund after I'd left by paying additional voluntary contributions. I'd be able to retire now and live comfortably had I done so. Start saving when you're young and keep at it until you retire paying in as much as you can afford and increasing your contributions every year above and beyond the inflation rate.

That would be a good new year resolution for every young person – and a few older folks too.


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