Alan's Blog




Save or Spend?

Saving your Cash


How to get RICH!

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 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!

I well remember a time when there were no credit cards and few people borrowed money on what was then called HP (Hire-Purchase). In those days people were thrifty and only bought what they could afford. Even mortgages were limited to a maximum of three times the gross earnings of the principle bread-winner (in case the wife became pregnant and thereby stopped working). In actual fact, few women worked as their place was considered to be at home looking after the family. Those were sensible times. Now what we have is nonsensical times where people spend, spend and spend even more than they can realistically afford, so borrow, borrow and borrow even more than they can realistically hope to pay back. Many people have no savings at all and still owe large debts. The ability to borrow even more on mortgages is one of the reasons why proprty is now so expensive, so this has not done us working-class people any favours at all - quite the opposite in fact.

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.

So, how else can you save money? By not spending it in the first place. I knew someone who was always complaining that she didn't have any money as it was all going into paying the mortgage and other expenses for her own home. In reality, she never had any money because the smoked, drank a lot of alcoholic drinks, went to night clubs and travelled by taxi. She couldn't see the problem with this as she 'wanted to have a life'. She sold her house! How stupid is that?

Nearby to where we live there are a couple of pubs of the 'drinking house' type. Every time we drive past there are people standing around, inside and outside, drinking and smoking. They don't look to be very affluent. In fact, they look to be quite poor. Is it any wonder? The average price of a pint of beer in a pub in the UK is about £3.70. The average cost of one packet of 20 cigarettes is about £10.80. So that adds up to a cost of £14.50 for just one of each item per day. That adds up to £435 per month or £5220 per year. No wonder those people in the pub look poor. Imagine what this would be over a period of just ten years:

They would have saved £52,200
Add compound interest even at only 3% per annum over ten years: £8,739.49
Total saved: £ 60,939.49

Over 25 years that would amount to: £194,498.44. Quite a nice sum for just giving up smoking and drinking in the pub. Alternatively, that money could be used to pay a mortgage and in 25 years you'd have paid for your home and the value of your home would be much higher than at the start of the 25 year payment period.

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.

As I've stated previously, the way to save money is not to spend it. This may seem an obvious statement of fact, but how many of us adhere to it. We often hear stories of fabulously wealthy people who have a reputation for being mean – really tight-fisted with their money. That's the main reason why they are wealthy. It's all about what my mother used to call 'budgeting'. Economics might be a more modern expression. However, regardless of the name, let's think about how we can become wealthier or, at least, how we can possibly realise our dream or live better.
A few months ago, I watched a video on 'YouTube' that taught me something useful. It was about a couple who had a dream to give up their jobs and travel the world in a motorhome. They were ordinary folk like most of us are. What was extraordinary was that they achieved their dream at quite a young age. They achieved this by NOT spending more than they really had to and investing what they saved. They realised their dream whilst aged in their early forties if I remember correctly (might have been younger). Seems pretty good to me.

Some simple examples of this:

If you go into somewhere like Starbucks or Costa Coffee for a drink of coffee it will cost you, depending on what you choose, about £2.50 per cup of coffee. If you do that every working day for 45 weeks per year it will cost you about £562 per year. That's big money. Do that for ten years and you are looking at over £5600. That is £5600 (plus increases in prices during that time and, more importantly, the money you can make from the interest on this amount) towards your dream – or your early retirement. Can you do without your expensive coffee every day? Of course you can. Imagine how much you could save by cutting all unnecessary expenses every day and continuing this for, say, twenty years.

Or, how about a glass of wine every day? That's a good few thousand pounds over twenty years.
It's a matter of prioritising your spending. Of course, you could argue that it's all about quality of life too and if you didn't get your expensive coffee or glass of wine every day life wouldn't be worth living. That's your choice. Just like people who spend a fortune on dining out every week and never have anything to show for it at the end of many years.

Many people buy their lunch from local food outlets near to where they work - or even a pack of sandwiches and a soft drink from the local store. Others use the 'work's' canteen or staff restaurant every day for their luches and snacks. The money spent on these facilities only profits the business concerned - not you! Take your own packed lunch and drinks and you will save thousands of pounds during the course of a year- then muliply that by, say, ten years, and you'll have a large amount saved.

Having seemingly been forced into retirement I'm now having to look at how I spend money much more closely that I used to. It's been quite a useful exercise. I now have a very good idea of where our money is going and we can now decide on what to stop spending money on in order to save that money for other things.

The other day, Grace said to me that we won't now be able to afford holidays. I tried to explain to her that travelling was my raison d'être so not having holidays / stopping travelling was definitely not an option. Quite frankly, I'd rather sell the house and live permanently in our caravan and go touring all over Europe than give up travelling. However, by being careful it shouldn't come down to selling the house – although I still prefer the caravan.

Remember; less is more. Less spending amounts to more saving.

That's my choice – never mind the expensive coffee! The wine might be something else though…….!

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