Spending and saving

It was reported this week that unsecured debt in the UK has reached almost £13,000 per household; so that’s debts, not including mortgages or car/large purchase loans. While some houses are doing much better/have no loans at all, some people must be in way worse shape with even higher loans.

And for what? I can’t imagine what you could need £13,000 for. I mean I hope they at least got a boat, or a sweet car, or had one hell of a weekend in Vegas. You could stay in the Shangri-La Suite at The Shard for one night, but I can’t imagine anyone doing that if it meant getting into that much debt – one night of opulence for years of interest payments?

Fantasy hotel rooms aside, I realise that for a lot of people, unsecured debt builds up because of unexpected income changes, or unexpected costs; an illness in the family or redundancy are not things you can prepare for.  But being financially healthy before these events take place, does help you to bounce back more quickly (sorry, I have no emotional counsel to offer today).

I don’t consider myself to have suffered any major financial shocks, although I have recently been made redundant, and three years ago, I moved back to the UK with no job and only a little money saved. Receiving the news that your job is ending is tough, and it’s even more tough if you are heavily relying on all of that income for payments/debts. Moving back to the UK was difficult, more for emotional reasons, but being in a position where I didn’t have to find a job immediately definitely helped (I was lucky enough to be able to stay with my parent for a long time, while I started putting my life in the UK together – and I would stress that in hard times, there is nothing so healing and supportive as a social network)

I realised in this fresh bout of personal economic uncertainty that actually, because I save a lot of my income, I don’t have to worry about financial shocks as much. Buying less stuff, which can sometimes feel restrictive, has actually saved me a lot of stress in the long run. I may get tempted by the special, state of the art, expensive mascara/skirt/gadget/furniture/ plant pot/ornament/ kitchen utensil/insert any other item here, but is it worth all that stress? Will it make me happier, really, if later on, I need that money for more important thing, and I don’t have it?

To me, this is the great lie of commercialism, of materialism. Advertising is designed to make you feel like you can’t live without something. It fulfils a social or functional utility that is completely essential… except it isn’t. It’s all a big porky!

It’s hard to say where to start with stripping back your spending (although Mr. Money Mustache has some great offerings) but for me, it starts with looking at all my essential expenses; mortgage, council tax (UK thing), energy, water, insurance, food, phone bill, for me home broadband too (we both work from home occasionally) (you might also include travel costs, or other work based expenses, and childcare costs). Even with these payments, you can compare different companies to get the best price, and with food shopping, you can make from scratch more, and spend less (if you have time!).

So total all these monthly payments (estimate if necessary), and minus this total from your monthly income. You might be surprised at what that total left over comes to – I was! Where does all that money go, every month? Well, to start seeing the rest of the picture, maybe add in what you pay for entertainment; Netflix, cable, cinema trips, evenings out with friends, holidays – these are hard to estimate in some cases, but put down a rough figure. Do you treat the family to a weekly take away? over a month this could be in excess of £150.

You might have payments for a car or loan, and they usually make a big difference to your disposable (funny that we call it that!) income. You can’t stop paying these, but would you take them out again, knowing what a big difference they make?

Now you’ve seen these figures, you can see the maximum amount you could be saving. Nobody wants to do that though, not even me. But even if you can save a quarter of this amount, you will soon have a nest egg to support you should you come into financial difficulty.

And if you don’t? What do you do with those savings to get the most out of them? Investing can be risky, depending on your options. The most important thing is to pay off all your debts, starting with the ones yielding the highest interest. Because we have just started out on our mortgage repayments, any payment we make now would save us twice as much interest. I think of this as a 200% return on our investment!

If you don’t have any debts, then buying property or low risk (low yield) investments can be a good idea – but always seek professional financial advice – the value of all things can go up and down.

Minimalism is all about getting rid of stuff… right? Wrong. To me, it’s about not buying it in the first place. Make considered purchases. Put the impulse buy down – go back next week, and if you still want it, go for it. If you don’t, at least it’s not sitting in your house, being unwanted now.

And most importantly, save yourself a whole lot of stress!

Let me know – were you surprised how much disposable income you have? Do you think you could save more?

 

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