The hardest part of investing [1] for me was learning how to save. My partner and I spent all we had, though we knew the future would catch up with us in the end.
Restraining [2] our present-day spendaholic selves was the best decision we ever made and has given our future selves a fighting chance.
And though our investment train [3] is rattling full steam ahead, the amount we save right now will make a critical difference to whether we hit our financial goals.
The trick is knowing where to start. Many people I know fling their hands up in despair at the wall of challenges they face:
- Mortgage [4]
- Living expenses [5]
- Emergency fund [6]
- Education fees [7]
- Pension contributions [8]
It seems impossible to even begin chipping away at this list on a moderate income.
Yet every journey begins with a single step and, in my case, a website.
Savings saviour
To change the bad habits of a lifetime you need a helping hand. I found it at MoneySavingExpert.com [9].
I’d like to say it was a book that changed my life, but really it was this website.
You may well know about it already. The site’s owner, Martin Lewis, is like a TV evangelist: preaching and teaching Britons how to save cash.
The site is most potent when used as a complete programme to turnaround your finances [10]. It maps the way forward with the inspiration, knowledge and tools to dramatically change your spending habits.
The first move has to be yours. I had to admit that the way I was running my financial affairs (or rather ignoring them) was a problem.
But then Ms Accumulator and I used MoneySavingExpert to do something about it.
Step 1: Budget control
Where was all the money going? We thought we knew, but the truth was our bank account had more leaks than the water board.
The scales only fall from your eyes when you budget for everything – from your early morning Starbucks to your summer holidays.
That sounds like ten shades of agony until you discover the hard work’s already been done for you by MoneySavingExpert’s Budget Brain [11] (scroll down a bit after clicking through).
This fantastic tool rounds up every relevant expense in easy-to-swallow online form. All you’ve got to do is fill in the numbers to see the state you’re in.
Once you know where the money goes, you can work out how to stem the flow.
Step 2: Cut the bills
Yep, it’s obvious. We pay so many bills it’s like we’ve got financial fleas.
But if we can cut the blood-suckers down to size then there will be a bit more cash left at the end of every month to have some fun with (like sticking it away for 20-years in a low-cost tracker [12]. That’s my kind of fun!).
It may be obvious, but so few of us find the time to get a good deal. Or we sort out the gas and electricity but forget about squeezing insurance premiums or motoring costs.
Again, MoneySavingExpert charges to the rescue. The site’s easy-to-follow guides show you how to score a great deal without wasting your life.
Go to the full Money Makeover page [13]. Here all life’s expenses are lined up like ducks in a row. Shoot them all down. One-by-one. Large and small.
Martin Lewis reckons the average person gains the equivalent of a 25% pay-rise by completing the makeover.
I don’t know exactly how much we’ve saved [14], but it’s easily hundreds of pounds a year.
Step 3: Re-value everything
Here’s the key question Ms Accumulator and I had to ask ourselves:
What do you really enjoy in life?
The answer more than doubled the amount we could save.
With our spending habits laid bare by the budget-planner, we could go down the list and cross out the things we didn’t really need / want / think were worth the money.
[15]
Personal finance sites invariably home in on a classic list of wasteful expenditures:
- Satellite TV
- Gym membership
- Magazine subscriptions
- Eating-out at lunch
- Ready-made meals
- Fast food
- Fast cars (in our case!)
- Anything replaceable by own-brand goods
In fact, anything that’s bought on auto-pilot should be scrutinised and struck off where possible. Especially if it’s on direct-debit: the evil leech of income.
There are a couple of excellent tools to assist your austerity drive:
1. MoneySavingExpert’s Demotivator tool [16]
This is a shock-tactic designed to stop you spending. It reveals your annual outlay on any particular item and how long you must work to afford it.
It turns out that I spend £143 a year on my weekly bacon sandwich. I could have 10 shares in a property ETF for that.
2. The ‘before-tax’ price tag
Buy a shirt for £40 and it actually costs the average Joe about £58 in earnings before tax.1 [17]
That shirt was an expensive luxury at £40, but now I realise I’ve got to earn £58 to pay for it, I can’t put it back on the rack quickly enough.
The pay-off
The idea isn’t to make yourself miserable every time you spend a penny, but to find simple ways to make yourself think twice about what’s really worth spending money on.
- The Demotivator tool helps you visualise whether seemingly harmless expenses are worth the long-term [18] cost.
- The before-tax price tag helps you resist the allure of the impulse purchase. If adding almost 50% to the price of an item helps you see its true cost then you can assess its true worth to you, even in the heat of consumption arousal.
It’s easy to get embarrassed about thrifty living [19] and write yourself off as an old skinflint [20]. But the emotional pay-off of controlling your spending is every bit as great as the financial benefits of saving more.
We know we can’t afford everything we want, and trying to do so is a short-cut to anxiety and possible disaster.
But by working out what we really value in life, we spend more time doing the things that actually make us happy while saving enough to secure our future financial well-being [21].
Take it steady,
The Accumulator
- Approx, assuming income tax @ 20%, National Insurance @ 11%, and not worrying about personal allowances, thresholds or the odd penny. [↩ [26]]