A couple of years ago, while doing the old gig, I wrote a post on spending that got picked up by one of the papers. Myself and one of the journalists there ended up doing a quick telephone interview on the topic of how I budget and decide what to spend my money on.
And I thought no more of it until I heard from a few of my mates that my mugshot, and the piece itself, had made it onto the Bing homepage.
It was a total hatchet job. The way it was written made me come across like a complete whopper (which I don’t think I am, but you may have your own view by now).
You can find it pretty easily if you really want to, I won’t link to it here - truth be told the whole affair makes me cringe to a medically dangerous level. Needless to say, if you do end up digging it out and want to have a look in the comments I would advise popping on a Hazmat suit first.
I promise that I am not writing this to look for sympathy, but to make two main points. First - don’t buy the Mail.
Second - nothing in the world of personal finance gets people riled up quite like an article about how someone spends their money.
We all have very deeply held personal beliefs about the “right” and “wrong” things to do with money. These beliefs are often formed by what we see and experience when we are young, and are therefore doubly powerful.
The consequence of this is that when Terry from Tunbridge Wells sees someone who he thinks is being wasteful with his money, or isn’t “doing it right”, his head explodes.
As Paul Armson observes, people can be broadly divided into three categories based on the amount of money that they have to last the rest of their lives - “Not Enough”, “Got Too Much” and “Just Right”.
The personal finance industry is obsessed with brow-beating those in the first category. “Don’t you dare buy that daily coffee or else you’ll end up destitute”.
This kind of scaremongering isn’t only deeply tedious, espoused by people whose idea of a good time is watching paint dry - but it is also illogical.
Saving small amounts of money by giving up little joys is, by definition, only going to have a modest impact on your situation. Instead, if you need to cut back then start with your big fixed costs (mortgage, car, credit cards) and work from there.
Being over-focussed on cutting back spending also misses the fairly large point that you can only cut back so far. Only a finite amount of juice can be squeezed from that particular orange.
By contrast there is, in theory, no limit to how much you can increase your income by. I know it might seem blindingly obvious when it’s written down, but given the emphasis in the financial media on spending reduction I fear that this message gets lost sometimes. It is at least as easy to increase wealth by looking at the other side of the ledger and increasing your earnings.
Invest in yourself, change job, start that business, use your savings to buy shareholdings in the best businesses on the planet. Taking all of these steps is going to have a much higher impact on your long-term situation than choosing not to walk into one of the 11,959 Prets in London every day.
Typically, but not always, I tend to work with folks who are approaching retirement or who have recently retired.
These people, again generalising slightly, tend to have done the “right things” financially during their lives and have built up a healthy nest egg to live off. The challenge then becomes transitioning from a mindset of saving to a mindset of spending - and this can be a real struggle for folks who have gotten so used to delaying gratification in order to save for their futures.
Well, the future has now arrived and it’s time to go and enjoy themselves. But they can’t, because they are stuck in the mindset that has served them so well during the saving phase of their lives.
There are bigger issues in the world than retirees not spending enough for sure, but this seems to be a recurring theme globally. Affluent retirees are consistently under-spending relative to what they could be.
Adjusting your mindset in retirement quickly matters, because the early years of retirement are the ones where people are still able to do the stuff that they want to. There will come a time where the trips abroad, the golfing, the sailing, whatever it is - becomes a chore, rather than a habit.
Once you reach a certain point, spending will naturally slow down as you do too. You need to enjoy yourself while you can.
While the choices that we make give us a fair amount of control over the amount of money that we have left, none of us can be sure how much time we have left. There is nothing that we can do to stop the invisible finish line moving ever closer.
For anyone who struggles with feeling confident and comfortable spending money, my advice is usually this - work out what you really love doing, where your passion lies, and spend extravagantly on this. If you feel that you want to, scrimp and save on things that you don’t really love or that are necessities.
Taking this approach allows you to still feel that you are being prudent - whilst absolutely maximising the pleasure that you get out of the things or activities that you enjoy.
I included “things” in the last sentence deliberately. There is a popular narrative that people are best advised to spend their money on experiences, like this is somehow more worthy or valuable.
Please remember, there are no rules - if your thing is stamp collecting, that’s great. Go big on that.
Everybody’s thing is different. It will sound really silly to loads of people, but my definition of financial security involves being in a position where I can, at any point in time, drop everything to go to any football match anywhere in the world.
The other side of the coin, is that I have zero interest in fashion and buy the same £6.99 t-shirts every couple of months. Each to their own.
Although there are some good rules of thumb to follow, there is no “right” way to do this thing. Some people budget, some people save, some people spend, some people are organised and some people are winging it.
That’s ok - we are all human beings, we don’t exist in an objective world. We exist in a fuzzy, subjective world where all of us are just trying to make it work as best we can.
The absolute last thing that I would want anyone to do is to disengage from their financial situation because they feel that there is no hope for them. We are all different, and different is good.
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