The Alphatucana Website

How is it possible to achieve a decent lifestyle, or a dream holiday, or anything much really, when starting from nothing, or even in debt? The answer seems to be to work hard and save up for it. Sorry, but that’s the method used by most self-made millionaires. Most of them also run some small business of some sort too, but they had to get capital together before starting. The lucky ones had wealthy parents; the rest did not. Now, first of all…

Are the Banks Safe Places to Save?

Well, in a word, no, but there’s not much choice for small amounts when you’re starting out really. There are building societies, savings and loan institutions (USA), post office savings, a few hard-to-find and hard-to-join credit unions, and that’s about it. As we now know, if we didn’t previously, from the Cyprus crisis and from historical thefts of savings elsewhere such as the forced conversion of Consols (government-backed bonds) into War Loans in 1916 in the UK, that government guarantees are worthless in a crisis.

So anyway, there are building societies in Britain; a small number of credit unions, and not much else. When you can, put at least a little money into ISA’s (still government/bank based though), shares, gold coins, silver coins, other currencies, foreign shares, and so on. The key word is ‘diversify’.

It is worth pointing out that in his latest Budget, the British Chancellor of the Exchequer, George Osborne, has done what most sensible people would guess to be the wrong thing to try and help the UK economy recover from its current depression. Rather than make the drastic and unfortunately politically suicidal cuts to government spending that are really required, he has taken the path that politicians always take in such circumstances. He is trying to encourage the public to spend more and more money that they don’t have with his mortgage guarantee and similar schemes, and with low interest rates on their corresponding debts. In other words, rather than liquidating debt, which is how all historical depressions cured themselves, he is actually trying to increase debt with the basically stupid idea that more spending of phantom money will fix the economy. Unfortunately, that, along with continued “quantitative easing” (printing money out of nowhere), will simply inflate both government debt and private and business debt even more. As that is what is crippling the economy in the first place, it is no cure. He has no option though: to make 50% cuts across government spending on things like the National Health Service, pensions, the army and so on would be impossible for any elected politician. The only way that will happen is if the markets force it to happen… which they might. Eventually. You can read about what happens in Fiat Money Inflation in France by Andrew Dickson White, if you like. There is little reason to suppose that all the money printing today will end up any differently to how it has many times in the past: it is an addiction that once started is almost impossible to give up. As soon as the government or the market tries to raise interest rates again, the economy will crash because of all the debt, so they are stuck.

Therefore we can expect, if his plan works at all, some sort of rapidly inflating bubble, perhaps in the housing market and the stock market, for a considerable time maybe, followed by an almighty crash of far greater proportions than those we are already suffering from, and then further years of depression while the debts are, in fact, liquidated (paid off or written off).

What can you do? Diversify your savings and get out of debt, including mortgage debt, as soon as possible. Get and keep a steady job – ideally one that will be needed even in a major slump but if you can’t be prepared to take anything that’s going at the time.

Future articles in this category will talk about the stock market a little more. With savings interest close to zero, the markets are one of the few places where, if you are cautious, you can make greater returns. A small business might be good too, if you can take the risk. Passive income sources, as mentioned in the tips, such as book royalties, picture royalties, renting a room, and so on, can all help.

Savings Tips

For the rest of this article, I have interrogated the most frugal person I know (my wife), who seems to be able to save money no matter what. Here is her advice, interspersed with some of my own.

• A sure way to save money is not to waste it!
• Use relevant supermarket offers – and put what you saved into your savings account (more about low interest rates later);
• Unless you cut your cash off a money tree in the morning, build a strong connection between money and work. If you earn something like £50 a day and want to buy a new pair of shoes for £300, remember that it will take you 6 days (more than a working week!) to buy those shoes and all this time you will be working for them only.
• Likewise, saving money or making extra profit (say, from interest) means that you saved yourself hours or days of work which you can now spend with your loved ones, etc.
• Shop at charity shops. No, I am not encouraging anyone to buy second-hand clothing (although sometimes it can be perfectly good). But there are plenty of books, DVD’s, accessories, and stationery items that you can get in charity shops for a fraction of the original price. I have a magazine holder which always seemed to be expensive for £10-15, but then I found one in perfect condition for £0.99 in a charity shop;
• Look for bargains on eBay. You can buy brand new items of clothing for as little as 20% of the original price;
• Buy things that will last;
• Learn to repair things and, basically, do things yourself;
• Where possible, walk rather than use private or public transport. “Where possible” can apply to more than you think. Walking is good for you. Unless you are disabled don’t drive or take a bus for any distance under two miles (3km) for any reason other than carrying luggage, maybe;
• Eat healthily. It may seem a bit more expensive than eating junk food, but will help you save money on medical bills in the long run. Clean and floss your teeth properly too, for the same reason, and because it extends your life expectancy by more than 5 years on average;
• Declutter your home. What has that got to do with saving money? You will get a better idea of what things you have and where they are, so you won’t be buying new stuff unnecessarily. It will also discourage you from wasting money on such junk in the first place! Sell things you do not need on eBay. Rather than clutter your place and waste a good item, you will earn a few quid and make someone happy;
• Eat out less. If you absolutely have to, go out for breakfasts or lunches: they will be cheaper than dinners;
• Start buying supermarkets’ own brands where the compromise on quality isn’t too great;
• Buy fruit and veg at your local grocery store. Most likely, they will be cheaper there and of better quality than in supermarkets;
• Buy different types of food in different places (i.e., where they are cheaper);
• Research online before you buy;
• Stop taking entertainment for granted. And no, you don’t have to “own” that new movie on DVD or Blu-Ray, or at all. How many times do you really watch them anyway? And instead of wasting time watching half-interesting rubbish on the TV, sit in front of your computer and do something at least slightly productive;
• Switch your utility providers every now and then and be sure to not miss any of their deadlines. You do not owe them any loyalty: they have none towards you. Take the same attitude to all companies that are run in an amoral fashion (you can detect this from the lies and prevarications in their publicity and TV interviews);
• Start recording your expenses by categories. Monitor how much you spend on each category in total and on average each month, or marry someone who’ll do it for you!
• Rent out a spare room or parking space;
• Use messaging apps like WhatsApp rather than paying for text messages. Reduce your monthly text/talktime allowances accordingly (and anyway) to cut your phone bills;
• Take advantage of tax-saving savings schemes;
• Study tax rules. You may qualify for exemptions or discounts;
• Keep track of bank rules, deadlines for various document submissions, etc. to avoid unnecessary penalties. Pay bills on time for the same reasons;
• Don’t borrow money. This includes overdrafts, credit cards, store cards, payday loans, and so on. Pay down any such debts as quickly as you can and never indulge again. If you are already in over your head, see my debt management page.
• Never spend money you have not yet received. Often enough, it comes in late, or not at all, and you are left over-extended;
• Don’t think it is better to increase your earnings rather than reduce your expenditure: do both, all the time;
• Do not upgrade your gadgets until they are broken or obsolete to the extent that you cannot do necessary business with them; try to keep at least a generation or two behind the wave in any case. Never “keep up with the Joneses”. In reality they are probably no better off than you are anyway, and if they are, then you cannot afford it.
• Use your earnings to invest into better equipment only if it can boost your productivity/quality/income;
• Make your own teas, coffees and lunches. One Starbucks cup of tea costs as much as 80 tea bags on special offer, and each tea bag can be used twice!
• Learn to cook;
• Observe use-by dates and plan your meals accordingly so that food doesn’t end up in the bin;
• Learn basic arithmetic (if they didn’t teach you at school) and start comparing prices per unit weight (per kilogramme). The supermarkets constantly mix their displays so as to show prices per kilo, per pound, per 100g, per item, or fail to show the weight at all in some cases, all in order to deceive you, so you need to be able to convert in your head to discover which is really the cheapest per kilo or whichever unit is most appropriate. Take a calculator if you really struggle with it. (Remember the earlier comments about how to detect which companies are not run on a moral basis?) It is likely that loose fruit and veg will be cheaper than pre-packed;
• Buy a grater and grate your own cheese;
• Buy some simple domestic items in pound shops. They are usually cheaper there;
• Wear extra layers at home rather than keep the heating on all the time;
• Do not spoil your kids. You won’t be able to save money with spoilt brats;
• Consider buying an e-reader. E-books are often cheaper and some are totally free;
• Get creative. For example, rather than buying extra storage containers, see if you can use an empty butter box, etc.;
• Plan ahead. Train tickets bought in advance are much cheaper;
• Understand the purpose and the benefits of saving. For example, use an online interest calculator to see how much you can save up in 5, 10, 15, etc. years’ time. This should give you the big picture and help you think long-term. Don’t be discouraged if it doesn’t look like much: you will find that savings increase faster than you expect once you get serious about it – rather like debt, but in the opposite direction;
• Find passive sources of income. Even if the income you get from them is small, remember that it is passive, that is, it does not require additional work from you. Treat it as interest;
• Exercise at home or outdoors and stop wasting money on gym subscriptions;
• Pay close attention to subscriptions in general. Are you really using them to the full extent? Cut them where you can;
• Use the web for self-education and learning basics. You can learn foreign languages on Duolingo, for example, and many universities post their lecture notes onlne.
• Avoid high-maintenance items, that is, things you will be pouring more and more money into; an expensive car is the classic example of this, but other status items are typically the same. If it costs you money to continue owning it, don’t buy it in the first place and if you have it, get rid of it;
• Don’t go so mad with frugality that it makes your life a misery. A good life is the whole point, after all. Don’t waste your money on little things that don’t matter. Spend it on big things that do.

Common Mistakes when Thinking About Money

1. Misconception: Being rich means having and spending a lot of money.

Philosophically speaking, being rich means having enough money rather than trying to fill up an endless well of whims and desires. The rich spendthrift image is happily promoted by the media and the film industry. It appears to be more fun. As time goes on, this image starts fuelling itself as well: newly rich and famous people with a poor background start treating themselves to long-awaited childhood dreams and showing off to the amazed public how they can spend money on extravagant parties, posh cars, designer clothing, huge mansions, exclusive jewelry, you name it. What the media forget to tell the public is that every item of this kind requires even more money spent on it in the form of necessary accessories and maintenance, which boils down to working more and earning more money just to sustain your chosen lifestyle, or, to quote Fight Club, being possessed by things you possess.

OK, we’ve dealt with spending, now let’s briefly take a look at money itself. This kind of misconception is kind of relative. You don’t want to have a £500,000 note if all it can buy you is a cup of coffee. So the thing is not to have money, the value of which constantly declines as successive governments deliberately debase/inflate the currency to compensate for their economic incompetence, but to have something that has permanent value, that is, to have “assets”.

2. Misconception: Saving is not worth it.

When all you can save up a month is just a few pounds, it may seem that the whole idea is rubbish and a waste of time. But look at it from the opposite perspective: what if you start getting into debt by a few pounds a month? And then, perhaps, a hundred? And then with some magic interest sprinkled over it?… Which option would you prefer?

The thing is, spending and saving are opposite financial processes that work practically the same way with one big difference: spending brings an immediate reward which lasts until the next purchase, whilst saving is more like a financial diet or workout: you don’t see the results immediately, but people who stick with it, say it works… The proof is all around you in the better lifestyle of the surprisingly many thrifty, industrious and surprisingly wealthy people who are in the early days on no better wages than you are. The truth is, it is as if money is magnetic. If you are below zero, money gets sucked away from you faster and faster the deeper into debt you sink. As soon as you are in positive territory, however, it starts getting sucked towards you instead! Very slowly at first, of course, but eventually, faster and faster. Over time, the difference can be quite dramatic. You just require patience, and the grim tenacity to hang in there, determined to save what you can, almost no matter what. For those of you who like to have a drink each day, consider that one pint of beer a day is wasting you around £1,000, each year. You are literally pissing your future happiness and security away. Similar considerations apply to other unnecessary items like cigarettes, pricy coffee, clothing, gadgets, and so on.




A Successful Man

3. Misconception: It’s complicated.

Yeah, the financial world keeps coining new terminology and the media adopt terms like “quantitative easing” the same day, the small print on your bank contract is also full of phrases that seem to have come from a parallel world, but the reality is… on the personal (or household) level, the terms are very simple: earn, spend, save, etc. Practise on apples.

4. Misconception: Money is evil.

It is as evil as a knife, which can be used to chop a lovely salad or to commit crime.

5. Misconception: Buying at a Discount Saves You Money

You only save money buying at a discount if it was something you had to buy anyway. Otherwise, you can save even more money by not buying the item at all! Remember, items are only discounted to encourage you to spend money that you wouldn’t have otherwise. By luck, some will be things you need, but mostly they are a total waste of your hard work in earning that money in the first place. So whenever you see some tasty item that you can live without at a discount, saying maybe, “Save 50%!”, just say to yourself, “I’ll save even more if I don’t buy it at all!”

My wife adds an immediate reward to this by moving at least a portion of the money she has thereby really saved into her long-term savings account (using her mobile phone banking app).

Well, that’s it for the moment. If you have any ideas of your own, please leave a comment using the link at the end of this article. If you don’t believe me, or want some help in persuading yourself of the importance of saving money, you might read the 19th Century classic, Thrift by Samuel Smiles (also available free for Kindle, and on the Gutenberg Project in various formats).

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” – Mr Micawber in David Copperfield (Wordsworth Classics) by Charles Dickens.

In these days of easy credit and constant bombardment by aspirational “lifestyle” adverts, I think the majority of us grow up with the mistaken impression that we are somehow supposed to get the good life automatically. What we can’t afford now, we can nevertheless buy on hock and pay for it later. Well, this might work in days of high inflation and even more rapidly increasing wages, but unfortunately, this is not the world we are actually living in any more. I have to say, it worked for a while in the 70′s, but not since then. Indeed, with credit card rates at anything from 14% to 30% per annum, it has never been a terribly good policy to indulge ourselves by shopping for happiness, because what we actually end up with is a brief relief from stress as we purchase, followed by long-term misery as we pay more and more for our debts. In other words, we get an immediate Pavlovian reward (stress relief) for spending money. In human nature, what gets rewarded, gets repeated; even if it is not in our best interests. The only way around this is to be conscious of it when it is happening and to resist it, preferably by teaching ourselves new habits based on the enjoyment of not spending money; of resisting temptation; and most importantly of saving money first. Use the savings to pay off any interest-bearing debts before you start investing, as debts suck away your money far faster than you can gain from saving and investing, if you only have small amounts available. If your debts are serious or are out of control, I have a lot of advice and a free e-book you can download on my debt management page.

Otherwise, we simply get trapped in the rat-race, having to work harder and harder to pay our ever-increasing bills and debts. As in the Red Queen’s race in Through the Looking Glass, we have to run faster and faster just to stay in the same place.

Getting back to overspending, I commented in Part 2 of this series that many seemingly wealthy people are in fact spending on unnecessary items, or even on items that cause them regular extra outgoings. This video describes it nicely: watch [10 mins], then read on.

As well as spending less, it is sometimes possible to earn more, if not in your regular job, then on the side. The Money Saving Expert website has some really excellent tips – I have improved my finances by well over GB£500 a month from following just some of these tips. Although it is a UK site, the principles will apply to you wherever you live.

How to Start Getting Rich

Now in the first article in this occasional series, I stated that, in my opinion, the first steps to getting rich were as follows.

• Get a job if at all possible – any job if necessary but get regular money coming in;
• Spend less than you earn at all costs, no matter how low your standard of living has to get;
• Save the surplus in an interest-bearing account;
• Keep some savings set aside for emergencies: things go wrong all the time. Most people need to work towards having a few months’ living expenses set aside;

Basically, the idea is to be generating a cash surplus at all times. If you do not have any spare cash, you cannot invest in your future in any way other than, possibly, free education or apprenticeships of some sort (and at current highly inflated prices, with loans that double even those amounts when repayments are taken into account, the value of College education has become questionable, in my opinion).

Getting a Job

For most people, the main way to get money coming in is to have a job – the better paid, the better, usually – except when it is the sort of job that forces you to spend lots of your own money to impress your clients, so that you waste most of what you earn, of course: I’m a bit skeptical of the position many apparently well-paid lawyers find themselves in, from this perspective. It is no use earning a lot if you are constantly overspending. Wealth comes from what you keep, not from what you earn. If your plan is to get out of the rat-race, rather than to have a good career, then it doesn’t matter too much just what the job may be, as long as it pays enough for you to live on, plus any amount on top of that. If you want a good career, well, fine, but be warned that many careers are not all that stable: I chose the IT industry – a mistake, I think, as it changes far too quickly for me to keep up with, with companies coming and going like mayflies at a banquet, and my financial position has always been unstable as a result (and as a result of my not knowing any better how to manage my finances in the past).

My personal view is that any job that you can do, will do. This is easiest to accept, of course, when you are just leaving College or school, and don’t have too many living expenses. You can share digs with friends and keep the extortionate rents down by splitting the costs between you. Many immigrants or itinerant workers do this too: two or three families will rent a flat between them. It may be crowded, but it is very cheap and they can save a fortune in 5 years or so with nothing more than hard work and patience: I know one guy who worked in IT for 5 years then went back to South Africa and bought a whole farm. Another was a builder here for 5 years then went back to Poland and bought his own 11-bedroom hotel. This method can apply anywhere in the world, but it is especially efficient in expensive cities like London, for example.

If you don’t have that opportunity, or you are married and the missus won’t accept it (can you rent out a spare room to a student maybe?), you will just have to save at a slower rate and possibly seek higher-paying work: but without some surplus cash at the end of each month, you are going nowhere.

I have written about getting a job quickly elsewhere, but the key to it, it seems to me, is the mind-set with which you enter the job hunt. I have to say that most people, myself included in the past, tend to just look at a few ads, or today we look online, send off a few half-hearted applications, collect some unemployment or other welfare benefits, and fail to get any job for months and months on end. We can prove to the unemployment people that we’re looking for work, but in reality, this isn’t the way to do it – or at best, it’s a long shot. The point is, it is not about looking for a job, or finding a “suitable” job: it is about getting a job, any job, and quickly. The proactive mind-set is vital if you are to stop wasting money, and your life, pretending to look for work. If your long-run goal is financial independence, it really doesn’t matter too much what the job is: it is a vehicle, a stepping-stone towards a brighter future, and nothing more.

The entire purpose of a job from this perspective is just those few pennies you have left over at the end of each month. No surplus equals no future.