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.
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.