The Money Saving Numbers I try to Live My Life By

In these difficult and trying economic times I am reminded of the following quote:

"Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

- Charles Dickens, David Copperfield, Ch. 12

The quote reminds us that if we spend more than we earn the only result is uncontrolled debt and, inevitably, misery. Living within our means is a lesson that has been hard to remember as we have grown used to the unrelenting supply of cheap credit. And, despite the financial crisis of 2009, we still seem to be, as a society, hell bent on spending more than we have.

This is a good place to admit that I am no angel when it comes to credit as I have, in the past spent more than I earned, creating a level of debt that was unsustainable. Throw in an unplanned redundancy and I certainly experienced some of the misery that Dickens wrote about.

So how can you regain control of your money and escape the misery of debt?

I decided to handle my finances differently by using a very simple formula which gave me two significant numbers to live by which I call the 80:20 rule.

First I took my last six months of bank statements and reviewed everything that I spent money on. I would recommend six months worth of bank statements as this gives a more representative picture of what you are spending your money on. I divided where I was spending money into three general groups which I called fixed expenditure, variable expenditure and disposable income.

My fixed expenditure included all my major household bills, so mortgage, utilities and insurance policies.

Variable expenditure was stuff that I spent money on every month but that changed from month to month. This included things such as food, fuel for the car and entertainment. As you can see these varied because if I did not drive the car or I ate out less then the overall money that I spent would go down. I, importantly, included my credit card bill in this group as if I spent more on my credit card then my credit card bill would go up and vice versa.

The disposable income was the money that I had left from what I earned after I had taken out the fixed and variable expenditure.

I then converted everything into a percentage. So for example if my earnings for a month were £1000 and all my bills (fixed expenditure) was £600, my variable expenditure was £300 and the money left was £100 that would be 60% fixed, 30% variable and 10% disposable.

Having broken my finances down into three simple numbers it was then an easy case of setting boundaries to live by which I called the 80:20 rule. That is my fixed and variable expenditure should not exceed 80% of my income giving me 20% of my income to use as I wanted. I also decided that of that 20% I would save half, that is to say 10% of my total income would go into a savings account. This is now an unbreakable rule that I live by.

Believe me this has been a hard set of numbers to stick to but in the end I have seen the benefit of doing this. So give it a go and try and live by the 80:20 rule you will see the benefit.

New Year, New Resolutions

At the start of the New Year many of us use it as an opportunity to set ourselves some resolutions.  It might be to watch less television or to lose weight but in all cases we promises ourselves that we will stick to these resolutions and we will be better off for it.

So much like everyone else I decided to set myself some resolutions for the year ahead.  The resolutions were in line with this project of mine which is to save myself wealthy.  The resolutions were simple:

1.  Reduce my debt

2.  Reduce my bills

3.  Write more on this Blog

4.  Save more money

Now with a few weeks of the New Year behind me I thought it was worth reviewing how I am doing with respect to these four resolutions.

Sadly, if I am honest, the answer would be a more or less resounding no, at least for three of the resolutions anyway.

I have not reduced my bills, truth be known I have not looked at doing this yet.  However, I did a lot of this last year and saved myself huge amounts of money in the process.   But that is no good reason for resting on my laurels and doing nothing.  Household bills are always changing, and in this day and age they are usually going up, so it is always good practice to review them.

I have not reduced my debt, in fact my debt has actually crept up slightly, which is not good within the overall remit of the save myself wealthy project.

I have not written much on this blog, but hopefully that will improve.

But one good thing is that I have kept to my last resolution of saving more.  At the start of the year I increased the direct debits that I pay to my savings account.  That way the money automatically leaves my account at the start of the month and I don't go back on my resolution.

Therefore with a few weeks of the New Year gone I have managed to keep 1 of my 4 resolutions.  A partial victory I suppose.

Excellent savings rates.

If you are after a fantastic savings rate forget the banks, or at least that is what I am doing.  Poor interest rates, teaser rates that finish after a year, prolonged lock in periods or top deals reserved for those customers who are willing to switch their current accounts.  It all results in a great deal of frustration as far as I am concerned.

So I have turned away from the banks and now regularly save with peer to peer lenders that do offer a fantastic rate and also make you feel quite good about saving.

It works by a company bringing together lenders and borrowers so that the lenders can loan borrowers money.  The borrower obtains a loan at a great rate and the lender earns a fantastic rate of interest on the money that they have loaned.  The great thing here is that the banks are removed from the process.  By far the most well known site is Zopa who lend money to private individuals.  But other sites exist.  My particular favourite and one that I save with regularly is Funding Circle a site which allows lenders to loan money to small companies.

The benefit of peer to peer lending is that you can choose who to lend to and the level of risk that you are willing to take on the money that you loan.  Don't forget that, as with banks, if you lend money to an individual or company through these sites there is a risk that the borrower will not be able to repay the loan.  To take this into account the peer to peer sites will grade a loan and give it a risk rating so for example A* for low risk and C for high risk.  Generally the better the risk rating i.e. A*, the less likely the borrower is to default but also the lower the interest that you will earn on your money.  Based on these risk ratings you must judge how much risk you are willing to take with your money, if you want the higher rates of interest then your appetite for risk must be greater.  You can get as involved in the process of lending as you want either choosing every single borrower that you lend to or by setting up an automated lending function which lends your money out when you have the funds available.  Typically you are locked into lending to a borrower for a fixed period of time which can be up to five years but if you need your money at any time you can choose to sell your loan parts to other lenders.

The rate of interest that you can earn varies but for Zopa the average interest lenders earn is currently 6.8%, for Funding Circle this figure is 8.4% which is significantly better than your High Street Bank!  But please be careful.  Fully understand the risks involved, peer to peer lenders do not have to be regulated by the Financial Services Authority and are not covered by the savings protection scheme.  If a borrower does default on the loan the peer to peer lender will try and recover your money but there are no guarantees that you will get it back.

As with anything that involves your money read fully the details that the peer to peer lending companies provide.  Check on the level of defaults for the loan book that the company manages and if in doubt seek independent financial advice.

Below are links to some useful sites.

Funding Circle

Zopa

Lend With Care

Why Save Yourself Wealthy?

The idea of Save Yourself Wealthy, in part, was to collect ideas for saving money.  Tough times require a more prudent outlook on life and so cutting back on some of the day to day bills is a sensible thing to do.  However, it was also inspired by an idea that I first came across in the book One Minute Millionaire by Mark Victor Hansen and Robert Allen.  They want to create 1 million millionaires and in their book they take you through some simple techniques that they have employed to create wealth.  But in the book there is a very interesting bit of information detailing how investing just $1 per day can create a million depending on how much interest you can earn on that money.  For example, according to Hansen and Allen, if you save just $1 or £1 a day it would take you 147 years to have £1 million if you earned 3% interest on that money.  If you could earn 20% on that money it would take you just 32 years.  So if you started saving £1 per day at say 33 years of age, and if by some miracle you could earn 20% interest, then at age 65 when you retire you would have a retirement fund, along with your normal pension of £1 million.  Fantastic!

Sadly I don’t know many savings accounts that would earn me 20% interest.  But I can get 7-8% with certain savings products which would still create a very nice pot of cash.  To increase that pot of cash I can try and save more.  For example can I double or even triple my daily savings from £1 to £2 or even £3 a day?  And so I am now looking to save myself wealthy by reducing my outgoings and re-investing that money to grow my wealth.  It would be nice to save a £1 a day and re-invest it.  To be able to do this I need to remove £365 of expenditure per year.  I want to keep a track of how I am doing and share some of the best ideas and so Save Yourself Wealthy was born.  We might not all want to become millionaires.  We might not want to re-invest the money that we save but I certainly feel better about keeping more of the money that I earn for doing the things that I want.  I hope to be wealthier by saving some of that money but if nothing else I will be a whole lot richer for doing it.

By the way if you fancy reading the one minute millionaire follow the link below.

Brew your own beer and wine and save money.

In looking to save money I have not just been looking at my major out-goings such as utility bills, car and household insurance.  I have looked at everything and been quite harsh in my judgment of whether it is an essential or non-essential expense.  It is surprising when you actually look at things closely how much money is spent without realizing it.  One of the areas of expense that has come under the microscope is alcohol.  Now I enjoy a drink and I am not prepared to stop having a beer just to save a bit of money.  But for me, although not a big drinker, alcohol consumption does represent an annual expense but I was not aware how much.  So I decided to work it out.  Say as a family we consume 2 bottles of wine and 5 bottles of beer per week this would represent a weekly cost of £12.98 (2 bottles of wine at £3.99 and 4 bottles of beer for £5.00).  So over a year, as long as our consumption is fairly consistent, that represents £675.00 and that is based on a conservative appraisal of our alcohol consumption as a family!

As I said earlier I am not prepared to stop having a beer to save a bit of money so is there an alternative.  Well yes there are many alternatives, cheap beer deals at the supermarket or the booze cruise to Calais.  But I have been looking at an alternative which is cheaper and a whole lot more fun.  Homebrew!

The homebrew option is much maligned as many of us have had a dodgy homebrewed beer or wine in the past.  But actually the homebrew market has improved considerably and both the quality and choice available is amazing.  So let’s look at the cost to see if it is a money saver.

To get started you need some equipment but you would be surprised how little you need.  For me I started with a beer starter kit which consisted of everything needed to get started such as a fermenter, hydrometer and thermometer as well as the malt extract to make the beer.  The only other things that you need would be bottles, caps and a crown corker to put the caps on the bottles.  The whole lot will probably cost you around £110.00.  This drops to under £100.00 if you save bottles from the wine and beer that you drink and recycle them to bottle your beer or wine rather than buying new ones.  This is very environmentally friendly as well.

This might sound expensive but don’t forget this is the initial start-up cost.  Once you have the equipment and the bottles all you need thereafter are things such as caps or corks, sanitizer for cleaning equipment and kits to brew the next batch of beer or wine.  Typically for a beer kit you will get 35 to 40 bottles of beer from each kit, which with the initial cost for equipment works out at around £3.14 per bottle.  Now that does not sound too good does it, but the more you brew the more you can save.  Remember the next time you brew you have already got the equipment, so all you need is the beer kit, which for a very good quality all malt kit will set you back around £28.55.  A kit like this will brew 35 to 40 bottles so 80p a bottle.

It is not just beer you can brew as you can also get some exceptional wine kits to suit any taste, red, white or rose.  You can also buy kits to brew wines from particular grape varieties so if you favour a shiraz, merlot or chardonnay you can brew it.  The good thing is that the equipment such as fermenters can be used to make beer as well as wine so no additional outlay is required apart from a corker which you can pick up for as little as £5.00.

So how much can you save if you brew your own beer and wine?  Based on my typical consumption of 4 bottles of beer and 2 bottles of wine per week I will save around £245 which includes the equipment start-up costs.  But the more I brew the more I save so if you just calculate the cost based on the kits only, excluding the equipment cost, the savings can be as much as £355.  Oh yes and the best thing about it is that when friends ask where you got the fantastic beer or wine you can say that you made it!

Leverage the saving benefits

Saving a little is good but saving more is even better.  I like to call this leveraging the saving benefits in that I use a few techniques to increase the amount of money that I can save.  I will give you a recent example to explain what I mean by leverage saving.

My car insurance is up for renewal and so my current provider wrote to me detailing what I would be paying for the next year.  It is worth mentioning at this point that I currently pay for my car insurance by monthly direct debit.  Interestingly in the renewal letter I was told that my monthly payment would be increasing by £3.50 giving a yearly increase of £42.  I am not happy that as a careful driver with 9 years no claims that I have to pay more so I decide to have a look around to find a cheaper quote.

One interesting tip that I was not aware of until recently was that for things like car insurance it is better to be selective over which price comparison website you use.  If you are a careful driver you are better off using Gocompare.com whereas those that are deemed medium and high risk should use Comparethemarket.com and Moneysupermarket.com respectively.

Using this tip I did my checks and found a cheaper quote saving me £73.  However, if I wanted to continue to pay by monthly direct debit I would have to pay £39.41 for the privilege.  This is where I can start to leverage the savings benefit.  I have a credit card that allows me to make new card purchases currently at a special rate of 0% interest for six months.  So if I pay for the insurance in one instalment using the credit card I have six months, with no interest being charged, to pay off the debt.

The final part of the leveraging process is to go back to Top Cash Back (see my earlier post about this site) and see if the new insurance provider is a registered vendor.  Thankfully they are and if I go through the Top Cashback site I will get £42 back.

So in total I have saved £73 by finding a cheaper insurance provider but I have further leveraged the savings that I make by a further £81.41 by using a 0% special offer on a credit card and the Top Cashback website.  In total I have saved £154.41 and I am a lot happier.

Best money saving tip I have found for a long time

The best thing about saving money is knowing that the big corporate monsters aren't getting your hard earned cash.  Even better if they actually pay you. 

We all know that for big bills such as insurance and utilities we should regularly check for the best prices.  I have to admit I am never very good at this and it has cost me dearly.  I will give you a recent example.  I have buildings and contents insurance and have done since I purchased my first house nearly 10 years ago.  In all that time I have been with the same insurance provider.  However, difficult times require a tightening of the belt and so I started to look around for a new insurer.  Using price comparison websites I found a very reasonable quote, over two hundred pounds cheaper than my current policy.  Now here comes the good bit.  I found a site which gave me more money back.  A whole forty five pounds in fact.  So that is a total saving of nearly two hundred and fifty pounds.  Try it yourself.  All you have to do is use the link below, create an account and using the information that you have found from price comparison websites find the company on the site and use the link to go directly to their website.  You have to make sure that your cookies are enabled to allow the site to track your transaction but if you do this then the cashback will be yours!  You can use this for more than just insurance.  Swap your utility bills, mobile phone contract or even do your weekly grocery shop online and you will earn money back.