Something very important to us here at Modulus FP is that our clients are living the life they want. Not only are they living the life they want now, but also making sure to be putting away for their future. The only way you can do both is by making sure to find the balance between spending for now and saving for your future.
Buy Now Pay Later
One of the first, most important rules we should all be living by is to spend less than you earn. For obvious reasons, if you are continually spending more than you earn, it’s not going to end well. Popularity of Buy now Pay later schemes is rising. We can use them for a new TV, clothes from almost any online shopping site via something like Klarna, or even for laser eye surgery. We must be careful to make sure we only spend what we can afford.
According to The Money Charity Money Statistics in May 2021, people in the UK owed £1,712.9 Billion at the end of March 2021. Broken down, this is an average household debt of £61,435 which per person, is around 110.3% of average earnings. Now, this isn’t surprising when you consider that the bulk of this money is mortgage lending. But total unsecured debt per adult is £3,712 and the average credit card debt per household in March 2021 is £1,945. After the year we have been through, this has reduced by 21.7% compared to the previous year. So we are making moves in the right direction. As things start to open up, we can go out again and spend money, and hopefully we will be able to travel again too. As a result, most of us are going to start spending again.
If you were one of the lucky ones whose income has been steady and secure in the last year or so, your bank account might have been steadily increasing. Most people used it to pay down debts, and now they have a decision to make. Do they spend or do they save?
Lifestyle Creep
“Lifestyle Creep” is the title given to the pattern which develops when we have more money available. This is a result of either an increased income or a decrease in spending. We start spending this money on luxuries, which starts a habit and these become an every day expenditure rather than a luxury. It begins with little things like a takeaway coffee every Monday to start the week. Or doing your grocery shopping in M&S instead of Tesco. Or you might decide you need a more luxurious brand of car. Or you might think your blue and white striped shirt needs to have a logo on it, so start spending £50+ on a shirt.
It’s something that is easy to fall in to, but very difficult to get out of. So how do we stop it?
Pay Yourself First
You should try to decide on the balance between spending money for now and saving money for the future. Once you have decided that number, set up a standing order for the day after you get paid, to send the money out of your account. Preferably, this money is going into an investment. This way, you are always buying into the market whether it is “high” or “low.” This is a great habit to get in to. Once you don’t notice the money going out of your account, that’s the time to reassess the amount and increase it. We like to call it “Giving Yourself a Pay Rise.” When was the last time you gave yourself a pay rise?
Find the balance
The key to this is finding the right balance. The balance between spending and enjoying your life now, but also making sure to put away for your future. We’ll never suggest to save all of it, because then you run the risk of not living today. Likewise, we’ll probably not tell you to spend it all, because then you aren’t giving yourself as many future options.
When you get a pay rise or your monthly payments on your car finance ends, reassess your position and consider saving some of the money. Otherwise, you’ll likely spend it, and the cost of your lifestyle will creep upwards.
This is aimed at retail clients and is for information only and should not be considered as a personal recommendation.
Investments can go down as well as up, and you may not get back the full amount you originally invested