Thinking About Money

I’m often surprised by the fact that people consider money as if it’s in some way separate from the rest of their lives.  I’ve never thought about it that way, for me most things in life can be converted into money which then allows me to prioritise easily.  That said money only really works in this way up to the point at which it buy’s peak happiness (about £100K/year for my family) and since I’ve never earned more than that I have no useful experience to draw upon.

When I started thinking about this article I thought people would never consider their family in monetary terms, but I think you can.  Most people decide to marry when they can afford a place to live, decide to have a family when they can afford for one parent to give up work, have a second child only when they can afford it.  Parents have to trade hours spent with their family against hours working, or decide to send the children to childcare in order to return to work.  Even when it comes to health care we need to decide whether to take a risk on the NHS or take our private insurance.

Recently I had to decide whether to insure our three cats for vets bills, the cost is high. In the end I decided it was worth it because it was cheaper than the risk of the trauma of having to decide to let them die because treating them was too expensive.  So in some ways I was insuring to protect my mental health and to a lesser extent that’s why I pay for private health insurance for the family too.

This way of thinking about money has turned out pretty well for me, it’s given me a healthy respect for it and helped me to prioritise how I spend it and how I balance short and long terms goals.  As I slowly approach retirement I’ve started thinking through how my relationship with money will need to change again and this post is the result.

At first I thought I would summarise the way I’ve managed my money so far.  I’ve followed a few golden rules:

1. Always live below your means the most basic of the rules, don’t get into debt, don’t use a credit card, don’t get carried away and buy a fancy house or car that you don’t need.  Once you start relying on credit it’s a slippery slope, because you will be forever tormented by yet another offer of ‘interest free credit’ or ‘don’t pay anything for 6 months’.  Although buying a house with enough bedrooms for your intended family size might make sense.
2. Give yourself pocket money for guilt free spending everyone needs some money that they can choose to spend their way, without having to ask or debate, for example I give myself £60 pocket money a week that I spend mostly on eating out, but it also funded my gadgets
3. Pay yourself to clean house find out how much a cleaning services would charge you for a weekly full house clean and then pay yourself that money, that way housework never becomes a chore, it becomes a choice
4. Invest where you want to spend your time at first you should prioritise your investments in accordance with how you want to spend your time.  The top priority investments should be those that encourage you to spend more time in important areas (for me it was health club membership to encourage swimming) then in the areas where you currently spend your time (your sleep, your commute, your home office …)
5. Invest in your working future nothing has a better return on investment than investing in your working future, especially when you are young.  These investments might require time, but also a good suit, a public speaking course or a subscription to audible to fill your commute with the best business books can make all the difference.  When you get older like me and have built up enough career capital you can dispense with the suit.
6. Don’t compromise on the basic comforts a warm, dry, clean home, quality food, reliable transport, date nights with your partner are the basics of life, without these your motivation/willpower will be low.  Motivation and willpower are your most precious resources, you need to conserve them.
7. Don’t cultivate expensive tastes you can easily spend any amount of money you are likely to earn, just by cultivating expensive tastes.  Don’t do it, keep grounded.  Within a few weeks you will have adjusted to the fancy TV, the expensive furnishings, the granite worktops, the luxury car and they won’t be contributing to your happiness one jot.  Keep your tastes simple, focus on relationships and experiences and remember the experiences that really really count often come from being in nature with people you love, not flying first class to exotic cites for shopping holidays.
8. Save 50% of every pay rise don’t save much when you first get a job, invest in your life and future, but each time you get a pay rise save 50% of it, when you have saved 6 months salary put the rest into your pension
9. Don’t compare your inside to other peoples outside, or maybe don’t compare yourself to others at all.  This reduces dramatically the temptation to spend

As I move to a time when money will be much scarcer, I’ve started to live by a few additional rules

1. Spend money on experiences rather than things this is the basic rule of living a happy life
2. Practice living on much less as I get closer to retirement I am undertaking lots of experiments in low cost living, for example I’ve not purchased anything new for myself for 169 days at the time of writing and I spent a few days living on £3/day for food
3. Find low cost substitutes for expensive habits I made a list of everything that I spend money on, car, laptop, cafes, eating out, books, magazines … it’s a long list.  For everything on that list I wrote down a low, no cost substitute.  When I imagined my life in terms of the substitutes it still seemed pretty much as good as it is now, but at a third of the cost.  I’m gradually making those substitutions.  One example is that when I eat out now I only drink tap water

The photo is the beach access road down to Filey bay from ‘The Bay’ holiday home development.  I’ve found that I can stay there for £139 for 4 nights, which is considerably cheaper than staying at Premier Inns, my previous lowest cost option and I get a full kitchen, so food costs are dramatically lower.