Find Financial Freedom

With the economy firmly in a recession, its at this time that consumers have to start thinking about tightening their belts in an effort to cut costs and save a bit more money for a rainy day. Clearly for some people I am preaching to the converted, but for many others out there, the idea of living frugally seems somewhat of a necessary evil in the current economic climate, so it’s best to ease the pain as much as possible.

Frugal Living Tips - No. 1

If you are used to buying a new car every few years, then don’t! The first three years of a car’s life are when it depreciates (loses value). It’s a much better idea to buy a car that’s already three years old and replace every two years. This way you will get some other sucker to pay for the depreciation, while you still get two years of hassle free, low service costing years of motoring for a fraction of the price of new car ownership.

If you’re worried about the plate, simply use a small fraction of the money saved on an private plate that doesn’t give away your cars age, simple!

Frugal Living Tips - No. 2

If you are used to living the high life and eating out on a regular basis, then continue, just alter your habits slightly. Cut down your weekly eating out slightly, if you usually go out three time a week, cut down to two times a week, or swap one night for a night at the cinema, much cheaper. If you really can’t cut back, either cut back on the amount of wine you order, or simply switch to a BYO (bring your own) restaurant and take along a bottle of plonk from the supermarket, it’ll no doubt be at least half price compared to the same bottle on the wine list.

Frugal Living Tips - No. 3

Go through your monthly outgoings and work out which ones are a complete waste of money. For example, are you paying £12 a month to your bank to be part of their (slightly pretentious) premier or advantage account? It usually means you get some free breakdown cover and a crummy amount of life insurance that wouldn’t be enough to pay for a funeral! Cancel this and use your banks’ normal, non-premier banking service, breakdown should only cost about £40 a year and if you have a mortgage you should already have enough life insurance.

You may find in the process of doing this that you are shelling out for a gym membership each month - ask yourself this - how many times do you use it? If you use it less than 10 times a month, realistically it’s not worth it and you should stop wasting your money.

Review your sky/cable package, you may find you’re paying way over the odds. This can usually be rectified by cutting back on some of the channels you have or switching to a cheaper supplier.

Remember though that this cost cutting is not meant to increase your disposable income such that you can go out and spend these savings on something nice, the idea is to put the money away into a savings account for a rainy day. It’s no good making budget cuts on non-essentials if you then go and blow the resultant monthly savings on some other tatt that you didn’t need!

In the gym yesterday I had a chat to a chap who recognised me having read my other blog, as usual we got chatting about business opportunities and ideas (the topic of my other blog). He’s particularly interested in Internet business ideas that he can start and run from home as he’s not keen on getting a job. While he’s getting started however he’s working hard to reduce his monthly outgoings and the way he decided to do so is interesting.

He’s a gym rat so he’s not prepared to give up his gym membership, instead he’s opted to get the maximum value out of membership. He does so by training first thing every morning and then getting a shower (and presumably shave etc.) in the gym. By doing this he saves on his heating, water and having to heat water at home. He then goes from the gym straight to wherever he’s going to be working that day. As a result he’s out of the house all day - which saves having to go to the expense of heating it to a comfortable level.

He’s also been quite active in reducing his cost of living in other ways too. At the moment he needs some work doing to his car so he’s arranged to work in the garage to help out in return for the labour on his car - thereby reducing his costs.

An interesting approach to reducing his cost of living by squeezing every bit of value possible from his gym membership, but would it work for you?

In one of Tristan’s recent posts he discusses ways of reducing your shopping bill to free up cash for investment.

One way to identify those items that are probably best suited to the “own brand” type of saving are those that are everyday commodities.

What do I mean by this? Well think about what we generally mean by a commodity.

Anything that is a basic product or feedstock and that is difficult to differentiate is typically a commodity. Think of oil, metal ores, coal, grains and such like.

What has this to do with our shopping?

One of the best examples of everyday commodity purchasing has always been washing powder. The chemicals contained within a box of washing powder are typically no different from one brand to another.

How can you be pretty certain about this?

Take a look at the effort and budget that the various manufacturers put in to trying to convince us that their product is better than their competitors’. The bigger the budget, the smaller will be the real difference between competing products.

One more reason to go with the “own brand” offering – the only real differentiator in this range of products is price!

The same logic can be applied to an amazing variety of products from those as complex as cars or electronic goods to cosmetics.

I can remember the days (long ago), when the cognoscenti used to make disparaging comments about the early Japanese car imports to the UK. Those few that actually looked at them from an unbiased viewpoint soon realised there was a great deal to be said for them in terms of value for money. Where are the great marques of those long ago days? Mostly just a memory, or like Mercedes languishing low in the reliability surveys in comparison to these upstarts.

What is the point of this?

Simply that the size of the marketing budget is a good, if not infallible, pointer to the lack of differentiation between competing products.

Finally, I well remember an erstwhile colleague, who in the process of buying a new car drove us all mad interviewing us in depth about the relative merits of the current offerings and our own experiences with particular models. When it came to my turn to be interrogated, I simply told Joe that he was wasting his time and ours – he was going to buy the car that he found attractive, that fitted his budget, that made him feel good about himself, and was big enough to carry his ever expanding family. Was I right?

Of course I was, that’s what we all do with very few exceptions. Be that exception and save yourself some of your hard won cash!

I recently read an article on The Independent website about living off £1 a day, which I thought was a stupid idea. Firstly because no one is that poor in this country that they will only have £1 a day to live off (state benefits are about £10 a day) and secondly because it’s such an extreme notion that all it does is prove a persons bloody mindedness rather than serve as a useful, practical tip for those wishing to improve their frugality.

If all you had to spend was £1 a day, you wouldn’t have enough money to buy healthy food, so what’s the point? You’d eventually become ill from self induced mal-nutrition – hardly something to aspire to is it?

Why not set a more realistic challenge, perhaps work out how much you usually spend on your weekly bills and see if you can shave 25% off, and do it consistently. You could even open a separate high interest savings account and put the savings that you make each week into that so you can see the effects of your frugality each month.

Here are some easy ways of spending less money on your weekly shop:

• Avoid brand name goods – shower gel, washing up liquid, cereal, toothpaste, tuna fish, bread, in fact almost everything in most supermarkets will have one or more “brand name” options and at least one “own brand” option, which will nearly always be cheaper. Here’s a badly kept secret – most of the own brand goods are actually made by the brand name companies!
• Check prices across different supermarkets – there is a website www.mysupermarket.co.uk that allows you to see the different prices for goods across the big supermarkets, you can even fill up your trolley and see which of your local supermarkets would be the cheapest place to shop. Here’s a tip: you may have to go to one supermarket for most of your shop and another one for a few other items that are noticeably cheaper – however, if you do this, factor in the extra cost of your petrol making two trips!
• Check out the discount shelves – these are the shelves that have stock that is nearing the end of it’s “sell by date” and so must be either sold off or thrown out if it’s past it’s sell by date. As long as you are prepared to prepare your weekly meals around what is on offer, this strategy can help you spend significantly less.
• Loyalty cards – all the major supermarkets have them, use them and get money off your shopping bill, or coupons in some supermarkets. Some people may get annoyed with you for “being cheap”, but if you can shave a few £££s off your food bill doing this it’s practically effortless.
• Shop after you’ve had dinner – studies have shown that when you go supermarket shopping straight after work and before dinner, you are more likely to spend more money on food than if you went after dinner. Why? Because you are hungry and so you end up buying food items that take your fancy rather than sticking to what you need or is on your shopping list. I don’t know if scientific studies have shown this, but it certainly works for me!

As wholesale energy prices have increased this year the electricity firms (and all the other utilities for that matter) have been quick to pass on the increased costs. As a result the average household now spends around 47% more on their electricity bills than they did a year ago (Source: Telegraph).

As we use most of our yearly energy during the winter months, now is a great time to start thinking about reducing your electricity use and therefore your bill. So how can you do so?

Well many would tell you to switch providers, but I’ve never been convinced that it’s really worth the effort and according to Ofgem 30% of the population agrees with me (or is too lazy to bother :-)). I seem to recall seeing a recent press article that stated that most people who switch actually end up worse off too, unfortunately I can’t find it again.

Next, if you pay by direct debit check your bill, in the last couple of weeks I’ve found that I’m in credit with my provider to the tune of nearly £200 and my mother in law is in credit to the tune of around £500! If you find yourself in such a situation phone up your provider and demand you money back then stick it in a savings account where you’ll at least get some interest - besides the banks need your money far more than the utility firms, just avoid any of those excellent Icelandic banks.

However the real gains come from cutting your use. Don’t fill the kettle to the top, only add the exact amount of water needed, one acquaintance of mine claims that step alone has cut 30% off his electricity bills - although that might say more about the amount of coffee he drinks than the amount of energy you’ll save.

Turn off the damn lights too, far too many of us leave lights on when we’re not in rooms (yes darling I’m thinking of you). Turn them off. Next turn off the television, video, DVD player, Sky TV (in fact why not cancel Sky TV), turn off the computer and unplug the mobile phone charger when they’re not in use.

Finally for those things you really need (light) invest in low energy equivalents, low energy light bulbs use a fraction of the electricity of normal bulbs and if you’re a geek like me a modern laptop of energy efficient PC uses far less power than a standard desktop.

So what are you waiting for, stop wasting electricity reading this! :-) Oh and the great thing is by reducing your electricity bill you’re also reducing your carbon footprint - you save money and get to be green, what a bonus!

It sounds stupid, but I have moved back home to live, at the age of 28. Great!

I should probably not have moved out in the first place now I come to think of it, the house is much nicer than anyting I could afford myself, I get my washing done, my food cooked for me and my bed made! The only downside is that my housemates are in their late fifties!

I was discussing my parent’s courtship the other day and to my surprise found out that both of them didn’t own their own home until they got married. In fact, my mother was living with her parents, and had been for a number of years (even though she was in her mid / late twenties) and my dad lived in “digs” during the week and went back to his parents on the weekend.

Contrast this with how people think nowadays and it is completely different. Because my parents were living cheaply they had managed to save up a fairly hefty deposit when they bought their first home - in the region of 25%. That is pretty much unheard of these days, most first time buyers struggle to put down even a 5% deposit!

It begs the question, why? Why have attitudes altered so much in one generation? My parents weren’t radical in their thinking, nor were they high-flyers earning spectacular salaries, so how did they managed to save up a 25% deposit on a three bedroom home in the 1970’s?

What would that be equivalent of today? If you assume the avereage 3 bed house is worth £160k, that’s equal to £40,000 saved up in the space of a few years. That sort of thing is practically unheard of today. So why have attitudes changed so much?

My best guess is that the banks have contributed to the change in attitudes by offering credit so freely, and the increase of the “I want it now” culture, you only have to watch a TV advert and see all the happy, carefree, beautiful people consuming vast quantities of anything they can get their hands on.

This has created a generation of consumers who are only interested in spending money, there’s no thought to how they will afford to pay for the spending or in fact if they really need it. The fact is people buy with their hearts now and not with their heads. This attitude will have to change in the coming years because most people are going to find it much more difficult to get access to “easy credit”, which will mean they will have to live within their means.

So if you’re young, just about to leave university and thinking about how on earth are you ever going to afford to buy your own place, then consider moving back in with your parents for a few years. You’ll be able to save a decent deposit up, you won’t have to wash your own clothes and best yet, you will act as buffer between your parents and stop them tearing into each other on a daily basis!

Don’t buy a Starbucks coffee on the way to work
If you wait until you get to work to have your morning coffee, you will no doubt find it is much cheaper or free to get a coffee at work and you will most likely save yourself about £2.50 a day. Also, you will save time too as you won’t have to wait in line for ten minutes while they make you your coffee.
Monthly saving:20 days @ £2.50 / day = £50 per month

Make your own lunch for work
If you buy a sandwich or a salad everyday at work for your lunch, you will no doubt be spending £2-£4 a day on your lunch, especially if you have a packet of crisps, chocolate bar and a drink with your food. With a little bit of planning you can make your own lunch the night before and it take it to work with you.
Monthly saving:20 days @ £3 / day = £60 per month

Don’t buy a newspaper everyday to read on your lunch break
If you bought a newspaper everyday, that’s 50p, not a lot of money but it does mount up over the course of a month. Instead you could read a book, or if your office get’s their own newspapers, read them. In certain cities, the Metro is readily available for free, admittedly it’s not as good a read in my opinion, but if all you’re doing is giving yourself something to read for 30 minutes while you’re on a lunch break, does it really matter that much?
Monthly saving:20 days @ 50p / day = £10 per month

Wash your car yourself rather than take it to the car wash
To put a car through the car wash costs anywhere between £3 and £6 depending on wether you go for a basic wash or a super deluxe with wax wash. You can wash your own car with a bucket, some soapy water and a sponge - all it will cost is 30 minutes of your time.
Monthly saving:Once a week @ £4.50 each time = £18 per month

Don’t buy brand name consumer goods at the supermarket
If you look at what it costs to buy a tube of toothpast made by colgate, versus the own brand equivalent, you’ll probably find that you can save 50% or more. If you take this attitude to all of your normal purchases in the weekly shop, you will see a massive difference in the size of your weekly shopping bill. The best one I’ve come across is squash, you can buy Robinson’s for about £1 a litre, or you can get own brand squah from Sainsbury’s for 18p a litre. Take this attitude to things like washing up liquid, washing powder, fabric conditioner, dishwasher tablets, baked beans, bread, margarine, milk, cereal and many other products and you will see the savings mount up.
Monthly saving:£10 saving per person per week = £40 a month

Total savings achievable
Coffee saving = £50
Lunch saving = £60
Newspaper saving = £10
Car wash saving = £18
Grocery saving = £40
Total = £178 / month

I suspect most people are suffering with the effects of the credit crunch, soaring petrol prices, rising energy bills and lastly increased grocery bills. There seems no end in sight to the misery, with the Bank of England under pressure to raise interest rates in the future as inflation is on the rise (no surprise given the rising cost of money, fuel and energy).

As humans though, we need to have fun, or at least entertain ourselves, we can’t simply just sit in our houses with the lights off staring at the tv, hoping that things will come good.

So if your budgets are being stretched, you need to reduce your spending, you can’t reduce the spending too much on your mortgage if you are tied in, nor can you reduce your spending on petrol, other than shopping around to find the cheapest (use www.petrolprices.com) the same goes for utilities, you can switch to save a bit of money, but that’s about all you can do.

What areas can you reduce your spending on then? Your weekly grocery shop, your entertainment and arguably your vacations.

Over the weekend, I tackled two of these areas. On Friday night, instead of going out, we stayed in, but had a nice meal. We did the Marks & Spencer £10 meal deal, which got us a main course, a side, a dessert and a bottle of wine for £10. The quality of the food and wine was good. It wasn’t quite the same as going out for a meal, but a very good substitute, and it probably saved us £30-£40.

To tackle the weekly shop, we decided this week we would go and shop at Lidl. We used to shop at Sainsbury’s as it’s the most convenient place for us, but as finances have become squeezed, and I noticed that the weekly shopping bill was between £60-£70, we’ve more recently been shopping at Asda, and making a considerable saving. So we thought we’d give Lidl and Aldi a go, this week Lidl, next week Aldi.

Our first impression was that Lidl is far less enticing than Sainsbury’s, with all the produce just stacked on pallettes. The prices are low, though there were a few things that we could get cheaper in other supermarkets. Like squash, which we currently buy 1litre bottles from Sainsbury’s at 18p. We couldn’t beat that price at Lidl’s.

What we did find quite cheap was things like shower gel, at 17p a bottle and fabric conditioner at less than £1 for a big bottle. Generally there were some good savings to be made, and we managed to get a weeks shopping done for £34, which is pretty good in my opinion.

After doing the shopping, we decided to go and have a cheap afternoon. We have a book in Bristol, called the Invitation Book, which has lots of vouchers for discounts on restaurants, cafes, cinemas, days out etc.

After the shopping, I had a look in the book and found vouchers to give us 20% off a meal at an eatery next to the cinema, and 2 for 1 on cinema tickets. So we went and had a cheap bite to eat and watched a flick all for just over £20. So with the money we’ve saved on the weekly shopping and having a very pleasant meal in on Friday night, instead of a meal out, we were able to enjoy a nice relaxing Sunday afternoon, good food and a good film. So in spite of the credit crunch and general doom and gloom of the economy, you can spend a little wisely and still have some fun!

First of all, I think monthly outgoings should be defined as any necessary (or sometimes frivolous) cost that you as an individual have to bear to support your household.

I’m structuring this article around my own life and costs that I have in keeping a three bedroom house going. I am married, so I have a wife that contributes to the cost of the household, so some of the outgoings will not apply to single people.

According to my own spreadsheets, in my household we have the following list of monthly outgoings:

• Mortgage
• Life insurance
• Home insurance
• Gas
• Electric
• Water
• Sky TV
• Telephone
• Broadband
• Mobiles
• Council tax
• Food

It’s quite a lot really!!!

So how can you reduce any or all of these monthly outgoings?

The mortgage is not that simple. You may be tied into a deal that has penalties to exit, so unless your mortgage has no penalties to exit and you can find a cheaper product with another lender, there really is not a lot you can do to reduce the monthly cost of your mortgage.

Life insurance is sold in large quantities because the advisor that sells it receives a decent commission for selling it. Simply put, the level of commission can vary massively depending on who sells you the policy. Life insurance companies have a “standard rate”, which they offer to any advisor. What you probably don’t know is that many estate agents and banks that offer life insurance actually sell the same products as everyone else, with inflated premiums (above the standard rates), so that they receive a larger commission.

If you bought your life insurance through your estate agent when you bought your house or through the bank/lender when you last refinanced, chances are you could save money by shopping around. There are plenty of internet brokers who will sell you the policy at a discount off the standard rate – they achieve this by sacrificing some of their commission. You may even be able to go to you financial advisor and ask them to sacrifice all of the commission and pay them a fee for arranging the policy.

Home insurance premiums vary massively across the multitude of providers out there. Usually the reason for the variation in premiums is the level of cover offered. Most insurers that are price competitive will offer the basic cover to ensure that your property is protected, but fail to offer cover for legal expenses, accidental damage and cover for your belongings outside of your property. The best thing to do is make sure you are comparing like with like, and only when you are sure that the policies you are comparing all offer the same features and cover, choose the cheapest.

You’ve probably seen lots of adverts for companies offering comparisons of the various different utility companies, claiming that they are able to save you money on your monthly bills, I certainly have. I must confess, I’ve not looked into switching my gas and electricity recently, as I moved to Utility Warehouse last May and have been happy with the price and service I’ve received to date. It is an area I will look into more at some point in the future however.

I’ve not looked into moving water suppliers so I will decline to write much about this at this juncture, I will however, post an article about saving money on all utilities at some point in the future, as it’s something that I will be looking into myself in the near future.

I used to pay over £50 a month for my sky tv bill. That’s quite a lot really, so I decided that as the football season was over, I would ring them up and reduce the amount of channels I subscribed to, and find out how little I could actually get my bill down to. As it turns out, once you’ve been with sky for a year, you can reduce your subscription down to the “free to air” channels, thereby reducing your bill to £0 a month. I’m not sure if this would be applicable to cable tv, but I imagine it’s not too dissimilar. Alternatively, if you don’t already have sky or cable, you could buy a free to air set top box and have access to the same channels, there is of course a cost in buying he set top box.

I will finish this article off tomorrow as it is now time for me to go to the gym and do some exercise…

I read with interest, John’s article entitles The Four Pillars Of Financial Freedom. In particular I picked up on what the article said about minimising monthly outgoings, because it reminded me of some figures I worked out recently. In this article I’m going to talk about the monthly cost of running a car. Sorry, I’m not going to show you any kind of magic formula that will suddenly reduce your monthly outgoings, but I think understanding where the money goes is an important first step in cutting it down. The figures I’m going to present appertain (mainly) to me and my car and my circumstances (note, in passing, that I am in England, UK), so of course other peoples’ will be different - especially if you are in another country. However, I fear that many people - like me before I went into the figures and worked them all out - do not realise how much they really do spend on their cars! This article is not intended to show exactly how much a car costs to run, rather, it is intended as an eye-opener. I think many will be surprised.

The cost of running a car is divided into three main areas:

• Standing costs (road tax, insurance, Servicing and MOT)
• The ongoing cost of fuel
• The cost of the car

Note that although I have breakdown cover, it is possible to run a car without it and so I will not include it.

Road tax costs £185/year for my 1.8 litre car. My last insurance bill was £577/year (this will vary a lot depending on where you live and how many miles/year you drive). Servicing and MOT come to about £250/year typically. Note, I am currently a relatively low mileage driver, and this is a significant factor in the cost of servicing and insurance. All this totals £1012/year, or (rounded) £84 month.

Another highly variable cost is that of fuel. I spend about £40/fortnight, i.e. about £87/month. Note that it is wrong to base a month on four weeks, because over a year you will loose a whole week! There are actually four and one third (4.33) weeks/month!

Finally we come to the cost of the car. Naturally this will go down the longer you keep each car. Also, the costing model I use here assumes that you - as I do - pay cash for the car and run it as long as it is viable to do so. I paid £6000 for my car, and I’ve now had it for nearly five years. Therefore, the car itself has so far cost me £1200/year, or £100/month.

That leaves us with the following monthly costs:

• Standing costs of £84
• Fuel costs of £87
• Car costing £100

These all add up to £271/month! Note that it still comes to £171/month pure running costs even if you don’t factor in the actual cost of the car in the first place!

How scary is that!

Remember, my calculations have taken onto account only the money you absolutely have to pay out - that is, I haven’t taken into account the cost of things such as breakdown cover, which many people would not want to run a car without.