The debt-free system: Part 2: It’s not rocket science (A tale about balancing the books)

The debt-free system: Part 2: It’s not rocket science

(A tale about balancing the books)

Image

“And don’t tell me debt is not a big deal. Debt will cut off your legs and laugh at you as you grovel in the dirt begging for mercy. If you don’t need it, don’t get it. If you can’t afford it, don’t get it. If you’re already in debt, get out quickly. If you think you’ll never get out, you’re right, you won’t.”

Osayi Osar-Emokpae, Impossible Is Stupid

So what’s the plan? Some people like to take a crash debt approach, but just like the approach of it’s sister plan, the crash diet, this method may start off well, dropping a couple of dress sizes in the first few weeks (or thousands of £s in the case of debt) but more often than not it’s not long before they’re back on the same old consumerism bandwagon that they’d been on just weeks before. Downsizing your house or car, selling off important assets, taking on a second job to create additional income in order to clear a debt is an almost pointless exercise if you’re yet to have tackled the root of your financial problems, overspending and over-consumption.

Just as it is that an overweight person has grown to be obese by simply having consumed more calories than they’ve burnt off, although not quite so obvious, most people’s financial position are of a similar simple equation. Debt is often created by people from having continually, for many years, spent more than they had earnt, only for them to wake up one morning, in the cold light of the day, and realise the terrible state of affairs they are actually in.

Balancing the books is one of the key accomplishments in a journey to becoming debt-free and its value is not only in the financial sense of the word but also in the motivational sense of achieving this milestone. It’s the moment of realisation when you know you are capable of doing this and that from now on, probably for the first time in years, the only way is debt reduction (as opposed to debt creation).

To make a hot air balloon rise you have two options, you can either add more gas or lose some weight, it is a similar situation if you’re trying to improve your financial position, there are two potential options; one is to increase income (the money which comes into your bank), the other being to reduce fixed costs (the costs that you have to pay for at the end of each month)….or better still try doing both!

Whilst reducing some of your outgoings comes hand-in-hand with becoming a minimalist, wiping the slate clean by cancelling expensive, income-sapping gym memberships, magazine subscriptions etc, there are also the unavoidable costs (mortgages, electricity, home insurance etc..) which you can, over time, reduce to a bare minimum.If you want to delve a little further into reducing your outgoings then check out my articles ‘Look after the pennies and the pounds will look after you!’ and ‘Whatever happened to the idea of a 15 hour week?’.

For most wage-slaves (like me), increasing your income, especially in the age of 4 year public sector pay freezes, 40+ hour working weeks and continuing austerity, is an uphill challenge, but definitely not impossible. Increasing income can conjure up images of taking on second jobs, working late nights in a supermarket filling shelves, but for me this option’s opportunity costs, leaving little time for the important things in life/additional stress, far outweigh the benefits which the additional income would bring (especially after the state get their share of it!).

However there are other ways, smarter ways to earn money. By moving current accounts this year (single accounts with Halifax, joint account with Santander) I created an instant income of £400 (switching bonus) whilst in the long term these accounts bring in an additional £300 p.a. through a combination of cash-back (Santander 1-2-3) and rewards (Halifax Reward Current Account). Using cashback websites (Quidco) for insurance cover, mobile phone contracts, swapping utilities and buying birthday presents has reaped a handsome £400 this year whilst using a credit card (Aqua Cashback/Tesco Credit Card) for purchases (just make sure you clear the balance), big and small, has netted, through a mixture of cashback, rewards and additional time for money in the bank to earn interest, a useful £200. Check out ‘marginal gains’ for a comprehensive list of ways to do this.

For those of you who have long considered credit card interest, overdraft charges and excessive bank charges (where’s the fairness in banks charging a £28 ‘fee’ just because they didn’t have the money to pay a direct debit) as just part of life….it doesn’t have to be this way. The cruel, Catch-22 element of debt, is it’s those who can least afford to pay these charges that are most likely to be paying them and it makes debt for them a much deeper, darker hole from which to escape. As a result, turning it round for you will be harder than most but it really doesn’t take much to start clawing your way out of that hole. Balancing the books will mean that you’ll soon head away from these outrageous charges and you’ll never have felt richer. So do yourself a favor, as you start balancing those costs, waving goodbye to the worst of the bank charges, you might just want to rise a middle finger the next time your pass you chosen high street bank. It certainly won’t help you get those fees back but it will definitely, without doubt, make you smile…a lot!  

The debt-free minimalist approach: So now you’ve lightened the load, bought in a little gas for the burners, it’s time to start saying goodbye to debt and begin to look forward to the land of freedom. It might be some way off yet, a blip on the horizon even, but the time will quicker than you think and once you get there you’ll probably want to say forever. Balancing the books is a pivotal moment in becoming debt-free and it doesn’t take much, a little bit of time, a little bit of discipline and a little bit effort, but long-term it will be the best paid little bit of effort you’ll ever make!

The debt-free system: Part 1: Making the impossible possible (A tale about having the right mindset)

The debt-free system: Part 1: Making the impossible possible

(A tale about having the right mindset)

Image

When you’re swimming in an ocean of debt, it’s all too easy to think that becoming debt-free is an impossible, distant dream, far beyond your reach. In your mind, such is its unlikelihood, most people decide to choose the easier option, the option to just believe that debt is just part of life, an illness that you’ll just have to live with, better still why not dull the pain with a little retail therapy, a new coat/iPhone/TV, after all… what’s another two or three more hundred pounds of credit on top of what’s already there? Of course, this behaviour serves only to enforce what you’d already been thinking…getting out of debt is just about impossible!

The truth is, getting out of debt isn’t easy, there isn’t any instant, quick-fix solution, but it is possible…and it’s not half as painful as you think it’s going to be. Next month, after 8 long years, I will have made my last payments against consumer debt which, amongst many other things, had been accrued from retail binges and travelling adventures long now forgotten… apart from their cryptic code existence within the depressing negative balances displayed on my monthly loan and credit card statements.

It’s been a commitment, a sacrifice of summer holidays abroad, of learning to live without, of time taken to search out the best deals, of having to say no to things which you know you know for sure you’d enjoy, of scrimping in every single area of my life, but, now that I’m there, I’m going to make absolutely sure that I never, ever, take on another pound of consumer debt for as long as I live. And on reflection, what’s 8 years of a life which I hope, God willing, may last for another 60 at least, but now with the greater freedom which living without debt will bring us. Now for the mortgage!

The debt-free minimalist approach: Up to now, consciously, my articles have never offered a solution, a strategic system to attack debt with, because I believe the most difficult challenge in tackling debt is changing people’s attitude towards money and dealing with the behaviours of over consumption (and being conscious of the aggressive, consumerism-driven marketing tricks which surround our lives). It’s only when you’ve accepted that stuff doesn’t make you happy that you can begin to adopt the debt-free minimalist approach, the culmination of hundreds of small changes in lifestyle, which given the benefits of time, will give you a system that is not only long-term sustainable but also powerful enough to change the direction of your whole financial future. So now if you’ve got the mindset it’s time to start making the impossible possible and get debt-free!

Next week: The debt-free system: Part 2: Balancing the books

If you haven’t read any of my previous articles then just scroll down or visit the archives page (for selective articles only)

Haven’t you got something better to be doing with your life? (A tale about the endless pursuit of stuff)

ImageHaven’t you got something better to be doing with your life?

(A tale about the endless pursuit of stuff)

Have you ever stopped to consider how much of our lives are wasted in our endless pursuit of stuff? This consumer cycle is much bigger than you’d ever think! These consumer purchases, be it a new kitchen, must-have gadget or luxurious holiday, commit us to working longer and longer hours which leave us exhausted, drained of energy with which you could have done something with purpose.

Be it your weekday evenings or traditional weekends, most people choose to recover from work by, you guessed it,’treating’ themselves to more stuff!  Having seen it advertised on the tv show you were watching/magazine you had been reading/website you had been browsing/friend you had been visiting, you then spend some more time finding out if this is definitely the stuff you want to buy.

Convinced that we definitely need this stuff we then commit more of our leisure time to purchasing and collecting the stuff you wanted. For some items this may be the swift, addictive ‘1-click’ on a website but for others this could be an all-day investment of their leisure time walking around endless shops in bland shopping malls and uniformed high streets. If you’ve travelled to shop by car then you may even find yourself having to work a little longer that month just to pay for the small slab of concrete you parked on whilst you were out shopping for your stuff!

Beware though, whether it’s on online or in the mall, it’s all too easy to become distracted whilst shopping for stuff. Retail shopping can be like one big confectionary stand that’s sitting temptingly next to the till. It’s the moment you ask yourself ‘What did I come in for?’  (or go online for?), the original purpose having been forgotten as you become distracted by the consumption of even more stuff which you just happened to pick up on your way to purchasing what you had come in for!

Stuff has a nasty habit of not keeping us happy for long and it’s not long before the ‘feel good’ factor of this new stuff wanes, so we begin to spend out time seeking out the next item that you really just have to get.

Now, if you’re really unfortunate ,you may even have to work a little longer to pay for the interest that has accrued on an overdraft/credit card as you didn’t actually have the money to purchase your stuff at the time. If you’re just unfortunate then it’s highly likely that you’ll be working a little bit longer down the line to pay the mortgage which you could have been paid off years earlier had you just owned a little less….you guessed it……STUFF!

LESS STUFF = MORE TIME (and a happier, simpler life).

The debt-free minimalist approach: It’s a fact of life that most people will spend the majority of their week working but do we really need to spend such a significant proportion of our leisure time in the endless pursuit of stuff? Consuming is not living, happiness is not found in the pursuit and accumulation of more and more stuff, it is found in living an active, purposeful, social, creative life. Go out for a walk in the woods/by a lake, draw or write something, spend time with your family, tend to the garden, make something, fix something, learn something new (an instrument/a language), join a community club, become a volunteer, plan an adventure, write a letter to someone you love, follow a passion, get fit, bake a cake….the options for how we spend our leisure time are almost endless. So when you next find yourself about to begin the next consumer cycle, pause for a moment and ask yourself ‘Isn’t there something better that I could be doing with my life?’ because you’ll normally find that actually…there is!

Look after the pennies and the pounds will look after you! (A tale of accumulated marginal gains)

Look after the pennies and the pounds will look after you!

(A tale of accumulated marginal gains)

penny pounds

‘A small leak can sink a great ship’ – Benjamin Franklin

Do you ever get to the end of the month, without having made any substantial purchases, yet still find you have very little (if not none) of your salary left? I suspect this is a familiar experience all around the globe, yet many do nothing about it. You may even ask yourself where has it all gone? In the hope that it’s not you that is responsible for spending everything you earn, you may even attempt to blame someone else (your partner, your kids).  Once I actually called up my bank convinced that I had been the victim of bank fraud, that was until the bank clerk began to whistle through the last 15/20 transactions on my account….to which I replied ‘yes, yes, yes, yes….oh, it looks like I’ve actually spent the money!

Whilst you can become transfixed with reducing the big fixed monthly outgoings (your mortgage, car loans, loan repayments etc.), what many don’t realise is that every month substantial amounts of money are paid out through numerous small bills/costs, payments which could have been reduced or eliminated altogether. These innocuous, frequent, sums of money, the ones which make up 3-4 pages of your monthly bank statements, can stealthily consume equal to or far more than the big outgoings, the ones you sit and agonise over, yet they warrant comparatively little or no attention.

David Brailsford, the multi-gold winning coach of the Team GB cyclists, is accredited with much of the team’s Olympic success through his emphasis on the ‘aggregation of marginal gains’. Put simply, it’s how small improvements in a number of different aspects of what we do, can have a huge impact on the overall performance of the team (or in this case, the state of your finances). To turn Team GB into a gold machine he examined every aspect of the team’s performance, from the streamline design of their helmets to the shape of the pillows on which the cyclists slept. Fast forward to the 2012 Olympics, it was with the accumulated gains from hundreds of micro-improvements, that Team GB won 8 golds (double the golds won by Team GB in any other discipline), 2 silvers and 2 bronze, earning David Brailsford the reputation as one of the most respected sport coaches in the world.

Where can you find marginal gains? Once you delve below the surface you’ll begin to find that the opportunity to achieve marginal gains is everywhere (a bit like clutter). How about turning the thermostat down a single degree Celsius (3-5% savings on your gas/oil bill and you won’t even notice it), or cancel a magazine subscription (they only encourage you to consume). Reducing your car use can save you hundreds of pounds, I’ve saved almost £500 ($800) this year by cycling, on just 2 days of the 5 days I work each week . You will probably have all heard of the ‘latte factor’, but how about the ‘leftover factor’? The cumulative savings of eating last night’s leftovers and other perishable food items in your fridge/cupboards (which otherwise would soon to be destined for the bin) will save you another £400 per year (using a prudent £2 per day approximation).

At home I currently enjoy high definition TV (via FreeSat), broadband and home telephone (inc. line rental) for only £10 per month. 3 years ago we were paying over £200 a year interest on our bank overdrafts, now the banks PAY US £300 per year, despite ending most months with little more than a few hundred pounds in credit. Last years we were paid £400 to move our current accounts and £100 to move energy suppliers, with the additional bonus of both offering market-leading products. Use a combination of cash-back websites such as QuidCo/TopCashBack (with caution) and cash-back credit cards (3% Aqua Credit Card = £100 per year) to shave pounds off retail purchases. Shop around for telecommunications packages.

If I was to list all areas of potential marginal gains this article could easily become a book in itself so here is a list of the key words relating to further potential marginal gains which you may wish to try for yourself. Water butt to water garden, reuse supermarket carrier bags for green points, use own brand toiletries in expensive branded bottles, pay bills by direct debit, use first litres of cold water in shower to wash hair, turn off heating an hour before bed, porridge for breakfast, cut down on alcohol, no gambling, meat-free Monday night dinners, do it yourself, energy saving light bulbs, don’t pay to park, fresh cooked dinners, switch off not standby, no lottery tickets, increase insurance excesses, wash your own car/windows, use restaurant vouchers, grow your own, don’t buy newspapers, no coffee shops, bulk-buy during offers, flush toilets less, borrow not buy,  cut out unnecessary car journeys and don’t use air-con.

Debtfreeminimimalist approach: Applying the aggregation of marginal gains method to your home finances might not bring you instant wealth, and may even at first appear a lot of effort for little reward, but like most approaches suggested by thedebtfreeminimalist, it is a philosophy which will, over time, enable you to live a simpler life, free of debt and free of the pressures with which having no money can bring.

It’s all about marshmallows! (A tale of deferred gratification)

Image

It’s all about marshmallows!

(A tale of deferred gratification)

Could you resist temptation if promised an incentive for waiting? On a daily basis in our consumerism-driven society we’re presented with something hugely desirable (maybe its a new iPad, a latest smartphone or a new car) and suddenly you are hit with the consumer’s dilemma, should I buy or shouldn’t I?  The moment is often filled with small thoughts in your head, can I afford it? shall I put it on the credit card and deal it with next month? do I really need it? Increasingly the answer is buy it and worry about it later (when the bill drops through the letterbox).

Modern society is increasingly short-sighted especially when it comes to their attitude towards finances. Under half of 25-40 year olds don’t have a pension, nearly 25% of new mortgages are taken out over 30 years or longer and a staggering 68% of new cars are bought with finance. Consumers of the 21st century have been trained to get what they want, when they want, no matter how much it costs them in the long-term.

 

What about the marshmallows? Well, for 5 year olds, marshmallows are like new jeans, iPads, smart phones etc…very tempting! In a well-known experiment in the late 1960s/1970s, conducted by Walter Mishel of Stanford University, during an interview young children were offered a single marshmallow but were offered the incentive of an additional marshmallow if they could wait (approximately 15 minutes) whilst the interviewer left the room. The results are comedy gold (just search YouTube for this experiment) but the results are no laughable matter. The follow up research which tracked the children involved in the experiment and conducted for many decades after, showed that the youngsters who were able to wait, able to defer their gratification, were much more likely to have greater life outcomes (education attainment, levels of wealth, lower Body Mass Index).

 

Opportunity cost is an economic term which defines the benefit that you will forgo by consuming a particular good/service….the deferred gratification. For example the opportunity cost of purchasing a new pair of £100 jeans is that I couldn’t afford to go the theatre with my friends. Unfortunately the opportunity cost of our decisions can be a lot more costly in the long run than missing a night at the theatre (time for the number crunching!). The opportunity cost of purchasing the jeans could have been a £100 investment into a personal pension, which enhanced by tax relief would have immediately become £128. At the age of 25 and invested for a further 40 years (at a modest 6% annual return), enjoying the benefits of compound investment, your initial investment of £100 would have grown to a handsome £1,400. This sum, which if invested in an annuity, would deliver an annual retirement income of £72 p.a….nearly enough to buy a pair of jeans (or a night at a theatre), every year for the rest of your, what could be, long retirement.

 

As the Stanford experiments show, it is that it is more than just financial rewards that mastering deferred gratification can bring. The benefits of exercise are normally enjoyed not in the moment of exercise but in the time (days, weeks, months and years) after, when you’re feeling stronger and looking leaner and healthier. So many people in the western world are obsessed with the way they look yet they look for short-term routes, which require money not effort, to look good. The fake tan, the nail extensions, the new shoes are all just metaphors for scoffing the single marshmallow, if only people would spend their time exercising not shopping, they would soon find that they would be far happier with the way they look and feel than they do by propping their self-esteem’s up with short-term fixes whose benefits fade away as quickly as they are applied.

Achieve: Putting aside my wonderful family, on reflection, my greatest achievements in life have all involved massive dollops of deferred gratification. Be it personal success in running a sub-3 hour marathon, completing a grueling 100 mile cycling sportive (only last week) or educational success in completing A-Levels at night school, a 2:1 Undergraduate degree in Accounting and Post Graduate degree in Education, the achievements I will be forever proud of have all been achieved through a huge investment of not money but time, effort and discipline. The studying until the early hours of the morning, the evenings running and cycling through weather cold enough to make you want to cry, the lack of money whilst others all around are enjoying huge amount of disposable income (and the possessions/lifestyles to match) were all an investment in my future success and happiness, an investment whose benefits I will reap from for the rest of my life.

 

The debt-free minimalist philosophy: Whilst we won’t all live until we’re 100 years old, there’s no harm in thinking and planning for a life that will. Unfortunately, for the majority this won’t be the the latter years which they had imagined (or seen in the adverts) simply because they couldn’t wait, for them the marshmallow was too tempting! If you don’t want to spend your latter years eating cat food on, relying on state handouts to survive (if there are any by then) or simply not even existing (due to poor health) then it’s time to start thinking more about tomorrow and less about today because one day you’ll wake up without much wealth or health and think ‘if only I could have resisted temptation!’.

 

“For tomorrow belongs to the people who prepare for it today”

African proverb.

The duvet which made a difference (a tale of giving)

Image

The duvet which made a difference (a tale of giving)

“Happiness doesn’t result from what we get, but from what we give.”

 Since becoming a minimalist, I have had the opportunity to give more than at any time in my life. Emptying my home of all unnecessary possessions and stripping away the time-stealers that consumed my precious free time has given me the chance to not only give financially but to also give that precious commodity, time.

Replacing the consumerist high: Like a hardened smoker, missing their regular surge of nicotine whilst attempting to quit the dreaded weed, the journey to minimalism can be difficult. Years of consumerism will have tricked your body into thinking it needs a regular dose of retail therapy which in turn feeds your body with ‘feel-good’ chemicals dopamine and oxytocin.

What the world of consumerism won’t tell you is that you can enjoy those same feelings (chemicals) when you perform the act of giving. Not that you need to tell me that, we’ve all enjoyed those moments, just after giving something to someone, when you enjoy a feeling of elation, created by a moment of generosity. In fact, scientists have observed that the quantity of feel good chemicals released during giving is actually higher than when consuming. In a nutshell, giving makes you feel really good about yourself (without the nasty after effects of guilt you feel when you’ve just bought something that you really shouldn’t have!).

A few weeks ago, during another attempt to rid our house of pointless clutter, I came across an old duvet lurking in the hidden depths of a wardrobe. It certainly wasn’t the best condition duvet you had ever seen, with stains and marks from a lifetime of good use, but whilst it was of zero-value in my life (we already had a spare duvet for guests) I knew it could be of value to someone else’s life. So on a trip to our local chinese takeaway, on a cold winter’s (around 1-2 degrees Celsius) evening, I decided I would load the duvet into the car and give it to someone who was living on the streets. The homeless man, whose life I had seen featured in a student-made documentary on being homeless, was hugely appreciative and I was suddenly overcome with an incredible surge of positive feelings.

Little did I realise that this gift would keep on giving! The following night, whilst on my way to celebrate a friend’s 30th birthday, with temperatures below freezing point and snow scattered on the floor, I saw the same man in the doorway of a bank, snuggled up in the old duvet that had previously just pointlessly consumed space in my home. Since then we have experienced the coldest March on record with temperatures regularly skating around freezing point and I have often, in a moment of reflection, thought about the value and purpose which that duvet is bringing to his life…maybe it could have even saved it?

We all have a duvet to give, maybe not in the pure sense of the word, but we all have those items that have been loitering around our homes, for months even years, never used, unlikely to ever be used, consuming our free space, yet they could be of real value to someone else’s life. Not that I’m suggesting you all jump in your cars to go and distribute a variety of household goods to homeless people!

Charity shops, in an age of austerity, are in the midst of a renaissance, visited by more people than ever, selling ever higher quality products (our house is decked out in charity shop purchased furniture). Whilst the benefits are not quite so tangible as the duvet handed directly to a man on the streets, the help provided by the selling of your clutter in charity shops can be equal to if not more. It is well publicised that just £5 (about $8), in a third world country, can save a life by providing immunisation against killer diseases such as tuberculosis and malaria. So your clutter, wherever it may be hiding, could make a huge difference to someone else’s life, you’ve just got to allow it to!

Giving time to others can be of huge benefit to others as well. I will never forget the Christmas day I decided to swap unwrapping presents for serving the homeless a hot Christmas dinner. To this day it is one of the best Christmas day’s I’ve ever enjoyed! But Christmas is just 1 of 365 days, there are many other ways that your time can make a difference, perhaps its giving your time to help the local neighbourhood, simply clearing up litter or repairing a neighbour’s fence or maybe giving a few hours of your time to help out at a local soup kitchen/charity shop/foodbank.

One thing’s for sure, just like consuming, when you begin to give it can become equally addictive.  Before you know it, you may even find yourself searching out the next opportunity to give as opposed to spending your time searching for that next opportunity to consume.

“We make a living by what we get. We make a life by what we give.”

Winston Churchill

Are we all just working for the banks?

Image

Are we all just working for the banks?

One of the biggest hurdles to living a simple, minimalist life are long working hours, a working week for some of 40+, even 50+, hours, hours, the consequence of which leads us to frantically, cramming in what constitutes a life into the remaining few hours left of each day. But why work such long, anti-life hours? Wouldn’t we all enjoy life a little more if we worked a little less? The answer to these questions will normally return to a central subject, a simple four-letter word. A word which in previous generations was not welcome past the front door of our homes but is now just another part of the furniture in our heavily-mortgaged homes…the word of course is….DEBT!

So are we all just working for the banks? It can be an eye opening moment to consider what proportion of your grueling, working month is spent earning the money which is paid immediately out just to cover the interest and repayments on money that has been borrowed. That chunk of money which, before barely touching the insides of your bank account on pay day, is already accounted for and immediately paid straight back out to pay for numerous possessions that had been bought with funds kindly lent to you by the willing banks.

If you think this doesn’t include you then you’re probably mistaken. Whilst mortgages (or rent) are undoubtedly the biggest repayments (rent is just a repayment of the actual homeowner’s debt) which will be paid out of your monthly wage packet, don’t be fooled, you could also have car finance, student loans, personal loans, overdraft interest, credit card interest (which you don’t clear each month), insurance installments, furniture installments, tv installments, heck even your mobile phone contract involves spreading the payments for the phone over the industry standard 24 months (would you really hand over £500 cash for that iPhone 5 in your pocket?). Give yourself a mark out of 10, if it’s ten then you may be best to start writing ‘bank bitch’ as your main occupation!

Whichever type of debt you possess, from a £250,000 mortgage to a £250 overdraft balance, the one thing for certain is that you will be paying for the privilege of it. Interest on debt provides banks with a huge slice of their annual profits, and it’s an income stream that they’re keen to protect, and keep wide open, for as long as they possibly can. Supported by their friends in government, through schemes such as the National Loan Guarantee Scheme (NLGS), banks are bending over backwards, enticing us with ever tempting rates of interest, to lend us money which they hope, along with our desire for ever more material possessions, will stoke the flames of economic growth for just a little longer.

The interest charged on debt forms a significant proportion of mortgage repayments, especially so in the first ten years of a mortgage. Clever banks have even persuaded us that time periods of 30 to 35 years are an acceptable time span for which to pay off a mortgage, with many experts predicting ‘lifetime’ mortgages to become the ‘norm’ of the future. On a £200,000 mortgage, 35-year mortgage (5% interest), your monthly payments of £1,009 would consist of a staggering £829 interest and a paltry £180 debt repayment. 5 years down the line this means out of your £60,000 mortgage repayments, your actual debt could have only reduced by just £12,000, the banks meanwhile, sitting quietly in the background, would have enjoyed profiting to the tune of £48,000, an average of £9,600 interest per year!

Your bank bitch ratio: To consider how this affects your life, add up your total unavoidable monthly repayment charges (mortgage, credit card, overdraft, loan repayments, insurance installments etc.., and divide it by your daily rate of pay (after tax, pension contributions etc..). The resulting number will be the total number of days you currently work each month just to pay your banks. Just think what alternative, life-fulfilling ways you could choose to be spending your time doing if you could reduce this ratio?

Reducing your bank bitch ratio: This can be easier that you think you and is just a case of being more mindful of what you actually spending your wages on. Find that extra £160 p.m. to pay off your mortgage each month means over 5 years you could actually save yourself £2,400 in interest charges. Over ten years the extra repayments against the actual capital sum borrowed means you would have paid £6,000 less in interest, whilst you may also want to consider the fact that you would have also paid off a staggering £25,000 more of your mortgage.

Other suggestions aren’t quite so headline grabbing but ‘many small leaks can sink a great ship!’. It’s not just mortgage payments that are making large inroads into people’s pay packets either. Of course you could you buy less stuff, but that can be hard, so when you do how about following that old age rule of ‘only buy what you can afford?’. It may sound simple but think of the majority of non-essential purchases you have made over the 2-3 years and ask yourself ‘Did I pay with them using credit?’. If the answer is ‘yes’ then the repayments end up as another small leak into which your monthly wage pours. How many of the purchases would you have hesitated over if the payment was made in one-single cash/debit-card transaction?

Avoiding interest charges: Ensuring you have enough funds to pay for your annual insurances/taxes in one single payment, as opposed to using a 12-month installment option, can save you £150 a year in interest charges, not using your bank overdraft and avoiding bank fees (unauthorised overdrafts, late payment charges etc.) will save you a further £200-£500 a year and of course, clearing any credit card balances (£490 interest p.a charged on average balances of £2,000) will all significantly reduce the proportion of your working month that you’re slaving away just to pay the banks.

The debt-free minimalist approach: Life many of the approaches I suggest, the approach is one of a slow evolution of your personal finances. First is is important to understand that some benefits, for example reducing the term (length) of your mortgage, will only be realised later in life, when your friends and neighbours are still having to slave away in jobs, for many years to come, just to cover their home repayments. In the short-term set yourself small targets over 12 month periods, focusing on those areas of your finance which carry the highest penalties. First try to build up a small cash surplus of around £1000 ($1,500), this will eliminate the need for any short-term finance products such as payday loans (3000% APR), credit cards (30% APR), installment plans (25% APR) and overdrafts (15% APR), which all charge high to extortionate rates of interest. Finally adopt the save and pay approach to all non-essential purchases, only paying for items when you have worked and saved for them.

This essay is best summed up in this simple Chinese proverb:

‘Borrowed money, shortens time’

And time is one thing that you just can’t buy more of!

Try out the MSE mortgage calculator (see link below) and see for yourself the effect that increasing your monthly mortgage repayments has on the term of your mortgage.

http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator#result

Are you a clutterist?….Take the 5-a-day challenge (and i’m not talking fruit!)

         Image

             Are you a clutterist?…Take the 5-a-day challenge (and i’m not talking fruit!)

Definition: Clutter, to fill or cover with scattered or disordered things that impede movement or reduce effectiveness.

Have you ever stopped for a moment to consider how many of  what constitutes ‘your belongings’, in reality, is just clutter?

If there was to be an inverse of minimalist living then I’m sure the phrase ‘clutterism and clutterist’ would be coined. The definition of which would read ‘An individual whose life is filled with excess belongings, whose ownership consume a significant proportion of an individual’s resources (money, time and space).

Anyone that has ever been to our house would never tell you our house is crammed with things but during the initial stages of my journey into minimalism it soon became clear that in every corner of my tangible life, there was clutter…and lots of it! There was clutter in my house, clutter in my garage, clutter in my car, clutter on my desk at school…there was even clutter in my own clutter! Clutter had become like an algae in my life, covering our lives with a grimy film, slowly siphoning off precious oxygen making it difficult to breathe and enjoy life.

The thing with clutter is once it inhabits your life, settles down in a drawer or wardrobe it almosts become part of the furniture, you no longer questions its validity in your life. You go to the wardrobe to find an item of clothing but first you must wade through the tens (hundreds in some cases) of just-in-case items that have rarely seen the light of day, then into your bathroom cabinet where your deodorant and beauty products vie for attention with unused gifts of body lotions, single-sized hotel products (that you just happened to take home) and the mandatory rusty-edged razor. This scenario repeats itself in every room of the house, the stack of old towels in your airing cupboard, the plethora of wires and adapters in your man drawer (search Youtube for Michael Mcintyre, Man drawer to fully appreciate this comment). Clutter grows and grows (just like compound interest) until you begin to question not when to clear this clutter out but whether or not you need to purchase more space for your clutter, upsize your home or worse still, rent a storage unit to put your clutter in. But it doesn’t have to be like this.

Like many of thedebtfreeminimalist approaches, the decluttering process is not an instant, 1-day clutterless explosion, instead it is a tapas (little and often) attitude to clutter, an ongoing removal of a few items a day, in fact so little that you barely register the evolution of your living spaces into simpler, clearer living spaces. The problem with 1-day challenges, like following a crash fad-diet, is you’re likely to wake up in 12 months time and realise that the weight (clutter) is back on and the whole yo-yo sequence begins again. The tapas attitude will not only, over time, mean you have been able to, cumulatively, remove hundreds of items of clutter but that also removing clutter has developed to become a life-long habit that will support living a simple, minimalist life.

The Just-in-case (JIC) rule: As you clear out your clutter you may find yourself saying ‘This could be useful if…’ or ‘We’ll keep this just in case…’, we all have those items that whilst they haven’t been of any use recently they could potentially be useful in the future, we call these items your JICs. The problem with JICs is that there can potentially be an awful lot of them so you need a rule. The debtfreeminimalist approach is to remove the item (clutter) from its usual home and place it in a tub/area/container earmarked for JIC items. If an item is required during a 6 month period then it is returned to its previous home, but failing that, it is treated as normal clutter and is thrown out. For clothing you may want to extend the period to 12 months, to compensate for changing weather condition, but no longer!

The 5-a-day challenge: As its name suggests, the 5-a-day challenge is to remove 5 pieces of clutter from your life every single day. 5-a-day is not much, a drop in the ocean, but when you start doing the maths, the droplets fill buckets, 5-a-day becomes 150 items a month, 150 a month becomes nearly 2,000 random pieces of clutter a year. Before the decade’s out you (and your home) could be 20,000 items of clutter lighter, and quite possibly that bigger living space now seeming less of a priority. In fact, once you get started, you may find that keeping your daily removal of clutter down to 5 items is harder than the challenge itself.

So start now, go and find five items that represent absolutely no value to your life (i’ve got my five) and take them outside and either place them in a charity bag or waste/recycling bin…it’s that easy! To focus your efforts you could make a list of the different spaces (bathroom cabinet, sideboard drawer, under your bed, sock drawer, garage shelves, cutlery tray, cleaning products, box of stationery etc…) that need attention, add it to your calendar, tackle a different zone every day and soon your home will be detoxed, the algae removed and it’s environment able to breathe more freely.

When you have done all this it may be worth reflecting on hard you’ve worked to afford this clutter in your life and the next time you’re out on your weekend consumerist-driven jaunt,I hope you may consider this essay before adding another item of future clutter to your life.

‘Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need.’ (Tyler Durden, Fight Club)

Is the iPhone such a smart phone?

                                  Image

                                              Is the iPhone really such a smart phone?

It seems that almost everyone these days has an iPhone (even my 13 year old nephew), and I can’t blame people for wanting one either! A beautifully engineered combination of curved polished aluminium and sleek velvet glass, containing a crystal clear retina display, they feel perfectly at home nestled in the palm of your hand. Then there’s the highest kudos value attached to any gadget out there, on par with only the irresistible iPad. But don’t fool yourself, kudos never lasts, its value, just most like new material possessions, will fall from day one, and even more so when it is no longer the latest reincarnation (just ask any owner of one of those old iPhone 4s/iPad 3s). At a push, in the current premium smart phone market, that gives you about twelve months of kudos followed by the remaining twelve months of your contract longing for your next upgrade!

But is it such a smart phone? All that style and kudos certainly doesn’t come cheap. The cheapest you can currently find the latest iPhone 5 is £33 per month which equates to an annual bill of £396 exc. extra charges! That means a decade of being an iPhone owner, as you know that you will upgrade at the end of your 24 month contract, will cost you a staggering £4,000!  In the UK, where the average consumer is walking around with £5,946 of personal debt (Credit Action UK statistics, December, 2012), it is mindless to own one of these style icons whilst at the same time owing money on credit/store cards, overdrafts or personal loans.

The debt-free minimalist approach: Yes I have a smartphone, many minimalists don’t have a phone at all, but my phone is not labelled with a costly brand name (spot it in the photograph above) and it will not be replaced at the industry standard 24 months. The result; less debt, less electrical waste pollution and a simpler life. The debt-free smartphone is renewed every 40 months, costs £7.95 per month, £95 per year or over the decade, £950. That’s £3,050 less personal debt and one more size able step on a pathway towards a debt-free life of minimalism. It is your choice after all.

I don’t need much!

image

I don’t need much!

I don’t need an expensive gym membership to be fit when I’ve got my trusty old pair of Ascics (see photo), I don’t need a £60,000 Land Rover to get to work when I’ve got my £300 bike, I don’t need a 5 bedroom detached house when we are just a family of 4 .

I definitely don’t  need the £50 per month gym membership, I definitely don’t need the £250 per month car finance, I definitely don’t need the additional £400 on my monthly mortgage repayments, I definitely don’t need the anxiety and stress from owning so much debt and I definitely don’t need to put my son into nursery so we can work more to pay for it all!

The debt-free minimalist approach: We spend most of our lives working to acquire more stuff without ever stopping to ask why? Why not take a different approach and work a little less and enjoy what you already have! It is your choice after all!

A quote that says it all: Fight Club, Tyler Durden (Brad Pitt), 1999:

Man, I see in fight club the strongest and smartest men who’ve ever lived. I see all this potential, and I see squandering. God damn it, an entire generation pumping gas, waiting tables; slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war… our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.