Overdrawn and in the red

08 Sep 2017

Overdrawn & in The Red

Looking back it seems very trivial, but its impact set the tone for the rest of my working life.

It was just after I started my first ever real job. I’d moved out of the family home for the first time to take on the job, but after only two weeks into it, my bank statement arrived and I was overdrawn. I’d only had the account for a month! How could I possibly be in the red already? It was the very expensive, luxuriously fluffy towels that I really wanted rather than needed, that pushed me over my limit.
I had been brought up to believe that you saved for what you wanted and did not spend money you didn’t have. Two weeks into independence and I was a FAILURE – all because of fluffy towels!
The value of the towels suddenly dropped and I couldn’t get the same pleasure out of using them because I'd used money I didn’t have. I soon topped the account up, but the towels never gave me the same pleasure and comfort they gave before I knew I was in the red.

Are you caught up in the UK’s current debt problem?

The fluffy towels taught me a big lesson and I have rarely been in debt since thanks to careful planning, foresight and hard work.  The rise of personal debt is, once again, on the in the increase; in the past year (June 2016 - June 2017) personal debt increased by 10% while household incomes rose by only 1.5%*.  Even I can see that doesn’t balance and it’s all too easy to slip into debt (or further into it) by repeating old habits of buying what you want instead of what you need.  If you don’t want to be part of the problem, you need to start new saving & spending habits.

Creating new habits

A financial adviser I was talking to recently had re-visited her saving/spending habits & was amazed at how much money she was wasting because she was spending her leftover cash on trivial things (another fluffy towel habit) instead of saving it for more important things. She now has some wiser, financially healthier habits.

Changing habits isn’t easy, that’s why many of us don’t do it. It’s easier to carry on doing what we’ve always done even if that leads us down a path to Debt. Here are a few (fairly obvious) tips to get you started. Remember, the obvious isn’t always that easy to spot when it’s a habit – something you do every day without thinking!

  1. Examine your spending habits. That does not mean take a quick look when you’ve got 5 mins. It means scrutinise in detail.
  2. Identify at least 3 areas where you can reduce your spending.
  3. Make a plan of how you are going to make the reductions to include how much and when.
  4. Carry out that plan. The reductions won’t happen unless you take action.
  5. Examine your saving habits. If you haven’t got any, time to make them even if it’s saving pennies. It’s the habit that’s important here, not the amount.

What’s the price of investing in a good habit?

Time to consider the ROI (Return on Investment). Often it’s not the cost of something, but the value of it that dictates how much pleasure we get out of something. The financial cost of my last trip to the supermarket was over £100 – that’s easy as the receipt itemised everything bought and provided a total. What was on the list?

Purchases made included a bag of kale and a box of Magnums. The kale provided more nutritional value than the box of Magnums, BUT, the practice of eating kale for psychological comfort is ridiculous! Under such circumstances, the box of Magnums has more value – to me.
The values placed on any item or experience varies greatly from person to person. When there is a conflict of values, there are always compromises to be made. What’s the cost to you personally, how are you going to pay for it and what with?