Featured Post

money isn’t the same in my head

Isn’t it funny how not all money is the same?

Now I know with my intellectual maths graduate brain that money is fungible - which is just a fancy way of saying that it’s all the same. £1 is worth £1, and $1 is worth $1.

But you wouldn’t think it to look at how I actually work. I own a house which currently requires:

• a small repair to the roof
• containment of the little shop of horrors backyard ivy
• gas fires removing
• maybe damp sorting out in the bathroom
• a new bathroom suite
• insulation in the loft
• a new front door

But, I went out and spent 2 years worth of earnings from this blog on a new (to me) oboe. Which is fine, because the oboe purchase makes me happy, but not so much, because it never occurred to me to spend the money on the house. In my head, I’d allocated blog money to the oboe fund and it couldn’t be spent on another purchase.

a useful mindset

In some ways, the idea that some money is different can be very useful. It can stop you from impulse spending money that’s set aside for another purpose. It can help you keep track of your goals.

In my case, whilst I didn’t need the oboe as much as I need to make repairs to the house, it was the first thing that I’ve really saved up for. As far as my learning and playing was concerned, I’d progressed well beyond the capabilities of the oboe that I was borrowing. Spending the money on a more sensible purchase would probably have been more grown up, but I’m not really all that grown up at heart. It didn’t work out too badly - at least I have something to show for my efforts.

or less than helpful?

On the other hand, if I’d thought about it, maybe I could have managed to squeeze out a new bathroom instead of the oboe (plus little shop of horrors and damp work which would be prerequisites). By not considering the money fungible, I didn’t give myself a chance to make that decision. I stuck to the idea that I had last summer, without re-evaluating.

This time, it hasn’t been the end of the world. Even if I’d thought about it, I might well have bought the oboe rather than been more sensible. Next time I might not be so lucky.

Do you tend to think of money as all the same, or as each pot having a specific purpose? Let me know in the comments.

frugal films: going to the cinema for less

This last week, I’ve spent £16 on cinema tickets, and seen three films. I caught the new Transformers film at the weekend, in London and the tickets were £10. I saw two films at the local foreign language film club in the same evening, for a total of £6. The films were Spanish, and pretty recent and pretty good.

I’ve lived in this city for nearly 10 years and I had no idea there was a foreign language film club. It’s not very well advertised, and talking to a couple of regulars, it seems that they don’t get many people showing up. This makes me wonder what other kinds of frugal entertainment there might be that I hadn’t realised. Thing is, I’m not entirely sure what to look for, I know about museums and art galleries, but what other cheap or free entertainment could there be?

My experience with the film club suggests that a lot of these things aren’t all that well advertised and might need a little work to uncover. What kinds of frugal entertainment is there where you live? Maybe I can get some ideas that way. Let me know in the comments.

pensions are investments

You shouldn’t take financial advice from a Baptist minister.

I was listening to Radio 4’s Thought for the Day earlier on, where a Baptist minister was talking about the sensible, risk averse people having to bail out the more foolish, risk takers. Bail outs are not universally popular, but one thing in particular that he said stuck out to me. He said that he has his whole fortune safely in a building society.

are building societies safe?

Of course, you’ll all be aware that building societies are not intrinsically safe. Your money is only as safe as either the institution you’ve put the money in, or if that fails, the extent to which it’s guaranteed by a government scheme such as the Financial Services Compensation Scheme.

When you hold money in a building society, you hold it in cash, and cash has its own risks. There’s the risk of inflation eating away at your money, and the opportunity cost - the chance that you could have done better with your money elsewhere.

do you have money elsewhere that you forget about?

I suspect that the Baptist minister in question doesn’t have his whole fortune safely in a building society. I can’t be certain but it’s likely that he expects to enjoy a ministers’ pension when he retires, he’s probably contributing to one right now.

what do pensions have to do with anything?

Well, work and personal pensions are part of your fortune. Especially if you are planning on retiring one day on more than the state pension. Final salary pensions are much sought after, because they offer great benefits to retirees. But those benefits need to be paid for.

You might think that if you have a final salary pension, it comes with some sort of cast iron guarantee. But it doesn’t. There’s only one place that the money that you pay in can grow into enough to pay out, and that’s in investments. Regardless of the type of pension that you have, there’s no secret money cupboard.

If you have a final salary pension, then the trustees and the scheme actuaries decide where how the money should be invested - usually in stocks, bonds, cash and property - and try to ensure that there will be enough money to cover everyone’s pension. That’s why a lot of schemes are asking members to contribute more, for the same or lower pension when they retire. If they don’t, there isn’t going to be enough money to pay everyone’s pension, because money doesn’t grow on trees.

If you work in the public sector, the taxpayer could be forced to pick up the tab if there’s a shortfall, but don’t count on everyone else voting for that.

If you have a money purchase or defined contribution pension, then you can directly control your investments. You should take the opportunity to learn about risk and investing, but there’s probably a default set-up that is at least vaguely appropriate.

maybe I shouldn’t invest?

There is always the risk that your pension might not be worth as much as you hope, but it’ll  be better than nothing, and it’s very likely to be better than just sticking the money in a building society, as there are tax breaks, (and often employer contributions) for using a pension wrapper.

Nearly everyone is invested in risky things and it’ll probably turn out ok. In the long run. Don’t use the current economic climate as an excuse for delaying your investing.