I’m not claiming to be really financially savvy, self-restrained or aware. I just can’t think of a good reason to take out a loan. However, that doesn’t necessarily mean that I’m right. Kevin, a commentator at Get Rich Slowly said:

Furthermore, “financing” something just means you’re paying more for it than you have to. However, if that difference lets you enjoy it sooner, then the real question is, “how much would you pay to have that item/experience now, rather than later?”…

…phrasing it in the proper context like that serves to highlight the real, underlying value judgement being made, rather than simply adhering to some blanket “never finance anything” dogma.

Objectively speaking, I think this is true. Taking out a loan just means paying a premium to have the item or experience now, rather than in 6 months, or a year, or however long it would take to save up the money (or pay off the loan).

Of course, there’s always the likely possibility - if you don’t think you can save up for it, then why should you think you’ll be able to pay more for it later? Also, taking out a loan for some purchase means that you are also carrying extra risk - there’s the possibility that your income will decrease and you’ll be unable to make the loan payments.

But maybe there’s a case that sometimes it’s worth taking out a loan?

If I had an emergency that extended past the reach of my savings then I would take on debt if I could, because there is little other choice. When I am into my retirement, I shall probably consider a reverse mortgage against my house, because I don’t feel any need to pass on an inheritance.

Are there other circumstances in which it’s sensible, or at least acceptable, to take on debt? I can see how it might be more true as you get older. Everyone’s lifetime is finite, but the older you get the more important that fact becomes. It might be worth taking on debt to enjoy an experience that you might not be able to participate in fully if you left it until you had saved up.

What do you think about taking on consumer debt? Let me know in the comments.

If there’s one thing that’s more foolish than attempting to keep up with the Joneses, it’s trying to make sure that the Smiths can’t keep up with you.

I was out at dinner last night, and the conversation turned to my least favourite subject - immigrants are stealing all our benefits money. My sole contribution was to point out that born and bred Brits also make false benefit claims, and given that they are the vast majority of the population, they probably form the bigger problem.

Everyone was excised that if they had savings, they wouldn’t be able to get government help. And that it wasn’t fair that some people got more money than them. Whilst I get the point and don’t like people committing fraud either, I wasn’t happy with the conversation at all.

Seriously folks, life isn’t fair. There will probably always be people richer than you, and poorer than you. Instead of wondering how Ms Jones manages to afford a Mercedes and a luxury holiday, or worse, how to stop Mr Smith’s kids from getting free lunches at school, why not just practice sensible personal finance?

Spend less than you earn, save and invest the difference. Do things that contribute to your own happiness. Look after your health. Spend time with friends and family. Exercise your mind.

Quit worrying that benefit thieves are making off with all the money unless you either (a) have specific examples in mind and are willing to shop them, or (b) are about to vote in an election and this is the most important issue in the world to you.

Worry is bad for you, limit your worry to things that will affect you that you can do something about, and leave the rest well alone.

Anyway, enough about me. Well, except to say that I wrote a few days ago about how I wasn’t sure if a recession was a good time to re-evaluate your career or not.

I’m not entirely sure what I was thinking. It’s always a good time to re-evaluate. It’s just that it’s not always a good time to act. Sometimes the re-evaluation is going to lead you to the realisation that you need to sit tight for a while, or put up and shut up.

SWOT analysis

One framework that you can use to re-evaluate is to carry out SWOT analysis. Now, as far as you and I are concerned, this is definitely a geeky engineer tool.

When I was at university, I studied mathematics (and only mathematics, the English specialise very early). When I applied for my post-college jobs, went for quite a few of graduate trainee schemes which require formal assessment centres. It’s not such a great feeling actually to first encounter SWOT analysis in an assessed group exercise and be going *what on earth is that?* (thinking politely of course, because it’s best behaviour time). Most of the other people in the group were engineering students and knew exactly what it was, I attempted to absorb by osmosis, rather than admit that I didn’t have a clue. (No, I wasn’t offered that first job, not sure why )

Fortunately, understanding what SWOT analysis is and how to do it, is fairly straightforward, if you posess common sense. SWOT stands for:

• Strengths
• Weaknesses
• Opportunities
• Threats

Applied to yourself and your career, you look at your own internal characteristics and skills (strengths and weaknesses) and external forces (opportunities and threats).

Get a piece of paper and a pen (or however you prefer to brainstorm) and think about the following ideas.

strengths

What is it that you can do well? What skills have you developed? What personal qualities do you have?

It’s difficult to think of all the possible skills that you might possess, so I’ve found a few resources that might help you with the brainstorming phase:

In trying to do this, it’s helpful to have the most up to date cv you have to hand, plus any other notes on what you’ve done at work, but don’t forget that you are more than just a corporate slave. What strengths have you gained from your other activities?

Because at work we have to keep up to date cvs on file, it’s fairly easy for me to pick out the key strengths I’ve developed there. But outside of work, I’ve also developed skills in web related stuff (ok, so the blog thing isn’t amazingly difficult but still, it’s a skill), there’s also the writing and public speaking that I do for a community organisation, skills in music (not sure how that might help, but no idea is a bad idea at this stage).

weaknesses

What are you rubbish at? What limiting factors do you have?

Speaking personally, I’d say that I’m fairly lazy (I work better under pressure), not amazing at the whole attention to detail thing and I’m basically tied to working within commuting distance of my house. Amongst other things.

opportunities

This requires creative thoughts. Is there anything that you know about already? Potential for promotion at work? Or an internal transfer? A business venture someone told you about? Ideas that you’ve picked up from your blogging colleagues? (Not that I’d ever steal ideas, of course). Could you leverage your hobby into paid income - full or part time? Is there anything you can sell? Do you have children who could you could send down the mines?

Ok, maybe not the last one. But think outside the box. Getting the most of out having to generate an income, means that you need to consider more than just a full time job. Perhaps you could go into business for yourself. Or work a couple of part-time gigs.

threats

Now is the time to wallow in despair and despondency and think of all the bad things that might go wrong.

What are the risks to your current job? Is your industry in decline? Is your whole neighbourhood looking a bit shaky? Do some of your skills need upgrading? Do any of you opportunities have obvious downsides? Does your small business have too many competitors? Are you in a crowded niche?

Be as honest as possible in this section, there’s no point in doing this if you’re going to hide your head in the sand over something. If wishes were horses,…

the magic

The final bit is the magic. If you look at your strengths, weaknesses, opportunities and threats all together, you’ll usually be able to match some things up, see how you can mitigate against the threats and generally find some reasonable actions to pursue. This might include a radical career change, but is far more likely to involve some kind of incremental improvement.

I’m in Game 11 - although I was doing ok at the start, I’ve taken a hammering, so if you want to head over and fix that I’d be grateful.

We’re all playing for charity - mine is Oxfam.

I also can’t be the only person that does *what if* reflecting. There are a few decisions that I’ve made that would have altered my life immensely all of which I took between the ages of 20 and 23.

early ideas

When I was a teenager, one of my heroes was the fund manager Nicola Horlicks. On paper I have the qualifications to make a great high finance person, or actuary.

If I’d chosen this career, I would be living in London, I would be much better off (probably earning around twice as much), job security more precarious but not too bad normally. In practice, I hate working with money. I hate ridiculously long hours. I really can’t imagine being happy with this choice - which is the actual reason that I decided against it.

a move abroad

In my penultimate year at University, I seriously considered moving to the States to pursue a graduate degree. It would have been in Mathematics (in particular probably complex variable theory or topology). My top choice was Northwestern University but I think I was also considering UT-Austin (my current all time favourite American city), UPenn, Columbia, UNC-Chapel Hill, Duke, Chicago and Dartmouth College. I did extensive online research and got as far as buying GRE test prep books. In my final year, however, I didn’t really enjoy my project and started to find some of the algebra courses extremely difficult. I drifted in to the decision that I probably wouldn’t enjoy five or six years studying pure mathematics, and began to get enthusiastic about a new field of interest.

If I had taken up this option and managed to finish the degree, I probably would have ended up staying in the States either working in industry or teaching in a college. I would have lost out on several years income, but otherwise I would have a similar earning potential to the one I currently enjoy. The cost of living is lower in America, so I reckon eventually this would have ended up being a wash financially. If I was the type to enjoy doing the PhD this could have been a really interesting alternative career - I would have still ended up with a job that I liked a lot and a comfortable income but as an expat, which has its own complicating factors (how much does it cost to import Robinsons?).

a gap year

At one point, I contemplated taking a gap year and travelling round the world (again). I’m not too sure whether the main destination would have been Australia or New Zealand, but I’m sure the experience would have been amazing. If I’d taken up this choice, I’d almost certainly have ended up living and working in London once I got back. My likely career choice would have been in a similar field to the one that I work in now. I would be earning around the same amount that I actually do, but would be living in a house/flat share situation.

Financially, I think I would have had the same amount of money and income as I actually do. Other complicating factors might have included living at home for a short while in the midst of my parents’ separation and eventual divorce and also that I really hate living with other people. On the other hand I would have been living nearer to family, and in a city that I really, really love.

a different career

I often think that if I had to pick another career to follow, I’d be a librarian. This would need a further degree, and it’s not as well paid as the career that I actually have. On the plus side, I really love books. As far as one can tell without actually trying it out, I think I would enjoy this job. I’d be significantly worse off unless I managed to find a job in an area with a much lower cost of living (like rural Wales or something). Job security would on balance be about the same.

food for thought

What’s interesting to me is that some of my choices are semi-reversible. I’m probably too old to go to a top-flight graduate school in mathematics (pure maths is definitely a young person’s game). Now is not quite the time to switch to finance. On the other hand, I could try for a PhD in a more applied field if I wanted to. I could certainly move abroad temporarily, or permanently, and this is on my list of potential ideas for the future. As with everyone else, there’s an excellent chance that I’ll have a second different career, and that might be in library science. Just because I’ve moved on a few years, doesn’t mean that those doors are permanently closed.

It also means that many of the decisions that I make now and in the future can be decided again, differently, without impacting on my financial stability and piece of mind. The future is wide open, and full of possibilities.

Have nothing in your houses that you do not know to be useful or believe to be beautiful

William Morris

So, I’m currently supposed to be decorating my house. I’m about 80% complete on four rooms, and 0% complete on the other two. Sadly, the other two are the kitchen and bathroom, relatively expensive rooms especially as there’s no way around replacing my bathroom suite - not only is it ugly it’s also cracked.

1. look before you leap

Do research before you start. Check out websites like apartment therapy, pick up a couple of magazines, browse interior decoration books, window shop extensively. Formulating your own taste, and knowing where to look for bargains are the key to good frugal interior decorating. Collect cuttings and samples together so that you can see what looks good before you spend money on stuff. This means that you can change your mind if what you originally wanted doesn’t fit your budget.

2. pick a style and stick to it

This is really about making your place look good. If you pick a style and stick to it, everything will go together so it will look good. You’ve got a framework to bargain hunt against and since it will look good you can spend less knowing for greater effect.

3. less is more

Taking your own tastes into account, pick a style that is not reliant on lots and lots of decorative frills to work. Minimalism might not be for you, but if you like a country cottage look, err on the side of plain or shaker styles for example.

4. be flexible on exact colours

You can pick up end of line tins of paint quite often at your local big box DIY store. If you’ve only got a small area to paint, and you’re fairly flexible as to the exact colour that you want, this is a great way to save on supplies. Similarly for wallpaper, fabric, curtains etc - remnants are cheaper. Alternatively, stick to colours that are reasonably popular and you can pick up cheap paint and things in all sorts of surprising places.

5. DIY

It goes without saying that if you have the skills to do it, doing it yourself will probably save money. This doesn’t just include handyman skills, but things like making your own curtains and cushions, prettifying boxes, and creating artwork.

6. measure twice, cut once

Measure your room carefully (at least twice) so you know what will fit. I have known people to get this wrong, funny? yes, but kind of an expensive mistake.

7. invest in good finishing

Expensive tiling looks cheap if it’s installed badly. Similarly, almost anything that’s installed well will look good - which is the goal at the end of the day. And investing in this case doesn’t have to mean money. Take your time and get things right.

8. get used stuff

Gumtree, craigslist, and freecycle are your friends. You can pick up all sorts of bargains, although you should always be mindful of fire hazards in old upholstered things, and lead paint (etc) in items for babies rooms. Bargains may also be found on ebay, in car boot or yard sales, or your local charity shop. Keep your eyes peeled.

9. go to Ikea

Last time I went I picked up a few tea light holders that were 9p (like $0.05) each. Which is almost nothing. Ikea has bargains on a whole variety of small stuff like candles, towels, lamps, clocks, picture frames, crockery and cutlery, fleece blankets and wooden coat hangers (just mentioning a few of my own purchases at random). Unlike other cheap shops most of these things are in the fairly plain category - whilst not exactly exciting it also means that they aren’t hideous.

Other good bargain stores in the UK are TK Maxx, Argos, Matalan and Dunelm Mills. I only know of TJ Maxx elsewhere - add your suggestions in the comments.

10. accents are the place for nice things

Just the other day, I saw a beautiful purple velvet sofa in a magazine, it’s not remotely a bargain, but a touch of luxurious velvet would be lovely in my house. Make the small things the place where you (relavitively speaking) indulge in the finer things. Plain curtains with silk ribbon tiebacks, a small alcove papered in designer wallpaper, velvet cushions on a cloth sofa are all good in living and bedrooms. In bathrooms and kitchens get nice handles, and hardware.

11. if you don’t like it, cover it up

I can’t be the only person in the world that’s had to live with ugly furniture, flooring, or other hideous monstrosity. At the moment, I’ve got two fugly gas fires downstairs that I don’t use. In an ideal world I’d get rid of them, install new fires (one period Art Nouveau, one ultra modern) and replaster the chimney breats. Sadly, I’m not yet living in an idea world.

The short to medium term solution is to cover it up. If your carpet is a hideous pattern, get a cheap plain rug for the floor. If your sofa is ugly, get a neutral throw to go over it. I’m going to be getting some firescreens to go in front of my eyesores. I think the key to this is covering as much as possible of the monstrosity with something very plain and neutral.

There you go, the 11th day of Christmas.

The 12 Days of Christmas - Personal Finance Style:

• Day 1 -The First Rule Of Personal Finance @ I’ve Paid For This Twice Already…
• Day 2 - Two Financial Goals - Less Debt, More Income @ Cash Money Life
• Day 3 - 3 New Year’s Worksheets @ Mrs. Micah
• Day 4 - 4 ways to be better prepared for Christmas next year @ Gather Little by Little
• Day 5 - 5 Golden Rules To Follow During The Holiday Season @ My Two Dollars
• Day 6 - 6 Ways To Give @ Moolanomy
• Day 7 - 7 Savings Strategies @ Being Frugal
• Day 8 - Eight Simple Snowflakes @ I’ve Paid For This Twice Already…
• Day 9 - 9 Year-End Money Moves @ Moolanomy
• Day 10 - 10 Personal Finance Essentials @ Cash Money Life
• Day 11 - here, of course
• Day 12 - @ Being Frugal

Let’s start by saying that I am an out and out liberal, in both the British and American senses. The chances of me voting for the Conservative party are slim, and (were I given the opportunity) for the Republicans, non-existent. I also vote primarily on social issues rather than economic ones - taxes are less important to me than civil liberties and freedoms.

I should probably also point out that, as evidenced by the current recession, the British *way of doing things* is far from perfect. Our economy is heavily dependant on financial services so this recession is predicted to hit us hard.

On the other hand, there are a few things that we do differently to the Yanks, where I think they could learn a thing or two.

healthcare

Oooh, the big taboo issue amongst personal finance bloggers. My friend David at My Two Dollars has seriously been vilified for his wish - based on his own experiences - for healthcare reform. I don’t agree with him about everything, but I think he’s quite right to point out that if you have a socialized fire service then - ideologically speaking - a socialized health care system is no worse.

Now, I’m not exactly proposing that Obama institute a version of the NHS. But, the issue that I have with American healthcare is that it’s anti-entrepreneurs. The question that comes up most when an American says that they are planning to become self-employed is “What about health insurance?”. Do you know what? The most common answer is that their spouse has good health insurance. If you can’t see why that’s not good enough…

The great thing about the British system is that in that sense, healthcare is a non-issue. It should not be prohibitively expensive to get healthcare if you are self-employed. How do businesses start? They start small, usually by someone taking a risk with their own money. I don’t know where taking a risk with your health should also be coming in to it.

tax

In the UK there’s an organisation called the Campaign for Plain English. There mission is for information to be provided clearly, and in a way that most people will understand. As a result of their work, all government departments have guidance and require that public documents are written in plain English.

Now, what does this have to do with taxes? Well, I’ll just ask if you’ve ever had to fill in an American tax return? I have.

Several years ago I spent a summer as a J1 exchange visa student working in North Carolina. In order to get back the taxes I was owed, I had to fill in a 1040EZ NR. It’s a good job that I pronounce “Z” as “zed” because I wouldn’t have described it as particularly easy. And I do know that it’s the easiest one.

Having the tax stuff easier to understand would, on average, save people money. If it was easier to understand, more people would be able to complete their tax returns without paid assistance. They would also be more likely to file the right taxes and earlier, saving potential penaties.

Maybe in the great scheme of things, this is not all that big a money saver. But I’ve seen what’s happened over here. When you make government documents easier to understand, people feel empowered - it’s almost like the government serves the people rather than the other way round.

but, don’t do this…

Well, we don’t do it as much as we used to, but the British government has had a terrible habit of buying up failing companies - particularly car manufacturers - and then not performing miracles on their balance sheets. I’d advise against anyone else doing this either.

Sure, a well managed decline is better than a sudden bankruptcy but what on earth makes anyone think that a bunch of politicians are good at interfering in stuff that they don’t know anything about?

Apparently 3m Americans are indirectly employed by the big three *auto manufacturers* - about 1% of the population. No matter what Obama or anyone else does, I bet this proportion is going to decline. Any money would probably be better spent helping people re-skill themselves than in propping up failing companies.

remaining unsaid…

As I said earlier, I vote on social rather than economic issues.But I was asked to write about economic issues, and so I have.

I’m a values voter and I value non-discrimination, ending poverty, promoting peace, preventing torture and not wrecking the entire planet for future generations. In some of those areas, I think the Americans really could learn a little from the British.

Free e-book - Money Saving Tips for the Holidays

Now, is a good time to get it because there’s only like a month to go before the big day, so why not download the book, and let me know what you think.

Merry Christmas.

This e-book is copyright M-Network; however you are allowed to distribute to anyone as long as the e-book is unmodified and free. Please feel free to distribute this e-book to anyone else that you think might benefit from reading it. Each of the articles is copyright to the respective authors and is not allowed to be distributed outside of this e-Book without express permission of the author. Special thanks to Gather Little By Little for assembling all of our ideas into this one book!

Not ever.

credit crunch

The credit crunch has probably made this a lot clearer to a lot of people lately. Savings accounts which are generally considered the least risky investments have been buffeted by wave after wave of bank collapse. Investment funds have been going down in value rather than up. Big financial organisations including household names have gone under.

risk-free investments

Almost every investment advert in the UK that you’ll ever see includes something like the phrase:

the value of your investment may go down as well as up

Plenty of people are pretty risk averse, and this kind of thing gives them the jitters. Now, whatever I might think about the level of risk I am willing to take on, I think it’s very important that your finances don’t keep you awake at night. You should only take on as much risk as you understand and are comfortable with.

One sort of product that attracts conservative investors is one that promises a guaranteed capital return after 5 years, and a share of any profit if the stock market increases. I can see why people like this idea. Of course, at the moment, there’s an excellent chance that you could be relying on the guarantee to get your money back.

safeguards

In so many ways we are all fortunate people. In the nineteenth and early twentieth century, a bank collapse meant depositors - and they really were people like you and I - lost their money. That’s no longer the case. Savings accounts and investment accounts belonging to private individuals are insured by the Financial Services Compensation Scheme (FSCS). Which means that in the event of a default we can claim a good portion of our money back.

However, this only applies if they company that adminsters the product is unable to meet its obligations.

guaranteed equity bonds

The problem with guaranteed equity bonds, aside from their not that exciting performance, is that it would seem that the guarantee is insured by a third party.The way that the third party manages to make the money is through the use of derivatives. Even if your plan adminstrator is solvent you are dependent on the third party remaining in business to ensure that you get your money back.

enter Lehmans

The name should be ringing alarm bells already. Some guaranteed equity bonds had Lehmans Brothers as a third party insurer. And now, Lehmans is no longer in business. Those guarantees, it turns out, aren’t quite as rock solid as they first stand. Aside from potential mis-selling issues there is pretty much nothing that anyone can do about it.

if you’ve been caught out

If you have one of these investments and the risk involved wasn’t made clear to you, you might want to investigate whether you can make a claim against whoever sold you the plan for mis-selling.

lessons for everyone

The real issue is that people shouldn’t be investing in something if they don’t understand how it makes money. This is how you avoid pyramid schemes, and other scams.

Guaranteed equity bonds are not intrinsically bad products. But if you can’t tell me how they work, and you don’t understand the risk involved then you shouldn’t be buying them. Sensible personal finance is not that difficult - if I can understand it, anyone can.