plonkee money an english-er's thoughts on personal finance

October 5, 2009

are you spending less for no particular reason?

Filed under: philosophical — Tags: , , — plonkee @ 7:05 pm

Really, my life hasn’t been materially affected by this credit crunch / recession / whatever so far. I’ve got a new job, but that was because I made a career shift. My house is worth more than I owe on it (probably) but my mortgage is only 21% of my take home pay, so I’m not struggling to make the payments. I have as much money (if not more) in savings as I did this time two years ago. My investments are down, but I’m in it for the long haul, so that has no real impact.

And yet, I feel like I’m matching the overall mood. I’m not so inclined to go out drinking, I haven’t eaten out nearly as frequently as I used to, I haven’t been to the cinema in months, and I am much less interested in international travel than I would normally be.

Some of this is because I feel the need to improve my house (to both increase it’s value and to improve it’s functionality as a home). I’m saving up for things like new bathrooms and boring fixes to the fabric of the place. I’m also trying to bump up my emergency fund – I never seem to get past the mythical £6k figure. (Around 4-6 months expenses depending on how frugal I could be.) And some of this might just be me settling down a bit as I approach my 30th birthday.

I’m thinking that on a personal note, it’s not so much of a bad thing if I’m spending less and saving (and investing) more. For the economy, as a whole, it’s not so brilliant – although the investing is good – but we’re in a bit of a prisoners’ dilemma. In any case, I’m not really cutting back deliberately, I’m cutting back because intuitively it feels the comfortable thing to do, and I can’t think of a logical or objective reason to spend more.

Is anyone else spending less in the recession for no particular reason? Or have you felt the effects more directly and are adapting? I guess it’s sort of consumer sentiment thing, but there must be a name for this sort of phenomenon. Let me know what you think in the comments.

September 29, 2009

communist, capitalist or socialist joint finances

Filed under: relationship — Tags: , , — plonkee @ 12:00 pm

Over at Ask.Metafilter, there’s a question on how best to organise joint finances for a newly co-habiting couple. As always, there are basically only three options, but I particularly like the way that ohio states them:

When we were talking about this we came up with three basic financial options, which we called communist, socialist, and capitalist, for convenience.

1- Cuban option: all money except retirement and savings go into one account, from which all expenses are paid. This eliminates having to figure out who pays how much when one party earns more than the other. This is only for people who really trust each other (both financially and otherwise) and who are willing to have very little privacy. I think of this as more appropriate for people who are already married, own property together, have kids, etc.

2- French option: create one account from which all shared expenses will be paid, like rent, insurance, gas, cable, car expenses if you share a car, etc. Figure out how much needs to go into that account to cover monthly expenses, and then contribute from your respective salaries in the proportion you think is most fair. We chose this option, and we are contributing roughly in proportion to our respective salaries. If you make $60k and he makes $30k, you contribute 2/3 and he contributes 1/3. Then you keep separate accounts for everything else. We liked this option because we could have some autonomy with our money and we could buy gifts or take each other out with our separate money. At the same time, we are learning how to run a household together and we have to trust each other enough to have a shared account.

3- US option: no shared account. Put the bills in both names and you each pay whatever is fair from that. You pay electricity, he pays gas, you pay rent and he gives you half, etc. If you are early in the relationship this is likely the best choice. More like roommates than potential lifetime mates.

Although I’ve never had the fortune/misfortune to share a home with a significant other, I tend to have opinions on everything anyway. I couldn’t easily do the first option – I’m too independent, and I like a bit of financial privacy. Either of the other two could be fair game though.

I know we’ve talked about this before, but am I right that these are the only options? I think that amongst people I know there’s a fair split amongst them, what’s your experience.

September 28, 2009

when is taking on debt sensible?

Filed under: Uncategorized — plonkee @ 9:17 am

In principle, I don’t take out loans. I have a couple of credit cards, which I use sometimes and pay off  in full (although I try not to use them, because it’s not unknown for me to forget to make a payment). When I was a student, I had a £1200 overdraft which was interest free, and so I spent as long as possible paying it off – whioh is what I’m doing with my very cheap student loans. I also have had a mortgage out for the last two years. But actual personal loans, I’ve never considered.

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.

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