Mastering Money The S.M.A.R.T Way Lesson 2

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Lesson #2

 

SPEND WISELY AND AVOID EXPENSIVE CONSUMER DEBT

 

In this module, we are going to learn how to spend wisely and avoid consumer debt.

 

Earn more than you spend.

 

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery”.

Charles Dickens, David Copperfield

 

Spending wisely means living within your budget, buying the things you really need and not indiscriminately shopping for things you want.

 

For instance, you need basic necessities such as food, utilities and a roof over your head, but do you really need Netflix?

 

Consumer debt

 

“Borrowing money at 18% to buy consumer goods is dumb”

Warren Buffett

 

The legendary investor Warren Buffett, whose Berkshire Hathaway company owns banks and credit card companies, actually warned investors against carrying a credit card balance!

 

Millions of Brits and Americans carry a permanent balance on their credit card – before the covid crisis, 110 million American had credit card debt paying a crippling average rate of 16%.

 

“You can’t go through life borrowing money at those rates and be better off,” Buffett added.

 

Buffett said that an old friend of his who came into some money and asked his advice on what to do with it. He asked if she had credit card debt. She said she did, and was paying an interest rate of about 18%.

 

“If I owed any money at 18%, the first thing I’d do with any money I had would be to pay it off,” Buffett advised her.

 

By paying off the balance, she would save more money on interest than any return she could earn by investing the money, whether in the stock market or in real estate or elsewhere, Buffett advised. He added, “I don’t know how to make 18%”.

 

If one of the greatest investors of all time admits that he cannot make more than the rate charged on a credit card, what makes you think you can?

 

You should still keep some money aside for a rainy day, but pay down expensive debt rather than keep cash in the bank earning less than 1% and don’t buy stuff which go down in value using credits cards.

 

How much are you paying each month on your credit card bill?

 

Chances are, you are paying the minimum amount required.

 

Paying the ‘minimum payment’ on your card balance will take between 10 and 20 years to clear the debt depending on the interest rate charged?

 

This practice is highly profitable for the card companies and extremely costly for consumers. UK card companies are now required to warn customers about the cost of paying off the minimum amount required.

 

Check your credit card statement now. If you are just paying the minimum ‘default’ figure, increase this immediately to a higher amount you can afford, or clear the entire balance.

 

Questions to consider

 

How much interest are you paying on your credit cards?

 

How do you use your credit cards?

 

How much do you pay off each month?

 

Would you still buy that gadget or item of clothing if you had to pay for it in cash or straight out of your bank account?

 

Albert Einstein said ‘compound interest is one of the most powerful forces on earth’.

 

Using compound interest to your advantage in saving and investing, will make you rich. Used against you by borrowing, it will make you poor and someone else rich.

 

At an annual interest rate of 18%, how long would it take for the investment or debt to double?

 

The Rule of 72.

 

The Rule of 72 is a simple way to determine approximately how long an investment will take to double given a fixed annual rate of interest. By simply dividing 72 by the annual rate of return, you can obtain a rough estimate of how many years it will take for the initial investment to double.

 

72/18 = 4

 

In other words, a sum of money invested at 18% pa will double approximately every four years.

 

Similarly, a debt with interest rolled up will double in four years.

 

You can see how powerful compound interest is when applied to debt. The average UK mortgage holder will pay over half a million pounds in interest over their lifetime.

 

Summary Lesson 2

 

The first step to becoming a SMART MONEY MANAGER is to spend wisely and avoid expensive consumer debt. By taking this step alone you will see a dramatic improvement in your financial and emotional wellbeing.

 

It’s not about how much you earn, but how you manage your money that counts.

 

You could earn more money by getting a pay rise, but unless you change your money habits, you’ll soon be back where you started.

 

Action Steps

 

Think about how you spend your money.

 

Start making a list of all your income and expenditure using your bank and credit card statements including all the standing orders and direct debits. You can use a notebook, spreadsheet or a smartphone app to keep your record.

 

Your list of expenditure will fall into two categories – Fixed and Variable.

 

Fixed costs, which can include:

 

·        Rent or mortgage

·        Food shopping

·        Utilities and energy

·        Regular bills

·        Club membership and subscription payments

 

Variable expenditure, which can include:

 

·        Clothing, coffees, drinks and treats

·        Meals out and takeaways

·        Repairs

·        Any other stuff you indiscriminately buy on a whim or because it’s ‘on sale’.

 

Simple money saving tips you can use right now.

 

If you are running short every month, think about where you can make savings.

 

There are so many ways of making savings from switching utility providers to finding a better loan or mortgage deal. Switching mortgage deals has saved me tens of thousands of pounds.

 

Here are a few simple money saving tips:

 

Cook your meals and cut back on eating out at restaurants and buying takeaways. Prepare proper meals using fresh ingredients instead of buying more expensive, and less healthy, ready microwavable meals?

 

Drink less alcohol. How often do you go to the pub of bars and how much do you spend on a night out?

 

Buy less coffees and make your own. How many visits to Starbucks do you make each week? You can make fresh coffee for a fraction of the price of Starbucks.

 

Save a fortune on credit card interest. You can save by switching to a lower rate or interest free deal which can help you increase your payment towards reducing the balance. Just Google ‘best credit card deals’ and you’ll find hundreds of offers which can save you money.

 

Use cards only when necessary and try to clear the balance in full each month to avoid interest charges.

 

Review insurance every year. Insurance companies make it easy to auto-renew your household and motor insurance every. Making the effort to shop around could save you hundreds of pounds.

 

Review your mobile phone contract and utility providers. Reviewing your phone contract or plan is a great way of saving cash and you don’t have to change providers. Call your provider today.

 

Your expenditure list will immediately help you identify any obvious targets for cutting back, like that subscription you no longer need or the recurring payment you’d completely forgotten about – we’ve all been there.

 

I cover many more money saving ideas in my free Money Tips Podcast.

 

I’m not saying you should give up having fun and live a reclusive life living like a miser. You can enjoy life more if you live debt free within your budget, save for the things you really want and increase your income when you want more.

 

You don’t have to follow the “I want it now” crowd!

 

Thank you for listening and congratulations on completing this module. In the next module, we will cover further steps on managing and respecting your money.

 

Would you like to learn how to become financially free without working any harder and spending your life exchanging your time for money watch this free on demand training now to learn how to become financially free without working any harder.

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The 5 C's to Avoiding Food Waste and Money and Helping the Planet

Welcome to Money Tips Daily this is Money Kelly bringing you money tips to help you save and make more money!

When the snow started falling in the UK this week, people I know started panic buying food and supplies in case the shops ran out or they became stranded in their homes. I’m not talking about people living in remote areas. These are people who live in London!

It made me think about the amount of food we buy and how much gets wasted.

Stop wasting food! 

On average, people in the west throw away around a third of the food they buy. Considering that food is one of our major areas of expenditure, apart from anything else, that’s a lot of money we are throwing away. 

Let’s say a family spends £100 per week on food and throws away a third of it. Over a year, that’s £1,716 going straight into the dustbin.

There is also a moral aspect to this. We all know that there are millions of people who go hungry every day, even on our own doorstep, while many of us overindulge and then throw millions of tons of food in the bin – much of which ends up in landfill, which is unsustainable and bad for the planet.

The government is even trying to change food labelling, which accounts for a huge amount of edible food being tossed into dumpster bins by supermarkets unable to legally sell it. 

We have the modern phenomenon of “dumpster divers”, raiding bins for food which would otherwise go to waste, and evening shoppers crowding around a trolley waiting for the supermarket to reduce prices on food which will be out of date by the end of the day.

So how can we reduce our waste?

Here are my 5 C’s to Stop Food Waste:

1. Cook it – cooked food will last longer and will not go off so quickly. You can store or freeze cooked dishes it to last even longer.
2. Chill or refrigerate most food and fruit to avoid going bad in a hot kitchen. In the days before fridges were common, kitchens had larders which faced an outside wall and stayed cool. Houses were also much cooler before central heating.
3. Consume or eat it! This is the most obvious method of avoiding waste and you can’t do this if you buy 12 muffins in Costco or constantly go for ‘3 for 1’ offers (which are nearly always approaching their sell by date!
4. Check it for signs of mould, decay or deterioration using your eyes and nose. Don’t just follow the date on the packaging. I’ve thrown away milk before it reached the sell by date and used milk a week after it. Labels can be wrong, as we don’t know how a consignment may have been handles or stored, so use your common sense. I’m not advising you to eat “out of date” food, however, I ate a pack of Asian style vegetables yesterday on which the best before date was 3 days ago. I’m still here to tell the tale.
5. Cold store or freeze food if you cannot consume it within a day or so. Freeze on the day of purchase and always read the label and follow safe guidance.

Bonus Tip: Try living on whatever food is stored in your cupboard and freezer for a few days without shopping until you have used it all up. Pull out those cans of beans and soup from the back of your cupboards.

Oh, and by the way, the supermarkets did not run out of food and the snow only lasted a few chaotic days before life went back to normal.

Check out my podcast version: "The 5 C’s to Avoid Wasting Food and Money" on Anchor! https://anchor.fm/charles-kelly/episodes/The-5-Cs-to-Avoid-Wasting-Food-and-Money-e151br

See also: 

Leverage Your Time and Build a Profitable Online Business - Free Book Offer

New HMO Letting Rules Could Drive Landlords Out Of The Buy-To-Let Property Market

Financial Education is Your Key to Wealth and Success

NEVER Borrow Money on Expensive Credit Cards to Buy Depreciating Consumer Goods

How to Make Money Online Without a Website or Inventing Your Own Product

Model the Rich and Successful

Money Tips Daily – Negotiate, Negotiate, Negotiate!

Welcome to Money Tips Daily

We’ve talked about saving money, generating more money, but how would you like to know how to save hundreds or even thousands of pounds or dollars just by saying a few words?

Negotiate! That’s right, use negotiation in your everyday dealings.

The old saying that “everything is negotiable” may not always work down at your local supermarket (but it can believe me), but the principle is timeless. People have been negotiating since the beginning of time and it’s in our DNA to get a better deal, right? 

This is not about haggling, banging your fist on the table or becoming a union leader grinding out pay deals, which they do very well! This is about asking for a better deal, price or an upgrade.

I get better deals and upgrades all the time, usually just by asking. On a recent holiday in the Philippines, I asked for an upgrade to a better room, and got it, along with use of the club lounge (free drinks and food) on the top floor with fabulous views of the Manila skyline. I got a further £100 off the final bill when I discovered and filmed a rat in the rooftop garden!

Now, you may think I was a real pain in the ass, but actually I was very friendly with the staff and manager and not at all demanding like some western tourists can be in Asia. I praised them for their good service, which was true, had fun and used a bit of humour. I’d have a laugh with the staff after it had been dealt with by asking “where’s the rat today?”.  

  

You may be shy to negotiate at first, after all, it’s not very British to ask for a discount, but try some of these useful phrases, combined with a friendly smile, whenever someone gives you a price for a service:

“How much!!!???”,

“Is that your best price/offer/...”,

“That seems a little high...can you offer any discount?”,

“I love this hotel/airline...Do you have any upgrades available?”

Then wait for them to answer. In most cases, you will get 10% or 20% off the price on the spot or an upgrade or some sort of free bonus offer.

Just last month I had to change the battery on my car at a local garage, part of one of the biggest national chains in the country. I use them for tyres, so I’m a regular customer.

The manager quoted me £140 for the battery, “fitted with a 3 year warranty”. I replied with a smile, “thanks, can you offer me any discount?”. His exact words were, “Of course” and he then knocked £40 off the price on the spot – I was expecting 10% and would have taken it as the battery was already competitively priced. I drove out of there ten minutes later smiling after paying £100, that’s a discount of almost 30% for using a 7 word phrase, or almost £6 a word!

I don’t go around haggling over the price of a cup of coffee at my local Starbucks, but even they have special offers and deals if you ask.

I could give you hundreds of examples of how I obtained many thousands of pounds in discounts from small items to large property deals. I even managed to obtain a 10% discount, by using the same phrase, from my book editor (Yes, Money Can Buy You Happiness will be published soon) who is probably reading this now! Learn from it!

Bonus Tips...Keep it friendly, build rapport and never be a jerk.

The best negotiators are charming and almost irresistible. One of the greatest negotiators I’ve ever seen in action, my friend John, almost did it for fun. Both parties enjoyed the process as he’d say things like “come on Len, you know you can do better than that!”. Len, our furniture supplier would sigh and say, “Ok John, I’ll do it for x”.

There are also hundreds of good books on advanced negotiation techniques. Read one.

You can also negotiate online or via email or SMS. 

That’s all for now, more Money Tips tomorrow.

Money Tips Daily - Earn Extra Tax Free Cash With Rent a Room Scheme

Welcome to Money Tips Daily.

We have looked at various ways of saving money, so today I want to give you a few tips on how to earn some extra cash!

There are hundreds of ways of generating additional income in your spare time from starting a small business from home, digital marketing and sales or MLM. I actually run a Facebook page called home based business ideas.

If you’re not inclined to start a business just yet and are struggling to make ends meet, you might want to consider these simple money making tips:

Rent a Room Scheme

The UK government allows you to earn up to £7500 tax free per year from renting out accommodation in your home.

The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. You don't have to stop at £7500 by the way, you just have to pay a little extra tax. Always consult your legal and tax advisers. 

How do you find tenants?

Tenants are easy to find in most areas (for instance, where there is employment or transport links) using websites like Airbnb and spareroom.co.uk.

Airbnb clients tend to be looking for short-term accommodation, although in my experience they can turn into long-term guests. The good thing about Airbnb is that they take care of collecting payments and has insurance in case things go wrong. You will generally be expected to provide bedding and towels like a guest house, but the higher rent should compensate you for this. The disadvantage is that guests will come and go which means more work.

Other sites like spare room and Monday to Friday provide you with a platform to advertise your room. Once the potential tenant makes contact you will have to deal with references and tenancy agreements. Advantages that you should be able to find a longer time tenant and will not have to provide additional services like bedding and cleaning. These sites generally charge you a flat fee to advertise your room and all the rent is yours, but there is no guarantee you’ll find a tenant. Airbnb makes no charge to list your room on their site, which has millions of visitors, but will take a percentage from the rent.  

You can of course use traditional methods like putting a card in the shop window, but this carries more risk and I've found you get better quality tenants through online advertising.

Whichever method you use to find lodgers there are plenty of people out there looking for a room, because renting an apartment is outside of their budget or they just need something temporary.

A few words of caution. Always take up references and use a legal assured shorthold tenancy agreement (AST) unless you’re taking Airbnb guests. If in doubt, consult your lawyer and take legal advice. 

You can find out more from organisations such as the National Landlords Association or on consumer website such as citizens advice. 

The 'gut' feeling most landlords ignore

I would also follow your own instincts and gut feeling about a person before letting them take up residence in your home. If there’s something you don’t feel is quite right about a potential lodger, go with your gut feeling or check them out further. For me, this is more important than references, but don't go completely freehand gung ho and skip the referencing process.

There are dozens of ideas around the ‘sharing’ economy including: car sharing on your journey to work and renting out your driveway for parking while you’re out at work.

Tomorrow, I’ll give you another cash generating tip which could turn into a profitable online business allowing you to work from home and quit the rat race. 

Previous:

The Reason Why Property Is The Best Investment

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