Friday, 24 December 2010

Credit where credit's due, but what's your bottom line?

On the Christmas Soap Box!

2011 is fast approacing and my hope for the year is that the Frugaldom challenge can help as many people as possible reduce their debts and head for the good life that is 'debt free living'.

Frugal living isn't easy to begin with, nor is it particularly fun, unless you become addicted to number crunching. (I call this addiction, 'Numerical OCD'.)  If you've been leading a lifestyle that's put you on the wrong side of the 'living within your means' barrier then trust me when I say, the good life of being completely debt free is attainable and it is very rewarding. The trip to frugality is fraught with danger, the ascent to debtfree status is steep and any number of cliches can be used to explain the learning curve that is about controlling your own budget. So let's be prepared to try our best and reap the rewards of success.

'T was the day before Christmas and all through the house... there was a trail of devastation from the cat climbing the Christmas tree, corners stacked with pressies, boxes waiting to be posted (work still carries on, people continue to buy books, thankfully) and there's the panic thought of... what if there isn't enough food? Oh, and sooty footprints all over my fireplace and traipsed across my hearthside rug! Arg! Yes, you may well ask why, and no, it isn't because Santa arrived a day early in Frugaldom... it's because I've just had to grab the cat by the tail as she was about to disappear up the chimney! I guess she was fed up hinting that it's time to light the livingroom fire!

Thankfully, in the Frugaldom household, we don't generally panic about food. We're never without, as the pantry, larder, freezer, fridge, cupboards and shelves are always full of basic ingredients, home produce, preserves, bargain buys and BOGOFs (buy one get one free). The homemade elderflower and rhubarb 'champagnes' sit ready for the festive tipples and the logburner warms the kitchen. We're getting a bit low on kindling sticks, but H will soon be out with the hand axe splitting the pallet that arrived with this week's poultry feed order. Free pallets could easily become your best friends, as they are so incredibly versatile! (We even have a duck house built from them.)

Over the space of a year, 2010 has proven to be much less of a struggle than anticipated, but this is mainly because there are no debts to worry about - the well deserved result of our frugal living for so long. But what of those households that do carry debts? How do they combat the annual celebratory pressie-buying problems whilst trying to keep afloat? Crafting and cottage industries aren't dead, they are, once again, becoming the key to success, as are trading and bartering groups like LETS. See previous posts for a few simple, cheap and quick recipes for festive treats that most people love. Nobody has grumbled about them here that I know of, but it might be a case of, would they dare? :)

I've been speaking to several people recently who are in all sorts of dire straits, despite having fulltime incomes. I was aghast at some of their stories but was also shocked by the amount of their income. I'm not talking about low paid, part-time workers or those struggling on the minimum wage, I'm talking about people who pay upper rate tax which, in my opinion, reflects their upper rate credit limits and their potential for super-debts. Although these debts may not slowly sink them, they can suddenly crush them when the main support beam of their income comes crashing down and they realise that they haven't laid proper foundations to stabilise their own financial futures.

I am also aghast at the current TV commercial offering 'buy now, pay nothing until 2012' with small print reading something ridiculous about only having to spend a minimum of £50+ to qualify (terms and conditions apply). Did I read it right? This, in my opinion, is outrageous! I would plead with anyone in financial difficulties NOT to fall into this extended form of debt for the simple fact that things CAN, and often do, get worse. Your income could drop, a member of the household could lose their job, someone could take ill, the main breadwinner could lose their life in an accident. Sadly, I have heard of a couple of tragic accidents this past year. I've also heard of several suicides over the years, possibly because financial ruin became the final straw. Please think very carefully about how you would, or if you could, cope in any of these circumstances because they don't just happen to other people and it's not just storylines for a soap opera. Kill the debt before it drags you so far down that you could drown in it.

OK, let's cast aside such depressing thoughts and look to the brighter side of life - the act of living is FREE and we each have the chance to take control of our own lives, to live them to the best of our ability. For me, ridding life of what's commonly known as 'stress' is one of the best things you can do. Being debt free may not necessarily mean being stress free but it goes a long way to helping alleviate many of the associated problems. Having savings in the bank is another step in the right direction, but knowing how to keep ahead of the game is one of the most important problems we all need to solve. We need to invest in our own futures because, let's face it, the British Government isn't capable of doing all of it for us, nor should it be expected to, in my opinion.

With only a week left of 2010, perhaps you could take time out to look at what your real financial status is - it's not about what you want out of life, nor is it about what you have. It is, first and foremost, about what you need to survive, everything else is extra. This is why I find it much easier to strip the lifestyle bare and assess the most basic needs - food, water, shelter, warmth - and then look at what's left over and how it gets spent.

An experiment for all:

The bottom line is that we need to pay for a roof over our heads and the associated costs, such as water, council tax and buildings/contents insurance. We need to pay to keep the occupants of that household fed, watered, clothed and warm and ensure that their basic necessities are met. Almost everything else is extra. To conduct this experiment, count up your 'Needs Budget'. Keep in mind that we have already proven that a family can be fed at a cost of £1 per person per day. Many others have shown that it's possible on less, but we all appreciate little luxuries now and again, especially here in Frugaldom. I happen to like coffee and I like eating meat at mealtimes. Basic, non-processed foodstuffs are zero rated for VAT - if you happen to think of frugal eating as avoiding tax then go raffle yourself. If you happen to think that earning insufficient income to pay income tax is tax evasion, do likewise. Those are my personal thoughts on that subject.

I'd really appreciate some feedback on the basic budget subject. I don't need to know actual figures, just percentages of annual household income. I'll use my own figures as an example.

Rent, council tax, water & insurance - 31.5%
Electricity & fuel - 11.6%
Food - 8.3%
Clothing - 1%

As you can see, the merest essentials account for 52.4% of the Frugaldom household budget. H has a car, albeit it an old runaround, but it still nibbles away another 5% of the overall budget, leaving us with just over 42% with which to 'live a little'. Our idea of 'living a little' is to save at least 25% of the income in the hope that it secures a better future and covers the costs of all eventualities but, for those with debts, what's left needs to pay debt. Only then can they afford to live a little. It doesn't take a genius to see how easily some people could be conned into falling for the easy, quick fix of seeking credit.

My son spends about £4,000 a year just to go out to work - it's a whack of money off a minimum wage job (almost 40%)  that certainly does not allow for him to have his own place. but it's amazing how few people consider the cost of living needs to be calculated after deductng the cost of working. Do you know the true cost to the job you are doing? Perhaps a quick look at that will cast some shadows you weren't even aware were lurking. Transport, workwear, lunches, snacks, childcare, help at home, takeaways, convenience foods, eating out, extra gifts for work associates... they all need to be budgeted for and they are all part of the cost of working. Please don't assume that an annual salary of £xx,xxx is what you actually get, it's only the number of pounds that you earn from your employer BEFORE deduction of your costs.

Should financial awareness begin at home or in school? How do parents instill an interest in saving for the future in their offspring? I may be lucky in that by living a frugal life, mine have partially understood the concept of saving to buy what they want (in the case of my son - cars, tv, games consoles, the latest DVDs and games) but that's not enough to prepare them for the future. This topic, in itself, is fodder for another frugal post, but I fully agree with the concept of teaching the youth of today that credit can only be good when it's benefiting them in the long run. It should never be seen as a quick fix or a get out clause.


Ditch all debts unless you've shown a profit.

2011 is, by far, looking like the most challenging year so far. It isn't helped by the fact that basic groceries seem to have increased in price by around 10%, the cost of electricity has done likewise and we're all meant to be happy in Scotland that they have frozen the Council Tax at current rates but omitted to include the fact that, for some of us, they had already increased when they abolished the 4% discount for pre-paying in full last year! Things are getting tougher and we can't all just print more money.

If you have any worries about debts, please consider contacting CCCS, the UK's leading debt help charity. There is absolutely no need to pay anyone to help solve financial problems. You'll also find some excellent advice on their Money Aware website.

Don't forget you can read more and participate in the Free Frugaldom Forums.

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