Frugal Investments for the Future

Penny Penguin, Phil the Pig and Cash Cow.

Penny Penguin

All this frugal living has to be leading somewhere, but we need to remember that we are all at different stages in our frugal journeys and, despite travelling by many different routes, our final destinations are all the same. So, I am going to recap on the origins of this challenge for the benefits of those who have joined us along the way and speculate on its eventual end.

 

Way back in the eighties, many of us faced financial difficulties when we had sunk all our income into what we thought was a sure thing - a secure roof over our heads.

 

Thanks to such easy access to credit along with the readily available interest only mortgages, associated tax benefits through MIRAS (Mortgage Interest Relief At Source), domestic rates and those fairly inexpensive endowment policies that we had all been tempted into buying as soon as we hit 16, many of us leapt at the chance of taking control of our own destinations as home owners. But then all the rules changed! Drip feeding Penny the Penguin wasn't going to pay for all those mistakes we'd unwittingly made!

 

Not in any particular order, but here's a few of those shocking changes that none of us predicted, mainly because we didn't pay attention to the importance of politics, global finances or world affairs.

1. Domestic rates ended and we were subjected to the Poll Tax / Community Charge / Council Tax which, for those of us in small starter homes, took us from £120 per year to several times that, almost overnight!
2. MIRAS got abolished, which affected the income.
3. Interest rates soared to an unprecedented 15% Yes, that's right, I said 15%, as in 30x the current base rate. (Imagine in your mortgage repayment costs doubled or even trebled over the next year - could you cope?)
4. Eventually, endowment policies began maturing without there being anywhere near enough in the pot to cover the cost of the mortgaged property at the end of the term.

Phil the Pig

There were many other events along the way but by then many of us were in over our heads. Rules can change at the drop of a hat. Banks can crash! Stock markets can crash! We needed to watch for the signs and take action as soon as possible, but didn't. Tangible assets seemed like the only way to safeguard your own futures, that's about all we could hope for - but many couldn't. The pig needed filling, but many could no longer afford to 'Phil the Pig' in time.

 

Cash Cow

Many have had to learn the hard way that juggling a budget is one of the most serious and most important aspects of keeping control of your own future security. Over the years we can easily turn a blind eye to what is going on around us, especially if it has no direct affect on our own lives, but then one day, we are sharply reminded that we are not immune to disaster. That is why we are all in search of the elusive 'Cash Cow'.

Have you found (or created) your 'Cash Cow'? Have you even started looking?

Frugal living may be the answer.

Bulk buying bargains that you need, will use and can safely store long term, making the most of offers when available, reducing your costs by walking or cycling rather than driving, investing in some inexpensive hobbies that can be made pay for themselves along the way, running your home like a business and catering to the needs of the family on a seasonal basis rather than following the trends of the day and overspending on non-essentials... these are all good starters. The less you spend, the more you can afford. If you need to pay off debts and maintain the very roof over your own head then so be it, but make it fun while you do so.

It took me many years to reprioritise my own finances. I enjoyed my luxuries and thought nothing of robbing Peter to pay Paul, even although Paul needed every penny he had. A new balance had to be struck and it came about slowly. I gave up spending completely to set everything out in columns of numbers - what I owed, how much cash I had coming in, every penny that went out and how much all the non-essential spends were costing. It didn't take long to see that the spending on 'extras' amounted to more over the space of a year than I actually paid out in debts, and by debts I mean money owed on credit - I didn't include the mortgage and was fortunate in that I hadn't any serious debts that involved collection agencies or county court judgements. But the warnings were there to be seen.

Debt clearing became second nature but also became like an addiction. I nicknamed it financial OCD owing to the fact that 'untidy' sums screamed out to be rounded down to the next whole number, no matter what. For example, if the balance showed as owing £3,927.52 then that extra 2p HAD to be paid no matter what, but that led to HAVING to pay the 50p to round it down to the next whole pound. Pretty soon, you get into this compulsive habit of seeking 'tidy' sums, so that £3,927.50 would NEED to be paid down to £3,925.00 because '5' was a much tidier number. The saga continued until the debts were eventually cleared. Yes, it can take years, but it is worth it, even if the financial (or numerical, if you prefer) OCD prevails. It works equally well when it comes the time to start rounding up the numbers in the savings pot!

Having made a challenge of clearing off every penny I owed and vowing never to pay another penny in interest on debt again, the challenge of frugal living really began and that meant affording to live while also earning enough to be able to save. As there had been several of us all doing similar, we then set up the challenges online, eventually moving them onto the Moneysavingexpert.com forums in late 2007.

We have pursued many trains of thought along the lines of both money-saving and money-making, the biggest challenge being to save and buy a house outright - without a mortgage. This was eventually achieved in 2011 after a total of twelve house moves and many other very expensive life events that can affect anyone at any time. Along the way, I have had to start again and again with savings as major life events come along in the family. Likewise, I have had to start the gardens over and over again, owing to having had to move house so often. So it is fair to say that I have had quite a bit of practise at budgeting, growing fruit and veg, salvaging firewood, preserving, making do and mending, not to mention all the extra cash-generating challenges along the way. These have included credit card shuffles, free bets & bingo, paid searches, affiliate marketing, surveys, investing in stocks and shares, buying Premium Bonds, setting up micro businesses, running online stores, using cash-back sites and any number of other small money-making schemes that I could possibly entertain.

Every penny does count and each of those pennies leads you to the next pound in the savings stakes.

Now, I live mortgage and debt free in a rural location in a run down house with a decent sized back garden. There are no buses and I no longer have no car. There are no supermarkets for buying all those wonderful cheap products that so many people take for granted, nor do I live within a delivery area of any. We pay premium prices for almost everything, yet it is still possible to live on a relatively small budget without feeling impoverished. I remain self-employed and continue to pay National Insurance premiums but have fallen beneath the threshold for income tax - but there's no way I will NEED £9,440 to afford to live when I have been living on less than half of that during all the years of these challenges. In fact, if I continue to follow my plan of living on £4,000 per year, I could afford to save over £100 PER WEEK if I earned the lower threshold limit, as set out by HMRC. If their National Minimum wage is anything to go by, I need only 12.5 hours of employment to afford to live. (Puls whatever number of hours it took to cover the costs of having that job, of course.)

Sadly, the above is what many do NOT want promoted to the general public and that's mainly because if everyone lived like this, we would bring the country to its knees through our lack of spending. Those of us who do live like this are penalised for saving in banks by way of little or no interest being paid, so we need a fair contingency plan before any more rules get changed. Even tiny things can make huge differences over the long term. One perfect example of this is seeds! How many of you have planted seeds from shop-bought tomatoes, peppers, apples or even grown your own from dried beans and peas? I know I have! Now we see modified, sterile produce that will no longer reproduce in this way. It won't be long before we will have to buy all our seeds and then there's the possibility that we won't be allowed to trade off our surplus without incurring financial costs. And so the saga continues...

Self sufficiency is no more. We need real cash to lead 'normal' lives. The time has come to begin a new challenge - one to safeguard a future that could stretch into retirement while knowing full well that, at any time, the Government could change everything and leave us without a State Pension.

Ludicrous as the above may sound, it is not beyond the realms of possibility. National Insurance premiums alone cannot possibly amount to how much a pension costs nowadays, especially with many people living well into their 90s. But if we cannot afford to save enough while working to pay our keep when not working, where will that lead?

My question, after a long-winded post that spans 30 years, is this - how do we get in at an affordable level and generate some income from the next 'big thing'? Finding the answer to this question is another challenge! It's also the dream of many! Frugal entrepreneurs aspire to many things but we cannot overlook the fact that frugal living needs cash whether we are able to work at it or not. If you are young enough to find employment with a safe and guaranteed pension provision, so be it. If not - what would you do if the State Pension all but disappeared?

Frugaldom (in philosophical mode).