Simple Pound

Thanks for visiting! If you like what you're reading, you may want to subscribe to my RSS feed.

I once again submitted an article to the Personal Finance Carnival (this time hosted at Fatpitchfinancials) and was lucky enough to be published again. I submitted my article on budgeting which also appeared as a guest post at Wellheeled.

I realise this overview is long overdue but the first couple of weeks of work plus the fact that there is so much to see and do in New York City didn’t really leave much time for blogging - at least not if I also wanted to get some sleep…

In any case, here are my personal favourites of this carnival:

• A perfect supplement to my own article, Advanced Personal Finance examines 10 ways to save money in your budget.
• Do you know the richest man on earth? Warren Buffet comes to mind, but Carlos Slim is the man we’re really after. He calls a stunning 67.8 billion dollars his own and his companies account for nearly half of the Mexican stock exchange’s value. Read more here.
• PowerWealth examines what Shakespeare knew about personal finance and asks whether you consume, save, invest or speculate.
• You are a personal finance junkie if you find yourself nodding along while reading My Wealth Builder’s article. And if you’re not a finance junkie yet, I strongly suggest you become one…

After reading the article on Carlos Slim I kept wondering who the richest woman on earth is. Does anyone know? Otherwise I will certainly find out for you!

Bookmark It

Hide Sites

The average house in London now costs £313,000. Think about that number - three hundred and thirteen thousand pounds. That’s more than 600,000 US dollars and thus probably even exceeds the phenomenal house prices in Manhattan.

The latest statistics reveal that the average salary in London is around and about £30,000.

Now one can debate what exactly the term “average” really means, as you can presume different people judge different properties as “average”. But looking at the bigger picture it becomes obvious why it’s so difficult for first-time buyers to get on the property ladder and why people start taking out mortgages for longer than 25 years. Technically, the average worker requires 10 times her salary to buy a house in London.

What am I taking away from these statistics? Flat hunting just got a little more important, because I might find myself renting for longer than originally expected. I want a down payment of at least 20% which is currently roughly two times my salary (before tax!). That means I need an in-expensive but nice flat to be able to put as much money aside for a house as possible.

Watch me achieve the impossible!

Bookmark It

Hide Sites

This post appeared as a guest post at Wellheeled.

We all know that having a budget and controlling your spending is a good thing. In theory. That’s great, but there are so many things we know are good for us, yet we still don’t manage to put them into practice. Think exercise… After I grew up with my mum telling me I should really track all my expenses, I have tried so many things, but none of them worked for longer than a couple of weeks when the novelty wore off.

When I realised that I was going to start earning a salary soon (i.e. regular income) and would have bills to pay (i.e. regular outgoings) as well as many dreams to fulfill (car, property…), it became clear that there was no way around coming to grips with my money. And that’s what I did. I have been sticking with the same process for the last 7 months, and I hope this is gonna be it. So what am I doing?

First of all, I didn’t set myself a budget but simply started tracking my expenses. If you haven’t paid attention to what you spend your money on, chances are you have no idea what life actually costs. Setting yourself a budget in a situation like this is likely to have a disastrous outcome because most probably your budget won’t work, you’ll get annoyed or disappointed and abandon it.

Thus, step 1: get a receipt. Bagel on the way to work? Coffee in your lunch break? Simply ask for a receipt. You’ll be surprised how readily you’ll be able to get one. For transactions you can’t get a receipt for, make a mental note or write it down – either in a little notebook, or on another receipt. All we want is to keep track.

When you get home in the evening, allow 2 minutes for your finances and enter your day’s expenses into a spreadsheet (or anything similar like Microsoft Money, Quicken etc.). But make sure you enter them in a way that will allow you to easily compare figures over months. With all my failed budgeting attempts I compiled my expenses on a day-by-day basis, i.e. I would know that I spend $ 4 on coffee on Thursday, the 2nd of March. The result was that I never looked at these figures ever again. But that’s really not the point of tracking your expenses – the reason you do this is to figure out where your money is going. And if you will have to sit down an spend hours compiling figures at the end of the month, you’re simply not going to do it.

I have arranged my spreadsheet into months and categories, as shown below. This way I’m calculating the monthly running total straight away and can see immediately how I’m doing compared to the previous month.

The first line lists the month’s overall expenses, with the line underneath telling you how much money you should have left assuming the figures in the „Income“ category are correct. Further down, my expenses are broken down by categories (e.g. „Home“) and subcategories (e.g. „Mortgage“). My spreadsheet is actually based on a template that I downloaded from the Microsoft Office site. This way I didn’t have to worry about the spreadsheet details (for instance, all the sums it computes) while still being able to customise it enough to reflect my own personal lifestyle.

Roughly once a week I consolidate the spreadsheet with my online bank statement to include any regular expenses that are deducted by Direct Debit and to make sure that any card transactions are reflected accurately (both in the spreadsheet and on the bank statement).

As of today, I still don’t have an actual budget but I’m constantly trying to undercut expenses or increase my savings rate (which I have included in the spreadsheet as well) as compared to the previous month – therefore moving closer to a figure that accurately reflects my spending per category and that I could potentially use to draw up a budget.

The main reason I haven’t done this so far is that I knew my financial situation in 2007 would change dramatically and hence any budget that worked in March would be obsolete by July. And a budget I would set myself while being in New York (on a business trip for two months) wouldn’t be appropriate for the last quarter of the year when I’m back in London. But I’m nevertheless one step ahead for next year’s New Year resolutions!

Bookmark It

Hide Sites

Discusssions about net worth are ubiquitous and frequent in the personal finance community, but that shouldn’t stop me from adding my own two cents to the debate.

Opinions about what to include when calculating net worth figures are diverse but generally either in favour of including personal belongings such as property, cars and art or not. While I oppose the idea of including every single piece of furniture in your apartment, I think more valuable items that are likely to uphold their value over time should be included.

Going slightly further than that, one could use accountancy standards of depreciation to include items that can be expected to lose value over time, yet nevertheless constitute a substantial financial outlay when purchased. Cars are a popular example and I’m pretty sure most people are aware of the rapid depreciation in value they bring. As with everything in life the depreciation methods one can use are pretty much endless, and hence a lot of research is usually needed to make sure the calculated amount reflects the actual value of the item as correctly as possible. If in doubt, always use the lower figure to avoid relying on money you don’t have.

If you’re not exactly sure what belongs onto your personal balance sheet*, I recommend you read this article at Fool.co.uk which should give you a pretty good introduction and a long list of things that might be considered as increasing your net worth. Bear in mind that you may have to think about de- or appreciation of some of these items and make sure you find the best possible way to do it if you really want to include depreciating items into your calculation. Speaking of calculation, head over to this site for an easy-to-use net worth calculator - just in case your arithmetic isn’t the best anymore (or the numbers are simply too large… ).

* A balance sheet is a financial statement used by companies to compare their assets and liabilities. The difference between these two figures determines the net worth.

Bookmark It

Hide Sites

A few weeks ago I stumbled across this little story at The Personal MBA, which I simply have to share:

One day, a man approached JP Morgan, held up an envelope, and said “Sir, in my hand I hold a guaranteed formula for success, which I will gladly sell to you for $ 25,000.”

“Sir,” JP Morgan replied, “I do not know what is in the envelope. However, if you show me and I like it, I give you my word as a gentleman that I will pay you what you ask.”

The man agreed to the terms and handed over the envelope. JP Morgan opened it, and extracted a single sheet of paper. He gave it one look and handed the piece of paper back to the gent, pulled out his chequebook, and paid the man the agreed-upon $ 25,000.

The paper read:

1. Every morning, write a list of things that need to be done that day.
2. Do them.

Bookmark It

Hide Sites

When you are interested in the stock market, one phrase you come across often is “Markets are efficient” - meaning that in most cases and most of the time (there are exceptions… think 2001 Internet hype!) the market rates accurately reflect underlying value. People who are advocating this feature will therefore tell you not to try to time the market (or even beat it) because you will fail in the long run. You might get lucky this year, but over a 10 year period you will be almost certain to underperform the market.

With this information in mind, I stumbled across the following headline on the BBC website:

“Graduate jobs rise, but pay down”

The article quotes a recent survey undertaken by the Association of Graduate Recruiters which reveals that starting salaries in London fell by 5%. East Anglia is even worse off with a fall of 14 percent!

Now, if you have been following the news in the last couple of months, shouldn’t you immediately think that’s odd? Inflation well above target, interest rates keep rising to tackle the problem but there doesn’t seem to be an end in sight (yet). Living costs in London are as high as (almost) nowhere else in Europe and the extraordinary house price inflation in the UK should be news to no one. Coupled with the high interest rates, mortgages are on the brink of becoming a luxury.

So can anyone explain to me why salaries are falling?

Bookmark It

Hide Sites