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Plonkee tagged me to describe how I would live my life if I was debt-free.

Fortunately, since my parents were generous enough to pay my tuition fees at University and I used to work most summers during school and University to contribute the rest, I am actually in a position where I am already fairly debt-free.

Yes, admittedly there is a small outstanding balance on one of my credit cards, but this is mainly to do with the fact that I just moved into a new house which brings an awful lot of major expenses - especially since it’s the first time I’m actually living in my “own” (if rented) flat.

Hence, I will slightly re-phrase the question and will instead give you my opinion on how to stay debt-free.

Firstly, and this is what everyone will be telling you, set yourself a budget that reflects your personal circumstances (i.e. be neither too stringent nor too generous) and try to stick to it. Now, I’m not terribly good with that sort of thing but I found that I stay on top of my finances if I simply keep track of how much I’m spending on what (more info…). You’d be surprised, trust me!

Secondly, keep a “splurge fund“. This mainly works like an emergency fund but for shopping tours. It might well be a phenomenon that women suffer from most, but I’ve certainly enjoyed the certainty of knowing that I have some money, to balance my account with, after that particular pair of shoes just had to come home with me. Just make sure that you realise you can’t actually afford an item, if even your splurge fund wouldn’t cover it…

And finally, where possible, get interest payments for your savings credited on a monthly basis. Knowing that you’re getting a reward for your savings on a regular basis will keep you motivated and will also help you develop a habit of saving spare cash - even if it is just to see the “reward” grow.

These three suggestions are entirely taken from own experience, but I’d be delighted to hear how it’s working out for you and what preventatve measures you’ve set yourself!

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Yesterday’s FT had an interesting article about a new investment fund that pre-selects its companies based on the male-female ratio in key management positions. Their reasoning is based on studies that have shown greater stock price resilience in weak markets for companies with a higher proportion of women in roles of responsibility. The fund is trying to exploit the basic premise that such firms tend to outperform over time.

A closer look, however, shows that the fund has underperformed its benchmark index since it launched in April 2006. While the MSCI Total Return (Euro) gained around 21% in that time, the Amazone Euro Fund only achieved 17%. Bearing in mind that it is an actively managed fund and hence comes with an annual management fee of 1.5%, the overall performance is even lower.

On the other hand, the fund has a long-term focus with an investment horizon of at least 5 years, which suggests its prime time might be yet to come. The 30 odd companies which are currently held in the portfolio achieved a mean operating margin of 11 per cent coupled with a mean return on equity of 19 per cent - all of which are more than stable figures and might boost performance during bearish market times.

I’m still a little on the fence with my opinion about the fund. On the one hand, it clearly underperforms its benchmark. But on the other hand, it seems a defensive investment strategy for times where the majority of funds head south. Its low turnover and volatility could potentially make it a stable investment in the long-run, but this remains to be proven. In the meantime, I will keep watching its performance while also having a closer look at its major holdings. These include for instance L’Oreal, Essilor, Hermes, Swatch, Statoil, PepsiCo or Pearsons – many of which have exhibited stable growth over the years.

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In most cases customs and traditions that date back to the late 18th century would today be considered somewhat inappropriate, old-fashioned or simply dangerous (think medicine…). Every now and then, however, you can stumble across insights and knowledge that applied then as well as it does now; and in even rarer occasions you simply wish people would still be aware of these insights instead of becoming wrapped up in consumerism.

What I am talking about is Diderot’s essay “Regrets for my Old Dressing Gown, or A warning to those who have more taste than fortune“, initially published in 1769. In a nutshell, he talks about how suddenly finding himself rich and adjusting his lifestyle accordingly just makes him more miserable than poverty might ever have.

It all starts with a new dressing gown. Suddenly that new piece of clothing doesn’t seem to fit very well into an apartment that clearly identifies him as “the writer, the man who works“. Hence he starts replacing his simple yet functional pieces of furniture with luxurious goods such as a leather chair, art and a “precious bureau“. Yet he doesn’t stop at simply replacing old and worn out items, he also adds further pieces of furniture to an extent that no empty space remains in his apartment - he adds clutter to his life. Clutter that has no real use and adds no benefits.

Not long after he realises that the new-found wealth caused him more trouble than good. Even though he claims that he is still the same person (due to the recentness of his wealth - not his strong personality), he finds that people don’t visit him for his advice anymore but step by to admire his art instead.

More importantly he finds that his sudden desire for convenience is now also endangering his family: “Evil instinct of the convenient! Delicate and ruinous tact, sublime taste that changes, moves, builds and overturns; that empties the coffers of the fathers; that leaves daughters without a dowry, the sons without an education; that makes so many beautiful things and great evils.”

My favourite quote of the essay shows what an honest and respectable man Diderot considered himself before he found his new wealth. He was happily associated with the poor but had a disgust for anyone who tried to hide or deny that poverty:

“I can bear the sight of a peasant woman without disgust. That piece of simple cloth that covers her head, the hair that sparsely falls across her cheeks, those tattered rags that half cover her, that poor short petticoat that doesn’t cover half her legs, her naked feet covered with muck cannot wound me. It is the image of a state I respect; its the ensemble of the of the lack of grace of a necessary and unfortunate condition for which I have pity. But my stomach turns and, despite the perfumed atmosphere that follows her, I distance myself, I turn my gaze away from that courtisan whose coiffure a points d’angleterre, torn sleeves, filthy silk stockings and worn shoes show me the poverty of the day combined with the opulence of the previous evening.“

Essays like this should be a starting point to think about the importance that people place on money, wealth and status - especially nowadays where even having $ 1,000,000 isn’t actually considered “rich” anymore.

The question is what you are willing to sacrifice for the additional convenience and when you’ve come to a conclusion, remember Diderot and his insight

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Blame the miserable weather in the UK or my recent trip to New York, but I have been thinking a lot about travelling recently and when I reviewed my savings a few days ago I realised that I had totally neglected my travel goals.

Yet I have already made a few cautious plans for the remaining year and next year. First of all - and no matter how silly it sounds - I want to go back to New York before the end of the year, ideally around Christmas time. I imagine the city being very festive and the gigantic Christmas tree that will go up near the Rockefeller Center should certainly help.

Further, I might be going on a short trip to Milan with an old friend of mine that I don’t see very often since I’ve moved to the UK. The trip is planned for February and will likely be very budget - she has apparently found two return flights to Milan for only €76. Yet, I will still need some spending money bearing in mind we’ll be visiting one of the fashion capitals in the world!!

On top of that, another trip to Italy might be happening around Easter - this time to visit Rome and Venice. While all of the above won’t necessarily involve exorbitant expenses in themselves, combining them might lead to a bit of financial distress if not planned properly. And so far I haven’t even mentioned the regular trips to Germany my family expects me to undertake. These currently add around £150 for flights and a further £50 for trains and petrol while I’m home.

All of the expenses that can be expected to follow from the plans I just outlined above have only been made worse when I decided it was a good idea to pick up the “Travel Book” published by Lonely Planet. Looking through pages and pages of breathtaking photos, intriguing information and facts about the most remote countries and travel advice for actually visiting these countries made it quite hard to be happy and content with where I am at the moment. Hence I might have to plan some extra budget for a slightly more extravagant vacation in summer or autumn next year. Tibet or Argentina are among the favourites at the moment.

Thus, here’s what I think I’ll need in travel money until the end of next year:

• Weekend in New York: £300
• 5 days in Milan: £300
• 5 days in Rome & Venice: £500
• summer holiday - country to be confirmed : £1,000

A whopping total of £2,100. Wish me luck in restraining my shopping trips and Starbucks afternoons!

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A lot has changed this month and I suddenly had to keep track of both my personal finances as well as the expenses associated with the new flat I’ve just moved in with my boyfriend. I also returned from New York earlier this month and unfortunately couldn’t take the advantages of the weak dollar home with me.

If it wasn’t for a generous gift I received from my grandparents for my 21st birthday last month, my net worth would have been down again. With this gift however, I have actually reached my first net worth goal and the 31% progress you see on the right-hand side now refers to the next-higher goal of £50,000.

My emergency fund is steadily increasing by £50 a month. I realise this is a fairly small sum if I ever want to reach my 3 months worth of living expenses. However, I believe that my job at the moment is fairly secure and pretty much all of our appliances in the flat are brand new which reduces the likelihood of them breaking down and hence resulting in a larger one-off payment. Furthermore, since I haven’t bought a car yet, no repairs could force me to touch my savings in order to replace a gear box or the like. Therefore I think that small but steady payments are sufficient to build up the emergency fund.

I’ve reached about half of the sum that I owe my parents even though they don’t seem terribly concerned about ever getting it back. I have asked my Mum repeatedly (for months!) to tell me the exact sum I owe them without ever getting anything more than a ballpark figure. In any case, I do intend to pay them back in full (whatever I owe) so knowing that I have already accumulated about half of it within the last few months is a very good feeling.

Above and beyond my regular saving goals, I aggressively put money aside for a car last month and managed to double the savings intended for this purchase. In total I put away roughly 25% of my income despite all the expenses we were facing to fully furnish the new flat.

Unfortunately I can’t just report good news. The truth is that my last credit card bill from my trip to New York has just come through and currently still remains unpaid. I am obviously not happy about accumulating outstanding credit card bills but the fact that this particular card still remains with a German bank doesn’t necessarily speed up the process. I have already transferred money to pay for about half the balance - but it’ll easily be another week and a half until it will reach it’s ultimate destination.

Because I have now permanently moved to the UK, I cancelled this credit card and as soon as the outstanding balance is paid I shall not face these problems any more. Hooray!

Finally, we have found our first site sponsor in Finweb.com. In my opinion, Finweb offers sound financial advice on a range of topics and products and was hence the ideal candidate to advertise on SimplePound. I would like to thank them for their support.

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