Simple Pound

One thing is for sure - reviewing last month’s financial odyssey is not going to be fun. On the other hand, I suppose I should be thankful for keeping such a close eye on my money since otherwise I would have never noticed the appalling truth. Or learnt from it. My point is:

I am now worse off than three months ago.

Despite three months’ salary and pension contributions my net worth is below the March level. I’m absolutely shocked and even a little unhappy since I enjoy seeing the progress bar increase (as opposed to decrease by nearly 2% this month)!

At least I have a pretty good idea what led to this fiasco: an orange coat, a digital piano and a trip to the Caribbean. In hindsight, would I commit these “sins” again? Maybe, yes and yes. The coat, I fully admit, was an impulse buy and a very expensive one at that. Yes I needed a coat, but no it didn’t have to be that one. On the other hand, I still love it as much as I did the minute I walked out of the shop with it and have so far not seen a single person (other than me) wearing it. In a city like London that’s pretty impressive

My piano purchase was an even larger expense than the coat and by no means an impulse buy. In fact, since leaving home I had told my parents I would take my piano with me as soon as I had finished University and had a permanent place to live. Unfortunately it turned out to be prohibitively expensive to ship an item like a piano from Germany to the UK. Hence I decided to get a digital piano in the meantime so that I could start playing (and practising!) again after having not touched a single key during my undergrad studies. The model I ended up getting was only half as much as the Yamaha Clavinova I had set my heart on previously and I got it for £100 less during an end-of-season sale. Regrets? None.

And finally, my holidays. One week on Grenada, a tiny little Caribbean island just north of Trinidad and Tobago. Flights and hotel together came to just over £400 and despite regular dinners out, numerous activities on the island and a day at a local spa, the holiday was definitely on the cheap side. Considering it was the Caribbean anyway Again, I don’t regret this trip at all. On the contrary, I would have happily stayed and travelled much further and for much longer than I was able to. The numerous once-in-a-lifetime memories made it worth every penny.

Regardless of whether I consider this money well spent, it’s time to stop. I am basically exactly where I was three months ago, so for the next quarter I will need to curb my spending in order to get my growth and progress back on track. Given that the house market is still in a pretty bad place, I probably won’t need my deposit money for at least another six months. But by then I definitely will need to have accumulated enough to make this (temporary!) backdrop in net worth unnoticeable.

If you have kept a close eye on my progress page you will notice that I redistributed some of my money between the various goals. I depleted my emergency fund in favour of allocating more money to the house deposit and I also shifted more money into the account intended to cover the outstanding bill I have with my parents. The latter is now fully funded, while my deposit has grown to 70% of my initial goal of £20,000.

Given that we’re halfway through the year, it’s once again time to have a look at how well my budget is working out. The good news is that my interest income reached 73% of my goal for 2008 by the end of June, indicating that my savings are working hard for me while I sleep This is even better news when you consider that this goal was revised upwards twice already this year: from £200 to £300 to its current value of £600. I decided to change it once more to £750, which is definitely fairly ambitious given that I received the interest from a fixed one-year term monthly saver account when it matured in June (hence half of that interest was technically already earned last year).

In the interest of brevity, I will only list the remaining changes to the budget (since I don’t deem them noteworthy enough to dedicate an entire paragraph to each):

• Utilities: new category with £350 since it took our utility provider more than 7 months to get our bill sorted and we hadn’t paid anything until they finally managed to get organised
• Landline: slightly up from £90 to £100 based on usage
• Mobile: down from £220 to £180 based on usage
• Groceries: slightly up from £1,400 to £1,500 - inflation is kicking in
• Dining out: down from £1,000 to £900 to accommodate the increase in food prices
• Clothes: up from £1,000 to £1,200 with the best intentions to undercut it
• Gifts: up from £750 to £1,000 (I’m too generous for my own good)
• Hairdresser / Manicure: up from £500 to £600
• Drinks: pooled with the Category “Clubbing” hence total down from £250 to £200
• Cinema: up from £50 to £100
• Health Insurance supplement: up from £60 to £65 - I blame the bad £/€ exchange rate
• Gym: Down from £360 to £150 because I cancelled my membership
• Contact lenses: Up from £200 to £500 as an eye infection forced me to change my prescription to the more expensive daily disposable lenses
• Life Insurance: Up from £900 to £950 due to £/€ exchange rate
• Broadband: Down from £100 to £90 as we are on a fixed subscription
• Charity: Up from £120 to £150
• Planes: Down from £900 to £800 as my one major holiday is already accounted for
• Holiday Accommodation: Up from £300 to £500 due to major naivety on my part (initially)

That’s all from me for now. Progress page and “Best Of” section have been updated as usual.

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Richard Jenkins @ MSN Money has written an interesting article on how to simplify budgeting. He basically argues that breaking a budget down into various categories (i.e. clothes, dining out etc.) is a waste of time, since in the end it doesn’t matter where you overspend - if you do. So to simplify his life, he’s adopted the 60:40 rule, where he immediately puts away 40% of his salary for retirement savings, long-term savings, short-term savings and “fun money” and pays all necessary bills from the remaining 60%.

While I agree that it doesn’t really matter on what items you overspend, I do believe that knowing exactly where your money ends up is definitely a good thing. Obviously, if you adjust your target level every month so that you’d technically never go over, then it’s a waste of time, but if you actually realise that you are wasting money on unnecessary things and set yourself a limit and stick to it, then having a budget can only be beneficial.

Having said that, while I do track my expenses at the moment, I don’t have a specific budget as such, since most of my expenses are still highly irregular. For example, at the beginning of the (academic) year I will have book expenses that I don’t even get close to later on. What I have realised though is that I’m wasting an amazing amount of money on coffee and lunch, which is definitely £40 I could save.

In any case I think that his 40% savings target (30% if you exclude the “fun money”) is maybe a little bit ambitious - reducing your annual salary by more than a third isn’t something that will go unnoticed. Especially after moving to London I will probably have to spend much of my money on the bare necessities like rent, tube and food. Nevertheless, I want to keep this figure in the back of my mind in order to compare my monthly savings to it - once I can actually put some money aside (i.e. not before July). Nothing wrong with aspiring to challenging goals…

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