I read this article on the BBC which is all about the how spending money you don’t own is a recipe for disaster or to put it another way “Overdraft woes: ‘We were one bill away from disaster'”. Since the general consensus in the UK is that you are not responsible for your own financial decisions, the nasty banks are making money out of hard working
debt slaves families.
GFF sees this as a symptom of a much greater problem and one that deserves a bit of discussion
In the article Cindy Toth (hopefully not her real name) is a typical married woman in her 40’s who’s relationship with money used to be good. Problems arose when she had to fly to America for a funeral and then lost her job and struggled to find a new one. No mention of husband in the article but she started dipping into the overdraft and struggled to get out of it. According to the story “Each month the family would go up to £4,500 into the red” and “The crunch came when her bank – Barclays – switched from an overdraft interest rate to a daily fee for going overdrawn. She said that increased the typical monthly bill from £30 to £90.” As the article points out “The majority of unarranged overdraft charges are paid by only 1.5% of customers” – although I’m sure that the number for arranged overdrafts is higher – and it helps keep banking free for the rest of us.
That’s the thing that I don’t get. You can’t really complain about being charged and increase from 0.66% to 2% a month of £4500 that you’ve already spent. Is that really the straw that breaks the camel’s back? The real unseen problem here is that Cindy like millions of others it seems are flying by the seat of their pants. Spending more than they earn living beyond their means and getting by through a combination of House Price Inflation, Inheritances and PPI handouts.
This is not a personal attack on Cindy, things can turn out bad to good people for a number of reasons, you could lose your job, partner, house to fire. I met a guy once who was being sued for industrial negiligence and was staring down at a £100k+ legal bill and bankruptcy and/or prison if found guilty! He was a very stressed individual.
One of the best decisions I made in my 20s was to not spend much money over a couple of years. It maybe meant a bit of deprivation and I probably came across as being low status and I was cheap! I took the bus to work when colleagues were noticeably trading up their motors; as new starts in the company they were driving their mothers’ old Fiat Puntos or the little Suzuki that they got because it was all that they could afford. In a year or two they were driving VW Golfs, Audi A3 or more exotic (all on the never never!) vehicles. One group of employees had a car allowance as part of their package – they were the flashest with cars with one guy even buying a(n admittedly second hand) Bentley!
Those couple of years of saving meant that I still have the money that I didn’t spend and it’s grown with investing. With money comes independence – mostly from money itself you could say. I met an old colleague the other and we got talking about mortgages and property. He’s an old friend who used to give me a lift back from 5-aside football in his BMW 3-series and he’s now taken out a mortgage, 5 year fixed rate, the same as me. Except his LTV is much higher and he’s paying an extra 0.7% in interest. That extra 0.7% works out at almost exactly £1,080 or £90 a month on our mortgage. So back to our poverty porn click bait from the BBC; to end up living beyond your means in your 40s is not as a result of the nasty banks or losing your job now – it’s as a direct result of spending money that you should have saved in the last 25 years of work. The road to Financial Independence is long and hard – and normally starts with saying “no” instead of saying “yes”.