I track my spending and one thing that I’ve learnt over the years is that I overspend with some things but underspend in others. By that, I either under/overestimate how much I will spend or spend the wrong amount of money on different things. Finding the right balance (or budget) is critical for achieving Financial Stability (and Independence).
This is a follow on from part 1. Just looking at how you can be cheap and frugal. Of course, the less you spend the more you save – helping you towards FI but at what price?
Budget – what budget?
First of all, I would like to say that as a family we do not have a budget on what we will spend and on what. We maybe should but we don’t and I’m not too sure that we should.
In general (and I can prove it) our spending is lower than our incomes (so we are living within our means) and we have the financial reserves to put up with bumps along the way – like out of the blue bills.
Would setting a budget save us money? Perhaps it would but then again given that many of the costs in our life (mortgage, gas/elec, childcare, car costs, work costs) are hard to change it leaves a smaller fraction of “optional” spending with which we can get frugal with. We could give ourselves a (food) shopping budget of £200 a month – around a 50% drop to save money but it would only cut our spending by about 7%.*
One thing that does cost us a lot of money right now is childcare and we are talking up to around £1500 a month for 3 days a week. That’s eye-watering!
Caring for your children and juggling work and the rest of your life is a challenge for many people (and us) it’s just not easy. There are a myriad of options for looking after your kids but to narrow it down, they go like this:
- DIY – someone (normally the mother) stays at home to look after the kids. Pros – the best care for the child and cheap Cons – you go crazy and lose income
- In-source – get a relative to help (not an option for us) or hire help (nanny) Pros – good for the kid, it’s in your own house Cons – cost can be prohibitive and admin
- Out-source – use a childminder / nursery. Pros – cheaper, qualified and regulated environment Cons – care can be poor, bad influence of other kids, less convenient
We’ve done 1 and 2 and now 3. All have their advantages but implications too. I would love to have spent more time at home with the kids but I didn’t think that my job was secure enough to do so. Maybe that’s a poverty mindset that I have or a real problem – after all mothers who stay at home with their kids pay the price – which should be a national shame! I’ll not talk about benefits here but for us, kids have been a costly choice that we’ve made – worth it but we’ve paid it as well.
Option 3 – Nursery
Our nursery charges £60 a day for the Little Lady and about £50 for the Master. That’s phenomenally expensive and given that we live in a LCOL area, it’s comparatively more expensive than you’d think it should be. The government’s Money Advice Service gives a good description of the different costs associated with childcare here.Per month the cost is roughly twice our mortgage!
But we are very very happy with both the standard of the nursery and the care that they take with our kids when they are there. We are also very happy that the kids have settled into the nursery as they have – they both love it which was a very real worry of mine since Option 3 – Nursery is not the best environment for children.
When we talk to people about the cost of the nursery, they are aghast at the cost. But the cost is what you pay and value is what you get and the kids are getting almost the very best in childcare with more activities, excursions, games, development and opportunities than you’d imagine.
A lot of the costs of a nursery are fixed (wages is a large part), so there’s no easy way to make things cheaper without cutting out on the things that are “nice to haves”. It’s these nice to haves that make a nursery more than just somewhere where you leave your kids all day while you go to work and instead where they learn to develop as little human beings!
Nursery is a temporary world where children enter as babies/toddlers and leave as kids. It’s not forever but it’s perhaps the most important time for them to develop as people. It’s where they learn about the wider world and come first into contact with others. It’s vitally important to get it right and if they means money is needed to be spent then so be it.
For us, the high cost of childcare is acceptable. After all, we have the money to be able to pay it and I feel that it’s money well spent. If it gives our kids a good start in life it’ll be worth tens of thousands of pounds in private school fees or tuition later in life.
Simply put, it’s an investment in their future and I don’t know of any parent who would put a budget on how much they care about their kids. The difference is that we have the resources and inclination to do what’s best for them.
P.S. I won’t start talking about the different types of (inadequate) government support for childcare and raising.
*One thing to remember with money saving is that 7% might not sound like much but if you can save a few 7% on cars, food, holidays, entertainment, rent/housing then you suddenly are saving 35% of what you were spending before. What was £1000 is now £650 and your old spending was 53% higher not 35%. That’s the power of inverse saving!