The Money Mustache Community
Around the World => UK Discussion => Topic started by: vand on August 12, 2019, 12:35:20 AM
-
We all have them.
My best friend is an interesting case-study, to me at least.
He is now 48, and we have been friends for 25 years. He spent his 20s stumbling from temporary job to temporary job, always struggling to make ends meets. During that time I used to outearn him, but to his credit he has always been an avid life-long learner. He put himself through an adult degree in his mid-late 30s, changed his career and has always improved his work-place skills every year I have known him, and now he is well qualified and experienced in his field and works contracts that pay handsomely, and while my income plateaued quite a few years ago he has increased his earnings all the time and I would handily guess earns triple what I do.
Despite, or perhaps because of his earning power, he's always reaching for the next step on the consumerism ladder and is never more than 2 paycheques from being in serious trouble. He works in London but they recently moved and bought a new house in St Albans.. I mean, that commute would already crush me.
When you have more money you tend to spend it. House & associated travel costs I have just illustrated... but it's anything and everything that tends to inflate. You use your income for convenience in each and every situtation you can think of. Instead of bringing in tupperware and leftovers for lunch you go to the restaurant and spend £20 every lunchtime. Hey it's "only" £100 a week.. right? Taxis whenever you need to get from A to B. Bigger car. Missus has a car accident you say? no problem, write it off, but a new car (Who wants a dent in their bumper.) etc etc.
He also doesn't have a pension or any other savings for retirement. I have "advised" him that he needs to change his way and find a way to live on half his income, but he is wholly incapable of spending less than he brings in, never mind drastically doing so for any sustained amount of time.
He will literally never be able to retire.
-
Sounds like a textbook example of the hedonistic treadmill at work: get a raise, inflate your lifestyle -- lather, rinse, repeat.
He will literally never be able to retire.
Maybe, maybe not. Time has a way of refocusing one's priorities, and many (many!) people don't start saving until their 50s, including some on this site. I hope your friend comes around soon.
-
He will literally never be able to retire.
Of course he'll be able to retire 'if he decides that's what he wants'.
He just needs to decide it sooner rather than later!
There are people older than him, with no retirement investments who only have an annual earning potential of about £20k pa. They're the people who're never going to retire!
-
IMO I don't ever see him changing his attitude to money, and I think most people are the same. Your income is something that you spend first and foremost on shiny things, and if you are lucky enough to have anything at the end of the month only then you do tuck it away. They will "retire" when it is forced upon them, either through eventual age or obsolence, and when it happens there will be a big drop in their living standard.
-
I think the part that always saves this type of situation is buying the big house. High mortgage payments are almost a form of saving, add on house price inflation and anyone living in London is likely to be able to sell up and downsize to the rest of the country with savings to fall back on.
-
Some update on his situation..
Turns out that the reason for his move was not primarily about lifestyle, more a question of family security. Can't hold that against him.. your family's welbeing is much more important than money.
So he's actually renting his new house in St Albans while hanging onto his old house in London, which he's just managed to rent out (after a void period and sizeable chunk of spent on bringing it up to rental standard). Overall I think he's more or less break-even on the costs before tax, but after paying the tax on the income from the rental he will be nicely out of pocket. The only way that'll work to his advantage is if house prices in London manage to go significantly higher in the next few years.. and think the chances of that are prety much zero.
He'll fly by the seat of his pants and muddle through while the job market is still good as he always manages to do, because being a high earner affords you the luxury of doing just that, but at the same time he's letting the advantage of what is probably the period of his peak career earnings slip by with not much to show for it.
-
Don’t assume he won’t change. Everybody has a trigger whatever his is.
My wife and I went through a transformative journey 6+ years ago and literally changed our mindset overnight; it really came down to security, which for us was financial security.
We then went on a networth journey that took us from virtually zero to over £2m over 6 years. We had to make decisions and the biggest one was about acceptance that owning things was not worth giving up financial security.
You can help him see the light but he alone will make it work.
-
Caught up with some other long-time friends on Friday..
They are a lovely couple, but man, do they like to live a life their finances can't quite support. Professional couple, 37/43. 1 dog, no kids yet, although I've a feeling that they feel time is ticking for them on that front.
They are well paid, specially hubby when he is employed, but work always seems to be sporadic for him. They rent a posh flat in Lancaster Gate. A conservative guess of their monthly rent would be >4k. Could easily be >5k. Hubby currently in between jobs, wife works in marketing near the City.
There is really no good reason why they need to live in Lancaster Gate. They could move to a suburb and pay 1/3rd of the rent or less. They are not the type to worry about finances, but he even admitted since he's been out of work since last year finances have been "a little tight". No shit sherlock.
There is obviously a market for cental London flats above 4k, but some people really do just like throwing their money away.
-
IMO you just never know with other people's finances. I have friends with very normal jobs who appear to live well above their means. Turns out that they have family money which means that they don't have to pay things like mortgage, rent, car payments, childcare (family helps out with this). A lot of the time, it's not obvious who comes from a well off family (or at least a family that can help out a bit here and there) and who doesn't. Anyway, good for them if they're keeping things afloat.
-
Family money is really cheat-money, isn't it? :)
The friends I have written about above are Thomas Stanley's classic "underaccumulators of wealth". They are good earners of money but they poor stewards of wealth; they have a good, possibly great offense but let down by bad defence. I would be surprised if their net worth is much above zero.
And while I make investments for my own child's future, it is very much to encourage her to adopt an investors mindset and become a prodigious accumulator of wealth in her own right, rather than to enable the opposite.
-
The arrival of kids focuses the minds of most people (did for us and we changed overnight and started to save 75% of our post tax income and went from £0 to £2m of networth in 6years).
They might get there but might not:
We have some friends who told us last week they were sitting on £150k of credit card debt, and have no savings to their name and have 2 kids... we felt (a little) sorry for them at first, but reflecting on the money they spent on stupidly expensive south ken rental flats, Hermes Birkin bags, holidays etc... hanging out with truly rich friends which they felt they had to impress - we pitied them and even more so they poor kids that will have to be pulled out of private school and feel the impact of their stupid parents spending habits!
-
Another catchup with friend #1 to see how his situation has changed. His idea is to eventually have his current rental flat fully paid off while, also buying a new 2nd home as their primary residence, with the rental eventually becoming their pension. Jesus wept. When I outlined the costs involved in buying a 2nd residential property you should have seen his face.
The problem is that he, and people with his attitude to money, do not pay themselves first. They do not make it a regular habit of setting aside a meaningful chunk of their income each month to invest for their future and make that their number #1 priority from every paypacket. Therefore, his plans are dominated by top-down thinking of all the mechanisms available to make up for the gaping holes in his future finances, rather than on doing the day to day things that would eventually get him to where he wants.
It's the classic mistake of thinking that financial success is due to one or two outstanding decisions you make that pay off somewhere down the line, rather than as the result of doing the right thing repeatedly for year after year.
-
One thing struck me, he does seem to care about his family. Do you think you could reach him by getting him to think about his family? For example, would he be interested in saving for the sake of his children and wife in his old age? Would he be interested in doing some limited small savings by automatic transfer? He doesn't seem to want to engage very much in things but if you suggest things that are easy he might at least think about it.
-
One thing struck me, he does seem to care about his family. Do you think you could reach him by getting him to think about his family? For example, would he be interested in saving for the sake of his children and wife in his old age? Would he be interested in doing some limited small savings by automatic transfer? He doesn't seem to want to engage very much in things but if you suggest things that are easy he might at least think about it.
Yes he is a throughly decent person and does care for his family. His family history is growing up on a council estate in Brixton, so he's done amazing well for himself through his own hard work he has worked his way up the career ladder and is a high earning individual.
I don't know if there's any angle to trying to get him to do it for the family, though. His kids are already 16 and 12 with 2 other grown but semi-dependents from prior relationships. If he was going to change due to the family situation then it would have happened already. But at least the kids get a nice holiday each year.
-
With two kids, maybe he's not ready to consider retirement. In a few years, one kid will go to university, and presumably move out. And then the other kid will follow, and might graduate college 10 years from now. If they move on - they don't need to return home - that might get your friend thinking. Maybe your friend needs an empty nest to get them thinking about the next stage - and saving money.
-
And so, we come back to this ongoing tragedy of the high earners who can never quite get on top of their finances.
Nobody will be surprised to learn that £400/day contractors and their ilk are first in the firing line as companies desperately slash anything and everything hoping to survive the coming tsunami, so friend's cushty contract has expired without renewal, and frankly I don't fancy his chances of getting another one any time soon.
Of course, he never took my advice to sort his sh1t out and live on half his income, which would at least have brought him a few months cushion, so now he faces sliding back down the slippery slope. Like I said, for all the big money he earns, he manages it so poorly that he will literally never be able to retire.
Others friends are struggling too. High earner with family to support but had been out of work for the last year finally managed to find a job just before the SHTF.. now being let go at the end of his probation as there's no point in taking him on any more. God knows how long it's going to be before he gets back into the workforce, and the fate of the marriage is not looking very promising either.
-
I take no joy in others misfortune - I only hope that going forward more individuals put saving higher up on their priority list. We’ve had low inflation and low unemployment (at least here within the US) for so long that people began to think of it as the new normal.
-
I think it is going to be a very hard landing for a number of people and like nereo I take no pleasure in that.
Those who have accumulated expensive lifestyles and outgoings to match (especially consumer credit) will find it a hard landing, even if they are furloughed instead of redundancy.
I'd anticipate that there will be a number of payment holiday arrangements so I'm not sure that long-term behaviour will modify, particularly when we align this with the desire for a 'blowout' spend when this is all concluded. From a market perspective I can't foresee a scenario where we allow large parts of society to default on credit agreements.
There will be more financial shocks in the course of our lives but the majority of people I know didn't take the financial correction course after the last recession to mitigate risk and I think within 12-24 months of this concluding we will be back to normal levels of consumption.