Will you be a Saving Sue, a Spend-it-all Sam, Debtor Dan or Investing Ingrid in the lockdown lift?
If you are one of the fortunate ones who did not burn through their savings over the past year when parts of the economy were in lockdown, you may be itching to spend that windfall. The coming weeks will test your saving prowess now that your favourite shops, restaurants and pubs are re-opening. And when foreign holiday travel is allowed, in true ‘Donnie Brasco’ style you just might say “Fuhgeddaboudit” when the credit card bill arrives.
Whether you re-invest your savings in your pension, a property refurbishment or a once-in-a-lifetime holiday, how you spend your savings will say a lot about your relationship with money.
The Freelance Informer highlights what you can do to have a more balanced relationship with money whether you are a Saving Sue, Spend-it-all Sam, Debtor Dan or Investing Ingrid.
Tips for Spend-it-all-Sams : spend less and you’ll still get that high
If you loved to spend before the COVID-19 pandemic hit, there is a high chance as a Spend-it-all- Sam you will still love to spend now that the lockdown is lifting. But have you ever stopped and considered why you love to spend? Is it tied to ‘deserving it’? Is spending tied to memories of good times? Is it a way to ‘relax’?
The best way to figure out why you love to spend is to visualise a spending moment. How do you feel in that moment? Does the feeling last for days or weeks when all the money is spent? Now picture an amended spending moment, one where you allocate a specific amount to spend that leaves you plenty to pay for bills and essentials. You still spend, but less, so you still get that feel-good feeling, less the money worries in the coming days or weeks when you’re broke again.
If you like spending consider the payday trick called reverse budgeting where you pay yourself first to boost your savings or pay your off debt quicker. Pinching pennies is not enough, however, says Investopedia. While minimizing risk is any investor’s prime goal, minimising risk while maximizing return is the key to investing success.
Use a portion of the money you didn’t spend to pay off more credit card interest or to set up a direct debit into a private pension, ISA or another financial product that pays you back for your saving efforts. That too is a feel-good moment – it’s called security.
What if Spend-it-all Sam still wants to be social?
Sam, we get it, you want to be social and to you, that usually means some spending is involved. Then instead of blowing a whole wad of cash down the pub or on a retail therapy session, discuss with friends how you could all save some pennies by having outdoor (COVID-safe) pot luck dinners and drinks every couple of weeks or even just once a month. Hosts could rotate. Bring a dish and a bottle or six-pack and there will be plenty to go around.
Think longer-term satisfaction over short-term gain. How much will any purchase mean to you in a month? A year? If the answer is “not much,” skip it, suggests financial education site, Investopedia. In this way, you can try to limit your spending to things you’ll actually use.
Debtor Dans: take control of your finances by getting help from the pros
If you are a Debtor Dan or Debbie, someone who gets themselves deeper and deeper into debt, then you need to get some expert help before you lose what is most precious to you – the roof over your head, your car, your closest relationships. Like Sam, you need to think about why you spend and keep repeating self-destructing behaviour with your relationship with money. But, we also understand that an unforeseeable circumstance, such as COVID, a divorce or a sudden death of a spouse or business partner can create a negative and domino effect on your finances.
Regardless of your situation if you are in ‘we might lose the house’ type of debt, call the specialists. This is not the time to handle this all alone. One debt advice provider to consider is Step Change, the debt advice charity, for help to understand how you can pay off debt without losing your home, car or business assets if you are self-employed. And if you have already lost some of those, then putting off getting help will only get you deeper into debt. The relief you will feel once you have a plan in place will hopefully outweigh any spending highs, especially if it leads to getting a good night sleep and preserving your most beloved relationships. Debt specialists can also show you how to invest in your future even when you’re seemingly broke.
Saving Sues: do you have sustainable values or are you just a mooch?
Die-hard Saving Sues squirrel away all their disposal income and rarely splurge on themselves, friends or family. If you are one, you will probably be the last to splurge even now that shops and restaurants are open again. However, if you are a Saving Sue there is probably a series of events or even have a traumatic money experience at the heart of your saving habits.
You just need to make sure your extreme saving habits are not alienating others or curbing your savings’ full potential. For example, do you conveniently take a loo break or have to make a phone call when it is your round down the pub? Do you always take holidays at someone else’s house without offering to pay for food or extras? If this sounds like something you might do, then you should consider whether you are sustainable at heart or stingy to a fault.
If on the other hand, you are a Saving Sue because you really cannot afford a night out or a new outfit, there is no fault in that. And if you can’t afford to go out, then invite others over, just like Spend-it-All Sam has been nudged to do, for a potluck meal or drinks. You could make a fantastic punch that will stretch your money further than a couple of bottles of wine. Homemade curries are also great for keeping costs down while still being a crowd-pleaser.
But Saving Sue, do not let your fear of spending get to a point where you never invest what you do have to spare either on yourself or a loved one. But more importantly, invest wisely for your future. This could mean placing even just £50 per month towards a tax-efficient cash ISA or a Stocks and Shares ISA or a mixed risk pension portfolio through a reputable pension fund provider.
Investing Ingrids: Enjoy your success and share your valuable experiences
Investing Ingrids do their homework and are curious about investment trends, the economy, booming sectors and even have updates on their mobile about companies looking to launch on the public markets. They get their money to work for them. If they were keeping an eye on sector trends over the pandemic they would have parked their savings into stocks that were benefitting from lockdown (delivery services, supermarkets, fintech and telemedicine). Instead of blowing their pandemic savings on Amazon orders, they would have invested in Amazon. Now to do this, they may have opted to buy their fruit and veg at the local market to make their money stretch and to afford the Amazon stock price.
They will very likely have started to invest in and make extra contributions to a private pension in their 20s through a company plan, personal pension or a SIPP. Many Ingrids would have hired a financial adviser to help select their first private pension provider and the funds they manage. To them, the adviser fees were worth it. They also use every tax-saving trick out there. Ingrids are good people to chat to at dinner parties if you haven’t befriended one yet.
If you want to become a confident investor like an Ingrid you have to do some groundwork. First, you need to be honest about your spending and saving habits. The typical Ingrid will more than likely earn more than she spends and may even look for new ways to earn more. Freelancers, you are naturals in this capacity. You may be able to teach Ingrid a few things.
If you want to improve your spending and saving habits then read up what the personal finance press is offering in terms of money-saving or investment tips, such as on Which?, Boring Money or This is Money. So, after you have made some changes to improve your spending (committing to do less of it) and saving (committing to do more of it and into tax-efficient products) then it is time to create a set of financial goals and make a financial commitment to your future.
It would be difficult to change your relationship with money overnight, but recognising the reasoning behind your spending, saving and investing habits may help you tweak your weaknesses and build on healthier money habits.