Why Do We Live Beyond Our Means?

It’s a shocking fact, but most UK households are currently spending more than they earn. Nearly a thousand pounds a year more, on average. Thanks to low interest rates, borrowing has become more attractive than spending for the first time in decades, and we have blindly slipped down the slope of financial responsibility and become a nation running on credit. To the tune of £25 billion nationally each year –  about a fifth of the annual NHS budget (Source: ONS).

Not everyone who lives like this would even recognise themselves as being in financial crisis – it seems quite normal to most people. And that’s where the danger lies. Because if we carry on like this, we won’t be able to cover our debt repayments, and then we really will be in trouble. Perhaps most of us in the “credit culture” assume that we’ll be able to live below our means once we are earning more – that this is just a temporary measure. But is that really the case? Or are we addicted to the misguided thrill of what seems like free money?

Here at Vestpod we always take the view that the time to make changes is now. Not tomorrow. Not at some mythical point in the future when we are earning loads and have no debt. Because that moment will never come unless we get smart with our money, starting today.

So what can we actually do to start living below our means? And is it going to hurt?

First, there are some simple budget tweaks you can make. These are the obvious, big things like: do you need a lovely car? Do you actually need a car at all? Do you really need the biggest house with the biggest mortgage available to you or could you live on a smaller scale for a while? And what about those swish holidays, meals and clothes… are they really the right treats for this time in your life, or might they be better suited to the future you, who has more of a financial buffer?

Further down the budget, don’t forget to check your subscriptions, too. Most households pay an exorbitant amount each month for television channels, for example. And guess what, TV doesn’t make your life that much better. What if you had to give up Sky Sports and Netflix and Amazon Prime for three months? Would you survive? Yes. Would you find more interesting things to do? Absolutely. And would you save money? A lot! You should also check your unused subscriptions, the app Emma can help you with that.

And when you’re tweaking that budget, do it in an organized, cool-headed way, sitting down at the beginning of each month (with your partner if you have one) with your goals clear in your head. That way, you won’t be making budgeting decisions in the heat of the moment, eg. when you’re next in line to pay at Selfridges and you’re still wondering whether a new handbag counts as an investment or not.

If you’ve tried making a budget before and it hasn’t worked for you – don’t give up! There are ever more online resources and inspirational bloggers to help you here, so have a browse until you find something that suits you. Maybe that will be the 50/30/20 budget plan, where you divvy up your money in to wants, needs, repayments and savings? Maybe it’ll be a cool new app that sends you reminders and motivations each day (YNAB)? Perhaps it’s changing the way you bank (Starling and Monzo)? Maybe it’ll be the slightly crazy but surprisingly popular cash-in-envelopes system (Mvelopes)? There’s a budgeting tool to suit you, you just haven’t met it yet.

Another tip is to watch your credit card use: it’s such an easy, toxic and deceptive path to financial ill-health. Some people manage perfectly well with a debit card only for everyday life, saving the credit card for real emergencies. Of course, you could use a credit card but make sure you repay the balance at the end of the month and don’t pay interests on it. Give it a try… you’ll feel so good if every time you buy something it’s really yours, rather than the bank’s.

The biggest thing you can do to help yourself with all this is, as ever, work on changing your mindset from a short-term, treat-driven one to a Wise Old Finance Owl style one. This means that when you say no to an expensive takeout coffee every morning and give up your pricey tv channels / car / winter holiday / handbag habit, you will not feel that it’s hardship. It’s not a loss - it’s a gain! Cutting pointless spending is a gorgeous gift to yourself that operates on the level of deep satisfaction and a feeling of safety. It’s literally priceless.

You can easily become someone who can get satisfaction from saving, living streamlined and less wastefully and generally not being the one who believes those online shopping banners that scream “Hurry! Only a few left! 47 other people are looking at this deal right now!”. You are going to feel so good about yourself.  And self esteem means less spending on credit. And that, dear reader, is how you stop living beyond your means.