More than a Third of British Citizens are Only 11 Days Away from Financial Ruin: On The Importance of Good Financial Planning

How long could you last on $1,100?

A recent survey by the Yorkshire Building Society reported by the Daily Mail indicates 36% of British citizens could survive financially for only 11 days should a personal crisis occur such as losing a job or getting too ill to work.

Researchers examined income and expenditure patterns among British citizens and come to alarming conclusions. The survey indicates 36% of British citizens have less than 500 Pounds in savings to use as an emergency (Approx $1,100).

The current economic climate apparently leaves people with little choice regarding their financial conduct. More and more people are living on a “financial tightrope” as the Daily Mail puts it due to rising commodity levels and inflation and the growing impact of the current economic slowdown or recession.

The typical person, according to the survey, has 52 days before running out of financial resources. The average monthly expenditure of the average British citizen amounts to 1,445 pounds which are approx. $3,300.

Source: The Daily Mail

Many of the people surveyed indicated they will sell their home should a crisis occur. Relying on selling your home as a last resort is a very poor option as we’ve witnessed only recently. In a crisis real-estate prices tend to respond rather quickly plummeting down due to lack of demand.

In another recent survey by the ASEC Americans reported they saving habits and progress. According to the survey more than two-thirds (71%) report that they "have sufficient emergency savings to pay for unexpected expenses like car repairs or a doctor visit."


Good financial planning is about smoothing both consumption and living standards over one’s life

Solid financial planning aims to smooth consumption over a life time. As crisis come out of nowhere, annoyingly unannounced, good financial planning should utilize precautions to smooth out such a crisis as losing one’s job or becoming too ill to work. There are several tools which help smooth out such a crisis:

#1 Budget for the unexpected

Unexpected expenditures are a fact of life. Budgeting for these unforeseen expenditures each month is a great way of tackling them. Set aside 2%-3% of your entire budget for unexpected expenditures (aside from savings). This method has two distinct advantages: You won’t be surprised and hard pressed when you suddenly need a new car battery and more importantly should frequency and volume be surprisingly low you’ll be able to save that amount, increasing your emergency fund (step 2).The temptation to consume these funds is great. However, keep in mind that on average these expenses will occur eventually.

#2 Set up an Emergency Fund

Much has been said and written on emergency funds and their importance should be clear by now. It’s a method of expecting the unexpected and a very important pre-emptive measure towards more pressing times. Should nothing surprising happen you’ll have a healthy saving generating solid interest.

I believe an emergency fund should last for at least a couple of months of debt and mortgage payments as well as solid living. Everyone knows that decisions made under a lot of stress are usually bad decisions (I already addressed the faulty logic of selling your home as a last resort).Great articles on emergency funds can be found at The Digerati Life, The Simple Dollar and Get Rich Slowly.

#3 Get Insurance

Accidents, disability, mortality and longevity (surprising but true) all significantly or totally hinder our ability to maintain the level of comfort we have been used to. These events are unexpected in nature but have a certain probability of occurrence. Accidents and disability significantly change our lives, mortality is self-explaining and longevity has the risk of turning us into a liability on our children’s lives.

There is no real way to budget for these occurrences. What do we have left in our arsenal of pre-emptive measures? Insurance.

Insurance is basically transferring our specific risks to the community for a premium. For a certain premium which is carefully calculated according to the risk of a certain occurrence we can assure ourselves and our families a steady and good life even should the unfortunate happen. Disability Insurance, life insurance and retirement planning are all integral parts of planning for unexpected expenses in the “life” level.

All of the precautions and preemptive measures mentioned naturally cost money. That is what good financial planning is all about. Save when you’re able to finance possible hardships. Too many people live on a much higher level than they can actually afford. With an upcoming economic slowdown in Great Britain as well many people will unfortunately learn this lesson the hard way.

I believe its much easier compromising for 15% of your monthly income (that’s how much you need to put aside totally) than to face financial ruin.

Related Posts:

• Budgeting for Unexpected Expenses


• The Problem of Accounting and Budgeting For Cash Expenses


• How to Save Money by Analyzing Your Budget: 4 Basic Tools


• How to Make Saving More Rewarding and Tangible: 5 Practical Tips


• How to Save by Making Credit Card Payments More Real and Tangible: 5 Practical Tips

Images by: Phil Moore

How Shopping for Groceries Online can save you Money As well As Time

The advantages of shopping for groceries online significantly outweigh the disadvantages – 9 distinct money and time saving consideration

I personally dislike shopping for groceries. I usually have much better uses for my time than combing the length and breadth of a supermarket and standing in endless lines. I think every spare moment in my home is precious and shouldn’t be spent standing in line waiting for someone to decide whether she really wants that candy bar or why she was charged an additional 5c for something that used to cost a bit less.

Unfortunately shopping for groceries is a basic and essential need and activity which can’t be overlooked or neglected.

Although I truly try to avoid grocery shopping I do enjoy fresh fruit and vegetables, meats and cheese. I’ve been aware of the option of shopping for groceries online for some time now but I’ve also been worried about the quality of the products I’ll receive without choosing them myself. Obviously since I’m already shopping for those groceries there’s no point in paying higher prices online for boxed and stored goods and I buy those as well.

Recently I’ve been more and more interested in online grocery shopping as I’ve had enough of these endless journeys. I’ve decided on trying an online order a couple of times with high hopes of ridding myself of this annoyance without having to settle for stale and day old products.

Delivery days for my area are scheduled for Thursday, Friday and Monday and I’m very eager to give it a try. In the mean time, much like I always do, I sat down and tried to look at this experience from an economic and financial viewpoint. Online grocery prices are considered to be relatively higher and can amount to 15%-20% more than shopping at the supermarket itself. I came up with interesting results which just might justify paying higher prices for online grocery shopping.

The following are the main points I’ve given thought to regarding online grocery shopping. I’d love to hear more from your experiences with shopping online for groceries:

#1 See the total price of your shopping cart at any given moment

I think the number one advantage of shopping online is the ability to view the total cost of our purchase at any given moment. Think about how many times the total amount surprised you. “I just bought eggs, milk and a couple of more things… How did I get to $100!?” Sounds familiar?
With a total amount available at any given time you can really examine what you’re about to buy and maybe decide on settling for a cheaper brand this time.

#2 Really stick to your shopping list

Another distinct advantage is the ability to really stick to your original shopping list. You avoid the instant craving and sudden impulse and just pick what’s on your list.
In future purchases you’ve got your list all ready and you only need to make minor adjustments. What are the chances you’ll deviate from it and spend wildly on an attractive bottle of wine that just smiled to you from one of the isles?

#3 Check if you actually ran out of something

How many times have you asked yourself “did we run out of this and that?” and couldn’t remember. All you have to do is get up and take a peek at your refrigerator or pantry and find out. Avoiding unnecessary shopping might save significant amounts of money in the long term.

#4 Dramatically lower your exposure to supermarket marketing tricks

Much has been written on the cheap yet effective tricks supermarkets employ on us susceptive shoppers. I’ve written a post on cheap marketing tricks supermarkets employ and how to avoid overspending by being aware myself.

When you’re shopping from home you’re in a controlled environment unsusceptible to those tricks. I believe that save money. If those tricks hadn’t worked on us supermarkets wouldn’t employ them.


#5 Compare prices easily

No longer having to duck all the way down to the bottom shelf you can easily compare prices for similar products and save a bundle on good cheaper products.
In each session you can choose another niche to dig in to and buy cheaper products of the same quality thus lowering you grocery expenses on fixed basis.

#6 Add or remove items quickly and without hassle

Looking at the bottom line you suddenly decide to get rid of a certain product. Maybe you forgot something and you’re already in line. It’s very easy to add and more importantly remove products from your shopping cart when shopping on line.

#7 Get shopping done very quickly

By the third or fourth time I guess everyone has their own list of groceries to buy on a weekly basis. Log in, load the list, make minor adjustments and get exactly what you need. I’m guessing 30 minutes ought to be enough for the complete process.

#8 Choose the delivery time

Buy from work and have everything arrive 10 minutes after you get home, or maybe late at night if you’re insomniac. I believe this might also limit you a bit as you have to wait for the delivery sometimes but wouldn’t you have spent that time in the supermarket in the first place?

#9 Save on gas

With gas prices so high each 15 trip to the store is a waste of money. Shopping online helps us save on gas and car related expenses easily.

I’ll report back with my couple of first experiences and tell you how it’s been. I’m most worried about product quality and packaging. I do believe 15% higher prices just might be economically and financially sound as the advantages seem to outweigh the disadvantages significantly.

Related Posts:

• 10 Tips on How to Avoid Overspending In Supermarkets
• The Problem of Accounting and Budgeting For Cash Expenses

Images by: desiitaly, miss_jen

How to Break the Vicious Circle of Negative Cash Flow and Growing Debt

Understanding the vicious circle is the first step out of it

Chronic overdraft and debt is a widely spread illness. Chances are many of the household who suffer from it are caught in a vicious circle of negative cash flow and debt. Even more likely is the fact that they are unaware of their situation and of the behavioral pattern responsible for it.

The vicious circle

A vicious circle is comprised of an interlinked series of events or behaviors which constantly reinforce themselves through feedback towards greater instability. In household finances the classic vicious circle would like this:

The total negative cash flow of the household keeps getting bigger and bigger. The end is obviously and painfully clear.

Getting caught in such a vicious circle is terribly easy. Express loans, credit and other magical solutions are handy and available to everyone. These magical solutions obviously carry some of the highest interest rates known to man (other than loan sharks I guess) which bury us further in the circle. Financial awareness and education is unfortunately a lot less available and so many people find themselves stuck in such circles.

Getting out of a vicious circle is the tricky part. It will require painful concessions and, without a doubt, a sudden drop in your standards of living.

How to break the vicious circle and stop negative cash flow and growing debt

The strategy required to break a vicious circle should be clear. Attack one, or more preferably all, of its links. In the case of household debt and negative cash flow action should be taken on the following:

#1 Know where you stand - Awarness and acceptance

Find out how sizeable is your debt and how serious your negative cash flow is. By budgeting and concentrating all your financial data together with some hard work and the help of endless helpful posts from personal finance blogs around you will be able to draw these numbers. Getting professional financial assistance is always recommended but will cost additional money (I believe it’s worth it if it’s good counseling).

#2 Consolidate your debt - Immediate Action

Getting caught in a vicious circle usually means having multiple loans and credit lines. Consolidating your debt and setting a fixed monthly payment with a known period is very important to planning your way out of debt. Your monthly payment should be within your new budget (Step 2,3 have a lot in common).

#3 Adjust your standard of living to your income (don’t forget to include your debt payments) - Balance

The most important and maybe hardest step of all is to create a new, balanced, budget which will ensure you live what you earn. This is difficult in a world where consumption is the new god but you will also discover, as many of us have, that there is a lot more to life then consuming.

This post is about the bigger picture.More detailed guides, advice and how-to’s are available here, at The Personal Financier, and also at leading personal finance blogs which can be found in my blogroll and links section.

I especially recommend this guide by Trent Hamm from The Simple Dollar titled “31 days to fix your finances”.

Where Should Your Next Spare Dollar Go?

My wife and I have finally been able to save some money. After buying a home, remodeling it and getting married all in one year our financial resources have been greatly depleted. A couple of months with relatively smaller expenses passed and we’ve been able to save a small yet significant amount of money.

Suddenly we’re faced with a question: Where should we put this money? What should we do with our next saved dollar?

I believe the answer lies in the truths of basic financial planning theory. In my opinion when we consider where our next dollar should go we have to examine the following hierarchy of financial “needs” (assuming your debt repayments are within your monthly budget):


Repaying expansive debt

Not all debts are bad debts, just the more expansive ones are. For example, just yesterday I wrote about the advantages a mortgage has in making us more disciplined savers (with relatively cheap interest rates).

If your outstanding loans are pricey you should definitely work towards repaying them or recycling them soon. If you’re debt repayments are already in order and within your monthly budget it is advisable to consider direct your next dollar elsewhere (while still maintaining liquidity should anything go unexpectedly).

Securing a liquid emergency fund

I recommend keeping a liquid emergency fund whole-heartedly. An emergency fund, in my opinion, should hold sufficient funding for at least 3 months with no income. Your emergency fund can also be used to reduce pricey debts gradually while using the money saved on interest to re-establish it.

Contributing more towards a secured retirement

Save early and often is the best tip in retirement planning. If you have an extra dollar better check how are you meeting your retirement goals. Postponing instant gratifications and increasing contribution to retirement plans will be well worth in the long run.

By no means am I recommending all your savings should be directed to retirement. We still need to lead a life. My recommendation is to raise our awareness towards securing our retirements.

Establishing a foundation of solid investments

Congratulations. You’ve made it past the basic foundations of your financial planning and financial living. The next step, in my opinion, is substantiating another level of solid investments. This next level should be planned in order to help us meet our goals: an apartment, education and more. The risk level and liquidity of these investments should correspond to our goals and term of investment and should definitely be on the solid side.

Building an investment portfolio

It’s the big league. Depending on your preferences you are now able to take more risks (or less) and really start enjoying your money working for you. Investing is never detached from your goals and personal status and should always reflect them. However, if you’re extra dollars are going in here you’re doing quite well. Good luck.

When is it Reasonable to Take a Loan? Consider These 4 Questions

I’ve recently wrote an article titled “Avoiding the slippery slope of debt” in which I wrote about how quickly small loans may amount to significant debt and mentioned ways of avoiding it. However, there are cases where we simply must finance ourselves with the bank’s money. As with anything in life the middle way is the right way.

Financing and leveraging by themselves are not bad. They are merely tools which should be put to good use.

Taking a loan or any sort of external finance is reasonable when the return is usually expected to outgrow the financing costs. This return doesn’t need to be measured in dollars. In fact, measuring utility is the correct approach (for further reading: What is the economic value of happiness?).

So when is it reasonable to take on a loan? I believe we should consider the following 5 parameters before deciding:

#1 Is the situation or problem at hand temporary and focused?
Borrowing money should be a temporary solution to a temporary problem. If a situation or problem is here to stay then a change of lifestyle is required. Taking a loan will only worsen things as the problem does not disappear but the money does.

#2 Do you have a clear way out?
Be sure to identify the problem and the causes correctly before acting. If the causes can be treated and the problem solved by taking a loan then it just might be worth it. Make sure you’re not entering the slippery slope of debt by financing yourself with an endless chain of debt.

Have you way out mapped and charted. After taking the loan things might seem better off and the temptation to use the money in another way will grow. Be consistent and stick to the game plan.

#3 Are you sure it’s not luxuries you're financing?
While we need luxuries to make life comfortable financing luxuries with the bank’s money will eventually leave you at an even more uncomfortable place. Remember that vacation you took 1.5 years ago and you’re still paying for? Is that comfortable? Wouldn’t you have rather saved up for 1 year and then take it carefree?

#4 Will the money be invested wisely?
Very basically speaking will the loan’s money yield higher return on investment? Again, we must not regard this in terms of money only. The best investments are in education and infrastructure for example. Invest in the future.

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Avoiding the Slippery Slope of Debt

Private consumption has been increasing steadily. We're happily consuming away. Sometimes even financing our desires with a small loan here and there.

I've recently bought and refurbished my apartment. I've had to finance this purchase and the refurbishment with a significant mortgage and some personal loans. From my personal experience I find it very easy to get mixed up in debt without notice. Managing a growing amount of loans and re-payments is not an easy task. Having the ability to take more loans creates an illusion of well being and surplus cash which is very dangerous. The question "can we really afford this?" is not always asked. In my apartment I did my best to make the smallest concessions possible. I'm still balancing myself every since (6 months now). Couldn't I've just settled for cheaper tiles?

I don't think life is just about saving and being frugal. I believe we should lead a life worth living without questioning ourselves every other step of the way. However, we should be very aware of our earnings potential and our derived ability to finance our consumption with the bank's money.

Debt is a slippery slope. By definition we repay more then we loan. In times of economic slowdown or temporary difficulties we might find ourselves quickly financing our loan repayments with another, more expansive, loan as we've become more risky lenders. And so on and so forth.

Financing consumption with loans is a big no in my opinion. Consumption can be delayed and gratifications postponed. There is no real happiness in buying another suit or another music player or even taking a vacation on a loan. Consider the following carefully before financing consumption with loans:

#1 How Frustrating it is paying for something you've already forgotten

Hope you enjoyed that trip enough to last you through all the re-payments appearing on your monthly reports. There is a nasty after taste to paying on installments for something you hardly even remember now.

#2 How easy it is to lose control over re-payments

Paying on credit, taking a personal loan, a mortgage and having a bar tab all add up and are terribly difficult to control. It won't be long before you find yourself drowning in re-payments with little ability to afford anything else.

#3 Paying interest is simply wasting money

You could have saved the money payed on interest or consume it otherwise. Sometimes financing is a must (like buying a home) but when it is avoidable just avoid it. Would you have taken that vacation if it cost you 15% more? Take into account the cost if interest.

#4 Constantly repaying debt degrades your ability to build your future

Constantly paying back debt paints your horizon grey instead of blue. We need to look to the future with hope and not with endless debt repayments. Lowing debt slowly and shifting the money to savings will truly empower you in life.

I believe we, as consumers, should have some patience to build a solid financial base which will then allow us to spend with little worries and a care-free mind. Naturally, we won't be able to afford everything but we would enjoy the things we can a whole lot more.

Image by Wallyg