Overspending Despair

An overspending story

Overspending is absolutely criminal if your goal is to become a multimillionaire. The following article is a quick example of how damaging it could be, if left unchecked.

I was recently chatting to a work colleague about personal finance. She recently began work, earning a decent paycheck of about £21,000 per annum or about £1,550 per month after tax. Even better, is that she lives at home as so her only necessary outgoings are £300 per month on travel and £200 nominal rent to her parents.

My immediate thought was "wow, you must be putting away at least £700 per month". I was shocked to find out that she managed to put away only £200 each month. 

Her budget each month was as follows:
In: 1,550
Rent - £200
Travel - £300
Going Out - £360
Shopping - £490
Savings - £200

I couldn't believe it! £360 per month on going out! £490 per month on Shopping! No pensions! Barely any saving!

You may be thinking "it's her money. She can do with it as she likes!" That's fair. However, she's planning to move out of her parents home and rent in a year or two. What I'm wondering is how she can expect to pay for a rent if she's so used to spending so much on going out and shopping? Some of you may think, as she did, that she'll manage to adjust her spending accordingly, or she'll wait until she's earning more.

Personal finance is all about psychology and mindset. Everyone wants to be comfortable in their finances (they don't have to necessarily share my goals!). Generally, no one wants to accrue debt. Unfortunately, that is exactly where my example will lead. There is no financial discipline being showed. The ONLY reason she is able to sustain this lifestyle is due to her parents charging a relatively minor rent.

I wish her all the luck in the world and hope that she doesn't run into trouble. But the harsh reality is that personal finance isn't about luck. You need to organise your finances. Know what you've got coming in and going out. The following articles should teach the basics of wealth creation and of managing your personal finances.

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Poor Student said...

I would most certainly prefer to save a lot more if I were in her shoes. I would cut back on shopping, going out and maybe even a little bit on travel.

Mr. Moneybanks said...

Hi Poor Student, Thanks for the comment. Agree totally - however, the travel is essential for her job. It's her monthly tube costs to London, expensive due to the fact that she lives outside of London. Let me know if you want to write post on finances for students. Get in touch

Ryan @ Impersonal Finance said...

Yes, this is a terrible frame of mind. I have a friend in the same situation, and the first thing he did was go out and lease a new car! I was like "ummm okay bro, that's cool." But on the inside I was screaming my head off. It doesn't take much knowledge to become wealthy, or set yourself up nicely for the future. Even investing in a run of the mill low cost index fund will do it. What it does take is action, as well as just time, determination, and persistence. When she gets her finances in order, she'll realize how much time, money, and future wealth she costed herself. But, I wasn't that great with money when I was in my early to mid twenties either!

Mr. Moneybanks said...

I know what you mean about screaming your head off. I really wanted to have a go at this girl - in a sort of benevolent paternal manner. Unfortunately it's not really my place to tell her what to do with her money. I'm not too sure what the etiquette is with something like this. Clearly, you too didn't feel it was your place to respond to your friend?

Anonymous said...

Pass book savings accounts are a good way to stay disciplined with your savings, i managed to save £1k in 4 months by using one because you can't transfer money online and once you transfer it into the pass book account, you have to physically go to the bank to withdraw the money which stops impulse spending if you work full time and most banks and building societies close at 12 on a Saturday. It helps you to manage your expenditure better and realise just exactly how much money you really need to live on