RACHEL RICKARD STRAUS: Why cutting out take-out coffees may not be the best budgeting advice

RACHEL RICKARD STRAUS: Why cutting out take-out coffees may not be the best budgeting advice

If you are looking to save money, cutting down on coffee might not necessarily be the way forward

Rachel Rickard…
Tue, 12/31/2019 – 12:22

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Every January, the humble cup of take-out coffee comes in for yet another drubbing. At this time of year, many of us are looking for ways to cut back our spending.

New Year’s resolutions give us determination to maintain this frugality.

To meet this seasonal interest, articles on budgeting tips abound with experts sharing ideas on how we can do it.

And so once again coffee comes under siege.

Rare is the article on budgeting that doesn’t mention cutting back on cups of coffee-shop coffee. Many come with magnificent calculations pointing out that if we just gave up our daily habit, we would transform our retirement outlook from one of penny counting to one of grocery shopping at M&S.

Perhaps that’s an exaggeration, but I did see one that claimed you could boost your pension pot by £131,000 if instead of spending £10 a week on coffee you invested it.

It is true that making small changes can make a big difference. We get into habits which, if you add up the cost over many years, can make for uncomfortable reading.

But I don’t think laying into shop-bought coffee is the answer – not least because it doesn’t address what those of us who don’t buy it are supposed to do.

If you want to cut your spending, the easiest way is to look for things you can give up that you won’t miss.

Go through your direct debits and check for subscriptions you are not getting good use of. Cut interest and overcharge fees by switching banks and credit cards. Shop around to cut your energy bills, phone providers and mortgage costs.

You can do all that in an afternoon, and none of it requires self-restraint or picking up your pace every time you pass your favourite coffee shop.

Then once you have cut back things that you won’t even notice, scrutinise those you will.

However, in many cases just cutting something out and relying on self-restraint to do so is not sustainable.

Behavioural economist Sarah Newcomb points out that people’s daily coffee-shop habit is often rarely about the coffee – if it was just that, you would be just as content with a cup drunk at home or work for a fraction of the price.

For some people, the allure may be the excuse to break up your day and get outside for a bit. For others, it’s maybe just habit. Some may like the coffee-shop ritual, in which case perhaps a cheaper coffee might do just as well.

The key, believes Sarah, is to identify what need it is filling and find a cheaper alternative, such as going for a walk or bringing a flask of coffee from home to drink on the go.

Some people may just really like having a cup of take-out coffee – it’s one of the highlights of their day. In which case – is this really the spending habit they should sacrifice?

Kristy Shen, co-author of this issue’s book of the month Quit Like A Millionaire, would argue that it isn’t.

Kristy retired with a million dollars at the age of 31, through cutting back her spending and being savvy with money. I think her views deserve some attention.

She writes: “While I don’t doubt the math [of boosting your retirement by giving up daily coffees], universal advice like that is idiotic. Some people don’t care about coffee (like me) But other people love it – it truly makes their day better. I am from Sichuan Province, in China, where all our food is covered in chili oil. If someone told me that not eating spicy foods would extend my life expectancy, I’d respond:‘Why would I want to live a longer life without my favourite food?’

“The secret to budgeting is not to imitate some template but to find the budget that works for you.”

I’ve been thinking about how I can use this advice to help cut my own costs.

While I don’t buy coffee, more often than not I (shock, horror!) buy lunch out. However, giving up this habit would take some serious self-discipline because I so enjoy the ritual.

When I bring in a packed lunch, I find I absent-mindedly eat it at around 11am and then it gets to the end of the day and I find I haven’t left my desk. Hunger at lunch time is what forces me out to get some fresh air and clear my head.

So using Sarah and Kristy’s advice, perhaps I’m better targeting a different costly habit, or make targeting this one  more realistic. Perhaps, for example, I could at least bring fruit from home, so I am not spending an extravagant 50p on an apple from the place where I buy my sandwich, just out of convenience. I could try to seek out cheaper lunch options.

Will that make me a millionaire by retirement? I think I’ve more work to do. I’d love to hear your budgeting tips and changes you plan to make to your spending this year. 

Email editor@moneywise.co.uk

Twitter @rachel_spike

Post The editor, Moneywise, 8 Devonshire Square, Office 03W112, London EC2M 4PL

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Young women risk a poorer retirement by opting out of workplace pensions

Young women risk a poorer retirement by opting out of workplace pensions

New data reveals the age group most likely to put their pensions at risk. 

Brean Horne
Mon, 12/30/2019 – 10:25

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Young women are putting their retirement income security at risk by opting out of workplace pensions, according to new findings from Royal London.

Analysis from the mutual insurer’s auto-enrolment records revealed that 10.5% of women aged 22-29 opt out of their workplace pension.

By contrast, only 8.1% of men in the same age group opted out of their company pension scheme.  

Women in their 20s and 30s face significant challenges when saving for retirement such as saving up to buy a home or leaving the workforce to start a family.

Often those who return to work after having children do so on a part time basis, reducing the amount they can put away into a pension.

The added financial pressure of managing childcare costs can also make it difficult for women to save for retirement.

Once men and women hit the age of 30, auto-enrolment dropout rates begin to even out.

After the age of 60, the picture changes again and more men tend to opt out of their pensions than women.

The table below shows the auto-enrolment opt out rates for men and women.

Age Group Women Men
16-21 3.1 2
22-29 10.6 8.1
30-39 8.6 8.2
40-49 7.9 7.9
50-59 11.4 11.1
60+ 29.2 31.6

Despite the eventual shift in dropout rates, women face greater risk to their pension saving overall by missing out on valuable contributions in their early years.

Helen Morrissey, pension specialist at Royal London said: “The data highlights a spike in women opting out of pension saving in their 20s and 30s, most likely as they face other commitments like childcare or saving for a house.

While this may seem like a good idea for them in the short term to fund other priorities, opting out of a pension will only lead to greater financial problems in the future.

Getting back into the habit of saving for later life is difficult for women if they have missed significant contributions so we need to do everything we can to encourage these women to stay saving for the long term.”

What is auto-enrolment?

Auto-enrolment is a government initiative to help people save more for retirement.

The scheme makes it compulsory for employers to automatically enrol eligible workers into a pension.

A percentage of your monthly salary is paid into a workplace pension, along with contributions from your employer and a top-up from the government.

Currently both you and your employer must contribute a total of 8% towards a pension.

The table below shows how auto-enrolment contributions have changed since they were first introduced.

Date Your employer’s contribution Your contribution Total minimum contribution
6 April 2019 onwards 3% 5% 8%
6 April 2018 – 5 April 2019 2% 3% 5%
Until 6 April 2018 1% 1% 2%
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JASMINE BIRTLES: Thank you, Greta, for making preloved presents acceptable

JASMINE BIRTLES: Thank you, Greta, for making preloved presents acceptable

Forget the planet – probably the best thing Greta Thunberg has done for all of us is to make it acceptable to buy and, even give, secondhand

Jasmine Birtles
Fri, 12/27/2019 – 10:20

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In fact, it is not just acceptable, with some people it is now actively righteous not to buy new. They can come home with vintage clothes, preloved furniture, nearly new books, gently used soft furnishings,  and slightly worn accessories, wearing an irritatingly smug face because they know they are doing their bit to save the planet.

Not for them the environment-destroying new goods bought from selfish commercialists on the high street. No. They are recycling, upcycling and generally cycling for the planet.

It is certainly music to my ears. I grew up with secondhand everything: bikes, clothes, piano, furniture, books and… well, I’ve lost count.  I was the living embodiment of Barbra Streisand’s song, Second Hand Rose, with its lyrics: “I’m wearing secondhand hats, secondhand clothes, That’s why they call me Second Hand Rose.

I can honestly say I never felt it was a problem. I still don’t. In fact, it now turns out that I have been at the forefront of fashion all this time. I have been an eco-warrior without even realising it. The secondhand lifestyle has crept into the cool side of living.

… Well, nearly. It is still only those in the know who are embracing the recycled lifestyle. I did a report for BBC’s Inside Out programme earlier in the year about how antiques are going for a song now. Millennials mostly missed out on history lessons so they will dump a Queen Anne chair or Louis XIV table for a Beatles T-shirt that is genuinely ‘old’ for that cohort.

It is even worse for more pedestrian furniture. With our smaller, lighter living spaces, your gran’s solid oak dining table and armoire are now deeply unpopular. If it’s brown, it’s down.

However, the cognoscenti know that this cheap as chips solid brown furniture (oak, teak and the like) can work well in modern flats if mixed and matched with newer stuff. And many of them are whipping out paint brushes to remodel the old stuff to use or sell. Upcycling, beloved of such notables as Anthea Turner (who paints baked bean tins) and Will.i.am (who produces upcycled jeans), has taken Etsy, Pinterest and, of course, eBay by storm.

I am sure anyone would be happy to give a genuine upcycled jean from the king of cool himself, but is it now OK to give someone a preloved product for Valentine’s Day, Christmas or their birthday? Has Greta gone that far? Is regifting to the one you love a safe bet? Could we say, hand on heart, that the sainted Anthea might get away with it?

Well, I’ve certainly had at least one secondhand present in recent memory – a wonderful CD of Pergolesi’s Stabat Mater from a neighbour who, I knew, was utterly on her uppers. It was a thoughtful present and I still play it. But would I have been as happy if said thoughtful gift had been from my wealthy college friend who has just sold his hedge fund? Even if it had a note telling me, “hey with this gift we’re saving the planet”? Possibly not quite so much, thank you.

Mazuma Mobile, which reconditions old phones and sells them in spanking new boxes, says that almost a quarter of us have previously bought a secondhand gift for Christmas. They say that 44% believe they have been given a secondhand gift and that a third of those were fine with it. Maybe this really is the future.

But would your loved one be content with a reconditioned anything as a present? Would they mind a secondhand book for their birthday (not counting a  first edition Harry Potter)? Or would you just look like the sort of person who, if he’d been at the Last Supper, would have asked to split the bill?

Hmm, it has to depend on who’s gifting whom.

One thing I have noticed is that sort of ‘helping the planet’ doesn’t always last long. Do you remember the trend for ‘giving a goat for Christmas’ through Oxfam a few years ago, with the look of barely disguised disappointment on the faces of recipients trying to be virtuously happy that a poor family was getting a goat instead of them receiving fluffy slippers?  Funny, you don’t hear about anyone doing it now.  

Jasmine Birtles is a financial journalist and founder of MoneyMagpie.com.

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Five ways to beat the January financial blues

Five ways to beat the January financial blues

Refresh your finances after the Christmas hangover in January 2020.

Brean Horne
Fri, 12/27/2019 – 10:14

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Around eight million people across the UK are expected to suffer from a financial hangover in January as a result of spending over Christmas.  

Here, we round up five ways to beat the January blues and get your finances on the right track.

1) Work out your financial goals

Working out your financial goals is an important first step towards getting your finances in order. 

Once you clarify exactly what you want to do, work out the best way to achieve it.

For example, if you’d like to build up a rainy day fund – put money away into a regular savings account.

Working out your financial goals gives you a chance to prioritise your money matters and prepare for expenses later down the line. 

This could be anything from hefty winter energy bills to holidays and getting ready for next Christmas.

2) Tackle your debt

If you’ve started the new year in the red, you’re not alone.

Households across the UK have around £2,602 worth of credit card debt. And as a nation we pay £140m per day on credit card interest, according to the latest figures from The Money Charity. 

It’s really important to make a plan to clear your debts as soon as possible. 

Generally speaking, you should start by clearing your most expensive debts first, which are most likely to be sitting on a credit card. 

A 0% balance transfer card could help you cut the cost of your credit card debt by shifting it to a card with a lower interest rate. 

If you’d like help with managing your debts charities like StepChange and the National Debtline offer free advice.

3) Boost your savings

If you’ve already built up a nest egg, make sure it’s earning the best return it can.

Interest rates have been notoriously lacklustre over the last few years so it’s worth doing a bit of digging to find an account that will help your money grow.

Check out our guides on the best savings rates and the best cash ISA rates to get an idea of the accounts that might help boost your savings in 2020. 

4) Switch your bank for a cash bonus

Most banks offer incentives for you to switch your main current account over to them. This could be anything from cash bonuses to gift vouchers. 

Switching your bank can be done easily online, via phone or in branch and takes around seven days to complete. 

We’ve rounded up three switching deals available right now in the table below. 

Bank Perk Deadline
TSB £50 + 3% interest 2 Jan 2019
M&S Bank £100 M&S gift card and £80 gift card after a year 6 Jan 2019
First direct £50 + £250 0% overdraft Ongoing

5) Get on top of your credit score

Taking control of your credit score can really help boost your finances.

Check your credit report and get any mistakes on your credit history corrected, as they could scupper your chances of getting a credit card, loan or mortgage in the future.

There are lots of simple steps that could help you improve your credit score, like registering to vote an always paying off your debts in full. 

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Five things to do with your unwanted Christmas presents

Five things to do with your unwanted Christmas presents

Around £5bn will be spent on unwanted Christmas presents, so here are some ideas for what to do with gifts you didn’t want to get

Brean Horne
Fri, 12/27/2019 – 10:10

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Half of us will receive at least one gift we don’t want for Christmas this year, according to new data from Finder. 

But instead of letting them gather dust at the back of a cupboard, why not turn them into new found treasure?

We’ve rounded up five easy ways to make the most of your unwanted Christmas presents.

1) Exchange or return it

To exchange your present for something more suitable, you’ll need a receipt as proof of purchase.

Check to see if the buyer left a gift receipt with your present which you can use.

Otherwise, you’ll have to ask them directly if they wouldn’t mind taking it back to the shop on your behalf.

If the item was purchased online, then it’s up to the buyer to send it back to the retailer so it can be exchanged for something else or they can get a refund.

2) Sell it

There are a few options available if you’d like to try your hand at selling your unwanted Christmas present.

Online marketplaces such as eBay are a popular way of selling items. Be wary of seller fees though, which could eat into your overall profit.

Gumtree and Facebook Marketplace allow you to list and sell your items for free, but often require you to meet the buyer and make the sale in person.

You could also try listing your item on local websites or social media too.

3) Rent it out

Renting out your unwanted Christmas gift offers a nice alternative to selling it.

Websites like Fat Lama, borroclub and RentNotBuy allow you to set the rental price for your item and how long you’d like to rent it out for.

Items rented out on these sites include anything from clothes, bikes and cameras to games consoles, DJ equipment and power tools.

4) Re-gift it

Re-gifting your Christmas present is a great way to pass it on to someone that its more suited too.

As well as giving the gift another chance of making someone happy, you’ll also save money on buying presents too.

5) Donate it

Donating you’re your Christmas present can help you spread joy over the festive season and beyond.

If you donate your present to a charity shop, you can increase the value of your gift by claiming Gift Aid.

Gift Aid is a form of tax relief that allows charities to claim an additional 25p for every £1 donation at no extra cost.

Usually, Gift Aid doesn’t apply to items, however, if you ask the charity shop to sell the items on your behalf, they can apply it to the proceeds of the sale.

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