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Saturday, 1 January 2011

Make a New Year's Resolution: Stop Saving!

My excellent bank, First Direct, has turned into an Agony Aunt. It seems that its customers , when surveyed, are only too willing to wring their hands, beat their chests and flagellate themselves: we should have spent less, they say; we should have saved more; oh, why why did we not pay off our credit cards .... and so on in a tiresome vein of socially acceptable self-recrimination. First Direct has chosen New Year's day to release the results of its survey - this is a day when even more self-recrimination is guaranteed (oh, my head ... why did I drink so much?)

To be precise, according to First Direct, three quarters of people wished they had saved more in 2010. Why? Are they quite mad?

What happens if you save?

If you are lucky, you earn a rate of interest which roughly keeps pace with inflation so you come out quits. It depends a bit what rate of inflation actually applies to you - how much your Council Tax is going up and so on.

All right, I grant that you do better than you would from buying lottery tickets - but that's hardly a sensible comparison. Lottery tickets are a tax on the poor.

Consider some alternatives to saving:

Spend the money on double glazing or loft insulation. This brings down your fuel bills on a continuing basis and since energy prices will probably rise above the general rate of inflation, your savings on your household bills will exceed the interest you would have got in some cash ISA. It's a no brainer.

Already got double glazing? Then replace your household appliances with more energy efficient ones and achieve the same effect on your energy bills.

Been there, done that and still got money burning a hole in your pocket?

Lend it to your children so they can install double glazing etc. Ask them to pay you the rate of interest you would have got in a cash ISA - cheaper for them than a bank loan or a running credit card debt. You do no worse and they do better. It's called the Big Society. Remember, banks want you to save so that they can lend your money at higher rates of interest than they pay you. Cut out the middle man. Lend direct.

Ah, yes, but what about a Rainy Day? A Day will surely come when there will be a Big Bill to meet and for that I need Savings.

Suppose I grant the Rainy Day hypothesis even though it is usually a bogus argument advanced by mean people to justify hoarding money.

So I grant the hypothesis. Then I say that a business-like solution to the feared Rainy Day is to think like a business and ensure that you have lines of credit secured.

Lines of credit? Money you can borrow on demand but haven't actually borrowed.

Myself, I have these lines of credit:

My credit card limit
My overdraft limit
The overpayments on my mortgage which secure me an automatic draw-down facility

Cost of these lines of credit: Nil. In other words, I have a free Insurance Policy against a wide range of nasty events.

Some people insure against Nasty Events: their washing machine breaking down, their mobile phone being stolen, their house being burgled, dying ... They have a list of Standing Orders as long as your arm.

I have never denied that some people have got money to burn. Where would our insurance companies be without them?

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