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Don’t worry, buy that frappé

Review your spending, but don’t feel guilty about buying fancy coffees.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

How many times have you read about habitual regular spending and the example given is about buying fancy coffee?

It usually goes something like this.

If every weekday you go to a café and buy a latte for £2.70, after 250 days (roughly the working days in a year) that’s £675. That’s a fair chunk of change that some might argue you could’ve put to better use elsewhere.

It would then go on to say, if you invested that amount every year and achieved 5% growth, after annual charges of 1.25%, you’d have £8,147 after ten years.

Remember this is just an example, actual performance would depend on the underlying investments you choose. This doesn’t factor in inflation which can erode the value of money over time. Investments can fall as well as rise in value so you could get back less than you invest.

But for the last year, one of the few retail habits I could indulge in was a flat white on my daily lockdown walk. Yes, there was instant coffee back home. But the stuff at home isn’t always as good.

I don’t feel guilty.

Our personal finances are personal. You might need a fancy coffee to get through your day, or you might not drink a lot of coffee.

Either way, it’s not helpful to just say “stop drinking coffee”. You decide what you spend your money on.

What’s important with this example and others like it is that small purchases can over time add up to large amounts. That’s the valuable lesson.

If your expenses were just rent/mortgage, basic food, taxes and bills, life would be dull.

But it’s always worth questioning what you’re happy to spend. And see if you can make any savings that you can put to better use.

This article isn’t personal advice. If you’re not sure if a course of action is right for you, ask for financial advice.

How to review your spending

We’ve all formed new spending habits over the last year.

And with restrictions easing, how do we keep up the good habits and rethink the bad?

It soon adds up.

Here are 3 questions you should ask when you review your spending:

1. What am I spending every month?

Draw up a list of your regular monthly outgoings to see what you’re spending.

It’s good to look at your direct debits to find anything lurking there that you no longer want. But it’s best to look at all your bank transactions as lots of subscriptions like Netflix or Spotify are now paid by debit or credit card payment. And you’ll also spend regularly on your own.

Create a table to mark down your outgoings.

It might be useful to put it all in a table with what you need, want and what you feel you might be spending too much on or is completely unnecessary. The more you cut back on, the more you might save. And some might need to be more disciplined than others.

But remember it’s your choice and you should be comfortable with any changes you make and regularly review them to make sure they are right for your needs.

It can also help to be open with partners or family members to discuss your views, goals and provide a sounding board for your decisions.

You might find our budget calculator useful in reviewing your spending.

2. Can I get a better deal?

It’s tough to give up stuff to try and save money. And you can feel like you’re missing out on something if you do. It can be a lot of effort for little immediate reward.

There are some things where it’s worth a bit of effort to get a better deal. And you’re not giving something up, just getting a better price.

Car insurance is an easy one, sometimes renegotiating or shopping around can save hundreds of pounds.

Also, it’s worth looking at your utilities. Your lights aren’t any brighter or dimmer or your hob less effective at cooking pasta if you choose another supplier.

There are lots of comparison sites to help find better prices on these things.

Even if you decide to stick with the product or service you’re already getting, it’s worth questioning. There might be a reason why you picked it in the first place, like customer service or ethics.

3. What do I do with what I have left?

Once you’ve worked out what money you’ve got left over most months, you can start to work out what to do with that money.

The best course of action will depend on your circumstances.

How much cash you should think about saving


Explore our Investment Times spring 2021 edition for more articles like this.

See all articles

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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