2022 financial detox: Money, mental health and the silent killer

In the past two posts I’ve looked at how we can detox our finances and also help our physical bodies in the process.  But now I want to look at debt and its impact on our mental health.

To quote Dickens in David Copperfield:

“Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Charles Dickens, David Copperfield

The Money and Mental Health Policy Institute calls debt the silent killer. They estimate that more than 100,000 people attempt suicide every year because of outstanding arrears.

Anyone who’s ever had a debt that they struggle to repay knows all too well the burden it imposes on our waking and on what should be our sleeping hours. The Royal College of Psychiatrists estimate that one in two adults with debts has a mental health problem and one in four people with a mental health issue is also in debt. They observe that debt makes people feel depressed, anxious, guilty, hopeless, embarrassed to discuss their financial situation, and feel like everything is out of control. On the other side of the coin, creditors can behave in inappropriate and sometimes distressing ways when attempting to recover debts.

One immediate thing we can do for ourselves, wherever possible, is to reduce our debt burdens. If we manage to save money from the financial detox hacks I set out in the previous two posts – unsubscribing from online retailers and monetising a dry, a Deliveroo-free, or flexitarian January, we can deploy some of the savings we make to reduce our debt burden and the toll it takes on us.

To discover more ways we can master our finances so they do not master us, have a read of my book, 10 Things Everyone Needs to Know About Money.

2022 financial detox: Monetising dry January.

We’re all familiar with the mantra healthy body, healthy mind, but how about healthier body, healthier bank account?

I try to recalibrate my relationship with alcohol most Januarys. I don’t eliminate it but I cut back. Whether you drink at home or go out, alcohol is expensive unless you go for the real gut rot and that’s costly in other ways. The government raises billions every year taxing the stuff which is both useful for it and also in theory acts as a bit of a deterrent although I’m not convinced. But if we do cut back, we do a reverse double whammy of Christmas and New Year – we might lose a few physical pounds and add a few more to our bank account. If we can dilute what is for many of us the pain of foregoing a glass of wine with the pleasure of some extra pounds in our bank accounts then that is a good offset and might just help incentivise us.

For some the issue isn’t dry January. It might be an JustEat or Deliveroo-free January. I never use those in the country because they don’t exist where I live, but if I stay in London, thanks to one of my sons, I have discovered JustEat and Deliveroo and they are angels and demons all in one. I wrote about temptation in my post yesterday when it comes to online offerings of clothes, shoes, and stuff that we really don’t need. I would add delivered meals to this same category. If we can do without them again we’re likely to benefit by saving money and also probably not eating as much. If we prepare and cook food ourselves, we’re much less likely to over-provision.

Another thing I’m trying this January is to eat more vegetarian food. It’s lighter on the stomach and on the wallet. Lentils anyone? I promise all the sceptics out there, my husband included, imaginatively-cooked lentils can be delicious.

Again I’ll be interested to have a look at my bank account at the end of the month and see how much of a difference cutting back on alcohol, flexitarianism and home cooking make.

Tomorrow I’ll share ideas on what to do with the money we save. Let me know if there’s anything you might be planning to give up for January or cut back on and how much that might save you.

If you’re interested in reading more about how we can master money so that it does not master us then check out my book, 10 Things Everyone Needs to Know About Money, available here.

What financial thriller writers can teach the lawmakers.

Time machines, asking your grandmother and insider trading.

I’ve written in earlier posts about the gains you would make if you travelled back in time and asked your great great grandmother to invest for you in 1900. In the more recent era, you could ask your grandmother, your parents, or your younger self to invest for you. Armed with hindsight, you might pick Apple and Amazon, Microsoft and Google, Facebook etc. Forewarned, you would avoid all those failed companies whose names we have long since forgotten.

But here the law of unintended consequence might kick in. Your stellar investing record might come to the attention of the authorities. How is it possible that you have picked only winners and the gold medal winners in the stock market race at that? But the authorities could not possibly prosecute you. The law has not been framed around the possibility of time travel. Yet! The SEC are ruthless, aggressive and punctilious, quite rightly, but even they haven’t added that breach to their arsenal yet.

It just goes to highlight something I have long known. It is less the case now than it was when I first set foot in a corporate finance department of a large US investment bank several decades ago. Back then, those who conceptually broke the law morally /ethically were often not breaking it in fact because the law hadn’t yet been couched to encompass the imagination of the transgressor. Note to all the lawmakers out there: just ask a financial thriller writer what people might be getting up to before you frame updates to financial services laws… I hasten to add that I was not breaking the law either in fact or ethically but I did dream up some humdinging financial crimes.

If you fancy some summer reading about financial shenanigans rich in adventure, derring do and double-dealing, then look no further than my back list, starting with the global bestseller, Nest of Vipers.

Happy reading!

Why carpe diem beats carpe tomorrow

Time and money – when is the best time to invest in the stock market?

All of my missions as set out in my book, 10 Things Everyone Needs to Know About Money, and elsewhere in blog posts, is to persuade people to put some of their savings into long-term stock market investments. Then people ask me: When should I do this? They might say: Do you think next month or after the summer or the beginning of the year or the beginning of the tax year…

I can’t answer that with any degree of certainty about what exactly the markets will be doing at those times. Nobody can answer that with anything other than an opinion that can be on the spectrum from pure guesswork to well inform. It remains an opinion. Not fact.

In the absence of fact, the best we can say is sooner is better than later. In principle, today is better than tomorrow. Yes the markets might dip tomorrow and it might have been a better buying opportunity. Yes the markets might still be down in a year’s time, but, history suggests (see my earlier post on your great great grandmother) they will not be down in 10 years’ time. Plus, in the meantime, you would have been receiving dividends which if you reinvest will compound nicely.

Many people are put off by trying to time the perfect investment. This is where perfection is the enemy of achievement. Where good enough beats perfect. Lessons in psychology teach us that the quest for perfection is paralyzing. The old investors’ axiom says it best: “time in the market beats timing the market.”

Carpe diem, my friends.

Why it pays to invest in the stock market.

Get into your time machine, travel back and ask your great-great grandmother to invest for you.

According to the Credit Suisse Global Investment Returns Yearbook, if your great-great-grandmother had invested one dollar in the US stock market in 1900, that would be worth just under $70,000 by the end of 2019, or $40,000 if you stripped out the effect of inflation (which increased by 3000% over that period.) In the UK if your great-great-grandmother had invested a pound in the UK stock market in 1900, that would be worth just under £40,000 in 2020. To invert that, £40,000 today, would have been worth £572 back in 1900. That is the power of long-term equity market investments.

You may say that actually you don’t have 120 years to play with but luckily you don’t need that long. The same Credit Suisse report reveals that over the past 120 years in the USA equities increased in value on average by 9.7% every year, and, if you strip out inflation, by 6.6% p.a. In the UK equities did almost as well increasing on average by 9.1% every year and adjusted for inflation 5.4% per year.

The average stock market return for a 10 year period is 9.2% according to Goldman Sachs analysing data over the past 140 years in the UK. The Standard and Poor 500 has done slightly better with an average annual return of 13.6%. This emphasises how important it is to keep your money in the market ideally for over 10 years.

We don’t have a time machine, but we do have today.

You can read more investment strategy in my book, 10 Things Everyone Needs to Know About Money.

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Time and money – the secrets of Robinson Crusoe investing

In earlier posts in my time and money series I talk about investing in the stock market for the long-term, ideally for over 10 years but certainly for over 5 years so that you can ride out gyrations in the markets and allow the magic of compounding to work.

Stick your investment away, select automatic reinvestment of all dividends to supercharge the compounding effect, and forget about it. This is known as the Robinson Crusoe approach. Invest money in anticipation of being marooned for years on a desert island with no electronic devices. Whilst you’re stranded your investment can do its own thing and grow, unimpeded, for you. And, if you invest in the UK via an ISA, gains and dividend reinvestments are tax-free. You don’t even need to trouble your island idyll by worrying about the taxman.

You can read about this and other investing strategies in my book, 10 Things Everyone Needs to Know About Money.

Why your time isn’t free.

A member of the Bank of England monetary policy committee, Gertjan Vliege, has mooted raising the state retirement age to stimulate the economy, citing as justification the fact that traditional policies have little manoeuvre-room since interest rates are already at historic low levels.

This poses the question – are we really worker bees whose job it is to stimulate the economy, as if the economy were a ravening beast that perpetually needs to be fed? And perpetually wants more…?

Yes, I get that it generates wealth which benefits or should benefit all of us but… where is the work life balance here?

Maybe the retirement age will be raised. I hope it is not and I hope that if it were to be raised, it were not done in the way that has impoverished millions of women who saw their threshold rise from 60 to 65 but who had not had adequate time to prepare.
So what can we do about it?

  1. Plan our own self-funded pension. Whether or not our retirement age is raised this will stand us in good stead, especially since many of us will enjoy the high-order problem of increased life expectancy compared to previous generations.
  2. Increase our workplace pension to its maximum levels.
  3. Invest wisely so that we can amass a capital sum which will provide dividend income and/or capital drawdown to feather our older age.

To do either of these latter two things we will need to invest in a more aggressive portfolio than standard retirement planning advocates, which will vary depending on how close to retirement we might be.

What this means is more equities, more alternatives and fewer bonds.

Beware the risks of reckless conservativism a.k.a. going broke slowly where the avoidance of risks associated with equities and alternatives consigns us to a future where our capital sum in cash is eroded by inflation and is in no way protected by the paltry returns on cash.

You can read more about how to invest and the perils of reckless conservativism in my book 10 Things Everyone Needs to Know About Money. [Discover it at bit.ly/10thingsmoney]

Let’s hope retirement age is not raised. Let’s hope we get to choose when we scale back. The more proactive we can be now, the greater will be our freedom of choice. Time isn’t free. To amass the means to pay for it when the time comes, we need to act now.

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Investing and survivor bias

Money, time, investing and survivor bias.   What time travel could teach us.

‘Oh’ we might say to ourselves, ‘if only we could travel back in time and buy Apple and Amazon, Microsoft and Google, Facebook and so on.”  

But, for every Apple and Amazon there are a hundred names that none of us have ever heard, or could ever remember. The companies who didn’t make it and who have been consigned to the dump of history.  

This is known as “survivor bias.”  You remember the survivors but not those doomed to Darwinian death. This can give us a false sense of the promise offered by stock market investing, let alone early-stage investment, venture capital or angel finance.  

Back in time, antiquity all around

If we are going to do any of the above, and I personally do all of them, it would be as well that we disentomb these failures and recite their names in the same wistful breath as we intone those oh so conspicuous survivors who could have made our fortunes a million, a billion, or even a trillion times over. And let’s not even start on Bitcoin.

The moral of the story? Picking winners is supremely difficult unless you have a time machine, unless it is your full time job and even then it remains supremely difficult.

In the absence of a time machine or professional career as an investor, the best you can do is to pick a diversified fund. The old do not put all your eggs in one basket adage. Most of my Investment Portfolio is in such diversified funds. Individual stocks, venture capital and angel finance make up a small percentage of my portfolio.  

You can read more investment strategy in my book, 10 Things Everyone Needs to Know About Money.

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Money and time

What would you pack in your time machine to travel back and also possibly forward in time?

In the UK, 97% of our money exists only as squiggles on a computer screen. Governments effectively wave the magic wand of belief to give value to otherwise worthless pieces of paper and metal, and in another step removed, to their electronic incarnations, in what is akin to the biggest confidence trick of all time. Think of this as financial abracadabra.

Without the magic spell of belief, fiat money is worthless. If we travelled back in time to the 18th century armed with one of our twenty-pound notes and a debit card and attempted to buy a pail of milk, we’d likely be thrown in the stocks and pelted with potatoes. The note and the card would be useless because they’d have no context: neither king, government nor citizens would recognise them. No one would believe in them and this lack of belief would render them worthless. And as for the Swedes with their payment-enabled embedded microchips, paying for public transport with a wand-like wave of their hands, they’d likely be burned at the stake.

But if we took back a few gold coins, we’d be received with glad cries because gold is a recognised, useful and coveted commodity. Everyone in 18th Century Britain would know all about gold, they’d all believe it could be used to buy goods and services as well as to make valuable jewellery.

So thinking of what we might arm ourselves with, what we might pack in our time machine, can give us insights into the value that humankind has placed and may continue to place on different asset classes. Find out more in my latest book: discover it at bit.ly/10thingsmoney

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Are your finances beach-holiday ready?

Ad agencies know better than to use that loathsome expression to exhort us to contort, distort and “ought“ our body into their conception of how it should look.
That was more about the superficialities in buying whatever product they were flogging than about our underlying health anyway.

I’ve come up with an alternative:

How to get our finances beach-holiday ready.

But we can return to the analogy. This is not a question of deprivation, punishment and then binge. It’s more about balance throughout the year, mindful spending, mindful investing and mindful saving. It’s about consciously avoiding loathsome comparisons, whether about our body, what we clothe it in or what home /holiday /vehicular backdrops we choose or don’t choose for our social media shots.

So how do we get our finances holiday-ready?

First off, set a realistic bar. Resist social spending, keeping up with the Joneses. This holiday is for you not for your platform.

Once you’ve set your bar and given yourself a goal, you’ve taken the first decisive step as the act of having a goal will help us achieve it. There’s a ton of research to show that saving towards a specific goal is much more effective than just random saving (although that’s good as well!)

Next, in terms of reaching that bar, think step-by-step. Try and maintain balance, not depriving yourself excessively which can actually set you up for binge-spending.

One way of increasing a holiday budget very simply is to have a “sinking fund” where we transfer money out of our monthly income into a dedicated bank account. That is great but I would not let it sit in that bank account unless you’re going to use it within the year. If you’re planning for holidays in several years then take money from that dedicated bank account and invest every month in the stock market, via an ISA if you haven’t already hit your £20,000 annual upper limit. [Have a read of my book for different stock market investment strategies and time horizons: discover it at bit.ly/10thingsmoney .]

This also has the advantage of what is called “pound cost averaging.” This is where you are not attempting to time the market by picking the perfect moment but just steadily investing month by month and riding out the shorter term gyrations while taking advantage of periodic market dips.

In this way, you can plan for holidays in years to come by putting your savings to work, not just amassing cash in the bank where its value will be eroded over time by inflation. And yes, gyrations in stock market values can also erode the value of your savings which is why you might want to split them into cash saved for next year’s holiday and cash invested in the stock market or in “alternatives” for holidays in five years’ time.

Another way of saving for future holidays is via “alternatives” like casked whisky or fine wine or coins. Any increase in the value of these assets over time has the advantage of being free of capital gains tax as they are classed as “wasting assets.”
Saving coupled with investing in this way gives our holiday budget a positive double whammy in helping us to live within our means and making our means go further.

That, my friends, is how we get our finances beach–holiday ready or mountain-holiday ready or spa-holiday ready or whatever you have in mind.

Happy holiday!

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