Wednesday, 4 January 2017

Spend less, save more

Hello. While we are on the subject of money and budgeting, I'll continue along these lines. A question from one of our readers on yesterdays post.......

Sorry if this question is being nosey but I will be going into retirement with just the basic state pension and I was wondering how you have managed to build up savings to replace large items such as your car. I would like to have some savings as back up in case anything major needs replacing.

Hi, not nosey at all, it's a question everyone will be asking at some point in their lives. What happens when the wages stop and the pension starts? How will I manage? What I can't do is to advise on pensions. I happen to have a small private pension because the company I worked for at the time, around the mid 1980's, advised us all to pay into the company pension. I did so along with everyone else. I worked there for five years, and promptly forgot about it after I left, until about twenty odd years later. Luckily It was a large national transport company which was still in business, albeit under a different name. I must say, it was a nice surprise to find that out. 

It's inevitable that a persons income will be reduced on retirement, except for the very rich of course, but I am talking about ordinary working folk here. I don't know how far off your retirement is, but something you can do is to find out exactly how much pension you are likely to receive, and use that figure as a base line, and start living on that amount before you retire. Anything left over can be put away into a separate account to start your emergency fund. This will give you a head start and be a good challenge to prepare yourself for any changes you need to make. 

It would be a good idea to go through all your wants and needs, and to weed out anything that is in the wrong category. As I said before, wants and needs are subjective and exclusive to you. It stands to reason that you might have to modify your needs and shift some of them over to wants, because you will not be getting as much money coming into your bank account. 

Some of the things you have been used to buying might have to be dropped. Your lifestyle expectations, may have to be modified, you might have to lower your sights. Getting into a routine where you unconsciously open your purse, or click on an item that you want to buy from a web site, will be a hard habit to break. What you can do is delay buying something that you want, for 24 hours, then think again, and ask yourself do I really need it. 

I have collected a lot of stuff throughout my life, and I now find I don't need any more. What I already have will hopefully last me. There may be an instant where something packs up and will need replacing, but if it only looks a bit dated and it aint broke, I don't need a new one. 

Anyone who is coming up to retirement age needs to take stock of their lives. There will have to be some tightening of the belt, some deliberation on what they can do without. It's a bit like de cluttering, sorting out a cupboard or drawer. 

My goodness it sounds like a lot of doom and gloom, doesn't it. Can't afford this, can't afford that, have to stop going to dancing or gym, have to give up the weekly meal out, no more shopping trips to town. If you are in the mindset that you get pleasure out of spending money, you will struggle. You will be miserable, you will sit at home and feel sorry for yourself, skint, no money to spend. 

When you retire you will have less money, but you will be gaining a lot more time. Time is more precious, more valuable than money. Time lost will never be replaced. Look at this new chapter in your life as the time you start living, and a good life is not about how much money you have. You will have to modify your lifestyle choices, but you will have more time to enjoy life. 

Ooops, going away from the question here. How have I managed to build up savings to replace large items like a car? I keep a car for about 3 - 4 years. I will need to have around  £6,000 saved to buy the car I want. Over 3 - 4 years, that's doable. 

My thrifty and frugal living ensures that money builds up in the bank, because I don't spend it. Simple as that, I DON'T SPEND IT. I work out what I absolutely must pay for, then I work out if I can afford some treats, and what is left only gets spent when something needs replacing. I don't call it savings, it's an emergency fund. I don't have any long term savings. A year ago I needed a fridge freezer, I had the cash to pay for it. Coming up I have my car road tax and insurance to pay, the money is there waiting. 

Someone asked a question once on MSE, what do you do with any spare money? The answer is, no money is spare, it is all earmarked for something. 

I am disciplined enough to NOT SPEND any money left over. Another way of doing it would be to put aside money for emergencies as soon as it has been paid into your account. Squirrel it away somewhere, it is not for spending, save it for emergencies. 

I hope that has given you food for thought. Thanks for asking. Don't worry, you will manage. 

Thanks for popping in. We'll catch up soon.
Toodle pip

28 comments:

  1. Hi, I only receive the basic pension and found it took me up to now to get used to the very reduced amount I now get. I had enough savings to buy a small New car which has only £20 rfl, I have no debt, no mortgage and nothing on hp so being very careful I can afford to run my car (I use my free bus pass when possible), eat, heat my house when needed etc. Like you Ilona any money left is put into another account and left to pay annual bills, dentists, car stuff and if I'm careful a holiday (self catering). It does take time to adjust and I found it quite difficult by it is doable, and you can live a good life.

    As usual a very good post, all I can say is try to pay off your mortgage and debt before you retire as it certainly eases the worry of money reduction.
    JaneC

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  2. I too will have to manage on just my state pension, it's not going to be easy, but I will manage.

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    1. I think you will be OK Hester, your blog is an inspiration.

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  3. Excellent advice, and lines right up with our plans for retirement. We have always had a "live below your means" motto, but this year we are aiming at living on retirement income, even though retirement is four years away. This is a kind of trial run for us, so we can weed out any problems. It helps that we have had our mortgage paid off for a few years now, and that has enabled us to build up an emergency fund. Thanks for your common sense approach. Mary Jane in Canada.

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  4. I probably sound crackers! I actually took early retirement to improve our financial situation - even with less money coming in. Sounds odd I know but it's true. I worked full time in a job I despised, was always stressed and constantly juggling home life (3 kids) and work life. I stuck at it until the youngest had almost finished Uni (2 out of 3 kids went). My salary was used entirely for debts - we lived on hubby's wages for other things. I was able to get a small NHS pension at 50 so I took it. We used the lump sum to clear our debts and mortgage and now live on hubby's wage as we did before but without the added debts. With budgeting we live better than we ever have and on much less. It's helped that the 3 children have grown and flown the nest. We have 15 years to wait for our state pensions (at 67) but we will manage until then.

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  5. Hi Ilona, Thank you for replying to my question. I am 58 and thanks to the govt. raising the retirement age I've got 8 more years till I get a state pension. I would like to maybe retire when I am 62/63 if I can save enough to cover the years till I get a pension. I have a small amount of savings, no mortgage and no debt. I think I will try your suggestion of starting to live on the amount of my expected state pension. I also think I am going to keep a written record of what I spend my money on so that I can hopefully see where I can cut back. I took on an allotment last year so hopefully will be able to produce a fair amount of soft fruit and vegetables this year to keep the food budget down. Thanks again for the helpful advice, Hazel.

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  6. I always wonder when I listen to people talking about what they are going to buy or want to buy. A different planet. At Christmas an advert was showing normal festivities with champagne! Now, I might have a Puritan streak in me, but it's good to immerse yourself in activities that don't cost much or nothing at all. I've just started embroidery - got a bag of cheap threads from the charity shop (actually very good) and found some fabric, had a needle and got a hoop when I was in town. I like history and especially medieval history - i want to have a go to do some black work embroidery which came over with Katherine of Aragon when she came over to marry. Get my drift? If I watch anything on tv which takes my interest, I find out as much as I can about it. So, if the Brontes, read books, look through BBC iPlayer, visit their places etc. The iPlayer also has a scheme with the Open Uni and has lots of free courses. Works a treat. Natalie

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    1. Hi. I like your resourceful outlook on life. Learn new things, keep the mind occupied, and find hobbies that don't cost a lot of money.

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  7. Another inspirational post Ilona i go on my old age pension this year, but i will manage i am use to living frugally.

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  8. I am 46 I don't think you have any idea of how much you are helping me to think about the future. God bless you for being kind enough to share your life and your experiences as they are really knowledgble as no one ever talks about these things. I am always ill but am learning to stick to a budget and try to save. I would like to continue this for as long as I can. I really think I am changing my spending habits. I love your thread and Frugal Queen's.

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    1. Hi Kit. Thank you for your kind words. It is all about changing bad habits for good habits, and I am pleased you know the difference. I hope your illness is not causing you too many problems.

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  9. I just added Mindful 45 (on your recommended blogs list) to my favourites. It's always good to learn from people that think smart. Thank you.

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  10. What has really woken me up reading this post was the comment 'live on your pension rate now'; I won't get a state pension for 14 years at aged 67 (I'm not banking on this though, the age may well go up before then),I'm lucky not to pay rent or a mortgage and have a property that I can sell to buy a smaller one, and savings. But,the point is to try to manage on the income NOW so am prepared. I won't get anything but the state pension, so I'll work that out (the system changed this year) and see what I can do to be more frugal without dipping into the savings. A good challenge. Thanks Ilona, another handy tip. Amanda

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  11. I think this is very much the point, be prepared, and just begin to squirrel the cents and pennies Into a locked account because if the saving will have to start sometime, the sooner, the better and the more will be there when it is urgently needed, not just wanted!

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  12. I like your thinking, "don't spend it", sock it away for unplanned needs or emergencies.

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  13. Best advice ever! Oh and Ilona, thank you so much for the kind deed you have done for me. FITV.

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  14. Excellent advice from the last two posts which I've really enjoyed reading. I'm nowhere near as frugal as you but have no mortgage, no debts and am trying to build up my savings. I worry about living on a pension but reading your blog has made me realise that it can be done. I'm certainly looking forward to having more time to do the things I love. Kristel

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  15. Not doom and gloom at all. Just lots of excellent advice and a wonderful positive attitude. I find it sad when people talk about old age as if it's a communicable disease. It just happens to be the best time of one's life even though we're at the butt end of it. Today I read a great article on ESPN about a 105 year old French man who just set a record for his age group by riding a bicycle 14 miles in one hour. If you look at the picture that goes along with the article you'll see a wiry little guy with very muscular legs and arms which is highly unusual in older people, but especially one of his advanced years. He's acting like he's still a kid and maybe that's why he's so strong and healthy AND he lives on a pension of 940 euros a month! He's an inspiration and so are you Ilona. Great blog by a woman with a great attitude. Keep changing the world and the mindset of the people in it!

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  16. Sage advice and much appreciated. I've started a "Buy Nothing (except for food, utilities, cat care, car care) Year". I did a YS shop last night - got green beans reduced to 1p and potatoes for 5p plus other fantastic reductions. I want to keep this up and squirrel away all the money saved - I'm totally inspired by this post. Linda xx

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  17. 'Don't spend' and 'seperate your wants from your needs'this is gold advice, Ilona, if you practice it. I always try to keep it in mind. Thank you for that. Natalie's was great, too.

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  18. Ilona, this is a great post. I will make my hubby read it when he gets up. I frequently look at all the things I can live without but if he isn't willing to do it too then we need a serious chat. We are making plans right now to downsize and retire. It will be achieveable if we both work at it.... or not if we don't

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  19. We will be better off in retirement than we are with my husband working full time for the NHS. In addition we won't have housing costs then because the mortgage will be paid.Retirement holds no fears for us as we will feel like we have won the lottery!

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  20. God I wish my mother had half of your mindset Ilona!

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  21. I read you post last night, my husband would like to retire or reduce his hours before 67, in 8 years time so have started being more frugal and watching our spending. Today I was going for a coffee with my sister to our local retail village. Getting ready I thought I will pop into Clarks for a new handbag, I would really like a new one........then I thought about your last 2 posts, do I NEED ONE, no, would like but don't need. So that is a bit more money to save this month. Good advice Ilona. Regards Heather

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  22. This is a superb post. I am trying to live in less and build up the savings. Currently on a no spend month apart from essentials and realised I don't spend much anyway so it's not much different! 😀

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