Personal Beliefs on Savings, Debt and Money Management

Debt is a tricky subject because finance is such a personal thing. In our parent support group, some parents mentioned wanting to teach their children money management but felt unsure how to go about it. I find this challenging to participate in a group fully beyond the generic advice of save and invest. What should you save for? How much? When to not save? I believe there are obvious wrong ways, but no single best way since it depends on your objectives.

Before I go any further I want to reiterate there is no right and wrong opinions and beliefs. I write what I believe in without imposing on others to adapt mine. I'm just sharing what works for me and my family. Read no further if you have strong money beliefs.

For example, I don't believe in saving for my retirement, my child's university, or even for my parents old age. I believe in saving for a specific thing like a holiday or annual bill. Credit card is what rainy days are for. It doesn't make sense to earn less interest on your "saving for one day" at the same time putting your expenses on a credit card. You're literally paying the bank extra 10-15% each year and I bet most people's savings are less than their debt so nominally you're also paying much more in borrowing interest than receiving money in savings interest. According to stats UK household borrowing excluding mortgage is just over 1 year of annual income whereas household saving is just over 1 month!

So what's my suggestion? Don't save any money?

When I'm not saving for anything specific, I use the extra cash to pay off debt. Most of the time I don't have much cash left because I have pre-allocated it to POTS but one pot I have is called 'discretionary spending' where I put a small amount every month enough to buy a box of donuts or a decent meal when I get random cravings. When I don't spend that money or I get a little extra from work or birthday gifts I would put that towards my debt payment.

I've managed to pay off my credit card fully 3 times since I first got one when I was 18. The trick is to stay off it. Sometimes there's not enough in discretionary spending and there's at least 1 rainy day a year. Maybe there should be a pot for my personal rainy day...

My husband and I have slightly different financial beliefs and principles based on our different upbringing and self education. We manage our own finances separately and don't judge each other on what we do with our own money. As long as both are contributing equally to the joint expenses, that's enough.

When we first setup our household we used to practice listing EVERYTHING down that's spent on joint stuff and divided in two. It was tedious but that's how we both knew that it is genuinely equal. With the POTS system there's less of that because most joint expenses are already budgeted for.

Then there's joint discretionary spending. He would buy me coffees and snacks and I would pay for petrol or lunch when we go somewhere and we used to divide in two and transfer the balance who owes what to each other at the end of every weekend. Over time we realised that the amount we owe each other is about the same. Some months I owe him more, some months he owes me but the actual amount is about the same if you look over a year. We decided to stop counting every weekend because the admin was not worth the tiny difference in money. It comes down to trusting that one is not trying to take advantage of the other. It took us 15 years to get to this stage.

Money was a big factor when I was growing up. I have seen my mom struggled with her debts, my dad was the accountant: he kept journals of every single item purchased and his office cabinet was full of these journal books. I don't know why he never used a computer. I have experienced first hand how a typical suburban middle class family falls into homelessness, benefits, and working class. My teenage years was spent earning money to make my own immediate situation better: I bought my own clothes and paid my own phone bill since I started working when I was 14 because my dad didn't have enough money for these "unessentials". I learnt about money management, investment, financial freedom, and was determined to not end up in the same fate as my parents who lost everything, literally everything, and had to start over in their 40s.

I have seen enough couples argue about "I spend on this so you should spend on that" and "why should I spend this much when we can get it for that much" and various versions of 'fairness'.

Since fairness is important, start by making spending transparent and divided into two. When its written down, any surprising expenses can be discussed and yes, sometimes there are heated discussions on me spending on a joint item where my husband doesn't agree with it but he has to pay 50% of the bill. We live and learn to see where each others' boundaries lie and for better or worse, we have these discussions on a monthly basis. Quick tip: best to do at the beginning of the month when you both just had salary and can adjust some spending instead of having this discussion at the end of the month where its usually tight.

More money doesn't solve money problems. More money management solves money problems.

It can be uncomfortable to discuss every month, especially during times where with better judgement and hindsight, I knew I made a spending decision where my husband won't necessarily agree. I'm knew that I'm going to have to justify it, apologise and recommend another way so that the same surprise doesn't happen again.

Eat that frog and face your fears anyway. After nearly 20 years of being together I still feel shame whenever I made mistakes like this. The voice in my head shaming me and says things like "I'm not good with money" or "I can't be trusted to manage money properly".

But you can't run away from truth. The uncomfortable conversations can happen now in a structured, controlled environment like a regular monthly finance meeting or it can rear its ugly head during argument about something minor that turned major because both sides have unfestered resentment and shame.

How about if you and your partner have different ethics towards debt? My dad, for instance, doesn't plan to pay off his credit card debt in full before he dies, he admitted this to me. I was so shocked when I heard it and he told me frankly that he couldn't afford to pay it off anyway. He is retired and plans to use his retirement money to just pay the minimum until he passes because he knows it's an unsecured loan. If he passes away with credit card debt, there's nothing more the credit card companies can do.

Some people borrow from friends or family with no plan to repay, or they intend to but haven’t figured out how. Others consolidate their debt and pay it off bit by bit. That does work if you can reduce the feeling of ‘want’. No point paying off $100 to spend $100 on something else. Reducing want is a whole other topic though... which is gonna need its own post.