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My name is James and I have an overdraft.
Have times become so tough that Rich People's Problems needs to focus on the cost of living “crisis”? The answer is simple: Yes.
Inflation is over 10%. More than four-fifths of UK adults are worried about the cost of everyday living, according to a PwC survey. And can you blame them, as food prices rose 16.7% last year, according to a Kantar survey?
According to the Resolution Foundation, a think tank, the top 5% of the country's wealthiest people are getting richer. But the study doesn't take into account wealth tied up in non-income-producing real estate or the costs of maintaining a home. So unless you're super-rich or have locked in a profit from selling property, things aren't all rosy for many people.
If you can't park your money in a tax haven, your tax bill goes up. If you don't have a ton of money in savings, your debt becomes more expensive. Almost everything's bill is rising. And sadly, while Waitrose is trying to keep the prices of essentials down, it's stopped short of capping the prices of the things you should really buy there, like quail eggs, smoked salmon and good sparkling wine.
Yes, you can hear the little violin, but you're short on money. You have cash flow problems and need urgent action. The question is, what measures should you take? And where do you start if you want to radically reduce your personal expenses?
I could make a spreadsheet of my spending, but I'd rather eat my own toenails. Life is too short and I don't want to face what I'm actually doing with my money. For example, last week I spent £72 on chocolates at Alain Ducasse. All I bought were little bags of sweets – a box of 16 pieces and weighing 150 grams. That's £26. You can get a bag of Nestle Munchies (which are pretty much the same) for £1.99. But luxury costs money. Plus, you can't use your savings to pay for a Valentine's Day gift, right?
We've tried turning the heating down and switching off the Aga and pool heating. But our gas bill, which was just over £2,000 in 2021, has risen to £5,700 in 2022. We don't know what our electricity bill will be. Our relatively small mortgage payment has doubled. Thankfully, interest rates were fixed before Liz Truss and the Bank of England made mortgage costs skyrocket last year. But we have no free cash to pay down our debts. Insurance costs for domestic and international property and car have risen by 40 per cent.
Meanwhile household expenses continue to rise. The fence in my garden has become so badly damaged that a neighbour has to mow it for me – they were quoted a cost of £7,200. The car needs maintenance, the cleaner has asked for a pay rise, broadband, mobile and streaming TV costs have gone up – the list is endless.
I am asset rich but cash poor. I am making more money than I did last year, and not because my employer raised my salary, by the way. I am working harder. But it's still not enough. My bank account is like an old refrigerator full of stale vegetables, expired condiments, and leftover food that you would despairingly never eat. It needs replenishing.
Things were at their worst last week when my usual treat of an ATM was refused a withdrawal. This was partly because one of my employers decided that payments this month were not essential, but also because HM Revenue & Customs depleted my assets a few weeks ago. Ugh.
You can cash out some assets. But that's like putting a bandaid on a big wound. After all, if you don't want your assets to decrease over time, you need income to cover your expenses. Dramatic changes in the cost of your everyday activities mean a change in approach is needed.
It's about something more fundamental than curbing your Deliveroo habit, buying Nike trainers instead of Balenciaga or Burberry, or cutting back on where you eat out. Last week I took some friends out for lunch at our favourite club. After spending £300, a delicious lunch and a few glasses of sparkling wine, I decided that maybe it was finally time to save. But why should I save? I'm not a student and have little interest in satisfying my dining pleasures with “going to Nando's”.
And then there's the illusion of retirement. Last November I concluded I'd never be able to afford to retire. Jeremy Hunt, the Chancellor of the Exchequer, thinks we should work longer to get our state pension. The retirement age, currently 66, is set to rise to 67 in 2028. It's due to be 68 in 2046. But ministers are seeking to bring it forward, affecting everyone currently aged 54 or under.
I don't plan on relying on a government pension when I retire, but it's useful to have an added savings. Especially since it looks like the government is going to cut private pension benefits and contributions. In any case, any surplus money is being used for current expenses, so any additions to my savings are on hold. Sigh. Clearly I'll be working forever.
Drastic measures are needed. Yes, cut back on spending, do your basic shopping at Aldi or Farm Foods to keep costs down, but don't go overboard. The other half is complaining: “Is it really so bad that we have to buy generic toilet paper?” Other drastic measures might include stopping buying sparkling wine for a while, at least until stocks are depleted to emergency levels. Maybe selling one of your cars. You'll get the capital it generates and reduce your running costs. But you can only sell an asset once.
Keynesianism does not work for personal finance. You can't spend or borrow your way out of a recession. You can't put it off any longer. It's time to start the engine of personal economic growth. Polishing your resume. Ditch the 4-day work week. Add another job to your portfolio. Good luck.
James Max is a television and radio presenter and real estate expert. Opinions expressed here are personal. Twitter: Follow
