How You Spend vs. Sacrifice

Kirstie Allsopp recently penned an article titled Getting on the property ladder has never been easy. In summary, she argues that “young first-time buyers (FTBs) are losing the concept that they need to make sacrifices to get on the property ladder”. There’s no doubt that I agree you can’t do every thing to your heart’s desire and at the same time save for a deposit on a property. A lot of her arguments fail to recognise issues faced by many young FTBs today for example, she argues that FTBs want to go to university but nowadays if you don’t have a degree you will seriously limit your earning potential. Going to university wasn’t the norm when she was younger. I could spend this article talking about all the ways in which FTBs are suffering and not because they don’t understand ‘sacrifice’, but that would be in no way productive if like me, you’re in the same situation of struggling to get on the property ladder.

As a young FTB, I’ve been saving for the last 10 years (pretty much since my first official part-time job in retail) and I still don’t see myself purchasing a property for at least another couple of years. I hope to buy a property on my own (no bank of mum and dad and no windfall expected) but in reality I will need to go in with a partner or sibling. To Allsopp’s point, I did attend university in Central London and have lived in London for the past seven years (except for a year abroad four years ago). I also did some expensive travelling when I finished university.

I’ve sat and complained to my peers about the current property situation but a year later I’m still not much closer to my dream. It’s clear that I need to speed up the process by making further sacrifices or cutbacks. I’ve decided to take another look at my spending, cut back and set more aggressive targets for my savings.

Going through a spending prioritisation exercise may sound tiresome but it can also be incredibly insightful. The exercise forces you to look critically at an area of your life that can make the greatest difference to how quickly you achieve your goals.

How to Carry Out Your Prioritisation Exercise:

NB: If you’ve never tracked your spending, you won’t be able to do this. So your first step is to start tracking everything you spend money on.

1. Look at your current spending patterns

Look at all your categories of spending for the last year and month (avoid anything less than a month as I’d argue there isn’t enough detail to give you a true picture of your spending patterns)

2. Identify the hot spots

Identify the hot spots where you’ve spent the most amount of money

3. Pick one category

Ask yourself honestly whether you can change this expense. Quite often your rent or council tax is the highest expense but is quite rigid as you may have signed agreement to pay a certain rate for a year or more. For this exercise, I noticed that I spent a lot of groceries and eating out.

4. Create a cut back plan

Once you’ve decided the expense you’d like to target think about how you can reduce it. Although I focus on the element of sacrifice, I do not think it’s wise to go too far with this. If food is also your category of choice, think carefully about compromising on higher quality food. I buy mostly organic produce from a farm as investing in my food choice has an impact on my health. Good health affects my productivity and overall happiness so it’s not an easy thing to change. What I recognised is that I don’t ‘need’ to eat meat/fish/both every day of the week. Having a vegetarian day two or three times a week can significantly reduce my food spending. It’s easy to say that you’re going to eat 10p instant noodles everyday so that you can save money but consider the negative impact on your health – it’s one of the few things in life that you cannot replace or purchase.

5. Create an electronic contract…and stick to it

Once I’ve decided this, I use my budget spread sheet to spread out my funds across the next few months to help ingrain this new pattern of spending. If I can see it in my spread sheet, I know that it’s accounted for and it also acts as an electronic contract to myself.

If you can go through this exercise every few months, you’ll see a change in your spending and saving patterns. It’s important to remember that if you’ve cut back in one area it doesn’t mean the money you’ve saved should be spent on something else. Be diligent about taking the savings and investing them wisely to get your closer to your money goal.

Resist the temptation to reduce more than one spending category at a time. Focus on the one change and track your progress with this category before looking at anything else. Like a diet, if you cut everything you’ll make yourself miserable and will likely fall victim to a ‘binge’.

This year I’ve actively reduced my spending on eating out, groceries, alcohol and holidays abroad. What category are you going to work on?

*Image courtesy ofnokhoog_buchachon/