Читать книгу Love Is Not Enough: A Smart Woman’s Guide to Money - Merryn Webb Somerset - Страница 8

Why is it that you never seem to have quite enough cash? Where does all your money go? The answer isn’t that far away. Look in every cupboard in the house and rummage around under the bed. Then take out and collect together every piece of clothing you’ve worn once or never, every pair of shoes you have ever bought in the sales that doesn’t quite fit, every kitchen utensil you’ve never used or used just once (this includes the juicer and the sandwich toaster) and every piece of specialist equipment that has been gathering dust since you decided your new hobby wasn’t much fun after all. Get out your calculator and add up how much you think they all cost. Now you can probably see where a lot of the money went.

£ 851: the value of the possessions the average British woman carries with her. This includes clothes, mobile phones, MP3 players and so on (Zurich Insurance).

£ 13,000: the average value of the clothes the average UK woman has bought but never worn (Prudential).

£ 2,900: the value of the average student’s electronic goods (Direct Line).

£ 36.6 billion: total sales of clothing in the UK in 2004.

What’s the point in making all the effort we do to make money if, instead of making it work for us properly, we then just waste it?

Because that’s exactly what most of us do. Sixty-three per cent of women confess that they have often bought clothes on sale that they have never worn; 56% say they have bought shoes and 42% toiletries they have never used. They also say that on average they wear only about half the clothes in their wardrobe regularly and, worst of all, nearly 8% of them say that they have never worn the most expensive thing they have bought. On average we buy £13,000 worth of clothes that we never wear over a lifetime, something that makes a hefty contribution to the £69,000 that research from the Pru says we all waste in the average 40-year working life. That’s enough to pay council tax for each household in Britain four times over every year or to pay for a really substantial asset each (£69,000 would buy you a perfectly nice holiday home in Croatia, for example).

A third of us have bought books we have never read or kitchen equipment we have never used, a quarter of us have bought DVDs we have never watched or CDs we have never listened to. And it doesn’t seem to matter what stage of life we are at, we all buy endless amounts of stuff. It wasn’t very long ago that students who owned their own toasters thought themselves pretty well off. Today, according to a survey from Direct Line, the average student owns nearly £3,000 worth of electrical goods. Two-thirds have a laptop (which is probably fair enough) and one in eight has a widescreen TV of their own (which probably isn’t). In August 2006 a magazine survey showed that young women were some of the worst binge spenders of all: four out of five said they spent more than they earned every month and those between 21 and 24 had an average of nearly £4,000 in credit card debt. All this spending leads us into a terrible trap. The more we spend the more we need to earn to maintain our lifestyles, particularly if we are using debt to spend. This eats away at our freedom: we have to stay in jobs we hate just to keep the income coming in to pay for the clothes and TVs that, truth be told, we never needed in the first place.

“I love shopping. It’s like a little present to me.”

Lisa Snowdon

The obvious question – and the one our grandmothers always ask – is why on earth do we buy all this stuff? The answer isn’t a good one. We do it because we have allowed ourselves to be conned into believing both that we need it and that it will make us happier. For most of human history the average person hasn’t had enough of anything. Until very recently our main problems centred on getting enough to eat and drink and not getting too wet or cold. But in the last 100 years things have changed so much that in the West at least we now have too much of everything. The corporate and public sectors between them have provided us with housing, clothing, healthcare, food and entertainment. We don’t actually need anything else.

But companies still have to make profits and the only way they can do so is to persuade us that we need more – in the fashion world they can’t just shut up shop because you already have ten dresses. So every ‘season’ manufacturers change things. They produce new styles, new colours, new combinations and new materials. Then they spend millions advertising, marketing and sucking up to fashion journalists to get the details of their new ‘must-have’ look out there. Marketeers know we aren’t entirely happy (who is?) and that leaves a huge opening for them to push goods that appeal to our emotional needs. These days they separate us from our money by promising us that if we improve our ‘lifestyles’ – by buying the stuff they are offering us – we will somehow improve our lives too: that having a pair of £100 jeans will make us happier than a £4 pair; that carrying a £500 handbag as seen on Sienna Miller will provide more life enhancement than a £20 one from Oasis; that spa breaks and £50 bottles of body lotion will make us more beautiful; and that buying brand-new skis will make us better at skiing, and expensive DIY tools make our houses significantly more attractive. In 2005 there was even the launch of a magazine called Happy, devoted entirely to shopping, with a cover line ‘300 great buys to make everyone love you’. The magazine – which is still being published – represented the propagation of the great marketing lie: that owning things, and particularly expensive things, will in itself bring you a sense of well-being.

All this works. Fifty per cent of those asked by a Vogue survey in 2005 said that the brand image was one of their major shopping influences when it comes to clothes and 60% said the same of beauty products; 85% said they bought not ordinary skincare products but ‘premium skincare products’, while 64% agreed that Vogue had the ‘ability to make products more desirable’.’ And just look at the reaction of Style magazine to the news that the average woman spends nearly £100,000 on clothes in a lifetime. ‘Who cares,’ wrote one of their regular columnists, it’s worth it. ‘When it comes to shopping … the normal rules don’t apply.’ She’s not alone in thinking this. Glamour magazine last year ran a little piece about a woman looking for a boyfriend. The journalist asked her how she was going to go about it. Her answer? She’s going to splash out on a Caribbean holiday so she has an all-over tan, have her hair done at Nicky Clarke, buy all her cosmetics at Carita, her lingerie from upmarket underwear shop Myla and her clothes (£500 worth a month despite the fact that she takes home pay of only around £1,300 a month) from upmarket designer Paul and Joe. This makes no sense. Most men have never heard of Paul and Joe and while the label makes lovely clothes they aren’t going to make her look much nicer than Topshop stuff. Nor will knickers from Myla. Oh, and the sun shines in places other than the Caribbean. This woman might end up with a boyfriend (although he’d have to be a very tolerant one) but it won’t be because of her Carita face cream. And she’d better hope he’s a generous boyfriend because she’s always going to be broke.

The fact is that normal rules do apply. They always apply Spending money should not be thought of as an emotional experience. Falling in love is an emotional experience; having a baby is an emotional experience; attending your best friend’s wedding is an emotional experience; buying a handbag simply is not.

“I like my money right where I can see it – hanging in my closet.”

Carrie Bradshaw, Sex and the City

If you aren’t happy with your weight, with your job or with your relationship, no number of dresses will cheer you up for long; a £1,000 weekend at a spa will do you no more good than a lie-in and a walk in the park, and if you’re getting old a £100 pot of wrinkle cream will no more make you young again than a jar of cold cream. Instead it will just make you feel slightly disappointed, pushing you back to the shops to search for something new to cheer yourself up. Women often say that they feel moments of ‘joy’ as they make new purchases. Why? Because for that moment they genuinely believe that what they have bought will make their lives better. But they quickly see that it has not and the joy goes – it is a very fleeting feeling, to say nothing of an expensive one. The moment you have something you start getting used to having it and the joy you find in it starts declining. New shoes make you happy for a few days but after several wearings they’re not all that new any more. To be happy you find that you need another pair. It is the same for handbags and jeans.

It’s also worth pointing out that it’s not just expensive stuff we’ve been conned into buying too much of. When advertisers aren’t using the ‘improve your life’ line to sell us stuff, they’re using the ‘it’s so cheap you’d be mad not to’ line instead. Over the last decade the big business success story has been the rise and rise of the discount store – the likes of Matalan and Primark for clothes and Lidl and Aldi for food. I’ve nothing against discount stores – low prices are obviously a good thing – but when prices are cheap we tend to buy more than we would have otherwise and end up spending more money in total. We think we are saving when we buy jeans at £4 and if we needed jeans anyway we probably are. But if we didn’t intend to buy jeans and only did so because they were so cheap and then bought three pairs for ourselves and one pair each for our sisters as well, we are not saving, we are spending: £4 spent is £4 not saved.

We now buy twice as many clothes as we did a decade ago for the simple reason that they are cheap. In 2004 clothing sales in the UK were worth a total of £36.6 billion, 19% more than in 2000. Around £9.5 billion went on men’s clothes and £6.6 billion on children’s clothes. The rest – a massive £20.5 billion – was spent on women’s clothes. We also travel at least twice as much as we used to. Back when it cost £400 to go to Paris people didn’t go very often. Now it costs £29.99 to fly there on a discount airline we go at the drop of a hat. Then when we get there we stay in a hotel, go out for dinner and buy souvenirs. The same is true of electronic goods. We don’t buy just one television or DVD player. No, at £29.99 each we don’t see why we shouldn’t have one in every room and a digital radio or two thrown in for good measure. It all adds up to a lot of money being spent that would never have been spent a decade ago. How much have you bought in the last six months that you don’t need? Find a credit card statement from a few months ago and have a look at it. How many of the things you paid for with your card can you remember ever having or do you still have? Were they really worth buying or would you now rather have the cash in hand?

Shoes and handbags

My friend Nick once asked me why on earth it is that women spend so much money on handbags and shoes. A man, he said, only needs three pairs of shoes – one for wearing with work clothes, one for wearing with casual clothes and one for playing sport. Yet every woman he had ever known appeared to need upwards of 20 pairs. Indeed a survey from Harper’s Bazaar in 2006 interviewed 1,000 women and found that half of them owned over 30 pairs of shoes and one in ten owned 100 pairs. One in ten also admitted to spending £1,000-plus a year on shoes. The right shoes, said the editor of the magazine, ‘can turn you from the girl next door into a sex goddess in seconds’. Nick found handbags even more bemusing. Men, he said, don’t need them at all; they just carry money and door keys in their pockets. So why do women need to have so many bags? Indeed why do they need them at all?

A few days later he came back to me. He’d figured it out, he said. They are the only two things that look the same on everyone regardless of their weight or body shape: the average woman may not be able to fit into the same jeans as Kate Moss and would feel miserable even having a go in the changing room but a pair of Prada shoes looks much the same on everyone. He’s right of course. The runaway sales of shoes and handbags are nothing but a function of our insecurities about our figures. How sad is that?

“I’m always buying new shoes and I might spend as much as $1,500 on a really great pair, but I don’t splurge on clothes.”

Shania Twain

And it isn’t just clothes, cosmetics, CDs, TVs and face cream you’ve been conned into buying when you don’t need to. It’s new cars, insurance, overpriced credit card debt, and expensive mortgages, phone tariffs and utilities. Financial services firms are just like fashion firms in many ways: they know that many of us have all we need when it comes to money (a mortgage, a current account, a savings account or two and a pension) so to keep their profits growing they have to continue to invent new products and persuade us we need them. So once again we find ourselves paying too much for useless tat (insurances against things that really won’t ever happen, for example) only this time it’s usually useless tat we don’t even understand. This doesn’t make any sense: you work hard for every penny you earn so why let it slip through your fingers so easily? Distinguishing between the products you really need for yourself and those that the corporate world wants you to think you need (so it can make ever higher profits for itself) is absolutely vital.

So next time you think you might need a new pair of shoes, another credit card, some clever kind of insurance, or any other financial product stop and think. Do you really need it? Or does someone else need you to think you need it? Nine times out of ten you will find it is the latter.

I have a simple self-help method I use when I have to bring reality into my spending. When I see something I want in a shop I look at the price and see how many work hours it will take me to pay for it. Then I decide if it is really worth buying. Take a £200 handbag. If you earn £30,000 a year and work 8 hours a day, you are clearing around £10 an hour after tax. So that handbag is going to cost you 20 hours, or two and a half days of solid work. Do you want it that much? Sometimes the item in question might be so perfect that you do want it that much. Spending – even if unnecessary – is not all bad. I happen to think that having a coffee in Starbucks every morning is worth it, for example – I like the coffee and I like to sit by myself in one of their armchairs for a few minutes before I go to work. I also think that going to a spa with my sisters for the occasional weekend is worth it, not because I have the faintest faith in the treatments (I’ve had a great many massages in my life and I still have cellulite) but because it gets us away from our work, husbands and boyfriends and gives us time to talk. And very occasionally a handbag is worth it too. Think of spending in terms of how much happiness you are buying yourself for the money you are spending. Is it enough? Very often it is not.

My friend Caroline has a good anti-spending wheeze too. It works like this, she says: ‘Read high-end catalogues in the bath, and as you wallow, imagine the whole consumer process: choosing the lovely new chrome coffee maker, the thrill of arrival, the excitement of first use, the novelty wearing off, the putting away in the cupboard, and, finally, the sullen realization that it hasn’t changed your life. By the time the water gets cold, you don’t want any of it after all. Sting’s been quoted as saying he wishes his wife would get into tantric shopping and that’s exactly what this is – you look and look and look but never buy.’

The good news is that shifting your behaviour so that you spend less shouldn’t be too hard if you concentrate: the scientists tell us that it takes about three weeks to create a new habit or break an old one. And when you’re vacillating, it’s worth bearing in mind a phrase that the Texans have for those who spend stupid amounts of money on ostentatious consumer goods they neither need nor can really afford. They call them ‘big hat, no cattle’ people – people who consume for the sake of it and as a result have lots of rubbish stuff but not much in the way of real assets. Look at it like this and I think you’ll find it easy enough to cut your spending on ‘big hat’ style things.

There are a thousand ways to cut your spending on the smaller things in life. We all know that if we took our lunch to work and never visited Starbucks we’d save a great deal – we can all cut at least £50 out of our monthly spending with a little concentration and most of us can cut out a great deal more. The easiest way to do this is simply to make yourself keep a spending diary for a while. Just as keeping a food diary is a splendid way to lose weight (everyone hates to look at a list that proves overeating at the end of every day), keeping a money diary is a great way to cut spending (looking at a list of wasted cash is also a nasty way to end a day). A survey in 2006 showed that the average member of the British public cannot account for £1 out of every £8 that they spend – making a total of over £80 billion every year. Where does that money go? A Diet Coke while you wait for the train, a packet of crisps when you suddenly feel a bit peckish at eleven, a few bits and bobs when you are passing Boots on your way to the post office and so on. The details may be hazy but the money’s gone.

Bartering for books

If you really want something you may not actually have to buy it to get your hands on it. Instead you could swap an item you have already but don’t need for it. www.ReadItSwapIt.co.uk is a book-swapping site – it has around 8,000 members with 40,000-odd books available to swap. The founders estimate that the swaps done in the site’s first three years saved the members £350,000 they would otherwise have spent buying books. www.Mybookyourbook.com is similar but charges you to join. Swopex.co.uk is another swapping site that allows users to trade DVDs and computer games. www.Iswap.co.uk and www.eSwapit.co.uk allow you to swap pretty much anything. Another site worth looking at is www.Freecycle.co.uk. The idea of this one is to find free homes for unwanted possessions of any kind. If you find what you want you just arrange to go and get it, no payment involved. Finally you might look at new site www.swapaskill.com which allows people living in the same community to exchange skills.

I don’t want to spend all of this chapter on the small stuff so I’ve put in an appendix at the back of the book offering 53 ways to make many small savings which I hope you’ll read (they all add up). Many are obvious (turn your heating down a few degrees) and some are not, but I hope that once you realize how you are constantly allowing yourself to be conned by consumerism and its corporate cheerleaders, and start looking at your purchases rationally, you’ll find you buy less unnecessary stuff and that your spending will automatically fall. I also hope that when this happens it feels very good indeed.

You may find that as you stop wasting hours in the shops, your obsession with consumer culture diminishes, the burden of desire lifts from your shoulders and you are suddenly much happier (see Chapter 11 for more on why consumption alone can’t make you really happy). You may be able to see beyond your needs as a consumer (i.e. those implanted in your brain by the corporate world) to your real needs as a person (time spent with your mother as opposed to time spent racing round Ikea at the weekend, perhaps). And as your spending falls you will also find that you have given yourself more choices. The less you spend the less you need to earn and the more you can look for work that fulfils you rather than just fills your bank account. Remind yourself as you go that while you don’t want to be living entirely in the future, everything you buy now that you don’t need or that doesn’t bring you pleasure is effectively money stolen from your future.

In the rest of this chapter I want to go beyond the small things and look at the big things we pay too much for on a regular basis, such as cars, furniture, utilities and insurance. Houses are another area where we waste vast amounts of money, so much so that I’ve left them out of this chapter and given them a chapter of their own. See p.221.

New cars: why you don’t need them

Every time the petrol price goes up we hear endless moaning about how much it costs drivers. The pressure groups looking for the government to ‘do something’ about the high oil price add up how much every penny on a litre costs the average driver and splash the results over the front pages of the papers and the nation gets itself in a tizzy calling for windfall taxes on the oil companies. But a penny on a litre of petrol adds up to well under £100 for the average driver. And that’s absolutely nothing compared to the money most people are chucking down the drain every day just by owning their cars.

A new car loses 20% of its value as soon as it leaves the forecourt and will be worth 30% less than its list price within three months. A few examples. If you had bought a Citroën Xsara Picasso 1.6 SX in 2004 it would have cost you £14,100. Try to sell it eighteen months later and you’d have got (according to What Car?) around £6,000 for it. That’s a loss of over £8,000 or 57%. You’d have lost a similar amount on a Ford Kaa 1.3 hatchback (£5,000 or 52% of your cash) or a Saab 9–3 1.8 four-door (£9,250 or 45%). On the Saab you’re losing about £17 a day. On a really expensive luxury car you could be losing £100-plus a day.

This doesn’t make any sense at all. Why would anyone throw that kind of money around just to drive a brand-new car? Particularly as a new car turns into a second-hand car as soon as you drive it off the forecourt. None of the answers to this question is a good one. Some say they just like to have a car that no one else has ever driven. But there’s no such thing. How do you think your new car got to the showroom? It didn’t just drive itself off the lorry – someone else’s bottom has always sat on the driver’s seat at some point. Some say they like that ‘new car smell’. And maybe they do (although given that it is a smell of plastics, metals and various not particularly desirable chemicals I can’t think why) but if that’s the case they could amuse themselves by putting a plastic bag over their heads and ripping up £50 notes. The final effect would be roughly the same as that of buying a new car.

“I just ordered the new Bentley convertible. How much was it? I don’t know – I didn’t ask.”

Paris Hilton

Some say that with a new car they know that nothing is likely to go wrong. They also know that if it does they have a guarantee to ensure peace of mind. This too is nonsensical. If a car has been on the road for five years and been properly serviced there’s no more reason why it should break down than a new car. And if you buy a second-hand car from a reputable dealer of any kind you can get the same kind of guarantee you’d get with a new car anyway. As for the often voiced concern that if you buy a secondhand car you could end up with one that has been in an accident and been reconditioned, this really isn’t a big deal either – you can get any car checked any time by your own mechanic or by the AA before you buy it for a matter of £100 or so.

The final reason people give (when pushed) for buying a new car is that it shows off their relative wealth and status. I’m not going to start on the stupidity of this except to point out that anyone who really thinks that driving a new Picasso gives them more status than driving a year-old one probably has bigger problems than I can address here. If you are very rich and status is very important to you then go ahead, buy all the new cars you like (there’s nothing wrong with it as a hobby if you can afford it), but if you aren’t and it isn’t (and it shouldn’t be) take yourself down to your nearest car supermarket next time you need a change of car. Then put the ten grand you save in a pension. You’ll thank yourself later (see Chapter 6).

While I’m on the subject of money wasted on cars I want to go back to petrol. Why do people insist on buying super unleaded petrol at about 10p a litre more than ordinary unleaded? The AA says it makes no difference whatsoever to the performance of a car or to its petrol consumption, so if our average driver uses super instead of normal on a regular basis, they’re throwing away another few pounds every time they fill the tank. And that’s not the end of the car-related waste. Even more comes in the form of the dealer network garages that so many drivers take their cars to. A recent survey showed that these dealer garages charge up to £140 an hour for their labour compared to £35–£40 for an ordinary garage. So let’s say you get your car serviced once a year and it takes four hours. That’s another couple of hundred pounds down the drain. The whole thing is beyond me.

If you must buy a new car you might want to think about buying it at the end rather than the beginning of the month. Why? Because that’s when dealers are most desperate to hit their monthly sales targets and so most likely to give you a proper discount. Last year What Car? sent undercover buyers to car showrooms at the end of March and then again at the beginning of April. On average they were offered the same cars at £525 less at the end of the month than at the beginning and in some cases the price difference ran into the thousands. And when you do go in to start your negotiations make sure you are tough about it whatever time of the month it is. You may think you live in an equal sort of a world but car salesmen think nothing of the sort: they think women are a bit of a soft touch and so save up all their big discounts for men. What Car? sent both a man and a woman into 45 dealerships around the country last year and discovered that on average women are asked to pay up to £1,800 more for exactly the same car as men (the problem also exists in the US where women are charged on average $1,300 more than men for the same new car). Four out of five of the salesmen approached by What Car? were prepared to cut prices for men but less than half offered any deal for women. If you can’t face fighting this kind of inbuilt prejudice (life is too short to fight every battle) send a man in to do the bargaining bit for you.

Finally, before you shell out consider if you need a car of your own at all. According to Sainsbury’s Bank the average motorist spends about £2,000 a year on car expenses – insurance, fuel, parking, tax, servicing and repairs. Include depreciation, says the RAC, and that number goes up to around £5,000 a year and higher for real gas-guzzlers (a Porsche Cayenne will cost its owners going on £19,000 a year, according to the RAC’s figures). That’s a whopping amount of money particularly if (like me) you live in a city and don’t use your car that much. So why not consider a sharing scheme of some kind? Join a car club and you can order up whatever kind of car you want whenever you want it, without the bother of tax or maintenance and for a fraction of the price of owning your own car. You pay a monthly fee to the club and are then charged based on how long you have the car for on each outing and on how far you drive. Carplus suggests that driving this way will save you around £1,000–£15,000 a year as long as you drive less than 6,000 miles a year. Carplus is a charity set up to promote car clubs so its numbers aren’t exactly unbiased, but I don’t think they are that far out either. Car clubs aren’t a perfect replacement for owning your own car (there is the inconvenience of having to walk to a nearby parking bay to pick up your car rather than having it waiting for you directly outside your door) but, given the savings on offer, they’re a pretty good one. Car clubs include www.citycarclub.co.uk and www.mystreetcar.co.uk.

Cutting utility bills

These, like many money-related things, are boring but very important. Unlike many of our expenses utility bills are not optional. We all have to pay for our water, electricity and gas. Worse, the cost of making these payments has been soaring for three years as water shortages have kicked in and energy prices have been rising: gas bills have jumped an average of 39% since 2003 and electricity bills are up nearly 30% over the same time period. All this makes it very important to use the cheapest possible supplier. To find out if you are doing so visit one of the price comparison websites such as www.uswitch.com, www.energyhelpline.co.uk or www.simplyswitch.co.uk. Uswitch claims that the average household can save £140 a year on its energy bills by switching supplier. One of my friends, on a saving binge after the birth of her first baby, estimates that she has cut £250 off her family’s annual utility bills since she spent an hour on uswitch.com changing all her suppliers.

You should also take a look at your water bills. If you live alone or don’t use much water (perhaps you don’t have a garden) you are probably paying too much and may find it worth your while to ask your water company to fit your house with a meter so instead of paying an average tariff you simply pay for the water you use. If you live in a block of flats or somewhere else where it is not possible to get a meter fitted ask to start paying the Average Household Charge instead of the usual charge based on the rateable value of your house. This can often provide hundreds of pounds of savings a year. I moved on to it a few years ago when I was living alone and using very little water (I was showering at the gym and was hardly ever home) yet paying the same water bills as the four people living in the flat above who appeared to do nothing but play in the bathroom. My bills were immediately halved.

You might also consider going green to save money on energy. Switching off everything in the house that is on standby will save you considerable amounts (at the moment the government estimates that appliances left on standby cost a total of £740 million a year), but you might save even more by switching to a renewable energy provider such as Ecotricity. Check this on www.uswitch.com.

Ensuring that you are paying as little as possible for your phone is another way to cut your spending easily. More than a third of UK fixed telephone lines are now with a non-BT supplier and the tough competition in the market means that prices have tumbled. Again, visit the price comparison websites to see if you can change suppliers and cut your costs. You should do the same with your mobile phone. Altogether we spend £25 billion a year on our phones but we could probably spend rather less if we shopped around a bit before we signed up to our contracts. According to another comparison website, Onecompare.com, the average person could shave £210 off the cost of their mobile by switching firms. More than half of mobile users have never switched firms and are therefore on uncompetitive deals or on the wrong deal for them: the mobile phone companies have a splendid racket going whereby they create very cheap packages that include a certain number of texts or call minutes, persuade us they are good value and then once we’ve taken them out (without reading the small print) charge us a fortune for making more calls or sending more texts than we are allowed to under the contract. Finally, you might consider signing up to Internet telephony with one of the many firms that now offer it such as Tesco, BT or Skype. They all offer prices significantly lower than landline or mobile prices.

Flashy furniture at a discount

The sofa market is an extraordinary thing. There seems to be a sofa shop on every corner of every street in every town in the UK and half the advertising time on evening television appears to be taken up with adverts for various unattractive sofas from dfs. An alien landing on the average high street would think we were nothing but a nation of sofa addicts, a people who just can’t walk 20 yards in an urban environment without popping into a shop for a new piece of furniture to lounge about on. I don’t get this (there is only one sofa in my – admittedly small – house and I’ve had it for seven years), but more than that I don’t get why, if you must buy sofas and the like, you would pay the full list price for them on the high street when you can buy at an out-of-town warehouse at a 50% discount. Sofas (like cars) become second-hand and hence verging on worthless as soon as you take them out of the showroom, so it makes sense to pay as little as possible for them.

Good news, then, that warehouses have been springing up all over the country selling end-of-line pieces, oversupply and bits of furniture no longer needed in show homes. The Showroom Warehouse, about an hour and a half up the M1 from London (www.showhomewarehouse.co.uk), is one good place to look. It contains the entire contents from show homes around the country priced at a half to a quarter of their original price. This is a great place to buy almost-new furniture at major discounts, although you should always bear in mind that to make the rooms look bigger ex-show-home furniture is often designed to be smaller than normal furniture (take this into account if you are thinking of buying a new-build house or flat too). This is particularly the case with beds so test before you buy. Trade Secret (www.trade-secret.co.uk) is another place to try (it specializes in discounted brand-name furniture at around 50%) as is You’re Furnished in Essex (01279 870036), which specializes in selling top-quality bathrooms and kitchens at major discounts.

It isn’t that much hassle to seek out this kind of place and the savings can be huge; if you are looking at the sort of kitchen that might usually come in at £10,000 but get it for £5,000 at a warehouse, any research and travelling you might have to do along the way is going to be well worth the effort. Another plus point of these outlets is that at most of them what you see is what you leave with – there is none of the absurd nonsense you get in high street shops of having to wait 6–8 weeks for your new piece of furniture to be delivered to you. See www.homesandbargains.co.uk for more places to pick up discounted furniture.

Big designers at small prices

There’s no more reason to pay retail prices for designer clothes than there is for sofas. In fact these days you shouldn’t ever have to pay retail. There are a hundred ways to buy the same clothes the uninformed and lazy are paying fortunes for in department stores and boutiques for a fraction of the price. You can, for example, visit a branch of TK Maxx (I go to the one in Hammersmith, London but there are branches everywhere – see www.tkmaxx.co.uk for locations). TK Maxx fills its stores by buying in stock at cost from designers who have cash-flow problems or who have ended the season stuck with too much inventory and then adds a small margin. The result is prices that end up more than 50% less than they might be elsewhere. I do much of my Christmas shopping at TK Maxx every year. The only problem I have is maintaining a degree of discipline so I don’t end up spending hundreds of pounds on things that weren’t on my list in the first place.

Otherwise you can visit designer warehouse sales where and when you can (see www.dwslondon.co.uk for details of sales in London where you can get up to 80% off clothes and www.bdbinvite.com for an invitation to the Billion Dollar Babes designer sample sales), or apply for tickets for the sales after fashion week when designers sell off their samples cheap to the general public after the fashion press and department store buyers have seen them (see www.londonfashionweekend.co.uk). Finally, you might consider combining a bit of bargain fashion shopping with a holiday: Outlet Firenze (www.outlet-firenze.com) near Florence offers discounts on labels from Gucci to Armani and is also pleasantly close to the Prada factory in Montevarchi.

Current accounts: get them cheap

Most people have a current account. We all get our salaries paid into them and then pay our mortgages, rents and bills from them. But very few people have given much thought to why they have the one they have and what they want from it. As a result 70% of people still bank with the UK’s four big high street banks – Lloyds, HSBC, Barclays and NatWest – despite the fact that they offer some of the worst accounts on the market. Even I had a current account at Lloyds until last year. Why? Because my mother was with Lloyds so when I opened my first bank account we automatically opened mine there too. I then, like most of the population, never thought about it again. I kept that account for 20 years.

Then suddenly my cashpoint card stopped working while my husband and I were on honeymoon. I didn’t do anything about it at the time on the basis that no one should have to speak to a call centre when they are on honeymoon. But when I got back I called to complain. The reason my card didn’t work, I was told, was because I had ordered a new pin number. I hadn’t. It says here, said the woman at the call centre, that you have, so we have blocked your old one and sent you a new one. But you can’t have blocked it, I said, because I can still use it as a chip and pin card in shops and restaurants. No you can’t, she said. Yes I can, I said. And so on. This absurd saga went on for some days (getting more and more complicated with each phone call). We never established how the problem had come about but the final result was that I had no access to my accounts for well over a month and that I suddenly realized that having an account at Lloyds was a very expensive way to be inconvenienced.

Why an expensive way? Three reasons. The first is that, like the other big high street banks, Lloyds pays practically no interest on current accounts (the average current account pays just 1.2% on your money). This is important because if it isn’t earning interest your money loses its purchasing power fast: if inflation is rising at 3% (i.e. prices are going up at an average rate of 3% a year) you need to make 3% interest on your money to be able to buy the same amount of stuff at the end of the year as at the beginning. If you aren’t making 3% you are effectively losing money. The second is that while I didn’t often get overdrawn it did sometimes happen, and Lloyds, again like the other high street names, charges interest of 17–18% on overdrafts. Other banks pay proper amounts of interest on their current accounts and charge as little as 7–8% on overdrafts. Finally I had a ‘premium’ account at Lloyds, meaning that I paid an extra fee every year for a variety of perks I never used (most current accounts are free of annual fees). Lloyds sent me a nice bunch of flowers to make up for all the confusion – something which made me feel a bit warmer towards them but wasn’t quite enough to compensate for all the other downsides to banking with them. I closed the account.

The sales: one big scam?

We all love the sales. We think we are getting fabulous bargains. But we probably aren’t. The retailers think of sales as just a way to get you into their shops so they can flog you more overpriced rubbish than they can at non-sale times: there are so many loopholes in the laws covering the sales that whatever they say in their windows they can get away with not producing much in the way of discounts inside. For example, by law any goods marked with a reduction must have been for sale at the full price displayed for 28 days at some point in the previous six months. However, the stores are also allowed to put up a disclaimer in little letters somewhere in the premises saying that hasn’t actually been the case (that it has only been for sale at that price for one day, for instance) so you can never be sure whether you are paying a properly discounted price or not. Shops are also guilty of occasionally putting things out at stupidly high prices for 28 days so they can slash them to an OK price but call it 80% off a few days later.

But that’s just the beginning of the tricks they’ll use to draw you in to the shops and get your wallet open. Rails of substandard items are often brought in just before the sales so they can be marked at very cheap prices near the door. Retailers will also put up signs all over their windows saying ‘up to 70% off’ when in fact almost nothing inside is that cheap. The law says 10% of goods on sale should be at the maximum stated discount but who checks? No one. The fact is that sales are a great time for shops to shift their old, substandard, out-of-fashion or obsolete stock. So before you succumb to bargain fever check whether the frock you are feverishly fingering is really a bargain (and a bargain that you need) or simply another con. Never forget that just because something is cheaper than it was doesn’t mean it offers any value to you: some things are expensive at £100 and still expensive at £10. Before you pay the sale price always ask yourself if you would have paid that price for it if you weren’t at a sale and as you do so remind yourself that over two-thirds of women admit to buying things in the sales that they have never worn.

If you do end up buying rubbish in the sales remember you have the same consumer rights as you do if you buy that rubbish before the sales. Many stores will tell you that you are not entitled to a refund if you buy something at a reduced price. This is not true. If you have simply changed your mind about wanting something you are not entitled to your money back (although many stores will let you exchange things out of goodwill), but if something is broken or faulty (this includes everything from TVs that break to shirts that lose their buttons after only one wearing) you are entitled to a refund or a replacement even if you have lost your receipt. Don’t let the retailer fob you off by telling you that you have to complain to the manufacturer not to them. That’s not true either. You have three rights under the Sale of Goods Act 1979 as well: the goods you buy must be as described; they must be of satisfactory quality (which suggests that they must last for a reasonable time); and must be fit for a particular purpose. On top of this you have the right to claim against them for ‘consequential loss’, so if your discounted freezer breaks and food gets damaged you can ask to be reimbursed for the food as well as the useless freezer.

I am endlessly determined to get value from retailers: when I recently found that a bit of fish I had got from grocery delivery firm Ocado was off I insisted on being reimbursed by them for not just the fish but the leeks and mushrooms I had started cooking it with too. It sounds petty, I know, but why should I be out of pocket because Ocado delivered substandard goods to me? (Ocado, by the way, reimbursed me immediately and have done so every time I have complained to them about any of the products they have delivered).

My current account is now with First Direct. If you are as lazy as I was for 20 years and are still with the same high street bank where your mother opened your first savings account, it might be time for you to think about cutting your expenses by making a change too: to find the account that will pay you the most interest when you are in credit, charge you the least when you are not and won’t charge you any annual or monthly fees, see www.moneysupermarket.com or www.uswitch.com. You will probably find that the Internet accounts offer the best deals. If you do decide to switch it shouldn’t be hard: once you have made the request your old bank has three days to provide all your details to your new one which should then set everything up. When I switched from Lloyds to First Direct this all appeared to work perfectly.

Beyond current accounts we’ll look at the many ways that banks work to remove your money from you in the next few chapters, but for now it’s worth remembering that when it comes to bank charges of any kind you need to be endlessly vigilant: Which? claims that the major banks effectively overcharge customers by £400 a year each thanks to their range of rotten savings and loans products and their high fee structures, while www.moneysupermarket.com claims that bank small print contains a staggering 110 fees and charges for basic financial transactions.

Insurance: mostly it’s overpriced rubbish you

don’t need

Reading the personal finance sections of the newspapers can be a terrifying business. Every week they are packed full of stories about terrible things that have happened to people or that could happen to people. There are stories of people breaking their legs in seven places on skiing holidays and having to be airlifted back to Britain; stories of families having to spend their whole holidays in the same clothes because their suitcases have been lost; stories of wretched cat owners who can’t afford the bills for pet surgery after a car accident; stories of brides spilling red ink all over their £3,000 dresses; stories of people mugged in the street and losing £400 worth of items from their handbags and so on and so on. It’s miserable stuff. But there is a common thread in all these tales of woe: the people in question have apparently not had enough insurance to ‘protect’ them financially from calamity. Had they had the correct travel insurance, pet insurance, wedding insurance or contents insurance, we are told, things would have been so much better. All these stories, as you will probably have guessed, are placed in the press by insurance companies with one aim – to scare you into thinking you need to buy more and more insurance. If they had their way we wouldn’t leave the house without being insured against everything from the front door shutting on our fingers and dropping our lipsticks down the drain at pedestrian crossings to being abducted by aliens outside Tesco on a Saturday morning.

Bad banks

Banks are businesses. Their job is to make money out of you. That’s fine except for when they do it unfairly. Which they do. They market products in a deliberately confusing way so that you open accounts without realizing that you will be penalized for withdrawals or without understanding that their special bonus interest rates last for only six months. They charge you very little when you are in credit but then go bananas charging you for every tiny slip they can when you are not in credit: going 10p overdrawn can cost you £25, as can paying a credit card bill a day late – the high street banks are said to generate about £1 billion of their annual profits from penalty charges alone. They hide behind technology, stating that they need up to five working days to transfer your money for you when in reality it takes about two seconds (this works for them because they then don’t have to pay you interest on the money during the five days they categorize it as in transit). They try to scam you into thinking you have to foot the bill when your bank account is used fraudulently when you don’t: you only have to pay the first £50 unless they can actually prove that you were negligent with your details. And of course when you complain they think that if they ignore you you will go away. You probably can’t change much of this (though you should keep complaining wherever appropriate – when pushed, banks often refund penalty charges for example) but you can take away a few lessons from it: first, always read the small print, and second, never ever trust a bank.

Insurance should be a simple business. Basically it works by offering you cover against injury or loss in pretty much any situation, in return for an annual or monthly payment (the premium). The insurer works out your premium by assessing the risk of something nasty happening (you crashing your car, for instance) and what it will cost to pay for the damage. In some cases having this kind of protection makes sense but it all depends on the premiums you have to pay (i.e. the cost of the insurance), the flexibility of the policy and how likely it is ever to pay out. You need some insurance – some of it is compulsory anyway – but most of it is overpriced and underused. Buying it is often simply no better a use of your hard-earned cash than buying a coat in the January sales that you never wear. You would, in the main, be better off opening a savings account (call it your Calamity Account) and putting all the money you might have spent on insurance into it. Then, if you have a disaster of the kind we are so often warned about, you will have the cash to cover it and if you do not you will soon find you have a tidy – and growing – sum of money to keep. My bet is that your account will rarely be empty.

Below I’ve made a list of some of the insurances the financial services business thinks you should have (it’s not a comprehensive list – they’re always coming up with more) and looked at whether it’s a good idea to have them or if they are just another clever wheeze to part you from your money. Basically, you should only be buying insurance for things you cannot replace, pay for, or forgo without suffering real pain.

Do you need it?

Life insurance? Sometimes

Very often it makes sense to insure against the really big calamities. Small disasters you can swallow from your income; really big ones you probably can’t. However, that doesn’t automatically mean you need life insurance. Yes, if you have a non-working partner and children you need to provide for, but if you have no dependants you just don’t: if you die a lot of people will probably be very upset but as it won’t make a financial difference to anyone why spend your money on insurance now? What difference will it make whether your mortgage is paid or not when you are dead? Put the money in a savings account instead. If you do have dependants it is different – you will probably feel that you want to have some insurance to cover them if something awful does happen. However, you may not need to take out a life insurance policy. Insurance salesmen are big on emotional blackmail. You need to be stuffed up to the eyeballs with life insurance, they will tell you, to ‘protect your family’ (‘How would your family cope without you and your income?’ ‘What happens if the unthinkable happens?’ ‘How much do you matter?’), but don’t be scared into giving them your money when you don’t need to. Don’t forget they get hefty commissions on every policy they sell.

If you check your contract at work carefully you will probably find, if you are a white-collar worker, that you have life cover at three to four times your salary as standard and that a pension may be paid to your dependants. If so, and you have other savings, that may well be enough. If you are not the main breadwinner in the family you also won’t need much insurance, and if you are at or near retirement you shouldn’t need it either. By then you should be free financially (mortgage paid, pension sorted, children independent): your death will not bring financial hardship to those around you so you don’t need to insure against it.

If you are the main breadwinner, are not near retirement and have neither work-related insurance nor sufficient savings what should you do? The answer, I think, is to get the simplest and cheapest form of insurance possible. This is term assurance, which works like this. You choose how long the policy runs for (it can be anything from 1 to 30 years but you should probably time it to run until your retirement or the date your mortgage will be paid off). You then pay annual premiums and if you die within the time specified the insurer will pay out a lump sum to your dependants. The alternative is to buy whole of life insurance, which pays out whenever you die rather than just within a set term. This is much more expensive and I think probably pointless: the idea of the term is that you are covered for as long as you need to be (during the 20–30-year period when other people would really suffer financially if you died) so why pay more to be covered when you no longer need to be?

Car insurance? Yes

Some insurances you have to have and if you drive car insurance is one of them, so all you have to worry about is finding the cheapest policy you possibly can. This is much easier than it used to be. Before the days of the Internet comparing prices meant calling ten different insurers and then choosing the cheapest. Most people never bothered – it was just too boring – and that meant that insurers got into the habit of charging you pretty much what they fancied. Not any more. Today you can log on to a variety of websites such as www.moneyfacts.co.uk, or www.insuresupermarket.com and www.confused.com and compare prices in a matter of minutes. Make sure you do: if you buy without comparing you’ll just be throwing money away. The same goes for every insurance I mention here.

There are distracting gimmicks aplenty in the insurance industry and a new entry to the car insurance market is women-only car insurance. This is an idea based on the fact that women are less dangerous drivers than men and should therefore be able to get cheaper car insurance than men. Both these things are true (Home Office figures show that 96% of dangerous driving offences are committed by men) but that doesn’t mean that buying your insurance from a women-only outfit such as Sheila’s Wheels or Diamond will get you a better deal. All insurers base their premiums on the same calculations of the various risk factors involved in taking on a policy and they all include in their calculations the fact that women are in general safer drivers than men so they all charge them less accordingly. The all-women insurers may offer a variety of amusing perks (Sheila’s Wheels offers handbag insurance and a counselling line you can call after an accident) but don’t be distracted by this. They are just as much businesses out to make maximum profits as the other insurers (Sheila’s is no female-friendly small company, but part of banking and insurance giant HBOS). So whatever you get from them you’ll end up paying the market price for. The same is true when buying insurance for older people: some firms claim to specialize in them but again that doesn’t mean they’ll offer a better deal. So don’t go for the ladies’ policy or the special old people’s policy, just go for the cheapest one.

Wedding insurance? No

This is the insurance I hate most of all. What is the point? If the photographer doesn’t turn up how will getting a cheque for £200 help you to remember your big day? And if the food gives all your guests food poisoning what are you going to do? Claim on insurance and get them all back to eat it again? Of course not. The fact is that the only thing you could really do with insurance against is the wedding not taking place but that would only happen if you or your groom-to-be changed your mind. And no one will insure you against that. So take the £200 you might have spent on wedding insurance and put it in a special account to earn interest and pay for a weekend away on your first anniversary.

Health insurance? Probably not

We hear so often these days that the NHS is dreadful that most of us are slowly becoming convinced that, if we can afford it, we should take out medical insurance. But is it really true? I don’t think so. For starters note that medical insurance doesn’t cover the conditions most of us need treatment for. It doesn’t cover childbirth (not even emergency Caesareans), it often doesn’t cover depression and it also very often doesn’t cover chronic or incurable illnesses such as diabetes, asthma or multiple sclerosis. It is also utterly useless in an emergency: private hospitals don’t have emergency rooms and anyway the NHS never makes you wait more than an hour or two to have a broken leg sorted out. Medical insurance isn’t cheap – the cheapest I could find for myself when I looked was nearly £30 a month and it came with so many exemptions that I would have had to be almost dead before I was able to claim on it.

The alternative is simply to save all the cash you might have spent on insurance into your Calamity Account and then to pay for any treatment you might need that you don’t want to have or to wait to have on the NHS. This sounds frightening but it shouldn’t be. For starters let’s not forget that you’ve already paid for the NHS via your taxes and that it really isn’t that bad. I’ve had nothing but good experiences with the NHS over the last four or five years and it is generally accepted that in emergencies and in the care of people with serious or terminal illnesses the organization does an excellent job of providing comprehensive medical care. It’s also worth remembering that the doctors you see privately will be the same ones you would have seen on the NHS – they’re just bumping up their incomes by going private – and that NHS consultants are usually the ones at the cutting edge of healthcare.

Where the NHS sometimes (but far from always) falls down is on the treatment of acute but curable conditions, but if you are saving correctly into your Calamity Account you should be able to pay for this yourself if you feel you need to. Note that 80% of these treatments are dealt with on an outpatient basis (blood tests, consultations, x-rays, scans and the like). These aren’t particularly expensive. What are pricey, on the other hand, are mainly procedures that you won’t need until you are heading for your fifties and sixties (hip replacements, for example) by which time your Calamity Account should be looking pretty healthy if you have regularly put £50–£100 a month into it in lieu of paying for insurance. A private hip replacement comes in at about £7,000, cataract removal at about £2,000 and a coronary artery bypass graft between £2,000 and £15,000. Note, too, that only 4% of private health care claims are for sums over £5,000.

If you aren’t convinced on this one and still want health insurance, one way to cut the costs is to get it from a firm that will allow you to pay for your own treatment up to an agreed level (the excess – usually anything up to £5,000) and then it will pay any costs beyond that itself. This can more than halve the cost of premiums yet still leave you covered should something horrible happen to you. See www.insuresupermarket.co.uk to find a cheap policy.

Critical illness insurance? No

The idea of critical illness insurance is that it pays you out a lump cash sum if a long-term illness makes you unfit to work. Advisers are very keen to sell this to everyone as it pays them massive commissions (they can pocket 120% plus of the first year’s premiums as a reward for selling you the policy, so if your premiums come to £800 a year they can walk off with well over £1,000 for a couple of hours’ work). However, this kind of insurance doesn’t make sense for many of us. If you are young and single you probably don’t need it, for example. I took out my first mortgage when I was single and living alone but my mortgage adviser still insisted that I needed critical illness insurance at £50 a month. I believed him for a few minutes until I remembered that I was in my twenties with no dependants. If I had suddenly found myself with a critical illness I would have sold the flat and gone home to my mother. No insurance necessary.

But even if I had thought I might need critical illness insurance it might not have done me much good had I actually got a critical illness. One of the reasons insurers can afford to pay advisers such huge commissions to sell critical illness insurance is because they rarely pay out on it so they get to keep most of the premiums (for every 100 policies sold only 3 claims were made in 2005). This is because it only pays out if you suffer from one on a very specific list of ailments (mainly cancer, heart attacks and strokes) before your mortgage is paid off (most policies stop either at 65 or when the mortgage is paid off), which most of us are pretty unlikely to get in that time frame. And one in five claims fails anyway, often thanks to some minor legal detail. Which? magazine points out that the application forms for critical illness insurance are so full of medical jargon and demands for detail that they make the average consumer vulnerable to oversights that could (and do) invalidate their claims. You often have to list every appointment you have had with your doctor in the last five years. Who can do that accurately? There have also been cases where a claim has been refused because people have put their height down incorrectly on forms.

Generally you are probably best to ignore critical illness insurance and get something called permanent health insurance (or income-protection insurance), which is much cheaper to buy and pays out not a lump sum but a monthly income until you are ready to go back to work or you retire. That said, this is often just as hard to claim on as critical illness insurance. Insurers will do their utmost to invalidate any claims – finding inconsistencies on your application and in your medical records just as they do with critical illness, for example. Many policies are also written on an ‘any occupation’ basis so even if you can’t do your old job, if you can do any job at all despite your illness (envelope stuffing and so on) you will not be eligible for a payout. Only get a policy like this if you have read the small print and it is on an ‘own occupation basis’. And if you have a reasonable amount saved or your company provides excellent sick pay or long-term sickness benefits don’t get it at all. Consider saving into your Calamity Account instead.