Now I know with my intellectual maths graduate brain that money is fungible - which is just a fancy way of saying that it’s all the same. £1 is worth £1, and $1 is worth $1.

But you wouldn’t think it to look at how I actually work. I own a house which currently requires:

• a small repair to the roof
• containment of the little shop of horrors backyard ivy
• gas fires removing
• maybe damp sorting out in the bathroom
• a new bathroom suite
• insulation in the loft
• a new front door

But, I went out and spent 2 years worth of earnings from this blog on a new (to me) oboe. Which is fine, because the oboe purchase makes me happy, but not so much, because it never occurred to me to spend the money on the house. In my head, I’d allocated blog money to the oboe fund and it couldn’t be spent on another purchase.

a useful mindset

In some ways, the idea that some money is different can be very useful. It can stop you from impulse spending money that’s set aside for another purpose. It can help you keep track of your goals.

In my case, whilst I didn’t need the oboe as much as I need to make repairs to the house, it was the first thing that I’ve really saved up for. As far as my learning and playing was concerned, I’d progressed well beyond the capabilities of the oboe that I was borrowing. Spending the money on a more sensible purchase would probably have been more grown up, but I’m not really all that grown up at heart. It didn’t work out too badly - at least I have something to show for my efforts.

or less than helpful?

On the other hand, if I’d thought about it, maybe I could have managed to squeeze out a new bathroom instead of the oboe (plus little shop of horrors and damp work which would be prerequisites). By not considering the money fungible, I didn’t give myself a chance to make that decision. I stuck to the idea that I had last summer, without re-evaluating.

This time, it hasn’t been the end of the world. Even if I’d thought about it, I might well have bought the oboe rather than been more sensible. Next time I might not be so lucky.

Do you tend to think of money as all the same, or as each pot having a specific purpose? Let me know in the comments.

I’ve lived in this city for nearly 10 years and I had no idea there was a foreign language film club. It’s not very well advertised, and talking to a couple of regulars, it seems that they don’t get many people showing up. This makes me wonder what other kinds of frugal entertainment there might be that I hadn’t realised. Thing is, I’m not entirely sure what to look for, I know about museums and art galleries, but what other cheap or free entertainment could there be?

My experience with the film club suggests that a lot of these things aren’t all that well advertised and might need a little work to uncover. What kinds of frugal entertainment is there where you live? Maybe I can get some ideas that way. Let me know in the comments.

I was listening to Radio 4’s Thought for the Day earlier on, where a Baptist minister was talking about the sensible, risk averse people having to bail out the more foolish, risk takers. Bail outs are not universally popular, but one thing in particular that he said stuck out to me. He said that he has his whole fortune safely in a building society.

are building societies safe?

Of course, you’ll all be aware that building societies are not intrinsically safe. Your money is only as safe as either the institution you’ve put the money in, or if that fails, the extent to which it’s guaranteed by a government scheme such as the Financial Services Compensation Scheme.

When you hold money in a building society, you hold it in cash, and cash has its own risks. There’s the risk of inflation eating away at your money, and the opportunity cost - the chance that you could have done better with your money elsewhere.

do you have money elsewhere that you forget about?

I suspect that the Baptist minister in question doesn’t have his whole fortune safely in a building society. I can’t be certain but it’s likely that he expects to enjoy a ministers’ pension when he retires, he’s probably contributing to one right now.

what do pensions have to do with anything?

Well, work and personal pensions are part of your fortune. Especially if you are planning on retiring one day on more than the state pension. Final salary pensions are much sought after, because they offer great benefits to retirees. But those benefits need to be paid for.

You might think that if you have a final salary pension, it comes with some sort of cast iron guarantee. But it doesn’t. There’s only one place that the money that you pay in can grow into enough to pay out, and that’s in investments. Regardless of the type of pension that you have, there’s no secret money cupboard.

If you have a final salary pension, then the trustees and the scheme actuaries decide where how the money should be invested - usually in stocks, bonds, cash and property - and try to ensure that there will be enough money to cover everyone’s pension. That’s why a lot of schemes are asking members to contribute more, for the same or lower pension when they retire. If they don’t, there isn’t going to be enough money to pay everyone’s pension, because money doesn’t grow on trees.

If you work in the public sector, the taxpayer could be forced to pick up the tab if there’s a shortfall, but don’t count on everyone else voting for that.

If you have a money purchase or defined contribution pension, then you can directly control your investments. You should take the opportunity to learn about risk and investing, but there’s probably a default set-up that is at least vaguely appropriate.

maybe I shouldn’t invest?

There is always the risk that your pension might not be worth as much as you hope, but it’ll  be better than nothing, and it’s very likely to be better than just sticking the money in a building society, as there are tax breaks, (and often employer contributions) for using a pension wrapper.

Nearly everyone is invested in risky things and it’ll probably turn out ok. In the long run. Don’t use the current economic climate as an excuse for delaying your investing.

thinking about clothes

A new job is a good opportunity for me to evaluate my working wardrobe.

On balance, the dress code is about the same as at my last place - business casual - but there are many more women, so I’m feeling more inclined to wear make up and jewellery. I don’t need to buy any of these as I have a good supply, and certainly more eye shadow than I realised.

My current working wardrobe is:

• 3 pairs of trousers
• 1 skirt
• 4 jackets
• 6 skinny knit sweaters
• 6 long sleeve tops
• 8 short sleeve tops
• 2 skinny knit cardigans

This is not too bad as it stands - it stands me reasonably well in my normal working life - mostly in the office, but with and handful of external meetings. I pretty much wear a standard uniform, my tops are essentially the same designs in different colours and all my trousers (and skirt) are various shades of grey!

cheap or frugal?

One thing that I have noticed more as I’ve been trying to make a good impression on my new colleagues, is that a few of these things are wearing out. At least one pair of trousers is on its last legs (possibly because they are my favourites) and so are a couple of the tops. In fact, my work clothes wear out really quite quickly - certainly within a couple of years. That might be because I buy pretty inexpensive clothes, I don’t think I’ve spent more than £10 on a top, or £20 on a pair of trousers in my current wardrobe.

I’m not sure whether I’m being cheap or frugal. I have to admit that I don’t exactly look after my clothes brilliantly - I certainly don’t live to dress - and I wouldn’t want to buy more expensive clothes if they’re going to wear out just as quickly.

Perhaps I should have more clothes, so that they don’t wear out as often? Maybe I might have read somewhere that your clothes last long (more wearings) if you don’t wear them as frequently. Not sure whether I believe that’s likely to be true. On the other hand, if I had more clothes, I’d get less bored of wearing the same thing over and over!

what about you?

What do you all do about your working wardrobe? Do you invest in key pieces, shop second-hand, or, buy cheap basics? What kind of clothes do you wear, do you have vast quantities of work clothes, or operator more minimally? Let us know in the comments.

At the front of my house is a bay window with its own little roof. It rained quite heavily today, and the carpet under the bay is wet, there’s also a reasonable likelihood that part of the ceiling is going to come down (it’s separate to the rest of the ceiling and about a foot lower).

I do have an emergency fund, but what I don’t currently have is time to get it fixed. I’m starting my new job next week, so I’m ridiculously busy this week handing over stuff, and I can’t exactly plan to take any time off next week to organise a whoever to come over - I also have no idea what trade is required to fix this problem.

For now, I guess I’m just going to have to hope it doesn’t rain any further and cause an even bigger problem. I’m not sure what else I can do in the short term.

lessons to learn?

Although you can see that there’s been water damage to that part of the ceiling before, for some reason I think I read in the survey I had done that it was no longer an issue. Still stuff like this is one a fairly long laundry list of things that need to be fixed - this is what happens when you buy a 100 year old house. If it wasn’t this, it would probably be something else. So far, I’ve had a door replaced but I also need to get the ivy removed, replace some windows, insulate the loft further, replace another door, remove two gas fires, fix the damp in the bathroom and replace the bathroom suite. That’s without the list of things that I’d just plain like to do.

Owning a house costs money. More than you’d think.

Of course there are some differences. One of the best ways of teaching kids about personal finance is to have them watch their parents… Yes, you really can only stretch an analogy so far.

and there’s a point to this?

If we’re taking a strictly outcome based approach, the Netherlands is particularly good on sex education. Rates of teenage pregnancy are some of the lowest in Europe, and teenagers wait for longer before having sex. Now, the Netherlands is pretty liberal, and you might not be comfortable with some of the things that they teach the under 11s about sex, but the really important thing that they do is focus on relationships, values and self-worth with the mechanics being taught but with less emphasis. As a result people (that pay attention and learn in class) are more likely to make decisions that benefit them in the long run.

Really I think we can learn something about personal finance education from this approach. The mechanics of budgeting,  and how credit cards work, and how to balance a cheque book are important, but nowhere near as important as organising your finances are around your goals, and the life that you live. It’s really helpful to understand the rules around RRSPs or ISAs or Roth IRAs, but it’s even more important to understand how risk works, and the sort of risk profile that you have at the moment. Or to work with yourself to get out of debt, rather than embarking on a plan you won’t stick to.

Personal finance education, is a bit like sex education!

and when the luck begins, it’s like a wedding,
which is like love, which is like everything.

Alice Oswald

Sometimes I think that for a single person, I find the process of planning a wedding a bit too fascinating. It’s just that they always seem to be like real life, but on a more confined scale with lots and lots of emotional baggage.

If you ever write a post on weddngs that attracts a significant number of comments you will probably hear the following:

• get an amateur or student to do the photography
• don’t skimp on photography - the photographs are the only thing that will remain
• use an iPod for the music
• don’t skimp on a DJ - the music is what will get people dancing
• cut back on the guest list
• save money anywhere but the guest list - it’s more important to celebrate with the people you love
• ask your friends and family to help with tasks
• don’t ask your friends and family to help - they want to be guests not working
• don’t serve alcohol
• no one admits this, but at least one person is silently thinking an alcohol free wedding is the last thing they’d want (it’s probably me)

It should be clear, that if you listen to everyone you can’t win. Different people have different priorities. Should anyone ask me what I think is important in celebrating a wedding, I’d go for food, drink, clothes (in that order), those are the things that I remember most. Photographs and music are reasonably important to me but I could be as happy with cheap or free as with expensive, and if there were no flowers I wouldn’t care one little bit. And maybe you do only do it once, that doesn’t mean that you want to be paying ofor it for years to come.

Weddings are like everything else. There are a few things that are fundamentally essential- a happy couple, a marriage licence, witnesses / officiant as per legal requirements. Everything else is just for frills. In real life, what couples should do is:

• work out a budget
• sort out the essentials
• work out what wedding features are most important to them
• put more money/time/effort into the important things
• cut back on the things they don’t care about

And they should do these things based on their own values, opinions and circumstances, not the word of an internet commentator.

But, as I said, weddings are like everything else. What we should be doing in our normal day to day lives is:

• set a budget - or at least know our incomes
• work out what things in life are essential and allocate money for those
• work out what things are important, and allocate money for those,
• put any money left over to the less important things.

The things that I think are most important for celebrating a wedding are probably not the things that you think are important (people rarely think that the clothes are more important than the photographer). But that’s ok because when it’s your wedding, you don’t have to do what I want.

Similarly, and fortunately with less stress and emotion, the things that you think are important in your life are probably different to the things that I think are important in mine. Not everyone is going to spend £2250 on a second-hand oboe, when they also need a new bathroom. (Since the shower in my bathroom is amazing, the oboe will actually make me happier.) For some of us, clothes are important and for others it’s eating out at fancy restaurants.

There are some things that we all need - things like food, and shelter, and a healthy savings account - but for most people they actually need only take up a very small proportion of our budgets. I could probably spend less than half the amount I actually do on housing if I hadn’t prioritised having my own house above other things.

Life is a balancing (or juggling) act. There’s never enough money to do absolutely everything. So you may as well prioritise the things that are most important to you, and spend your money, time and effort on those, rather than things that other people tell you that you’ll value.

my friends make more money than I do…

I just got off the phone with one of my closest friends. I guessed that she earned more than me these days because of the industry that she’s in and because she lives in London, but I didn’t realise it was as much as £10k more. She and her boyfriend are looking at buying a house and with some help from her mum, their budget is about three times as much as my house cost me.

I have to admit that I’m jealous.

I’m pretty certain that I’m not doing as well in the income stakes as many people I know. One of my other friends who is about 3 years older than me makes about £15k more than me. A guy I went to university with earns about twice as much as I do.

…but this is not really important

I’ve just accepted a new job, and it comes with a pay cut on paper. The overall package is actually very slightly better than my current overall package, and I even managed to negotiate the starting salary up by £1k (I knew in advance that there wasn’t going to be much wiggle room). But, when I was deciding whether or not to take this job the money was to a certain extent irrelevant because it was much more important that I choose the job that I thought would make me happy.

The only way I can do that is by keeping my spending as under control as possible. I’ve experienced a reasonable amount of lifestyle inflation since graduating. My spending has grown about 3% above inflation since I started my first graduate job, mostly because I’ve moved from a rented 2 bed flatshare to a 2 bedroom house owned and occupied by me alone.

Money isn’t everything, but keeping income and expenditure in balance is pretty important. Do that and you can build wealth, and happiness if you like, eventually.

There are many ways of generating an income, and lots of people seem to ideologically favour working for yourself, or working at home. Being your own boss is the great way to wealth apparently. Probably wouldn’t work for me, but each to their own.

One of the things that people who are for some reasonable reason against being employed talk about, especially those advocates of stay at home parenting, are the hidden costs of working. I’m talking about things like commuting, eating lunch out, buying nice clothes, conveniences that you use which you wouldn’t if you spent more time at home.

This got me thinking about the converse. The things that you can get from your workplace that would cost you money to have to provide for yourself. I mean, just like you don’t notice the hidden costs of working, so maybe we don’t notice the hidden benefits of working.

Let me know what benefits you get out of work.

Err. No.

Once the money (or time or effort) is gone, then it’s gone. There’s no point in worrying about this.

I was on a great forum the other day for people who are interested in playing classical music. In the UK, you can take exams in playing instruments, the most commonly know are the grade exams. Distinction at grade 8 is the minimum standard required for acceptance at a conservatoire (don’t need the exam, just the standard). They aren’t free to take, and there was a post on the forum from a girl stating that she didn’t want to take her Grade 7 Flute exam, but was concerned because if she didn’t the entry money her parents paid would be wasted. The right way to think of it is that whether she takes the exam or not, the money is gone. She may as well do whatever is best for her in the long run.

If you’ve spent money on something that you regret, one way to get over sunk cost fallacy is to consider what you would do now, if you were given (or won) that same object for free.

If you buy a delightful pair of shoes that turn out not to fit, instead of bemoaning the money that was spent on them, ask yourself whether you would wear them if you had been given them for free. If not, don’t wear them just because you spent money on them. If prettiness is more important to you, then by all means, ruin your feet. (I stole this example from blunt money, but it’s good! and I admit that I’ve done it myself.)

If you have an investment that you think was a mistake. Ask yourself what you would do with it if you say, inherited it now (imagine the mistake was someone else’s). Woud you keep it, or sell it?

My buying a house that has dropped in value might have been a mistake. But if I were given the house plus mortgage now, I would just keep paying out on the mortgage, rather than sell and take the loss that I can’t afford. But if I couldn’t afford the mortgage payments, it would be a different matter.

The only time you should take into account sunk costs, is when you’re learning from previous mistakes. Then it’s ok to remember that you spent a fortune on shoes that didn’t fit when you’re in the shoe shop choosing a new pair, and to take that into account by trying them out more carefully. Similarly, if your investment picking was rubbish then bear that in mind when it comes to pick new investments. Or if your house dropped in price a lot, take that possiblity more explicitly into account when you next buy (or firmly resolve never to move again, whichever).

Don’t make the mistake of considering money that’s been spent and can’t be got back when you make your decisions.