Blog: Personal finance lessons for UK PLC

My economics degree, career in finance and debt issues have taught me a few things:

  1. Economists have a tendency of overcomplicating pretty simple matters by slapping things onto a graph;
  2. Financiers, in the main, are finding out what works and what doesn’t by trial and error – they don’t control markets, the markets control them
  3. Speculation enslaves economies – credit rating agencies and market traders live by them.  They forget that markets have no memory
  4. Government budgets are pretty pointless “statements of aspiration” rather than anything concrete – it almost invariably leads to disappointment and has taken on an almost ceremonial quality

But perhaps the most important lesson I’ve learnt is that managing debt (like losing weight) is hard, it’s slow and, fundamentally, it’s easy.

With the Eurozone seemingly teetering at the precipice of economic oblivion and the government seemingly clueless about which to do first – cut or grow (Cameron today in a speech at the IoD said, “deficit reduction and growth…they are not alternatives.  Delivering the first, is absolutely vital in securing the second…we cannot blow the budget on more spending and more debt”) – perhaps the solution lies not in the corridors of academia or the glass walls of the City but somewhere much closer to home.

Open any personal finance/debt advice website and you’ll find the following bits of advice – UK PLC could do worse than to learn from them:

Check your credit file

There are a few critical questions you’ll need to address here:

  • Have you been the victim of identity theft – are creditors out there thinking you’re France?
  • Are there inconsistencies in your credit file – did you pay the Saudis or Big Scary Banks Ltd when you said you would?
  • Are you on the electoral roll? – are you still registered to determine affairs in foreign countries or registered to vote in your own?
Once you’ve had a good look, call Standard & Poor’s, Moody’s and Fitch ratings agencies to correct these errors.  But caution: credit ratings agencies don’t really know what they’re doing but get paid a lot to determine things that, frankly, they are inept at doing.  Nevertheless, it’s good to keep them sweet.

Budget for your critical payments first – mortgage, council tax etc.

  • Make sure you’re housed, fed, watered and breathing whilst paying for any associated costs.  Maybe UK PLC should make sure houses, food, water and…er…breathing…is readily available
  • If you’ve got contractual obligations to, I don’t know, unscrupulous governments anywhere else well…you’ve signed a contract.  Just make sure they’re paid – you don’t want a visit from bailiffs for this or run the risk of (re)possession
  • Avoid risk of default – no one wants to feel the wrath of the agencies even though you shouldn’t really be thinking about borrowing at all.

Budget for your minimum payments on non-critical debt – credit cards, loans, overdrafts

  • You owe money to Big Scary Banks Ltd so negotiate a minimum payment plan.  Oh and remember, Big Scary Banks Ltd also owe money to other Big Scary Banks Ltd.  You might default with them, but they’ll probably default with someone else. Either that or they’ll create sub-prime funerals and exotic derivatives to make sure they don’t.  Because that’s just what you do.
  • Keep your payment plan printed and on the wall in front of you for everyone to see.  They’ll support you if you know what you’re up to.

Streamline your spending

  • This isn’t the same as cutting.  This is about going on price comparison websites and making sure you’ve got the best deal. By all means, get rid of what you can do without (such as payments to the “Exclusive Golf Club memberships at the Across The Atlantic Club”), but try and get the best deal.
  • But remember this, because you ARE a government and not an individual, it’s just that little bit easier to make things cheaper for you by making it yourself.
  • Take your own lunch to work instead of buying it from Pret.  Or China.
  • Think of ways to pay out less money to people WHO ACTUALLY WANT TO EARN MONEY THEMSELVES! Young people.  The unemployed.  Able-bodied lazies.
  • See “Invest in Yourself” for some more ways to streamline your spending

Snowball your debts by tackling your most expensive ones first

  • This is great, and really easy to do.
  • Tackle your most expensive debts first with the extra money you “save” as a result of taking in your own lunch
  • For a moral victory, tackle the smallest debt first and give yourself a pat on the back.  Like not making life difficult for old people.  Or children with “special educational needs”

Commit to saving for a rainy day and find more ways to save more

  • Aim to save at least 3 months worth of income for a rainy day.  Don’t touch it.  Put in an ISA and watch it grow tax-free.  Or send it to Switzerland.
  • Set up a savings and investment club and call it “The United Kingdom”.  Get everyone who’s in the club to commit to saving and investing their savings too.  You’ll see everyone getting a little bit more responsible with their money.

Invest in yourself – it might be your only way to earn more

  • The above plan will keep you stable and cutting debt for a while
  • But of course, the more money you earn, the easier it becomes
  • You might have streamlined by taking your own lunch in, but how about building your own cars? Here’s what happens – you get people who you’re paying benefits to working and PAYING YOU TAXES (earning money) and what they create is bought by other people PAYING YOU VAT AND OTHER SUCH TAXES (earning money).
  • How about learning a new skill or undertaking a qualification? We know you’re loved up with service industries but the Chinese aren’t genetically different to us that makes them better with computers.  Or are they? Maybe they are…
  • Be healthy in mind and body too – don’t be afraid to start losing weight or taking up a new hobby.  It’ll help you tackle your debt problem and keep you in it for the long haul.  Weight loss could include less fixation with what the papers say (at parties) and your new hobby could be running government (instead of trying to run the economy).