Love Is Not Enough: A Smart Woman’s Guide to Money

Love Is Not Enough: A Smart Woman’s Guide to Money Merryn Somerset Webb Merryn Somerset Webb, star of Channel 4's hit series ‘Superscrimpers’, shows you how to face the future with both money and confidence in this financial bible for sassy women.Money may not buy you love but it certainly helps with life's other little luxuries. From shopping sprees to pension plans, ISAs to investments, money plays a crucial role in our present and future comfort. We may not like to admit it, but diamonds – or cold, hard cash – really can be a girl's best friend.So why, when women have much to celebrate, are we reluctant to talk about it? Why, when we have more wealth in our own names than ever before, do women take less interest in money than men? And why do we still feel that demonstrating an interest in finance is somehow…unfeminine? Because let's face it – for most of us, Prince Charming and his bank balance just aren't coming. If we want to secure our futures we're going to have to do it ourselves.The good news is that it's not hard to do. Dealing with our personal finances is much, much easier than the financial industry would have us believe. Women tend to make better investors than men too – our instincts, so to speak, are on the money. All we need is a bit of know-how and the confidence to put it into practice.Combining years of financial expertise with a healthy dose of scepticism and an easy sense of humour, Merryn Somerset Webb's sharp, witty and appealing guide to personal wealth for sassy women provides the answers. Whether you're drowning in debt, negotiating a higher salary or tackling the thorny issue of a pre-nup, just one read through and you'll be in a position to sort your finances out for good, transforming them from a constant worry into a source of peace of mind. Love Is Not Enough The Smart Woman’s Guide to Making (and Keeping) Money Dedication (#ulink_ad39fd71-c6e6-5f46-889c-1219e186d063) Love Is Not Enough is in large part the result of hundreds of conversations with women about their finances. My thanks to all those women for their openess. In particular I’d like to thank my sisters, mother and grandmother all of whom spent a great deal more time than I know they would have liked talking to me about their money and their happiness. Other vital contributions came from Gillian Tett, Riko Sakurai, James Ferguson, Tim Somerset Webb, Ashe Peacock, Caroline Bennett, Katy Light, Gabrielle Jourdan, Caroline Law, Heather McGregor, Naomi Caine, Suzette Field, Pheobe Crawsahw, Charlotte de Panafieu, Verity Williams and most often of all from my husband Sandy Cross. I’d also like to thank Nick Reid, Euan Stuart and Craig Davidson for checking for mistakes (although any that remain are of course still my responsibility). Contents Title Page (#uc11b46cb-6b77-5bb7-9080-1daf681913c7) Dedication (#uef59ec32-bc33-5b3b-9510-783311d35ead) Introduction Section 1: Finding the Money 1 Maximizing Your Income 2 Spend Less, Have More 3 Debt Section 2: Using the Money 4 Saving 5 Investing 6 Pensions 7 Buying a House 8 Marriage 9 Children 10 Divorce Section 4: Beyond the Money 11 Money 53 Money-Saving Tips The Final Checklist Useful Websites Index About the Author Copyright About the Publisher Introduction For most of my twenties, when I thought about my future, I imagined all sorts of delightful things. Country houses and sunshine, long weekends by the Italian lakes, Christmas in the Caribbean, happy children riding brand-new bicycles, lazy mornings drinking coffee in caf?s and sparkling-glassed conservatories, a wardrobe full of high-heeled shoes and cashmere jerseys, sports cars and speedboats. But the one thing I never thought about was the path from my current life to this new one. How was this splendid future lifestyle to be financed? Would I inherit a few million from a distant relative? Win the lottery? Suddenly see my good career change to a great one as I started and quickly sold a fabulous small business or was promoted so far so fast that my salary and million-pound bonuses would take care of it? Or was I perhaps hoping for another kind of facilitator of the future? I think that a part of me – despite a strongly feminist upbringing – couldn’t help but assume that my fantasies would be paid for by someone else. By my very own Prince Charming. My truth is that deep down, despite love of my own career and pride in my financial independence, I long thought of the day when I would meet the man I intended to stay with for ever, the one who would be the father of my children, as the day most of my problems would end. Not only would my emotional burdens be shared but I would no longer have to worry about pensions, the housing ladder, savings, the stock market, bills and the like. I’d keep working and earning of course, but my Prince Charming would take all those boring things off my plate and chuck in a shopping allowance as a bonus. Yes, as far as I was concerned money was a man thing. So I didn’t really worry about it that much. I made good money and did the bare minimum to look after it – I tried to keep out of debt, made sure I saved a little money and got the cheapest mortgage I could find when I bought my flat – but long-term planning? None. In my twenties I earned a generous salary at an investment bank. But when I resigned at 29 I had almost nothing to show for it (except for many, many pairs of shoes, long-term sleep deprivation and a heroic tolerance for alcohol). While I was working I wasn’t leveraging my earnings into long-term financial independence. I was effectively starting my financial life from scratch each month. Sound familiar? Prince Charming isn’t coming I’m not alone in having spent much of my adult life hoping for, worse, planning for, a let-out clause. A survey of all my (many) sisters and my friends, independent career women every one, shows that almost all of them, loath as they are to admit it, feel the same. They all know how they’re paying for their next holiday but very few of them have any idea how their retirement might be financed. Why? Because they assume that they won’t be financing it themselves. Someone else will. A recent survey by National Savings and Investments showed that 45% of women say that a healthy bank balance is their top priority when looking for a partner. Only 22% of men said the same. The women also said that a man didn’t become desirable until he was earning ?50,000; they expected men to have hefty stashes of cash for them to spend – they assumed that potential partners would have an average of ?24,000 in savings. The men surveyed expected partners to have only around ?15,000 saved up. There is nothing wrong with hoping for a financial let-out clause, be it a lottery win or a rich husband (neither are intrinsically bad things, in fact they are both rather good things). The problem comes when we put too much faith – consciously or subconsciously – in the idea that our financial futures will be sorted out by this kind of external force. Because the odds are they won’t be. Let’s look at the lottery. Imagine a huge room filled to the top with 10,000 books. In one book, on one page, inside one O in the middle of a sentence somewhere, is a tiny dot. You have a pin. You must choose a random book. Then you must close your eyes, open the book and stick the pin in it. It is about as likely that you will hit the dot as it is that you will win the lottery in any one week. Indeed the odds of you winning the lottery are so low that they are pretty much the same whether you buy a ticket or not. That’s not really something to depend on. And nor for that matter is Prince Charming. He may well turn up – many, maybe most, of us find real love in our lives in the end – but when he does he probably won’t be quite what you had in mind. Your PC could be poor himself. He could be a high earner who is useless with money. He could be only a short-term PC – you could leave him or he could leave you. Let’s not forget that nearly 50% of UK marriages end in divorce. Either way you can’t rely on either his arrival or his long-term support. Love is a wonderful thing but rare is the woman who finds that it comes with a full cheque book. Even if it does, you do need to ask yourself if you really want to leave yourself dependent on a man for money for ever. I used to think that it would be just fine, but I don’t any more. I’ve been working and taking care of myself for over a decade and I don’t think I could be happy constantly having to ask someone else for money. When I was on honeymoon my debit card suddenly stopped working for no apparent reason, leaving me totally without cash and dependent on my husband for the two weeks we were away. The honeymoon was a gift from him to me so being cashless presented no major problems. It did, however, give me a hint of what it might be like to be dependent in less romantic conditions. When you’ve only been married a few weeks it isn’t hard to ask your husband to give you money to buy some postcards but would you really want still to be doing it after ten years of marriage? I get the feeling that once you’ve earned your own money you’ll find that for the rest of your life you’d prefer to make it than to take it. That means that even after you have married you still have to have an eye to your independence: you need your own savings and your own source of income to fall back on. Face it: you aren’t going to win the lottery and the lottery of love is never going to pay out to your full satisfaction. You’ve got to look after yourself. Times are tough Unfortunately for women, the time when we have no choice but to confront our own finances and plan for our own futures has coincided with a period when things are pretty tough. All the things our parents seemed to take for granted – being able to buy a house, support as many children as they got around to having and then retire in reasonable comfort – seem far out of reach today I met a man a few weeks ago who had joined the BBC as a graduate trainee 50 years ago on a starting salary of ?500 a year. It wasn’t much, he said, but he and his wife still managed to buy a flat in London’s South Kensington in which to start their lives together. ‘South Kensington,’ I said, ‘how much was that?’ ‘Five hundred pounds,’ he said. Now South Kensington wasn’t as smart 50 years ago as it is now, but just imagine being able to buy a flat in central London for the same as a graduate trainee’s salary (around ?20,000) today. How much easier would that make life? The same man has – like most of his generation – a final salary pension scheme. He has never really had to worry much about his retirement, his company did that for him and now they pay him a nice pension every year. That won’t happen to our generation: current state pensions are tiny and by the time we retire they are going to be even tinier – if they exist at all. These days if you want to survive in any style in your old age you are going to have to come up with the cash for it yourself. You are going to have to work harder than your parents and probably retire later. At the same time, taxes have recently risen enormously – you pay tax on almost everything. On your clothes, your food, your shoes, your alcohol, your petrol, your car, your aeroplane flights, your insurance and on all your investments. Overall, 40% of the nation’s wealth disappears into the deep pockets of the state. Nobody really knows where it goes after that but one thing is certain: it won’t be around to bail you out when you can’t pay your bills in your seventies. Oh, and don’t expect to inherit enough money to make it all OK either. Not only is the government intent on making sure that inheritance tax eventually hits everyone with two pennies to rub together but your parents are now likely to be living well into their eighties. That cash you had your eye on? The odds are they’ll still be spending it when you’re in your sixties. The fact is that young people today are at a serious disadvantage financially compared to previous generations. We are, says think tank Reform, the IPOD generation – insecure, pressured, overtaxed and debt-ridden. But just as the serious demands on your money – housing, pensions, tax and so on – have become more intense so has the pressure to consume non-essentials. As most of us have everything we need the only way for companies to grow their profits is to sell us stuff we don’t need. And that’s exactly what they do – with enormous skill. So successful has the advertising and marketing industry been that half of us appear genuinely to think that we need ?20 scrubbing lotions to get clean and ?500 handbags to look acceptable when we go out for dinner. We’ve got too many obligations – or we think we have too many obligations – and not enough cash. How, we think, can we possibly live a reasonable lifestyle and still save enough so that we aren’t living off dog food in our old age? The answer is that we can do so if we take control of our money rather than letting it control us. That means understanding it, talking about it and making it work for us. It also means being comfortable with it – knowing that using money well is neither embarrassing nor intimidating. Too many women still think money is a dirty word, still think that being rubbish with money is somehow feminine and still refuse to have proper conversations about it. In the last 100 years we have made huge leaps both in the workplace (I don’t think there are many who would still claim that men are necessarily better lawyers, managers or doctors than women) and outside the workplace (men still don’t do as much housework or childcare as we do but the fact that they should is pretty firmly established), but there is one more step to take before we can say we have tried properly to create real equality with men – we have to start sorting out our own finances. Back in the 1970s feminists got very worked up about the ongoing passivity among women when it came to money. We could cope with going out into the workplace and making the money, but investing it? Buying houses with it? Arranging pensions with it? In the 1970s we thought that all those things should be dealt with by men. But the really absurd thing is that 30-odd years on nothing has changed: many of us – in our heart of hearts – still do. We see a brown envelope in the post and we either ignore it or hand it on to someone else. When was the last time you had a conversation about money with a girlfriend? For many of us the answer is never. Men talk about money, they exchange stock and fund tips, they compare mortgage deals and the cost of new cars and boast to each other about their financial successes. But the closest most of us ever get to a proper chat about personal finances is when we lie to each other over coffee about how much our new clothes cost. We have to get over this passivity. And, given how important financial security is to our long-term contentment, we have to do it soon. We have to give managing our money the same level of attention as we give our diets, our houses, our health and our jobs, because no one else is going to do it for us. You can do it The good news is that you can both live well and prepare for the future, and much more easily than you think, as long as you are prepared to put a bit of work into it. There are two things to note here. First, the financial world is much simpler than the financial professionals would like you to think it is – this book explains everything you need to know to sort out a whole lifetime of money in three hundred straightforward pages. Second, and more importantly, there is little doubt that once they put their minds to it, women are just as good with money as men and in some ways often better. There is evidence that women who do invest are better at it than men, for example: research from Digital Look shows that over more or less every time period, female investors have outperformed male investors. In 2003, for example, the average woman’s portfolio rose by 10% a year. The FTSE index (which measures the performance of the UK stock market as a whole) rose by 7% and the average man’s portfolio by 6%. And even in the year to the end of October 2002 when the FTSE fell by 22% the average female portfolio rose by 2%. So much for the idea that women are useless with money; in fact once we overcome our passivity and get started we are actually pretty good with it. All this makes complete sense to me. Not everyone likes to admit it but in lots of ways the very nature of women makes us better suited to long-term money management. Thanks to social and biological roles as nurturers and carers, women are in general more cautious, patient and questioning than men. They don’t mind admitting ignorance and asking for things to be explained. They know that money doesn’t grow overnight and that investing and saving, like bringing up children, is a long-term job that requires substantial amounts of planning. And they know that when it comes to money the small things matter as much as the big things. All in all (and this is a huge generalization but not an unfair one), we have a much better temperament for dealing with money than many men. What we need is the knowledge and the will to take advantage of it and this is where we too often fall down. Taking charge I’ve been through a lot of the financial journey this book travels myself. I’ve been a student, I’ve done years of unpaid or underpaid work experience, I’ve had and left badly paid jobs in television and journalism as well as a few highly paid jobs in the City, I’ve worked full-time, part-time and freelance as well as in London and in Tokyo, I’ve participated in the setting up of a new business and most recently, in rather quicker succession than I initially intended, I’ve married and had a baby. I’ve been grossly financially irresponsible during a lot of this but I’ve also now managed to pull myself together and emerge in a relatively stable position. A few years ago I realized that while I liked to think I had my finances under control, I simply didn’t. I had no pension arrangements and no plan in place for paying off my mortgage. I had various bits and bobs of savings but no real plan as to how they worked together. Then something happened to jolt me into action. I met my husband and he moved into my flat and took over half the mortgage. He was interested to see that it was an interest-only mortgage. How are you saving to pay it off at the end of the term? he asked. I confessed I wasn’t. He was horrified and I was embarrassed. But I was also prompted by his surprise, as well as his unwillingness to sort it all out for me (as he says, if he has to do half the housework, I can sort out my own bank accounts), to take charge of my own money. So I’ve sorted out my pension arrangements, I’ve started saving regularly and doing so in a tax-efficient way, I’ve switched the mortgage to the cheapest repayment mortgage I could find, I’ve reviewed my income and made sure it matches my skills and the work I put in, I’ve made sure we are paying the lowest possible prices for all our utilities and I’ve put a check on some (not all) of my unnecessary spending. It’s taken some time and been a reasonable amount of effort, but it feels very good indeed. The point of this book is to show you that you too can use your natural skills to take control of your finances at every stage of your life. The first section looks at how to increase the amount of money you have every month. Your income is the most important factor when it comes to controlling your finances. Once you know that you are getting paid as much as you can for what you do you can settle down to working out how to turn that income into wealth. So the fact that most of us aren’t maximizing our incomes, aren’t paid what we are really worth, or as much as the man at the next desk, is a fundamental problem that we need to sort out as fast as we can. The section then considers spending (which isn’t all bad) and at debt (which also isn’t all bad). The second section looks at how you can grow your assets – at saving, investing, pensions and property. Here we’ll go through the financial options on the market and explain which ones offer value and which ones are simply complicated vehicles invented by the financial industry to rip you off. I want to be the richest pensioner on my road when I retire and I want the same for you (as long as you live on a different road). The next section considers what happens when you need to share your money. How will you pay for a wedding and how will you organize your finances within your marriage? How does the money work if you don’t marry but live with a long-term partner? What about children? How much will they cost and how will you pay for them to get what you want them to have? How can you possibly maintain your financial independence if you stop working to look after children? What are your legal rights as a working mother? And what if your marriage doesn’t work out? We look at how to deal with the financial shocks divorce throws at women. Finally, in the last section we look at how money can make you happy – and how it can’t. Happiness isn’t all about money but financial clarity in your life will bring you a peace of mind that is hard to beat. I hope that by the time you get to the end of the book your finances will no longer be a source of blushes or stress but a source of that peace of mind. Section 1: Finding the Money “Make your money and buy your freedom.” Tamara Mellon, owner of Jimmy Choo 1 Maximizing Your Income How to Get Paid What You Are Worth A few years ago Linda Babcock, a professor at Carnegie Mellon University in the US, noticed that year after year the starting salaries of the men who graduated from her classes were higher than those of the women – to the tune of around 7%. This confused her – they all left with similar qualifications and went into similar jobs. So she investigated. It turned out that the majority of the women, thrilled to be offered jobs, had accepted the starting salaries they had been offered. The men had not. They had negotiated the salary up – by an average of 7%. The employers were not discriminating against the women; the women were discriminating against themselves. My mother always told me life wasn’t going to be fair. But for much of my childhood I wasn’t really convinced. It seemed to me that most of the time you got what you deserved. At school if you were nice to people they were generally nice back. If you worked hard you did well in exams and were praised accordingly. And if you didn’t you weren’t. It was the same at university: if you followed the rules and worked hard you got a good degree. If you didn’t you didn’t. Simple and perfectly fair. Then I entered the world of work and found that my mother was completely right. In the office things aren’t fair at all: working hard and being nice in no way guarantees you a fair wage. Instead, if you are a woman, it very often condemns you to an unfair one. According to the Women and Work Commission, women who work full-time are paid on average 13% less than men who work full-time and women who work part-time are paid a horrible 40% less than men. This gap has not closed significantly for going on 30 years and has barely budged in the last 10: in 1997 New Labour came to power full of heart-warming promises about their female-friendly policies but since then the pay gap between men and women for full-time work has fallen by only 3.6% and for part-time work by a mere 2.5%. If it keeps moving at this snaillike speed, says the Commission, it will be 140 years before male and female part-time workers earn the same wage for similar work. The difference this makes is important. The average full-time salary for a man is around ?31,000. The average for a woman is more like ?23,000. Look at something like the banking sector and the difference is even more extreme: the average salary of a woman is ?31,600 a year and that of a man ?53,700. And even female company directors are paid less than their male counterparts: a survey from the Institute of Directors in 2005 showed that the pay gap here, in an area where one would think women would be tough enough to get what they wanted, was still 24%. So what’s going on? There are all sorts of explanations doing the rounds. The main one is the fact that women tend to leave the workforce for long periods of time to have and to bring up babies, something that stops them moving into senior positions as often and as fast as men. It is also true that women tend to go into traditionally low-paid jobs such as those in childcare, in cleaning and behind cash registers (the three ‘c’s) and where the hours are more flexible than elsewhere. But there is more to it than just this. According to the Equal Opportunities Commission (EOC) 40% of the pay gap between the genders comes down to pure discrimination: women are paid less because they are women. For proof look no further than the fact that even before the baby thing kicks in women are paid less than men: research by the EOC tells us that five years after graduation the difference between the wages of equally educated men and women is, on average, 15%. This depressing statistic is backed up by a study done by the London School of Economics (LSE) in 2003. The LSE tracked down 10,000 recent graduates and found that after three years of working (and before having children) the female graduates were earning 12% less than the male graduates. And according to the DTI, overall, single childless women make only 93% of what single childless men make. Do you need a degree? Education in itself is no guarantee of a high income. Consider the case of the average university degree. Today around 40% of young people go into some form of higher education. This means that having a degree isn’t special any more – everyone who wants one is now getting one so you aren’t going to get paid much of a premium for having one too. In fact, according to the Higher Education Statistics Agency, a good 25% of graduates now go into jobs that didn’t require them to have degrees in the first place: more are working in low-paid office administration jobs and customer service jobs (27%) than in ‘professional occupations’ (25%). Recent research also shows that the average graduate (male or female) now has to wait until they are 33 – that’s after 12 years of full-time work – for their earnings to overtake those of someone who skipped university and began work at 18. I’m not sure this should particularly surprise us. After all, most of us learn little of vocational use at university and the traits that employers value most are rarely teachable. When the Council for Industry and Higher Education last year asked 45 top businesses what they were looking for in employees the most common answers were ‘innovation’ and ‘the ability to think creatively’. I once interviewed a charming young man with a good degree from a top university for a writing job at Moneyweek, the magazine I edit. A lot of what we do at the magazine is pr?cising material from other publications so I asked him to pr?cis a piece for me in order to check both his comprehension and his writing style. When I got his effort back I found it quite confusing: his article seemed to tell only half the story and came to no real conclusion. I dug out the original to check what had gone wrong. It soon became clear. The article I had given him to summarize was on two sides of one piece of paper. He hadn’t turned the piece of paper over. University not only didn’t teach him to think creatively. It didn’t teach him to think at all. In contrast, a year or two later I hired as my deputy editor a young woman who had not been to university. She was several years younger than most people I would have considered for the position (having three years more experience than most people her age) but I could see no difference between her skills and those of the many others (all graduates) who I interviewed for the job. Given all this, it’s worth thinking very seriously about whether university is really for you, particularly with tuition fees now coming in at ?3,000 a year and most students leaving university with upwards of ?15,000 worth of debt (you don’t pay the fees until you graduate). If you can go to a top university and get a top degree odds are it will turn out to have been worth the effort, but if you are going to a low-grade university and expecting to get a third is it really worth the bother? If you decide the answer is yes one of your main priorities (only just behind making sure you get at least a 2:1) is to get through the whole thing with as high an income as possible in order to run up as little debt as possible. Students from particularly needy families (annual income ?17,500 or less) can get grants worth up to ?2,700 a year in 2006–7, while everyone is entitled to cheap student loans of up to ?4,405. These are far and away the best way to borrow, given that the rate is well below that on any other kind of debt and you don’t have to start paying the money back until your income hits ?15,000 (see www.slc.co.uk for details of student loans). Otherwise there are hundreds of different grants, bursaries and scholarships about. A full listing of all the bursaries and scholarships on offer can be found at www.ucas.com, the website for the Universities and Colleges Admission Service. Note that a survey last year showed that 95% of students about to head for university knew nothing of the money on offer. This is excellent news for those who bother to find out: the fewer people who know the less competition there will be for the funds and the more there will be for those who have done some research. Finally, you might need to think about working while you are at university. However this does need to be kept to a minimum. If you think you are working too much to study enough to get your 2:1 stop working: you don’t want to end your three years with nothing to show for it other than a skilled pint-pulling technique. This sounds outrageous and it is. But the really nasty thing about it is that to a large degree it is our fault. Study after study shows that women are paid less not because their bosses are actively discriminating against them, but because they never ask for more. In 2006 Grazia magazine surveyed 5,000 working men and women, asking them about their pay and their thoughts on their pay. Two-thirds of the women who took part said that they had never asked for more money, despite the fact that 80% of them also said that they thought they were underpaid and to a degree overworked (50% of the men surveyed said they took a full lunch hour every day whereas 25% of the women said that they never took a lunch break at all and 61% said they never took full lunch breaks). Only 29% of the women surveyed said they had ever plucked up the courage to ask for a rise and of those, said Grazia, half claimed it was one of the most ‘stressful and embarrassing things’ they’d ever done. Linda Babcock and Sara Laschever, the US authors of Women Don’t Ask, point to research showing that men initiate negotiations four times as often as women and that, unlike the women surveyed, who said negotiating was like ‘going to the dentist’, the men said they found it to be like a ‘wrestling match’. Men find negotiating exhilarating. Women find it humiliating. So much so that when they do force themselves into asking for a rise, say Babcock and Laschever, they do it so badly they end up with 30% less than men in the same circumstances. So why do we find asking for money so hard? It seems to come down to a different method of self-measurement. Women assume that if they were worth more than they are paid, their boss would pay them more automatically, so they don’t ask. To do so would be embarrassing; it would be to suggest that work and the relationships formed at work are not satisfying in themselves but that they have a set monetary value. We also think it might somehow be rude and adversely affect our relationship with our boss – it’s an emotional thing for us. We think that pay levels should automatically be fair (just like A-level grades) and if they aren’t we are too nice to demand that they should be made so. I’m guilty of this myself. Like many other women, I think a part of me feels I’m somehow lucky to have my job (rather than that my employers are lucky to have me) and that if I ask for more money anyone employing me would be entirely justified in telling me that I can empty my desk and be off – they can find someone else who would be thrilled to have my job on any salary with no trouble. Men are different. They internalize their confidence more. They don’t need to be loved by their colleagues or their bosses and in general they don’t feel lucky to be allowed to work. Most of them are clear about the fact that they work mainly for money (and the status that brings) so they take a view on what they are worth and insist on having it. They can separate their view of themselves as a person from their idea of how they do their job and what they deserve as a result. Women think about their weaknesses when they negotiate. Men think about their abilities. Women self-deprecate. Men demand and then revel in praise and the status it brings. They ask more so they get more. “Remember Ginger Rogers did everything Fred Astaire did, only backwards and in high heels.” Ann Richards, governor of Texas 1991–1995 Those in any doubt that those people who ask for more get more should take note of a survey out from Woolworth’s just before Christmas the year before last. It pointed out that on average parents spend just under ?100 more on Christmas presents for their sons than for their daughters. Why? The answers from the parents surveyed should give every woman in the country something to think about: boys ask for more presents, and the presents they ask for tend to be more expensive (the most expensive toy in the top five for girls that Christmas was the Amazing Amanda doll at ?69.99, for boys it was the PlayStation Portable at ?179.99). Girls also asked for smaller presents that they can ‘love, care for and collect’ said the Woolworth’s spokesman. They ‘keep their toys for longer and are not so demanding for the latest craze’. Boys, on the other hand, ‘always ask for the new toys as soon as they are released’. And, just to ram the point home, the parents surveyed said that if they didn’t get what they wanted their boys got nastier than their girls. The point is that self-discrimination starts young. Women don’t ask for enough often enough. The result? They get stuck with cheap dolls when they are 9 and then rubbish salaries when they are 29. This kind of thing matters. Imagine that a man and a woman are both offered a job at the same time at the same place. The offer includes a starting salary of ?25,000. The woman takes it. The man negotiates it up to ?28,000. Thereafter they both get 5% pay rises every year over the next 30 years or so. How much more do you think he will earn over his career than she does? The answer is a shocking ?285,000. And that’s a minimum number: if the woman accepts the 5% every year but the man pushes it up a little more at each annual review (don’t forget men initiate negotiations four times more often than women) he will end up with even more. A quarter of a million pounds is many times more than the average person’s net worth will ever be but women throw that kind of money away every day simply by being too embarrassed, too shy and, let’s face it, too foolish to ask to be paid what they are worth. So next time you think that you’re lucky to have your job remember that, if you aren’t paid the market rate, you aren’t nearly as lucky as the employer who has managed to get you to do the same work as the man at the next desk for less money. All this means that you must have your wits about you in the workplace. There are many ways to make yourself better off – and we’ll be looking at many of them later in the book – but the simplest way to get richer in a hurry is to make sure you are getting paid what you are really worth. Once you’ve done that you can start working to turn that stream of income into long-term wealth. But first you have to ask for more money and the sooner you do it the better. Here’s how to go about it. Eleven ways to get paid what you arereally worth 1 Get the knowledge. Find out how much other people in your line of work get paid. When I started in journalism I made a point of asking a friend senior to me in the business how much she earned and how much she thought I should earn. Now she always tells me everything she knows about pay standards in our industry and I tell her. Also visit recruitment websites or call a recruitment consultant. If you feel able to ask colleagues what they make go ahead (a few drinks might help here). Next visit www.paywizard.co.uk (it doesn’t give much detail but it will help you to see the range of pay on offer for jobs similar to yours). Finally, get your personnel department to show you the firm’s pay data. You can’t ask to see what individuals are paid but you can see a breakdown of pay by sex, which might help your case a little. Knowledge is power – no one can argue with you if you have the right facts to hand and you have a good case. 2 Do your own PR. Women aren’t programmed to shout about their achievements in the same way that men are but the more you let people know both that you exist and how well you are doing the more they will remember you. Perhaps you can keep your boss aware of your progress on a weekly basis. I don’t mean going into their office at the same time every Friday to bore them with the details of how special you are, I just mean that you should make sure that every week they are copied in on an email that makes you look good or that you regularly mention any positive feedback from colleagues or customers. You also want to be sure that you aren’t overlooked. You need to speak up in meetings whenever you get the chance (even if you aren’t convinced your contribution will be an exceptionally good one – when did that ever stop a man?). When the time comes to ask for a rise collect evidence to show that you do your job adequately. It’s nice if you do your job particularly well but you only need to do it averagely to get paid the going rate for it. Also make a list of any achievements, especially if you can show that they have affected the firm’s bottom line (in a good way) and get together any comments or letters of praise or thanks from suppliers or clients. Then take them all in with you. Remember that a key part of doing well – of being promoted and of being paid more – is self-promotion. Don’t ever be too modest. When you were at school if you worked hard you automatically got As. But this isn’t school and there is no exam that tells people what you should be paid. You have to tell them yourself. 3 Be objective. Forget how much you feel you are worth. This isn’t about your self-esteem; it’s about an objective assessment of your market worth. And asking for more money isn’t rude. It’s perfectly normal. 4 Don’t wait too long. There’s no need to wait for an annual pay review. You can ask for more money at any time. The worst that can happen is that the answer will be no. 5 Begin as you mean to go on. When you start a job don’t accept the first salary offered. Immediately try to bump it up a bit. The higher a base you start from the faster your salary will rise. 6 Start high and expect to be argued down. Know what the minimum you will accept is before you start negotiating. 7 Never threaten to resign unless you really mean it. If you don’t get what you want and you then don’t resign your position will be permanently undermined. 8 Don’t assume no means no. Ask for another review in six months. Also consider asking for non-cash options – perhaps more training or more flexible hours, time off to study, or a day working at home. Ask if you can be sure of a pay rise if you hit particular targets; ask to have set objectives you will be judged against. 9 Ask on a Wednesday afternoon. A recent survey from Office Angels found that four out of five employers are at their most receptive to pay demands in the middle of the week and in the afternoon. 10 Use the law. If you really think you are paid less than a man for broadly similar work and none of the above has worked you will need to take it further via the legal system. Under the Equal Pay Act you can write to your employer asking for information to help to establish if you are getting equal pay and if not why not. Download a list of the questions you can ask from the EOC website on www.eoc.org.uk. If you remain convinced you are being discriminated against but your employer still refuses you a rise, write a letter of grievance to them. Wait 28 days for a reply. They should then set up a meeting to discuss the situation. You can take a union representative or colleague with you. If your grievance is not upheld you can and should then appeal against the decision. If this too doesn’t work you can, as a last resort, go to a tribunal. Get advice on it from the EOC and the independent Advisory Conciliation and Arbitration Service (www.acas.org), which tries to settle claims. In 2002–3, 17,000 women took their employers to a tribunal. There is one final thing to say on pay and discrimination. Do not ever go to a tribunal or threaten your employer with a tribunal if you don’t have a good case but just hope you might get a cash payout. It isn’t good for any of us. 11 Never be afraid of being called a feminist. Too many people think that being ‘pushy’ in the office will end up with them being labelled a ‘feminist’. And too many people think there is something wrong with that. According to a poll commissioned by the women’s rights organization Womankind Worldwide in 2006, only 29% of UK women are happy to be called feminist these days. This is an outrage. If you agree with women having the vote, having equal rights in the workplace and at home, getting as much say over the family car as a husband, being free from domestic violence and rape and so on then you are a feminist. Anyone who says they are not should take a step back and remember that the world of opportunity they live in was created for them by the women who invented the word – and suffered for it. We do them a great disrespect to deny their label. I’d be horrified if anyone suggested that I was not a feminist. Being worth more So far we’ve just been looking at how to get paid what you are really worth. But you can also look at this the other way around: if you want to get paid more perhaps you should make yourself worth more. You are selling yourself in the labour market. Within that market there are a lot of ordinary people. They can all type, can all do basic administration, can all answer phones and so on – they can all do low-paid commodity-style jobs. So if you want to get paid more than them you have to have skills they don’t have. You can do this formally. It is generally accepted that the better educated you are the more you will get paid and in the case of professional qualifications that is absolutely true. As a doctor or a lawyer, an architect or a web designer the better your qualifications and the more of them you have the more likely you are to be able to find the best and the best-paid jobs in your sector. You also need to be sure that you keep upgrading your skills – don’t be the last person in your office to learn new IT skills; be the first, for example. But if you like your job you will also accrue value as an employee informally – being engaged and enthusiastic makes you of more worth to your employers than being bored and disengaged from your work. So ask yourself this. Do you like your job? Does it make you happy? Do you actually want to do it? Too many of us just drift into our first jobs and then end up stuck in them or variations of them for ever whether we like them or not and whether we are particularly good at them or not. This makes us disconnected, something that stops us learning or moving ahead – who wants to promote someone who is clearly bored with her career? If you take a job you are genuinely interested in, however, you should find that you are excited by it, that you learn and grow on the job, that you understand how the company you work for operates and what it needs from you. This makes you valuable and it makes you promotable. The upshot? If you do something you enjoy you are more likely to become good at it and hence to be paid more for doing it. So think about the bits of your job that you really like, do more of them, do them better and make sure everyone knows you’ve done them better. A rising salary should be the reward for that time and effort. Three other ways to make more money Changing career What if you’ve done everything you can to get paid the going rate in your current job and you still don’t feel that your income is high enough? The obvious thing to do is to change jobs. When someone offers you a new job they usually offer you 5–10% more than you are currently earning (otherwise, unless you were deeply unhappy in your old job for non-financial reasons, why would you bother moving?), which not only bumps up your current salary but bumps up the base from which it will be increased in future pay rounds. But more promising as a long-term tactic than moving jobs within your industry might be to consider changing the kind of job you do. For all the wrong reasons much work remains effectively divided into women’s work and men’s work. Women are nurses, child carers, beauticians, primary school teachers and shop assistants. Men are plumbers, train drivers and construction workers. And guess what? Yes, all the traditional male jobs pay significantly more than the traditional female jobs despite the fact that the skill levels required can’t be considered that different. Do you need more skills to drive a train than to teach a class full of 30 five-year-olds? To build a wall than to take blood from an elderly cancer sufferer? I don’t think so. None the less this kind of pay discrimination exists right up to the top of the career tree: an article in the Financial Times recently pointed out that the work of (mostly female) clinical psychologists and (mostly male) psychiatrists overlaps significantly, yet the former are generally paid less than the latter. What they earn Cherie Blair (lawyer): ? 200,000 Lily Cole (supermodel): ? 2 million Anna Wintour (editor of Vogue): $ 1 million Stella McCartney (fashion designer): ? 669,000 Davina McCall (TV presenter): ? 1 million Kirsty Young (newsreader): ? 500,000 Laura King (beauty therapist): ? 11,000 Louise Hitch (personal trainer): ? 20,000 Inge Mecke (trainee solicitor): ? 29,000 Alessandra Sartore (executive PA): ? 35,000 Rachel Dodd (care assistant): ? 13,000 Zoe Baglin (occupational therapist): ? 18,500 Helen Pike (teacher): ? 37,000 SOURCE: Grazia You’ll clearly be fighting a losing battle if you are a beautician (paid around ?18,000) and want your employer to pay you a construction worker’s salary (more like ?35,000), so the best way to earn more is simply to switch over. There is currently a huge shortage of skilled labour – bricklayers, decorators and carpenters, for example – in central London, yet there are so few women in the business (around 1% nationwide) that when an all-women team turned up working in the capital the story merited a full-page article in London’s Evening Standard (headline: ‘CHICKS AND MORTAR’). I’m not suggesting that we all take plumbing courses, just that we look around us and wonder if the industry we are working in is the best one for us over the long term. Getting a second job The other obvious way to boost your income in a hurry is to get a second job. Second jobs are usually low paid and boring – waitressing, Saturday shop assisting, cleaning and the like – but if you pick them right they can also occasionally offer you experience that can take your career to another level. One of my first jobs was working as a researcher at a Japanese television station. My fellow researcher (Riko) had a second job doing the same at MTV in the evening. She ended up becoming an MTV video jockey specializing in hip-hop music and then a bigwig at a large record company. Still, that kind of thing doesn’t happen very often and for most of us the main problems with a second job are not, as they were with Riko, hoping that our main employers don’t see us on TV and fending off fans when out for dinner, but getting enough sleep and making sure our tax affairs are in order. The tax thing is boring but important. You will need to tell both your current employer and the Inland Revenue that you have a second job so that both your income tax and your national insurance can be correctly calculated. There is, for example, a limit on how much national insurance anyone has to pay on their salary so with two jobs – and two employers deducting it on behalf of the government – you could find yourself paying too much and then having to claim it back by filling in your own tax return. You also need to make sure you are paying the right amount of income tax. You get a personal allowance (an amount of income you don’t have to pay tax on) every year (?5,035 in 2006/7) but if you don’t let your employers know about each other you may find that they both give you the allowance, leaving you with a large bill to pay to the Inland Revenue later. If your second job means your total income is high enough to make you a higher rate income tax payer yet both your employers are only collecting lower rate payments the same could also be true. Make sure your employers know about each other and get you the right tax codes if you want to avoid any difficulties (see the Inland Revenue’s website, www.hmrc.gov.uk, for more on this). Finally, before you take on a second job do make sure it is both possible and really worth it. Working two jobs isn’t easy so ask yourself a few things before you commit yourself to it. Will your main employer allow it? Many companies explicitly say in their contracts that employees are not allowed to take on any outside work at all, so, while you may think you can get away with it simply by not telling your main employer, taking on a second job might put your first one at risk. Do the sums really add up? You may need childcare, which could eat up much of the extra income, and if you are on any benefits you will find that as your income rises they fall. Making your own money rather than relying on the state (and effectively the largesse of other tax payers) sounds good in theory, but in practice it can be a tad exhausting. So check what will happen to any benefits or tax credits before you head out to work a second job. Then you might think about whether you could look at your income equation the other way around. A study from Liverpool Victoria last year showed that over 40% of those with second jobs had taken them not to pay off debts or save for something special but just to meet their living expenses. However, perhaps instead of boosting your income to meet those expenses you could simply reduce the expenses. You probably think you can’t cut down, but most of us overspend, be it on shoes or insurance. A little time spent concentrating on cutting our costs can improve life immeasurably more than spending Friday and Saturday nights stuck behind a bar – and usually a lot faster too. See the next chapter for more on this. Start your own business All the things we’ve discussed in this chapter so far have been about how to increase your income in a marginal sort of a way – about adding 20% rather than about multiplying it by ten. But most of us secretly hope for a great deal more than that: we dream that one day we’ll be rich. Ideally, we’d like this to happen without us having to make much in the way of effort. That’s why every week 14 million of us buy tickets for the National Lottery. Sadly, playing the lottery is an absolutely hopeless way to get rich: every week about 13,999,999 of us don’t win a penny. So what’s a better way? A more realistic answer is to start your own business. One million women in the UK are self-employed and women now own a third of our small businesses. Following their lead isn’t easy and it certainly isn’t foolproof: a large percentage of small businesses fail in the first year and another large percentage struggle on for a few more years without ever making real money. But some will hit the big time. Remember the story of the Body Shop? Thanks to having the right idea at the right time and working relentlessly to make her dream a reality Anita Roddick is now a millionaire many times over. The same is true of Julia Pankhurst, founder of Friends Reunited, a social networking website valued at many millions of pounds. And these extreme examples of success aside, there are thousands of other women around the country making good livings from their businesses. One is my sister Tabitha. She has always found working for other people tricky and long had dreams of running her own company. So three years ago, at the age of 28, she started doing just that and launched her own accessories firm called Tabitha. She designed a collection of handbags, got them made up at a factory in east London and then spent the next few months schlepping from trade show to trade show selling them. Selling is one of the things she does best and within months she was deluged with orders. Today her bags are on the arms of many a celebrity (Danni Minogue is a big fan!), she manufactures her products in China and Brazil and her turnover in 2005 was nearly ?750,000. She’s done extremely well and done it very quickly but, as she says, it really hasn’t been easy and it still isn’t – she seems to hit a new business-related crisis of some kind every week. For the last two years she has worked every hour possible; she has barely seen her friends and family; she hasn’t had time to have a proper boyfriend; and she has had to cede custody of her cats to an old flame as she has no time to look after them. Starting and running a small business is, she says, the hardest thing she has ever done and no one who isn’t ‘truly passionate’ about their product or idea should even consider following in her footsteps. Her words are echoed by Caroline Bennett. Twelve years ago, Caroline, now 40, raised ?90,000 and opened a sushi bar called Moshi Moshi in Liverpool Street in London. Years of hard slog later she has two more restaurants. Moshi Moshi turns over nearly ?3 million a year and produces profits of several hundred thousand pounds a year. Smaller scale, but getting there, is the firm launched in 2001 by Australian Ashe Peacock. Antipodium is dedicated to Australian fashion with a shop in Soho but Ashe also does PR for Australian brands in the UK and wholesales their products into other retail outlets here. She now has eight staff in London and turns over a few hundred thousand pounds a year. So how can you have a go at following in their footsteps? I’ve asked Caroline, Tabitha and Ashe for their top tips and summarized them below. 1 Don’t start a business unless you really want to do it. If you don’t want it enough you won’t be able to cope with the long hours, the financial difficulties and the utter lack of time for anything not related to your work. It just isn’t enough to like handbags to start a handbag business and liking sushi isn’t enough to give you the drive to launch a restaurant chain. 2 Research, research, research. Your idea may sound good to you but is there really a gap in the market? Make a proper business plan showing exactly how you imagine your project will develop. How big is the market? Who are the competitors? How big can you grow? What are the potential weaknesses? What are the costs likely to be? ‘I didn’t do a proper business plan,’ says Tabitha. ‘I thought I’d just figure it out as I went along. Big mistake. Without set targets and proper pre-planning the business was a huge mess by the end of the first year.’ NatWest has a free online advice programme to teach entrepreneurs about planning and conducting market research. See www.natwest.com/newbusiness. 3 Get all the advice you can. If you go it alone you have a 40% chance of succeeding but if you join a mentoring scheme of some kind those odds improve to 50%. But never forget it’s your business. Everyone has an opinion and likes to offer advice, says Tabitha. ‘Listen but stay focused on what you want and go with your gut instinct.’ You’re the one who will end up dealing with the consequences of your actions so all the final decisions have to be yours. 4 ‘Take full responsibility for everything,’ says Ashe. If you start a fashion business ‘you don’t just get to play around with dresses’. You have to understand all the boring bits too. If you don’t do your own book-keeping you won’t make it. ‘I’ve learned the hard way that no one else will do things as carefully as you, so you have to be qualified to supervise everyone who works for you on every level.’ 5 Understand that employees and friends are different things. However much you convince yourself that having friends working with you or for you will work, says Tabitha, ‘it just won’t – ever’. Managing staff isn’t something you think about when you first start up but if you have any success at all you won’t be working on your own for long. Then hire very carefully. Once hired, staff are hard to get rid of, ‘and in a small company politics can be so destructive’. ‘Business is about the people you employ,’ says Ashe and it is hugely challenging learning ‘how to be a leader while being fair and allowing people the freedom to make their jobs as interesting as they want them to be’. Remember too that you have to support them but they won’t support you: ‘The boss gets no support from anywhere: people assume you don’t need it.’ 6 Be nice to your bank. An understanding bank manager will make all the difference when you have cash-flow problems. And you will have cash-flow problems, says Tabitha. Lots of businesses look great on paper but go bust anyway when they run out of the cash they need to deal with day-to-day expenses. Small fashion businesses collapse every day thanks to department stores not paying them for months after their wares have been sold, for example. See www.payontime.co.uk for advice on making the big boys pay you what they owe you. 7 Use the Internet. Web-based businesses can start smaller and use less capital than others. Eighty per cent of the businesses in the UK run by women have a website and it’s essential that you too have an online presence. A good website doesn’t come cheap, says Tabitha, but it is the most important part of your branding: get it right and it will be the best investment in yourself you ever make. 8 Remember size isn’t everything, says Caroline. If you have started the business looking for the status and recognition that come with having a well-known brand that’s one thing, but if it’s financial freedom you want you may find that you are better off expanding slowly, or if you are doing well being small just staying small. A small company offering a good regular income is better than a large one making losses. 9 Don’t get too hung up on looking for grants. There are around 3,000 different types of grant available to small businesses – from the government, the EU and various other support bodies (see www.businesslink.gov.uk) – but most small business owners say that the red tape and form filling take up so much time and energy that it simply isn’t worth bothering to apply for them. 10 Remember that you will have to take risks. Being an entrepreneur is uncomfortable and working hard alone won’t guarantee success. You’ll need creative thinking and luck too. ‘You can’t assume that the people you do business with will be honourable,’ says Ashe. ‘Anything that can go wrong will.’ ‘You are always the last to get paid,’ says Tabitha, ‘so if you need routine and security, don’t do it – entrepreneurship isn’t for you.’ 11 Don’t let yourself be discriminated against. A recent study by Warwick University showed that women starting a business pay up to 1% more a year for their start-up loans than men. They also borrow much less: an average of ?6,100 against ?18,500 for men, says the Association of Chartered Certified Accountants. There are many perfectly rational explanations for this (perhaps women tend to start riskier businesses) but it’s worth bearing in mind – most bank managers are, after all, men. Scams: the ways you won’t make money When you need money badly it’s tempting to fall for one of the many get-rich-quick schemes about, particularly as so many of them sound so very plausible. But like most things when it comes to money, dealing with scams is a matter of common sense. All you have to do is remember this: when it comes to money, when something sounds too good to be true it always is. There are no exceptions. The Avon Lady and Ebay: Selling in your spare time I remember the Avon Lady coming round when I was a little girl. She had cases and cases full of wonderful coloured smelly goodies and my mother, after a good rummage through and a bit of a gossip, would occasionally buy a lipstick or two from her. But who would have thought that in today’s Internet age the Avon Lady would still exist? Well, amazingly she does. Christianne Randolfi became an Avon Lady by default. She used and wanted to keep using the products (Avon aren’t just about lipstick these days – you can buy anything from foundation to knickers to jewellery from your local representative) so she signed herself up as a sales rep. Now she sells to her friends and local acquaintances in a small way, putting in an order for around ?70 and making roughly ?10 for herself each time. Could she make more? Easily she says. A few very elite Avon Ladies are said to make six-figure incomes from the firm, but she’s happy to earn enough just to pay for her own cosmetics. Contact www.avoncompany.com for more information. Still, something tells me that Avon Ladies aren’t the wave of the future. If I were looking for a way to make a bit of extra income out of a few hours a day I think I would turn to eBay, the auction site where anything can be bought and sold to anyone. For inspiration take the case of Caroline Brown, an eBay trader who specializes in clothes. At 61 years old she has a lifetime of knowledge about fashion and fabrics behind her, so she visits charity shops all over the place, buys the good stuff and then auctions it on eBay. Does she make any money? You bet she does. As an accomplished dressmaker in her own right Caroline can separate the good stuff from the dross in seconds (‘it’s all about the cut and the fabric’) and while it is true that vintage clothes are all the rage and the pickings are thinner than they were even five years ago she says there are still plenty of bargains about: a piece of quality high street clothing that retails at ?75 will probably sell for a tenner in a charity shop and ?20 or so on eBay. That means that if you have a good eye, says Caroline, and you can shift ten or so items a week you could make ?100–?150 a week relatively easily; she’s sold her wares to people in the US and in Japan as well as to residents of the Outer Hebrides (who haven’t much access to high street shops) and to a pub landlady in Wales. Caroline suggests looking in particular for the labels everyone knows – French Connection, for example – when you start out, as they are easiest to sell. But eBay isn’t just about fashion: if you want to do well on it you have to work with what you know. Suzette is very knowledgeable about books. She spends her spare time combing car boot sales, markets and country auctions looking for deals that she then sells on eBay. Sometimes she makes only ?5 on a trade but sometimes she strikes it lucky too: she once sold a Kylie Minogue magazine supplement to a man in Florida for ?85 and a rummage through a skip in Finchley provided her with ?1,000 worth of sales in rare classical music books and RAF memorabilia. Overall, she has found that with a little concentration she can make up to ?1,000 a month trading books. Suzette is a single mother so this is a very useful extra income for her. Carlotta isn’t a very active trader, but everything she needs for her two children is bought and sold on eBay: when she needs a new pram she saves money by getting it second-hand on eBay and when she doesn’t need it any more she claws the cash back by reselling it on eBay too. Below are Carlotta, Suzette and Caroline’s five top tips for doing well on eBay. Get all the relevant information about your product into the descriptive title. People won’t search under the words ‘stunning’ or ‘fabulous’ but under ‘skirt, green, size 12’. Suzette says she’s even made money buying things on eBay that had been badly listed and then reselling them. Try to have all your auctions end at the weekend, preferably on Sunday evening as that is when eBay is busiest and people have time to watch the items they want properly. Always overestimate rather than underestimate the postage costs – losing out here can be very irritating. Try to have everything sent by recorded next-day delivery. Most people are prepared to pay the extra for it and it means that you can keep track of your items and keep your feedback 100% good (everyone you deal with can rate you on eBay and if your feedback is less than around 98% good you’ll have trouble selling stuff). Be nice, be efficient and be scrupulously honest. On the Internet your feedback ratings (a proxy for your reputation) are the most important thing you have. “A large income in the best recipe for happiness I ever heard of.” Jane Austen The most common scams often have something to do with pyramid selling. These are effectively schemes that have as their sole purpose signing up other people to the scheme. You may be told that it is a sales company and that once signed up you will be making your money by selling cosmetics or drinks or some such but once you have handed over your ‘membership fee’ you will find that making money from the sales is no easy business. Instead the money is in signing up others. And you won’t be able to do that – it takes a particular kind of high-pressure sales personality to get other people in and most of us don’t have it. When I was in my early twenties I was persuaded to join a skincare products ‘multi-level marketing’ company (MLM is a polite term for pyramid selling) but I never made a single sale; in my heart of hearts I knew the stuff I was supposedly selling wasn’t much good and I just wasn’t up to the job of selling it and I certainly wasn’t up to the job of signing up anyone new to the scheme. Anyway all these schemes eventually collapse: they rely on an endless number of people being available to be signed up and the supply of people is, of course, never endless. When the supply of recruits dries up the pyramid collapses. What to watch out for in particular in the UK is so-called ‘gifting schemes’. The last well-known one was Women Empowering Women (WEW), which began in 2001 on the Isle of Wight. This was a pure cash pyramid – there was no pretence about there being any products of any kind involved. Women were asked to buy one of eight ‘hearts’ on a sheet; above that were four more, then two and finally one – the receiver – at the top. When new ‘gifters’ joined, the original members moved up the pile. When they reached the top they got the ?3,000 contributions from the eight new hearts and took home ?24,000. There was a lot of talk about helping other women and yourself at the same time and about making money outside the male capitalist society. It was all nonsense – WEW was as much a scam as any other pyramid scheme and like any other pyramid scheme it eventually collapsed. This was a shock to the women who lost money (remember, for every woman who was paid ?24,000 eight had to lose their ?3,000 stake) but if they had stopped to think about it for just a minute it really shouldn’t have been. Even to move one pyramid down six stages needed a quarter of a million people (8x8x8x8x8x8). To move it down twelve would have required the entire population of the world to be involved. This kind of pyramid still pops up periodically; they call themselves Hearts or Circles. Don’t fall for their stories of sisterly solidarity. The next money-losing scam to look out for is the lottery or prize draw scam. You’ll get a notification that you have won a huge prize, usually in a US or European lottery. You’re then asked for a registration fee or an admin fee, probably of a few thousand pounds. Don’t pay it – you’ll never hear from them again and you’ll never see your money again. This kind of thing often looks tempting but remember this: if you didn’t buy a ticket you can’t have won the lottery. Then there are the Nigerian 419 scams. These are called after the section of the Nigerian penal code that legislates against them. They’ve been going for years – first in letter form, then as faxes, now as emails. The idea is simple. They tell you that due to some bizarre quirk of fate they have millions of pounds to hand but they need to get it out of Afghanistan, Nigeria or some other distant country. They want you to help them by letting them use your bank account to receive the cash in the UK. In return they will give you a couple of million to keep. The catch? You have to send them some cash first so that they can pay miscellaneous expenses at the other end. You also need to give them all your personal and account details. If you send the cash you will only hear from them again to demand more and if you send your personal details you leave yourself vulnerable in many ways (never give out your personal details: sounds obvious but people do it all the time). The stories told in 419 emails are always topical and often quite convincing (after the tsunami in 2004, for example, I got an email purporting to be from a newly orphaned teenager who needed help getting his parents’ fortune out of Indonesia – see www.419eater.com for many more fantastic examples). But however good these letters sound you should never respond to them: not only is doing so both greedy and illegal but the authors of the letters are criminals. Similar fraudsters are involved in the increasingly common eBay/Western Union scam, which works like this. You are selling something online – perhaps a piece of furniture on eBay or a special car on a car sales website such as www.autotrader.co.uk. You get a response from someone who wants to buy your goods, say for ?5,000. They say they will send you a cheque not for ?5,000 but for ?7,000. The ?5,000 is for you but they then ask that you forward the extra ?2,000 on to a friend of theirs via money transfer firm Western Union (the story you are spun is that the friend is to arrange shipping or some such for them). You get the cheque. You deposit it and send on the ?2,000. Then you get a call from your bank. What’s happened? You guessed it. The cheque has bounced and you are down ?2,000. It’s simple but it works brilliantly. One to be aware of whenever you are dealing online. Finally a word on working-from-home scams. You will often see adverts telling you that you can make money addressing and stuffing envelopes at home. But you can’t. If you reply to the ad you’ll be asked for a registration fee. Then you’ll be advised to make money by placing the same ads you replied to around the place. There is no real job – it’s just a way to con you out of your registration fee. Other similar scams involve adverts that offer work assembling things at home. If you respond you’ll be asked to pay upfront for the assembly kit or whatever materials you might be using. You’ll never get it back and you won’t ever get paid for the assembly – your work will be returned as ‘substandard’. The result? They get to keep your deposit. See www.homeworking.com for more detail on how to avoid falling prey to this kind of con, but most of all remember that you should never have to pay to get work. If you do something’s wrong. Redundancy Losing your job is horrible, however much you hated it, however much you kept wishing on a Monday morning that you would lose it and never have to go again. The fact is that being told you are surplus to requirements is a huge blow to your self-esteem. You’ll be shocked, you’ll be angry and you’ll be hurt. But above all you’ll be dealing with the fact that you no longer have an income. Statutory redundancy pay is pathetic. Between the ages of 18 and 21 you get half a week’s pay for every year of service. From 22 to 41 you get a week’s pay and from 42 on one and a half weeks’ pay. But this is subject to a maximum of a few hundred pounds a week and you can’t claim for more than 20 years of service. This means that the absolute maximum the law can make your firm give you at the moment is less than ?6,000. But there is some good news too. The first ?30,000 of redundancy pay comes tax free and you are likely to get more than the very basic amount. This means that redundancy does give you an opportunity to rethink your career and even your life. You could take a few months off to retrain and change direction, for example; now might actually be the time to set up your own business! However, the first thing you will need to do is to get your finances in order to make sure you can weather a few months with no income and to rebuild your confidence. Remember that redundancy usually isn’t personal (if you think it is get a lawyer). 1 Budget. Hopefully you’ll have six months’ worth of money saved up (see Chapter 4) but if not you’ll need to work out how many months you think you could be out of work and budget with your redundancy payment accordingly. 2 Don’t delay in claiming benefits. You should be able to get a job seeker’s allowance, although this will depend on you having paid enough national insurance over the previous two years. If you haven’t paid enough and are in a bad way you may still be able to get a means-tested allowance. You may also be able to get support for rent, council tax and mortgage costs. See www.dwp.gov.uk, the website of the Department for Work and Pensions, for more detail. 3 Don’t rush into the first job you get offered. Being without work is frightening but you spend all day every day at work so you need to be sure you end up with something that is at worst bearable and at best actually enjoyable. 4 Work on your confidence. Make a list of all your skills – not just the ones you have used in your work but all your skills. This will help you to figure out what you have to offer a new employer. 5 Keep going. Set yourself a few targets every day so you don’t just end up staying in bed. WHAT Do I Do Now? Find out if you are paid correctly. Demand more if you are not. Take action if you don’t get it. Consider changing jobs or even careers to move yourself up the salary ladder. Consider alternative, non-salaried routes to bumping up your income. Have the right mindset. If you work hard you do deserve to be paid well. Make an effort: it isn’t fair but study after study shows that the well-groomed and slim make more money than the poorly groomed and overweight. Read the chapter on investing; this explains how to make your money create more income for you without you having to lift a finger. 2 Spend Less, Have More 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 Citro?n 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. Конец ознакомительного фрагмента. Текст предоставлен ООО «ЛитРес». Прочитайте эту книгу целиком, купив полную легальную версию (https://www.litres.ru/merryn-webb-somerset/love-is-not-enough-a-smart-woman-s-guide-to-money/?lfrom=688855901) на ЛитРес. 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