The Full English Accompaniment – The neuroscience of a frugal mindset

What’s piqued my interest this week?

In a throwaway conversation this week MrsShrink said something which I’ve subsequently been ruminating on. In running our household I do most of the shopping, but MrsShrink does the toiletries. She remarked that she actively enjoyed going to browse in Savers, Home Bargains etc, as she enjoyed spending money she knows she has to. She’s learnt to be frugal, to penny-pinch, and spending is a treat. She gets a hit out of buying things most of us wouldn’t think twice about because to her it’s a forbidden joy.

Attitudes and behaviour towards money are learnt in childhood by observing your parents. On a structural level, the dopaminergic mesolimbic ‘reward’ pathway develops through your childhood and adolescence (1). This is the time when your brain is most sensitive to it’s reward system, and is setting down the pathways for a lifetimes use (2). The way I explain behavioural modelling to patients is to think of it as a parallel to learning your first language. As a toddler you observe your parents using sounds as language, try it out, see what works, gradually accumulating your understanding without consciously being aware of the process. Other behavioural processes also follow this unconscious accumulation process, including financial attitude. If you model your child’s behaviour at this time (consciously and unconsciously) you lay down the pathways for a lifetime of reward processing.

Hundreds of websites and blogs have signed onto this, offering to teach us the ways we can consciously train our children to be better financially. This doesn’t have to be as intense as paying your child through an investment account, or making them buy fractional shares in Netflix as some would recommend (3). The piggy bank, pocket money, weekend job development path will work just fine (4). I clearly remember learning the value of money calculating how many penny sweets I could buy with my 50p pocket money. The pre-frontal and frontal cortex projections of these pathways continue to develop into your teens and early 20s, forming your conscious awareness of pleasurable responses as you grow into adulthood.

The unconscious processes are far harder to model, alter or change. These are the deep cortex projections close to the archaic midbrain structures, projections which develop during early childhood through modelling. These are learnt through observation of those around you. This is why teaching your child to be a spendthrift can only go so far if your own approach is spending all you have to keep up with the Joneses. This is also why, in my opinion, people such as Little Miss Fire struggle with her Shop Floor Mentality (5). If you have grown up in an environment of thrift as a necessity of poverty the rewards from saving, investing and watching wealth grow are not hard-wired in your cortex. There is no unconscious drive for these goals. The Stanford Marshmallow experiment on delayed gratification is a case in point example, and potentially a way of teaching your child the benefits of patience (6).

Which is where I bring things full circle. Many rich people are innately frugal; look at Warren Buffett (7, 8). These winners derive their pleasure from the process not the outcome. MrsShrink is innately frugal as she was brought up in an environment where frugality was a necessity. She observed her mother being able to afford the things they wanted by saving wherever possible. I secretly suspect she is much more likely to become FI than I because of this innate drive, but will be hampered by her mistrust of investment vehicles. She has no desire and gains no pleasure from making non-frugal choices. Consciously training thought processes to be the same way is far harder.

Have a great week,

The Shrink

N.B. There won’t be a Full English Accompaniment next week as I’m on holiday AFK.

Side Orders

Other News:

Opinion/ blogs:

What I’m reading:

An exam textbook

Religio Medici by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor

Enchiridion by Epictetus – Bedside reading for a bad day

References:

  1. Walker et al. Adolescence and Reward: Making Sense of Neural and Behavioral Changes Amid the Chaos. The Journal of Neuroscience (2017)
  2. Galvan, A. Adolescent Development of the Reward System. Frontiers In Human Neuroscience (2010)
  3. https://www.marketwatch.com/story/how-to-teach-your-kids-to-be-better-with-money-than-you-are-2017-07-26
  4. https://www.independent.co.uk/money/spend-save/how-to-teach-money-children-kids-personal-finance-tips-guidelines-property-a7789381.html
  5. https://littlemissfireblog.wordpress.com/2018/03/24/do-you-have-the-shopfloor-money-mentality/
  6. https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment
  7. https://www.psychologytoday.com/gb/blog/how-do-life/201503/why-many-rich-people-are-frugal
  8. http://time.com/money/4861261/billionaires-spending-habits-frugal/
  9. https://www.bbc.co.uk/news/business-45194019
  10. https://www.bbc.co.uk/news/business-45201155
  11. https://www.theguardian.com/technology/2018/aug/17/elon-musk-says-past-year-has-been-excruciating-and-worst-is-yet-to-come
  12. https://www.bbc.co.uk/news/business-45216551
  13. https://www.bbc.co.uk/news/world-asia-45199034
  14. http://www.thisismoney.co.uk/news/article-6064685/Fears-grow-house-prices-fall-fastest-rate-financial-crisis.html
  15. https://www.ig.com/uk/shares-news/mining-in-the-uk-and-ireland-is-well-and-truly-alive-180815
  16. http://thefirestarter.co.uk/can-we-afford-an-electric-vehicle-lets-run-the-numbers/
  17. https://www.bbc.co.uk/news/business-44953607
  18. https://www.ukvalueinvestor.com/2018/08/ted-baker-dividend-growth-stock.html/
  19. https://www.ig.com/uk/commodities-news/is-investment-in-renewable-energy-drying-up-180809
  20. https://www.etf.com/sections/index-investor-corner/swedroe-determining-esgs-nature
  21. https://firevlondon.com/2018/08/13/recalibrating-my-portfolio/
  22. https://firevlondon.com/2018/08/09/july-2018-the-trade-news-sweetens/
  23. https://simplelivingsomerset.wordpress.com/2018/08/13/there-be-a-rumbling-and-a-sound-of-clucking-chickens-in-the-air/
  24. http://eaglesfeartoperch.blogspot.com/2018/08/garden-gate-repair-and-new-fence.html
  25. http://monevator.com/weekend-reading-funny-money/
  26. http://monevator.com/taking-more-risk-does-not-guarantee-more-reward/
  27. https://deliberatelivinguk.wordpress.com/2018/08/13/savings-rate-revisited/
  28. http://quietlysaving.co.uk/2018/08/12/phone-free-day/
  29. https://www.mrmoneymustache.com/2018/07/25/the-twenty-dollar-swim/
  30. https://www.theatlantic.com/magazine/archive/2018/09/cognitive-bias/565775/
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The Full English Accompaniment – Are regular savings accounts dead in the water?

What’s piqued my interest this week?

After last weeks relative quiet from FIRE bloggers (if not the BoE), this week the Side Orders section has a bountiful glut. Many of the topics I considered covering this week have been covered by others including Monevator’s weekend reading post around the bull market (1), linked to the irrelevant investor’s post on the same topic (2), and Monevator’s post covering Fidelity’s US market 0% fee tracking fund (3).

Monevator mentioned the focus of this post in his weekend reading only in passing; that outgoing Monetary Policy Committee member Ian McCafferty predicted interest rates will stay below 5% for the next 20 years, and wages will increase by 4% (4). I take all opinions with a pinch of salt, especially when they concern future predictions. We’ll assume that this is a man with a finger on the nation’s economic pulse, and leave aside how he’s actually made this prediction, which could just be a big fat whopping guess. What this ‘prediction’ does is stick a massive pin in the savings account whoopee cushion.

This week has also seen the fallout of the BoE base rate rise. Whilst 28% of mortgage rates have risen, only one in ten banks have increased the interest rates on their savings accounts (5). The biggest boost came from smaller building societies, particularly Beverley and Monmouthshire Building Society (5). Moneysavingexpert’s page of best easy access savings accounts is currently also topped by building societies, Coventry Building Society and Birmingham Midshires, offering 1.4% variable and 1.35% variable respectively (6). Fixing for one-year with Atom or Investec with get you 2.05%, steadily increasing out to 2.68% for five years fixed with Charter Savings Bank (6). These barely beat inflation. If interest rates are unlikely to rise to historic norms in the next 10 years, the pressure comes on to invest either in equities or other vehicles, from P2P or fine wine.

The rise of high interest current accounts also threatens mainstream savings accounts. Nationwide and TSB are both offering 5% interest on their current accounts (up to £2.5k and £1.5k respectively), while Tesco Bank offers 3% (up to £3k) (7). The Bank Account Savings website allows you to calculate your best rate of return for minimum moving about, and combined with switching cash offers and perks, can kick savings accounts into touch (8). There will always remain an argument for larger cash sums to be held for liquidity (using the £85k FSCS guarantee). But for now high street savings aren’t competitive for returns and don’t beat inflation.

Have a great week,

The Shrink

 

Side Orders

Other News:

Opinion/ blogs:

What I’m reading:

An exam textbook

Religio Medici by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor

Enchiridion by Epictetus – Bedside reading for a bad day

 

References:

  1. http://monevator.com/weekend-reading-are-we-there-yet/
  2. http://theirrelevantinvestor.com/2018/08/05/the-longest-bull-market-of-all-time/
  3. http://monevator.com/average-active-funds-have-no-answer-to-their-weightless-index-tracking-rivals/
  4. https://www.theguardian.com/business/2018/aug/09/interest-rates-will-stay-low-for-20-years-bank-of-england-expert
  5. http://www.thisismoney.co.uk/money/saving/article-6046445/Disappointing-news-savers-warned-not-benefit-rate-rise.html
  6. https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/
  7. https://www.moneysavingexpert.com/banking/compare-best-bank-accounts/
  8. https://www.bankaccountsavings.co.uk/calculator
  9. https://www.moneyobserver.com/news/charles-stanley-hikes-fees-investors
  10. https://www.cnbc.com/2018/08/01/fidelity-one-ups-vanguard-first-company-to-offer-no-fee-index-fund.html
  11. https://www.bbc.co.uk/news/technology-45113283
  12. http://www.thisismoney.co.uk/money/news/article-6039729/Royal-Mint-says-millions-old-1-coins-languishing-homes-British-households.html
  13. https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2017/pension-costs-17-19/
  14. https://www.theguardian.com/business/2018/aug/10/british-manufacturing-in-recession-despite-faster-uk-gdp-growth
  15. https://www.theguardian.com/business/2018/aug/10/house-of-fraser-calls-in-administrators-as-rescue-talks-fail
  16. https://transform.iema.net/article/thousands-uk-churches-switch-renewables
  17. https://transform.iema.net/article/insurance-firms-failing-report-climate-change-risks
  18. https://www.bbc.co.uk/news/business-45113867
  19. https://www.bbc.co.uk/news/business-45119606
  20. https://www.bbc.co.uk/news/business-45113862
  21. https://www.bbc.co.uk/news/business-45118393
  22. https://www.bbc.co.uk/news/science-environment-45084144
  23. https://www.bbc.co.uk/news/technology-45097046
  24. https://www.businessinsider.com/lego-go-eco-friendly-with-blocks-made-from-sugarcane-2018-8/?r=AU&IR=T
  25. https://www.ukvalueinvestor.com/2018/08/how-to-manage-a-portfolio-of-shares.html/
  26. https://youngfiguy.com/pension-costs-and-transparency-inquiry
  27. https://youngfiguy.com/mrs-yfg-our-ideal-life
  28. https://youngfiguy.com/deciding-drawdown-and-annuities
  29. https://www.mrmoneymustache.com/2018/07/25/the-twenty-dollar-swim/
  30. http://fiukmoney.co.uk/july-18-net-worth-and-monthly-update/
  31. https://deliberatelivinguk.wordpress.com/2018/08/06/july-2018-review/
  32. https://3652daysblog.wordpress.com/2018/08/03/first-rule-of-fi-club/
  33. https://theescapeartist.me/2018/08/06/your-part-in-the-revolution-is-to-pay-it-forward/
  34. https://theescapeartist.me/2018/07/31/the-inestimable-advantages-of-child-labour/
  35. http://awealthofcommonsense.com/2018/08/the-layers-of-the-brain/
  36. https://www.bbc.co.uk/news/business-45112072
  37. http://thecannycontractor.com/crowdinvesting-become-an-angel-investor-with-minimum-outlay/
  38. http://thecannycontractor.com/passive-income-quarter-2-2018/
  39. http://thecannycontractor.com/dating-and-fire-your-love-or-your-life/
  40. https://thefemalemoneydoctor.com/warren-buffett/
  41. https://tuppennysfireplace.com/cut-your-budget-expert-tips/
  42. https://tuppennysfireplace.com/benefits-of-having-an-allotment/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Frugal Motoring – Bangernomics

A return to the Frugal Motoring series, and a window into one of my side hobbies, Bangernomics. I could write a whole separate blog on Bangernomics, many do, but mainly I confine myself to esoteric forums tucked away in little niches of the internet. The term Bangernomics was first coined in 1989 by James Ruppert, the chief and foreman of the subsequent Bangernomics cult/ movement/ belief (1, 2). A motoring journalist, James found himself returning to the UK for a few days and at a loss for transport (2). After adding up potential public transport costs, he worked out it would be cheaper to buy a banger and run it (2). The subsequent press feature, titled “Better than walking” caught the eye of the public, and the movement ran from there (2).

The general premise of Bangernomics is this:

  • Target a cheap banger car for <£1000 or <£500 (depending on the source of your opinion)
  • Do your research, read up on common problems with the car and which models/ engines to avoid or go for
  • Find a car to buy, originally and potentially through car auctions, but often these days through eBay/ Gumtree/ other online platforms
  • Inspect the car very carefully before buying
  • Look after the car with strict basic maintenance. Servicing and basic work is relatively cheap, cheaper if you DIY
  • When the car reaches a point of a potential uneconomic repair (clutch, gearbox etc) scrap it, sell on or break for parts

James Ruppert’s mantra here is “beware of the dog” (3). Avoiding hopeless sheds and going for the well-loved family cars at the bottom of their depreciation curve and with the curb appeal of steaming dog droppings. You have to be prepared to own and drive something which will make your friends’ and neighbours’ toes curl. Which is where I think the frugal, financial independence-minded community Venn diagram transects with Bangernomics. Many FIRE bloggers couldn’t give a flying monkey about keeping up with Jones’ in other respects, so why do they continue to with cars on PCP?

But I know nothing about cars, what can I do?

Happily, the Bangernomics community are really helpful in this regard. When I first started I adopted the opinion that I am of at least average intelligence, and therefore I should be able to learn how to fix and maintain a car. These are all useful skills.

James Ruppert publishes a book on how to subscribe to Bangernomics (1, 3). He also maintains a series of free buying guides, a buying checklist, and a blog for advice (1, 3). For make and model specific guidance, other Bangernomics blogs have published their own buying guides, and people share their knowledge on the Bangernomics forum, as well as the more popular Pistonheads and RetroRides (4, 5, 6, 7). YouTube is an invaluable source, as many thousands of amateurs publish how-to guides.

Not sure what to buy? There’s plenty of column inches and forum posts detailing peoples failures and successes. Some highlight their own experiences, listing successes and tips, others offer guidance on good target vehicles (2, 8, 9, 10, 11). My own experience has been tempered by a job requirement to appear respectable and not fail to turn up to work, so people don’t die. I’ve never spent more than £2k on a car, and average 12p/mile in cost over the life of my daily car for purchase price and maintenance. One memorable snotter was bought for £1k and survived 8 years and 80,000 miles of abuse. I also abuse Bangernomics a little by purchasing classics at the bottom of their depreciation curve, before they begin to appreciate as an investment.

Bangernomics, the financially independent motoring choice

A little whistle stop, but hopefully a jump-off point for many. DIY car maintenance should not be a scary thing, and by avoiding it people miss an opportunity to save. Bangernomics offers the opportunity to learn some skills, save some money and tell some good stories, as long as you can put up with some graft, the odd breakdown and minimal social respect for your new whip.

Have a great week,

The Shrink

 

Next time on Frugal Motoring – Should I buy a petrol car?

References:

  1. https://www.bangernomics.com/
  2. https://www.autocar.co.uk/car-news/used-car-buying-guides/25-years-bangernomics-how-buy-and-run-used-car-cheaply
  3. https://www.jamesruppert.com/bangernomics-bible.html
  4. http://bangernomics.tripod.com/intro.htm
  5. http://bangernomics.editboard.com/
  6. https://www.pistonheads.com/gassing/topic.asp?h=0&f=23&t=1671991
  7. http://forum.retro-rides.org/
  8. http://www.autoexpress.co.uk/car-news/98907/cheap-as-chips-how-to-buy-a-banger-and-run-it-for-peanuts
  9. http://cardealermagazine.co.uk/forum/topic/4772-bangernomics/
  10. https://forums.moneysavingexpert.com/showthread.php?t=3803929
  11. https://www.driving.co.uk/car-clinic/buying-guide-six-brilliant-used-cars-for-just-1000/

The Financial Dashboard – July 2018

In an effort to streamline the Financial Dashboard, I’m cutting some waffle.

The goals for July were:

  • Rein in spending on the automotive hobby by setting a budget – Epic epic fail
  • Sell five items from my hoard – carried over – Fail
  • Reduce daily living (groceries and lunch out) and entertainment expenses to budget – Fail
  • Eat out a maximum of once a week – Success
  • Repair or purchase a new bike – Fail

Checking the assets and liabilities:

July 2018 Assets

July 2018 Liabilities

These are taken from my mega Excel Beast Budget spreadsheet. I need to develop some pretty graphs to show changes over time. In short, my net worth grew by ~£600 (~3%). My savings rate including my mortgage was 14.7%, 2% without. I saved £200 in my 5% interest Santander saver, and paid off some of my mortgage… and that’s about it. My finances are still recovering from moving house and changing jobs, so hopefully will improve. I’m lucky in that my NHS pension is a DB pension rather than a DC, but it’s been watered down by progressive governments, and is pretty complex to calculate.

Goals:

Goal achieved: We only ate out around once a week this month, and a couple of those were lighter lunches rather than dinners out. We’ve had lots of friends over for meals (the grocery spend shows that!). We enjoy eating out, but we’re going to be more sensible from now on.

Goal failed: Rein in spending on the automotive hobby by setting a budget. Frankly I blew this one out of the water. I spent £450 getting a local garage to go through a list of niggles on my daily car which have been low down the priorities list while we moved house. I didn’t use a main dealer, but a decent local independent. In hindsight some of these jobs I could have done myself to save money, but I simply haven’t had the time. I also spent £90 on train tickets for a work conference later in the year. This month I’ll actually have a crack at this. I’ve set a goal of only spending £300/month. Given that currently £120 goes on fuel, and another £160 on tax and storage, my schedule of preventative maintenance needs to become a lot more DIY! One to keep chipping at.

Goal failed: Sell five items from my hoard. It’s all still in boxes, gradually being unpacked. Another aim for this month.

Goal failed: Repair or purchase a new bike. I’ve decided it’s going to be cheaper to buy a ‘skip bike’ than to repair either my old road bike or downhill MTB. I went to a local charity run place but they didn’t have one to fit me, so I’m going back this month to have another look at new stock (they’re only open Saturday mornings).

Goal failed: Reduce daily living and entertainment expenses to budget. I’m calling this a fail. My daily living expenses included some substantial one-off work costs, but otherwise were under my intended £50 budget. My entertainment expenses were £55, less than my £100 budget. However I’ve never thought to include expenses from my joint account, and really I should, so I’m going to rethink my budget and the way I show my expenses. MrsShrink and I spent £630 on daily living costs last month, £70 on takeaways(!) and £500 on food(!!). We spent £56 on eating out from the joint (entertainment).

Budgets:

  • Daily living and entertainment – budget £50 from my account for daily living and £100 from my own for entertainment. Spent £114 from my own on daily living, £630 from joint on daily living, £56 from my own on entertainment, £56 from the joint on entertainment. Future budget will be £75/week food, plus £75/week entertainment, for £600 combined/month. This will include all eating out, cinema etc. I’ll see how realistic and manageable this aim is.
  • Transport – budget £300, spent £803. Last month £695.
  • Health – budget £10, spent £8.80. Last month £8.80. Going to stop putting this on here as it’s dull.
  • Holiday – budget £100, spent £0. Last month £150. I’ll start using a Starling pot to build a kitty.
  • Subscriptions – budget £100, spent £105. Last month £114. Had to pay a professional subscription this month. I’m going to stop including this, as there’s little more I want to reduce currently.
  • Personal – budget £50, spent £21.50. Last month £44. I really need to start updating my wardrobe.
  • Loans/ Credit – budget £200, spent £575. Last month £250. Paid back a big lump of credit card. Not a bad thing.
  • Misc – budget £50, spent £100. Last month £946. This is anything I can’t list in the rest of my budget system. I spent £100 on an important course this month. Much better than previous months.

Goals for next month:

  • Rein in spending on the automotive hobby by setting a budget – carried over
  • Sell five items from my hoard – carried over
  • Reduce daily living (groceries and lunch out) and entertainment expenses to budget – carried over
  • Use my Starling account to track monthly outgoings
  • Repair or purchase a new bike – carried over
  • Special goal – rework my net worth and savings graphs to cover results simply

What’s coming this month:

  • Frugal Motoring – Bangernomics
  • Musing on… Motivating factors for financial investments
  • Plus the usual Full English Accompaniments and other drivel…

Happy August everyone!

The Shrink