I read an interesting article recently where a journalist was saying that she’d noticed a growing division amongst her friends, between those who were heading toward their sixties financially comfortable and those who weren’t. It wasn’t that the latter group were heading toward poverty, or anywhere near it (she’d have to head North to have friends like those!) they were just realising they wouldn’t be able to keep up with their very nice middle class lifestyles once they stopped earning. From the skiing week in Courchevel before the big long haul holiday in the summer, to the odd bottle of half decent red most evenings and the spontaneous weekends away, such middle class dreams often require a salaried funding. When it stops, or radically reduces, these people sometimes find they have been living well beyond their future means in quite a big way.
Those friends of the journalist who were facing a financially restrained future had often had unforeseen events happen to them that subsequently hobbled their plans. A messy divorce, an illness that didn’t want to wait on NHS for treatment, a hoped for inheritance being rapidly burnt up in care home expenses or a sudden and unexpected end to employment. Well, such calamities happen, but having a level of spending that they just hadn’t realised they were burning through on a week to week basis is less excusable. No, strike that, it’s just NOT excusable, and most readers of this blog will probably nod in agreement. How can you NOT know what your spending levels are, or where the money goes on a month to month, if not day to day, basis? The people who are going to be caught out are financially in the “Unknown unknowns” zone, and they only have themselves to look at when this realisation dawns. How many are in this situation? Well, when I was talking to a headhunter friend recently he was telling me how depressing it was to meet with fifty something executives, desperately pleading with him to help find them a job paying “Just fifty or sixty thousand a year, that’s about all I need”. They’ve no idea how difficult it is to find those roles once you’re a certain age. “And Jim”, he went on, “these guys are living literally from pay cheque to pay cheque, you’ve no idea how many of them I see. I tell you, the desperation sets in pretty quick”.
(Believe me, I could write, and will write some day, about the job market for the over fifties. It’s horrible in so many ways that I’m afraid if I start, I might finish myself off!)
I often hear my friends jibing each other about employment in the private sector versus the public one, and there’s an increasing edge to it as we approach pensionable age. This is because the public sector workers often have the iron clad, defined benefit pension pots that will simply never run out until their dying day. The guys who are in private employment generally now have defined contribution schemes (the self-employed blokes, I’m afraid to ask). With a DC plan, it’s beginning to dawn on them, from Day One of their retirement that pot starts to run out. How to ensure it doesn’t? Buy an annuity? Seriously? Those who have done the calculation often feel their jaws drop at the paucity of the returns. Surely they must get more than that?
I’m lucky, I have an experience of both with a DC and a DB pot. But I still fret about the future. What if my DB company scheme gets into severe difficulty? It’s already carrying a substantial deficit that I’m frankly too scared to look into. What if my self invested DC plan implodes in a market meltdown? Having lived through the internet bubble and the 2008 crisis I’ve seen the latter happen, but in those dismal days I was earning and buying the cheap market month after month, pound cost averaging and keeping my fingers crossed. Once retired, that avenue of earning won’t be open to me, or potentially not in any easy or financially significant way.
With both types of pension to hand, I can be a bit sanguine about the potential financial impact of unexpected events. Other consequences of them, who knows, and I find I really don’t want to dwell on subjects like divorce, bad health, ageing parents and the rest. Old age is not an unexpected event all the same, and at least I did plan a bit for when it arrives, although the older I get that harder it is to define when Old Age is actually going to happen to me. It’s always about twenty years away, isn’t it? So that gives me plenty of time to plan…..
sex health money death 
I don’t know a single person outside of the interweb FI land who tracks what they spend in any routine/semi-rigourous way.
It is insane
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Agree with The Rhino – in my circle, my interest in finance (even basic things like making a budget and sticking to it) makes me be seen as tight, overly-anal, or just downright weird.
Most folk I know will be relying on state pension, perhaps topped up with small bits and pieces from various workplaces, although I’d be amazed if anyone could actually tell me what these latter amounted to, when they’re due to come into payment, etc.
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My friends are always jibing me about being tight. I wear that badge with pride.
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Some people (my other half included) don’t even seem to have a grasp on what they earn, which I find just weird (and I’m talking salaried people here not those with lumpy self employed earnings) I have to say until quite recently I never did item by item tracking, but I’d periodically review expenses and make sure I had a good handle of what our baseline essential bills cost us. To be honest, if you have a comfortable income, and are making sure you are saving a reasonable amount, and don’t have debt, then I don’t think tracking every coffee or magazine is necessarily going to be life enhancing.
Jim, I can understand your reluctance to write in too much detail about your job search, but I do think it’s a massively important topic – given that one of the main planks of government policy around ageing is to ‘encourage’ people to work for longer. There’s evidence that it works, to an extent – the proportion of 50/60 plus in the workforce is going up, particularly among women – but my suspicion is that these workers are having to take anything they can get. We have to be prepared for these twilight years in work being rather less rewarding than our 40s….
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Part of the reason I’m reluctant about to write about looking for work in your fifties is because my attempts so far read even to me as really negative and, at the end, I found a job, didn’t I? Okay, it wasn’t at the same level of responsibility as previously and I had the (total) luxury of not needing to do it for the money. I could also have a bit of a laugh at some of my interactions with headhunters, Linkedin etc., but it’s a serious subject for many. It might be a heartbreaking subject for some.
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hmm – once you have got into tracking expenses though, I don’t think you can go back. Its too fascinating.
My approach is to try and buy everything on card, then download statements each month and run them through the borg spreadsheet to assimilate them. I don’t track anything bought with cash, i.e. i’m not fiddling round with receipts, but then again I barely use any cash these days. So the granularity is the bank statement item, i.e. a grocery shop will be one item/no. categorised against groceries – I’m not drilling down in any more detail than that.
I’ve automated most of it by now – so my expenses plop out of the end of it, all neatly categorised. Just done the annual amalgamation for this tax year. So I get a month by month view and a year by year view at the start of every april.
All in takes about 45 mins a month with an additional 1hr each april
In case you’re wondering, your expenses will be dominated by three things, house maintenance, groceries and holidays
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Since the advent of the “Contactless Payment” thingy, I use cash less and less. In fact I get annoyed when this service isn’t offered. Put in a PIN number? That’s so last decade. In terms of expenses, does “beer” count as “groceries”?
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Yes. If I’ve bought it in the supermarket. If i buy it in the pub or restaurant then it comes under ‘going out’. If i buy it when I’m on holiday it comes under ‘holidays’. It’s pretty simple. I’ve just had another look at all time spend by category. Groceries dominates. Probably largely because it is hiding my rampant alcoholism🍸🍹🚱
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I’m not sure I’d go as far as ‘fascinating’ (even though I love a bit of data as much as the next nerd 😉 ). I’ve tended to divide my spend up into core/basic (groceries and essential bills); small discretionary (most of the frippery/redundant spending comes here) and large discretionary (holidays and house improvements – things I don’t particularly want to save on!).
I think everyone should have a good idea what their core necessary spending is, so that they know how much income they truly NEED. If you have enough headroom beyond that, it’s easy enough to save (i.e. pay yourself first) and then the rest you can basically do what you want with. It’s clearly more important to track in detail all the time if your necessary spend is close to (or exceeds) your income (and many people on low incomes are actually very good at doing that) or if you are motivated to save as much as possible.
If you’ve never done it before, tracking is illuminating to highlight all the spending you don’t realise you do (quite a lot of which may in fact be core/necessary – dental bills? Glasses?)
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First step in planning retirement is to have a long hard look at what you’ll need to spend. It’s quite easy to forget the bigger things you take in your stride while earning – the boiler repair, the various unforeseen car expenses or the fact that you might want a new one at some point, clothes, shoes, gadgets, all those things. And you’re right about health too. One of my biggest personal expenses in my year out was dental bills, not budgeted for, and costing almost and equivalent £100 a month if I’d spread it over the year. Had I just relied on the NHS, I’d now have two less teeth as the NHS will not try to repair or redo a root canal treatment. They just extract the tooth.
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haha – it is if you have aspergers
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I have to confess I don’t track any of my expenses. But I do have a pretty good intuitive feel (I believe) for where my money is going, and whether I’m moving nicely in the right direction or not.
Plus I don’t spend much, for my income/assets, so the margin of safety is wide! 🙂
My co-blogger @TA used to track every single penny. I think he may still do. So there are definitely different ways to skin (or not to skin) the cat.
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Similarly, I don’t track but I am aware, if not very aware, of where the cash is going. Sometimes this bugs me though. Sometimes I’d like to just walk up to a bar and buy a round without thinking “Here goes fifteen quid!” (he says, a bit ruefully hungover early Saturday morning!)
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I’d love to go into a bar and buy a round of drinks for £15!
Sadly down here as well as that devil may care recklessness I’d need a time machine! 😉
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Gem of a post, Jim.
I do track almost all my pennies but then I’m as anal as underpants.
Why don’t people know how much they spend. Speaking for myself before I was born again: mixture of cluelessness, youthful folly, living in the now, fear of what I’d find out. Glad I woke up.
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“Fear of what I’d find out” is a very underrated explanation for a lot of things!
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Surely some form of expense tracking is non negotiable for any personal finance guru?
Use broad brush categories if you’re intimidated or turned off by the idea
When you get about 5+ years worth under your belt you’ll realise what a critical resource it is
Come on TI. Intuitive feel. That’s bullshit. If your not measuring then you just don’t know.
If you are tight, perversely tracking expenses can help as you can justify a round of drinks through knowledge that going out expenses are only a tiny fraction of overall expenses i.e. it’s irrelevant.
Expense tracking is liberating! Just do it! (That and cold showers)
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+1 for the power of tracking.
For me, the real benefit is seeing the actual frequency. Was it news to me that I’d sometimes have a night out spending north of fifty quid? No. Was it news to me that between work, friends and dates I was averaging two a month? Yes it was.
The same with ebooks. My physical stuff has both a physical presence and a resale value. Before I was tracking I’d think of books as a one-off, ‘virtuous spending’, but didn’t think it would move the needle over the year. It turned out I was spending more on books than petrol.
I tend to do big reviews a couple of times a year, I don’t have a timeline and will never be the type of person to do a weekly or monthly review, but it is infrequent enough that I can’t claim things to be one-offs.
I also found a couple of work expenses that hadn’t been reimbursed – so the time paid for itself.
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I limited myself to one ebook a month because it was so easy just to point and click and forget about it. And now I look at them in my Kindle library and wonder why I bought them in the first place. Or worse, see them on the library shelves, free!
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