Iona Bain writes the Young Money blog and has just published "Spare Change". Unfortunately I am far from her target market, but I enjoyed her book so much that I felt I had to review it.
This is not an investment book. This is a lifestyle book. It doesn't make false promises about making you a millionaire. Instead it makes you more comfortable living in your financial skin. And it also guides you towards making sound financial decisions that will help you if you are young or even, like me, not-so-young. It is also an attractive book, with carefully chosen graphics that don't oversimplify or confuse, but help you to understand things better.
What you will get out of the book
This book will help you decide what things you enjoy most in life, then build a financial plan around those activities. This requires understanding some basics and Iona explains those simply and well namely:
- Saving: How can you engineer your life to enable you to set aside savings each month?
- Debt: When you should and shouldn't borrow, what determines the rate you pay, find out and fix your credit score and how to shop around for the best rates for debt you have now.
- Housing: Renting in the UK can be more expensive than buying a house. But you can only buy if you can leap the down payment hurdle and then afford the monthly mortgage. Iona has some creative tips on how you can get onto the housing ladder.
- Insurance: Who takes on your risk when you buy insurance, and when is it worth it? Again this is lifestyle based and offers suggestions on how to choose insurance based on what you value most in your life.
- Pensions: What they are, how they work and even how long you might expect to live. Although it's unpleasant to think about death, longevity is important because the longer you have to live off savings after retirement the more you will have to save before you retire.
Lifestyle affects spending so Iona dwells on this topic a lot. This includes entire philosophies of how to live such as what you eat and how you cook. For example I'm not familiar with the idea of a capsule wardrobe, which contains a few classic clothing items that you can combine in many ways. Ingeniously Iona extends this concept to the food you keep in the fridge! This idea helps you eat more healthily and cheaply.
The key concept in the book, to which it returns frequently are your "Touchstones". These are the five things and five activities that matter most to you. Once these are clear you can start to think about ways to manage your money around these touchstones. You may be surprised to find that the things you enjoy most are not expensive and that you don't need a huge salary to achieve "happiness".
If you want to alter your behaviour you have to trick yourself into avoiding bad habits. For example Iona describes the different drivers of impulse spending which can demolish any budget and stymie any savings. She has some very practical tips on how to avoid these habits through inexpensive and constructive distractions.
Iona says that she is a fan of Alvin Hall and it shows via her focus on building a budget. There's no way around the fact that in order to control your budget you have to measure your spending. You may be surprised at where your money goes. The book has some fantastic infographics on the cost of buying sandwiches rather than making your own (search in the book for "cost of lunches"). Personally I found the difference shocking and the nice graphics made the potential savings easier to understand.
One of the things I learned from Iona's blog rather than this book was the biggest financial risk for a woman is a relationship. This is because women typically leave finances to their partner and if the relationship ends in divorce the woman usually ends up much worse off financially than her partner. And so it's interesting that Iona also talks about how to avoid this with prenuptial agreements. But even if you don't go down this extreme path, which some people find distasteful, she counsels synchronising your financial goals. I loved this excerpt from her tongue-in-cheek section "The four bases of dating":
Different Dreams: Think very carefully before adjusting or abandoning any personal financial goals to be with someone. Have you sat down and discussed the potential trade-offs involved? How big are they? Do both parties feel happy about them, and do they cut both ways? Are both partners willing to reconsider them if they prove difficult to fulfil? If you don't have this conversation early on, bitterness could quickly bubble up.
That is great advice.
Doing good with your money
One of the things that fills me with hope is that young people are more idealistic and care more about ethics. Iona has a nice approach. She starts off her final chapter with a "Money Morals Test". For example question number 1 is
"I care about whether my clothes have been made in safe factories paying a decent wage"
The questions gauge whether you are willing to pay more for goods that have better ethical provenance or earn less from an ethical financial product. Even if you turn out not to give a fig about ethical investment and consumption Iona valiantly tries to convince you it is worthwhile.
Many of us aren't aware that by investing we are making an impact on the world. This is because our capital is used to finance companies. By investing in companies aligned with our beliefs we can therefore align the availability of capital with our moral compass. The book shows how to do this by introducing ethical investment funds and how they are screened. It also lists UK banks where your deposits (which fund the bank) are not used to lend to questionable companies.
Finally the book shows the ins and outs of charitable giving. For example lending money to entrepreneurs in poor countries may be better than buying them socks. And some big charities pay high salaries to their senior staff and so a significant proportion of your donations may be used inefficiently.