I love a spending diary and always recommend it as the first place to start when you’re looking to understand and/or get in control of your finances. I have been keeping a weekly spending diary for around a year of EVERYTHING I spend money on to help me keep in check with budgets, savings and pension contributions. It helps me to feel in control and save more money in the short and long-term.
Faith Archer (from Much More With Less) and I love to compare our spending diaries on a regular basis, in fact this is the fourth time we have done it. I find it hugely impactful to look at other families spending to get ideas on extra savings, or maybe to realise where I have been a bit tough on myself! It’s reassuring to realise that you are not the only person feeling this way or behaving this way about spending.
We thought now in April 2021, after three months of total lockdown would be a great time to reflect on our spending habits and share what we have achieved and learnt over this time.
Faith and I have comparable lives. We both live in four-bedroom houses, me in Hertfordshire and Faith in Suffolk. The main difference in lifestyles is that Faith lives with her husband and two children. I am now divorced and have my three boys with me 50% of the week. Faith has a dog and I have a cat. We both run our own businesses and websites as personal finance experts/journalists. And we are both PensionBee ambassadors.
Overall summary of our spending
Looking at our spending in isolation we have spent similar amounts from 1 Jan to 31 March. Faith spending £9,950 and me spending £9,382. There are some big variances within this spending though. The standout being that I have a mortgage at £1,236 per month, and Faith is mortgage free. More on this one later. This means that I have spent less on most spending categories, particularly on fun spending categories, making me think that maybe I have been a bit of a scrooge over the past three months! My spending is half of Faiths when it comes to family leisure fun money, £586 vs. £1,175. Not only have I spent less on family fun, but I have also spent very little on ME fun money. In normal times I would be spending money on things like getting my nails done, or maybe a relaxing massage. Obviously, none of these were happening during lockdown! Just the gin spending continues as normal.
I have hefty car costs with monthly payments on a soon to finish car lease, meaning that I will have £175 extra each month. Faith counters my extra car costs with extra pet costs for her dog. Our food spends (when you total up groceries and takeaways) were exactly the same, with both of us spending £109 per week. While Faith spent more on groceries, I spent much more on takeaways, £397 more in total. Faith is getting better value for money with her food spend, and mine ‘should’ be considerably less considering it’s just me here for 50% of the time! But it’s not really an area that I’m prepared to save money on. In our household we like our weekly treat takeaway and I like to have a break from cooking!
A time for lower spending and more savings
The standout comparison for both of us was that we were both able to save much more money during this time of no social life, limited travelling and relative isolation. For the short to medium-term savings, we have both put money aside into auto-saving apps, round-up investments and Stocks & Shares ISAs, £470 for me and £1,754 for Faith.
We’ve prioritised our pension savings, with different timings and thought patterns for each of us. Our businesses are structured slightly differently with Faith being a sole-trader and me running a limited company. Faith has done what I did last December at the end of my financial year. She has moved a significant amount, £10,000, of what were savings from lockdown into her pension. She has moved into the higher tax rate earning bracket so now benefits from higher rate tax relief on her pension contributions, which can be claimed via her Self-Assessment tax return.
I have saved £2,000 into my pension during this period. For me, the decision to put more money into my pension is based on tax savings. A contribution to my pension from my company is a business expense and reduces my Corporation Tax bill. Every £1,000 that goes into my pension reduces my tax bill by £190 or 19%.
There’s also another tax saving of moving money into my pension compared to saving money into my cash savings, investments or even overpaying my mortgage. I firstly must take money from my business as my salary/dividend, and pay another tax on that, only then can it make its way into my other types of savings. I feel like the double hit of tax isn’t worth it and would rather put more savings into my pension. I’m also confident that I won’t need the money in the short-term, as private pension money cannot be accessed until age 55 until 2028, and then age 57 afterwards.
I’m unlikely to overpay my mortgage
Quite the statement to make but I can’t see myself ever doing this! I just can’t get the maths to work.
Faith is in the fortunate position of owning her house. I am nowhere near that position. I live in an expensive part of the country as a single adult with a large mortgage. But I have a great mortgage rate of just 1.39% and affordable monthly mortgage payments stretched over the next 26 years. I recognise that this might not always be the situation for the longer-term, but also, I plan to downsize and relocate in the not-too-distant future.
I recently investigated the impact of overpaying the mortgage. If I overpaid my mortgage by £100 every month, I would be saving £6,000 in interest and reducing my 26-year term by 27 months. This would mean overpayments of £100 for 24 years or paying an extra £28,800. If I saved this money into my pension would I get more than £6,000 as a return in the long-term? I would guess more than likely.
The facts that I do know are that I’ve had my pension with PensionBee since Jan 2017 and so far, the growth has been 26.1% (taken from my dashboard on 12 April 2021). By no means is this a guarantee of what might happen in the future but, in my view, I’m better off putting the money into my pension for a better return and the tax benefits.
Lockdown starts to ease
I anticipate spending to change as lockdown starts to ease. My spending on fun money for the family and myself will go up. Eating out will also no doubt see a rise, something I’m very excited about. What I intend to maintain are my pension contributions, at least matching what I put into my pension in 2021 with what I did in 2020, and I’m well on the way.
You can read Faith’s account of her spending on Much More With Less.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Lynn Beattie is a PensionBee customer and CEO/Founder of Mrs Mummypenny, a personal finance website. She is also an ACMA management Accountant, previously working in commercial finance for Tesco, EE & HSBC. Lynn is a single mum to three boys, living in Hertfordshire, and is the author of ‘The Money Guide to Transform Your Life‘ published in September 2020.