Can you find an extra £100 per month?

Changing how we think about money from something that we use to buy things we want (and in all likelihood could do without) to something that’s able to, if spent wisely, free ourselves up so that we have more choices in life is the first step in unlocking a life you may not have thought possible.

Beginning down the path of wealth creation may seem daunting, and it is by no means easy.

For a lot of people, the sad reality is that they are living under enormous financial strain. Starting behaviours to build wealth are probably not even on their radar.

Today i want to demonstrate how just an additional £100 / month, properly and intentionally utilised, can lead to long term lasting benefits to your financial well-being.

I’ve chosen £100 as a figure because i wholeheartedly believe that the average everyday person can find some margin in their life to come up with an extra £100 per month. A few ways how could include;

How to find that extra £100

1. Eat out / order delivery less and cook more

2. Go on fewer nights out to bars and clubs

3. Replace some grocery items with some more cost efficient substitutes

4. Use your car less and walk / use public transport more to save on fuel costs

5. Work some overtime / get a part time job to supplement your regular income.

Let’s evaluate the power of this newly available £100 via two hypothetical scenarios;

1. Paying down a credit card bill

2. Investing into the stock market via index funds.

Scenario 1 - Paying down a credit card bill

Joe Smith has just come back from an amazing 1 month holiday travelling around Asia with his friends . Joe was a little naughty though, even though, he put the whole trip on his credit card because he couldn’t afford it.

Joe decided that this trip was too great to miss, so he went even though he doesn’t earn much yet and couldn’t afford it.

Joe accepted that he’d just have to make the minimum monthly payments on his credit card and a little bit of interest to fund it.

Joe came home with £4,000 worth of credit card debt at a 19.9% interest rate. Minimum monthly credit card payments range from around 2-4% of the total balance (https://www.experian.com/blogs/ask-experian/how-is-your-credit-card-minimum-payment-calculated/#:~:text=The), so let’s assume that Joe has to pay £100 per month towards clearing down his credit card bill each month.

What does that mean in real terms for Joe?

Repayment Calculator Link (https://www.barclaycard.co.uk/personal/customer/repayment-calculator)

Yes, you’ve read that correctly. It would take him more than five years to finish paying off his Asia holiday (and this is assuming he doesn’t make any more purchases on that card).

What’s more, even though he only spent £4,000 on his card, taking total interest into account he’ll have to pay back more than £6,000 to the credit card company!

That extra £2,216 he’s had to pay in interest is money that is just getting burned right in front of Joe’s eyes.

What happens, then, if Joe pays an extra £100 towards his credit card bill and pays £200 per month to clear down his £4,000 balance?

Here, Joe’s managed to pay off his bill a full 3 years sooner! Even better, instead of paying £2,216 in interest he’s paid only £807, saving himself £1,409 which he can now keep and do as he likes with instead of going into the pockets of a credit card company.

Scenario 2 - Investing into the stock market via index funds.

Imagine Joe was a bit more responsible and realised that should probably wait to travel Asia until he’s in a position where he can actually afford it.

Instead of going on that trip, Joe decided to start investing £100 into an index fund every month.

Assuming the fund gives average returns of 6% per year (which is a bit conservative in my opinion but let’s just roll with it), in the 2 years that it took in Scenario 1 for him to pay off his credit card debt, with the extra £100 he was able to find, how large would Joe’s investment portfolio be?

Doesn’t seem like a lot on the face of it, but comparing Scenario 1 Joe to Scenario 2 Joe, after 2 years one is £2,551 better off than the other. That’s a whole holiday there itself that could be paid for without needing to go into any debt.

Don’t forget, in Scenario 1 Joe actually had to pay £200 per month back to the credit card company. If he was able to invest all that money instead, it would actually look like this;

In the end, instead of putting money in the pockets of the credit card companies, Scenario 2 Joe has ended up with £5k saved up and infinitely more secure financially.

If Joe was to keep up this habit of investing £200 per month for a period of 25 years, where would he land?

He’d be sitting on a six figure nest egg, with investment gains of £75k over and above what he put in himself.

What we can learn from these scenarios is that it’s always in your interest to choose to be conscious with your money, delay short term gratification and not spend beyond your means.

Seemingly harmless choices can have lasting consequences on your long term financial health and set you back a lot further than you may realise.

By the same token, small shifts in your financial behaviour, such as an extra £100 spent wisely per month, can put dramatically improve your financial situation.

Whether you’re deep in debt or looking to try and build up your finances, deciding to take accountability for your financial future being proactive is the most important step.

Until next time,

Zain

If you’re feeling unsure about your financial future, or if you just don’t have as solid a grasp over financial concepts as you’d like, i’d love to help via a 1:1 financial coaching session!

We will discuss your current situation, the potential challenges you’re facing and together come up with a plan of action to get you to where you want to be.

Please fill out the linked consultation form and i’ll be in touch https://eu.jotform.com/form/233086136375054