Financed lifestyles
Discussion
I agree - DA’s posts are usually reasonable and well thought through.
A small challenge in this case is that I’m struggling to see why someone at the “top-end” of society would need to finance their toys as, presumably, being at the top end means they have plenty of money stashed away so no need for finance.
A small challenge in this case is that I’m struggling to see why someone at the “top-end” of society would need to finance their toys as, presumably, being at the top end means they have plenty of money stashed away so no need for finance.
Zigster said:
I agree - DA’s posts are usually reasonable and well thought through.
A small challenge in this case is that I’m struggling to see why someone at the “top-end” of society would need to finance their toys as, presumably, being at the top end means they have plenty of money stashed away so no need for finance.
Generally you don't get wealthy enough to buy a Ferrari out-right by having cash sat in a current account generating 1% or whatever. It's tied up into stuff.A small challenge in this case is that I’m struggling to see why someone at the “top-end” of society would need to finance their toys as, presumably, being at the top end means they have plenty of money stashed away so no need for finance.
Zigster said:
I agree - DA’s posts are usually reasonable and well thought through.
A small challenge in this case is that I’m struggling to see why someone at the “top-end” of society would need to finance their toys as, presumably, being at the top end means they have plenty of money stashed away so no need for finance.
By top end, I’m more referring to households paying the highest income tax rate. At that level having excess income is a personal choice as is what that excess is chucked away on. A small challenge in this case is that I’m struggling to see why someone at the “top-end” of society would need to finance their toys as, presumably, being at the top end means they have plenty of money stashed away so no need for finance.
Top end isn’t referring to multi millionaires but just high income earners. At the multi million level then most people have taken extensive tax planning and so funding toys out of expensive debt is much cheaper than onshoring cash and paying 50% tax on it etc.
DonkeyApple said:
By top end, I’m more referring to households paying the highest income tax rate. At that level having excess income is a personal choice as is what that excess is chucked away on.
Top end isn’t referring to multi millionaires but just high income earners. At the multi million level then most people have taken extensive tax planning and so funding toys out of expensive debt is much cheaper than onshoring cash and paying 50% tax on it etc.
This is a sensible point. Top end isn’t referring to multi millionaires but just high income earners. At the multi million level then most people have taken extensive tax planning and so funding toys out of expensive debt is much cheaper than onshoring cash and paying 50% tax on it etc.
Say you are a family with two earners on 75k each. You take home about 8k a month after tax. You have a mortgage, you contribute heavily to your pension, you have a decent amount of cash savings, your kids live a decent life. After mortgage, bills, discretionary spending etc you have 3 to 4k left at the end of each month. You may not be able to afford to buy a brand new 50k car in cash, but you could finance it for 500-600 quid a month, and still contribute 3k ish to savings each month. It wouldn't damage your financial position in the slightest, it's just discretionary spending and that's how you choose to spend it. It's not the most efficient way of spending your money if your only goal is to build wealth, but is it an intrinsically bad idea? No.
That’s exactly it. Excess income is the money left over having taken care of your family now and your family future. It’s the money you can just sling in the bin every month and it has absolutely no material impact on the life that you want to live today and the life that you want to live in retirement. It’s genuinely surplus to your requirements.
You can save that money, invest it but it doesn’t bring you anything extra as your savings level is already sufficient. You could use it to underwrite your children more or to take more holidays or to build a wine collection etc etc. Or you could take a grand or two a month and throw it away on really silly cars. And if that’s your bag then renting them and just having someone come and take them away when you’re bored and ready for the next one makes much more sense than having the hassle of waiting to sell etc.
You can save that money, invest it but it doesn’t bring you anything extra as your savings level is already sufficient. You could use it to underwrite your children more or to take more holidays or to build a wine collection etc etc. Or you could take a grand or two a month and throw it away on really silly cars. And if that’s your bag then renting them and just having someone come and take them away when you’re bored and ready for the next one makes much more sense than having the hassle of waiting to sell etc.
DonkeyApple said:
That’s exactly it. Excess income is the money left over having taken care of your family now and your family future. It’s the money you can just sling in the bin every month and it has absolutely no material impact on the life that you want to live today and the life that you want to live in retirement. It’s genuinely surplus to your requirements.
You can save that money, invest it but it doesn’t bring you anything extra as your savings level is already sufficient. You could use it to underwrite your children more or to take more holidays or to build a wine collection etc etc. Or you could take a grand or two a month and throw it away on really silly cars. And if that’s your bag then renting them and just having someone come and take them away when you’re bored and ready for the next one makes much more sense than having the hassle of waiting to sell etc.
It's no different than spending some of your savings on a toy car. It's still spending money you don't really need to because you want to. There's no reason to demonise debt over cash in those circumstances. You can save that money, invest it but it doesn’t bring you anything extra as your savings level is already sufficient. You could use it to underwrite your children more or to take more holidays or to build a wine collection etc etc. Or you could take a grand or two a month and throw it away on really silly cars. And if that’s your bag then renting them and just having someone come and take them away when you’re bored and ready for the next one makes much more sense than having the hassle of waiting to sell etc.
Integroo said:
It's still spending money you don't really need to because you want to. There's no reason to demonise debt over cash in those circumstances.
Well actually, it's paying to rent money so that that you can then spend money you haven't got because you want to.There is "risk" to be taken into account as well as "affordability".
Fair point. I guess I was thinking of where someone doesn’t actually have the money rather than it being tied up in a not so easily accessible format. That’s more cash flow management than spending money you don’t have.
Similarly, I don’t count my credit card use as finance as I use cards for the convenience rather than because I don’t have the money. I always pay off in full each month and my current account always has more cash in it than the credit card balance.
Similarly, I don’t count my credit card use as finance as I use cards for the convenience rather than because I don’t have the money. I always pay off in full each month and my current account always has more cash in it than the credit card balance.
Integroo said:
It's no different than spending some of your savings on a toy car. It's still spending money you don't really need to because you want to. There's no reason to demonise debt over cash in those circumstances.
I can be extremely different. It all depends on what these ‘savings’ are. Whether they are just the accumulation of previous excess income, in which case it is as you say, or if these are the savings needed to replicate income after employers stop having any use for you. As far as Im concerned, living your entire life on tick is not a fantastic idea. If you want to dance with the devil, you have to pay the piper, sooner or later. The trouble is that when that time comes, it’s rarely just the dancers that feel the effect of their ( ultimate ) foolishness. The unwitting audience get burned as well.
Edited by GOATever on Thursday 1st August 16:30
DonkeyApple said:
I can be extremely different. It all depends on what these ‘savings’ are. Whether they are just the accumulation of previous excess income, in which case it is as you say, or if these are the savings needed to replicate income after employers stop having any use for you.
This is true. The assumption is you contribute sufficient levels to your pension such that when you retire you will have sufficient income, and have an appropriately sized emergency fund to cover periods of unemployment (the level of which depends on your age, ability to find another job, etc.). If you have an appropriately sized emergency fund and pension, then whether you buy a toy out of your excess savings or out of your income doesn't matter too much.
bogie said:
Condi said:
bogie said:
Say you earn £120k gross and dont bother with a pension at all you will take home £6178 a month
If you now save say 25% of gross pay (£2500 per month) into your pension you now take home £5012
Due to tax relief of £20k per year you now get £50,000 going into your pension for a net cost to you of £1166 a month or £13992 a year
If you now save say 25% of gross pay (£2500 per month) into your pension you now take home £5012
Due to tax relief of £20k per year you now get £50,000 going into your pension for a net cost to you of £1166 a month or £13992 a year
Such a 'PH' post.
'Say you earn 5 times average salary.......'
Sorry, I know the point you're making, but picking £120k as a base salary is hardly relateable to most people. And I'm not sure your figures add up either?
Maybe the govt might change the rules in future....maybe so, but it should not be the majority of tax payers they target, it will be the minority of high earners. Its a good idea to make the most of any tax free/efficient savings vehicle that is available, for so long as they are. Certainly wish I had when I was in my 20s and 30s ....50 now and playing catch up.
But what did I do in my 20s and 30s ? mmm....lived a debt fueled lifestyle, spent it as fast as I was earning it...on cars, bikes, holidays and other fun stuff I didn't really need
Edited by bogie on Sunday 21st July 21:10
I 8 a 4RE said:
Then... why not just do that on a debit card?
Rewards, Section 75 protection, fraud protection. I make £200-300 quid a year in rewards for no effort other than paying with a credit card. Plus if anything goes wrong I would much rather deal with American Express, whose customer service is excellent, than any UK bank.
Integroo said:
I 8 a 4RE said:
Then... why not just do that on a debit card?
Rewards, Section 75 protection, fraud protection. I make £200-300 quid a year in rewards for no effort other than paying with a credit card. Plus if anything goes wrong I would much rather deal with American Express, whose customer service is excellent, than any UK bank.
otolith said:
I rather suspect that the possibility of a large proportion of the population spending 1/3 to 1/2 of their adult life retired was a brief generational anomaly.
Sad but 100% true. The numbers don’t stack up with life expectancy of 90+. 20 years unproductive in education, 45 years working then 30 years unproductive in retirement? Implies that everyone needs to save c. 50% of their income just to provide for themselves.
The amount of otherwise productive private sector capital that firms have been required to divert to pay defined benefit pensions for those expected to live to 70 that actually lived to 90 is shocking. Then look at the public sector and think how an ever increasing proportion of national income is spent on state pensions, public sector pensions and social care.
It worked in the UK for a while as long as house prices grew from 3x income to 9x, representing an enormous intergenerational transfer of wealth, as does the expansion of the national debt from 40% of GDP in 2006 to 85% today. It’s the kids’ money that we’re borrowing.
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