Should You Save or Spend?

[p1stonhead]

Joey Deacon said:

If you have a mortgage then everything you buy is effectively costing you double. That is the effect of 25 years of compound interest on the money had you paid it off your mortgage rather than spent it on something else.

For me I think about how many hours I have to work to pay for something. That is the trade off, you are effectively swapping a portion of your life (time) in exchange for something. Think how many years in total you have worked for laptops/phones/clothes/cars etc. that have long since been thrown away/scrapped.

If instead of buying a brand new car you invested that money you could effectively be knocking years off your working life as you would be able to retire earlier.

I personally think that people who strive to pay off their mortgage as quickly as possible have the right idea, this will save you far more money than anything else. I also think I would look back more fondly on being able to retire early and spend time with my family than having owned a nicer car or a slightly bigger house.

My mortgage rate is only 1.something% at the moment. Overpaying doesnt always make sense.

[NRS]

Joey Deacon said:

If you have a mortgage then everything you buy is effectively costing you double. That is the effect of 25 years of compound interest on the money had you paid it off your mortgage rather than spent it on something else.

For me I think about how many hours I have to work to pay for something. That is the trade off, you are effectively swapping a portion of your life (time) in exchange for something. Think how many years in total you have worked for laptops/phones/clothes/cars etc. that have long since been thrown away/scrapped.

If instead of buying a brand new car you invested that money you could effectively be knocking years off your working life as you would be able to retire earlier.

I personally think that people who strive to pay off their mortgage as quickly as possible have the right idea, this will save you far more money than anything else. I also think I would look back more fondly on being able to retire early and spend time with my family than having owned a nicer car or a slightly bigger house.

If you only do that then you might be able to retire earlier, but most likely your body will not be in the shape to do everything you want. Sure, it might cost more in the long term, but for some stuff I get now I will enjoy, but forget about it in the future. However it will be good fun now. As has been said, it's a balance.

The kids may well also appreciate doing some stuff with you now that costs money, rather than more time later due to retiring early.

[gangzoom]

p1stonhead said:

My mortgage rate is only 1.something% at the moment. Overpaying doesnt always make sense.

Same here, but longterm paying off mortgage still makes sense. I reduced our term to 20 years which pushes monthly payments up but in effect is overpayment, will still carry on overpaying 10% a year, according to online calculators will mean will be mortgage free around my 45th birthday .

[Jockman]

gangzoom said:

p1stonhead said:

My mortgage rate is only 1.something% at the moment. Overpaying doesnt always make sense.

Same here, but longterm paying off mortgage still makes sense. I reduced our term to 20 years which pushes monthly payments up but in effect is overpayment, will still carry on overpaying 10% a year, according to online calculators will mean will be mortgage free around my 45th birthday .

Good for you. I plan to be mortgage free at 70. Not before

[sidicks]

gangzoom said:

Same here, but longterm paying off mortgage still makes sense. I reduced our term to 20 years which pushes monthly payments up but in effect is overpayment, will still carry on overpaying 10% a year, according to online calculators will mean will be mortgage free around my 45th birthday .

Overpaying can make sense, particularly where the extra money would otherwise be spent (wasted?) rather than invested.

However, as highlighted above, when mortgages rates are so low, instead of overpaying, investing the money might be a better option.

[DonkeyApple]

p1stonhead said:

My mortgage rate is only 1.something% at the moment. Overpaying doesnt always make sense.

This is very true and is the case for a lot of us. 1.4% mortgage and able to easily get double that in yield alone in the equity markets for the last decade along with big capital uplift. It has made perfect sense to take the risk to pay that money into the markets than into the mortgage. At the same time, a lot of people are paying nowhere near 1% but closer to 4 or 5 and at that point the risk of investing elsewhere doesn’t really stack up.

But either way you are still saving. Having a low interest rate on your mortgage and deciding to go shopping with the excess money that the temporary low rates (with high asset values) is lunacy though as the odds of needing that money to cover the shortfall when rates rise, or as seen over the last couple of years margins rise in rollover are pretty high.

[DonkeyApple]

Joey Deacon said:

DonkeyApple said:

But with a 0% finance agreement you have have it today without having to do any work.

No you are just exchanging your future work/hours to have something now. For most people they will have forgotten all about it while still having to work to pay for it.

It’s definitely free money. All those people rushing this morning to their temples of consumption and buying vast quantities of things they don’t need with money they don’t simply can’t be wrong. That would be madness.

[soupdragon1]

Joey Deacon said:

For me I think about how many hours I have to work to pay for something. That is the trade off, you are effectively swapping a portion of your life (time) in exchange for something. Think how many years in total you have worked for laptops/phones/clothes/cars etc. that have long since been thrown away/scrapped.

If instead of buying a brand new car you invested that money you could effectively be knocking years off your working life as you would be able to retire earlier.

You say that like it's a bad thing. I do get your point though and it's a good way to think about things. The only danger is getting into a habit of being too frugal and ending up depriving yourself of things that would make your life better in the 'now', and then you end up never actually treating yourself. I'm not saying that's you by the way, just a general statement.

Sometimes we need to treat ourselves to life's indulgences too. If we imagine a see saw, 'now' on one side, 'later' on the other.....if we're balancing those out then we're on the right track IMO.

Edited by soupdragon1 on Saturday 30th June 10:09

[James_B]

Joey Deacon said:

If you have a mortgage then everything you buy is effectively costing you double. That is the effect of 25 years of compound interest on the money had you paid it off your mortgage rather than spent it on something else.

You have the maths wrong there. Not everyone takes 25 years to lay off the mortgage, and with rates where they are now it is more like 10-20% extra cost, not double.

You also cannot look only at one side of the equation, you need to apply a discount function and utility function onto the thing you are buying too.

If I buy the sports car today, not in ten years, then I have it now, and for ten years. This has value, and utility.

[DonkeyApple]

James_B said:

You have the maths wrong there. Not everyone takes 25 years to lay off the mortgage, and with rates where they are now it is more like 10-20% extra cost, not double.

You also cannot look only at one side of the equation, you need to apply a discount function and utility function onto the thing you are buying too.

If I buy the sports car today, not in ten years, then I have it now, and for ten years. This has value, and utility.

True. Use some of the money to buy your dream car and have all the wonderful benefits that brings. But why do they not buy their dream car but keep renting a white diesel utility box?

I bought a Griffith when I was 21 and kept it for 13 years. An amazing experience that I paid for by retaining a flat mate to help with the mortgage for several years longer than other people did to catch back up, not going on any fancy holidays and spending a little less when going out. Mainly I went without other consumer goods and services to have that one item, I didn’t use the amount I needed to save each month to build the next house deposit or invest in my post employment income to survive as those two things were essentials and the car just a crazy toy.

[James_B]

I have never regretted buying my first Elise, or the second one either, but more have I regretted being. A bit sensible when it comes to holidays, suits, night clubs and the like. Some people in know in banking have spent their who,emwage, every month, for decades, and that’s not for me.

[Jockman]

James_B said:

I have never regretted buying my first Elise, or the second one either, but more have I regretted being. A bit sensible when it comes to holidays, suits, night clubs and the like. Some people in know in banking have spent their who,emwage, every month, for decades, and that’s not for me.

I’m going to guess that as a man of discerning taste you’ve bypassed the overpriced stuff and gone direct to Gigondas or Vacqueras?

Am I right?

[James_B]

Jockman said:

I’m going to guess that as a man of discerning taste you’ve bypassed the overpriced stuff and gone direct to Gigondas or Vacqueras?

Am I right?

I had to google, and they are wines?

We tend to drink mainly Champagne nowadays, and each year we do the Route Du Champagne, swamp,e twenty or so sensibly priced ones, and normally bring back enough bottles to last for the next year.

I’m fortunate to have in-laws from Bordeaux, so the odd bottle of red that we still drink comes from them.

[djc206]

James_B said:

Jockman said:

I’m going to guess that as a man of discerning taste you’ve bypassed the overpriced stuff and gone direct to Gigondas or Vacqueras?

Am I right?

I had to google, and they are wines?

We tend to drink mainly Champagne nowadays, and each year we do the Route Du Champagne, swamp,e twenty or so sensibly priced ones, and normally bring back enough bottles to last for the next year.

I’m fortunate to have in-laws from Bordeaux, so the odd bottle of red that we still drink comes from them.

I think it was a dig at the typos in your previous post that suggested a bit of Saturday night indulgence.

[Jockman]

djc206 said:

James_B said:

Jockman said:

I’m going to guess that as a man of discerning taste you’ve bypassed the overpriced stuff and gone direct to Gigondas or Vacqueras?

Am I right?

I had to google, and they are wines?

We tend to drink mainly Champagne nowadays, and each year we do the Route Du Champagne, swamp,e twenty or so sensibly priced ones, and normally bring back enough bottles to last for the next year.

I’m fortunate to have in-laws from Bordeaux, so the odd bottle of red that we still drink comes from them.

I think it was a dig at the typos in your previous post that suggested a bit of Saturday night indulgence.

Lol. Now I know James has relatives in Bordeaux.......

[GT03ROB]

James_B said:

Jockman said:

I’m going to guess that as a man of discerning taste you’ve bypassed the overpriced stuff and gone direct to Gigondas or Vacqueras?

Am I right?

I had to google, and they are wines?

We tend to drink mainly Champagne nowadays, and each year we do the Route Du Champagne, swamp,e twenty or so sensibly priced ones, and normally bring back enough bottles to last for the next year.

Jeez do you take an artic with you?

[James_B]

djc206 said:

I think it was a dig at the typos in your previous post that suggested a bit of Saturday night indulgence.

Ah, nothing so high class as fine wines, that was all down to the Desperados.

[DonkeyApple]

Rather timely report: https://www.plsa.co.uk/Policy-and-Research/Documen...

It’s all a bit boring and let’s not forget that they exist to talk up the book of the pensions industry but the report does rather comprehensively highlight that very few workers are building any form of pension that will allow them to maintain current quality of life.

Some key points covered here could have been lifted directly from this forum: https://www.independent.co.uk/news/business/news/p...

[p1doc]

DonkeyApple said:

Rather timely report: https://www.plsa.co.uk/Policy-and-Research/Documen...

It’s all a bit boring and let’s not forget that they exist to talk up the book of the pensions industry but the report does rather comprehensively highlight that very few workers are building any form of pension that will allow them to maintain current quality of life.

Some key points covered here could have been lifted directly from this forum: https://www.independent.co.uk/news/business/news/p...

looks like a good report downloaded to read later,thanks