Where Does All My Money Go?

0:00If I asked you what you had for tea a week last Tuesday, you probably couldn't tell me. I couldn't tell you what, every breakfast this morning. I used to, when I was a student, I'd go to an ATM, a cash machine, and kind of close my eyes and pray. I had no idea what was in my bank. Hi, and welcome to Bank of Dad, the podcast where we teach you the money lessons that we were never taught at school. I am Kate, and this is my dad, Pete. Hello. And we're here to make money as easy as possible with no judgment and no jargon. So let's get straight into it. That's the plan, what we're talking about this week.

0:32This week, I rather creatively titled, Where Does All My Money Go? Because I think if you're at the very beginnings of learning how to manage your money, we've all gone, oh shit. Where's it gone? Where's it gone? You know, and there's sneaky subscriptions or whatever. So it's, where does it go? And this is kind of the introduction into budgeting, isn't it? Yeah, yeah. I'm going to talk about spending, which sounds fun. Yeah, it does. Sounds more fun. Buy yourself that thing. Yeah, right. So we're going to talk about spending and at least for the time being, we're going to start each episode with a little segment we like to call Wanky Word of the Week.

1:12Now, I feel like we need a theme song. I feel like we need a theme song. Wanky Word of the Week. We'll see. Maybe we'll do that. Perhaps I'll record it. We shouldn't be getting that excited about it, really, should we? No, no, I can hear it. The possibilities are endless. So Wanky Word of the Week, what is this week's Wanky Word of the Week? Yes, so we're talking about budgeting. I thought you could explain to me what the words disposable income means, because to me that sounds fun. Yeah, I mean, let's just think that through. Disposable. Yeah, I can get rid of it. Whee! Yes, I know. It's like, well, no, I dispose of stuff on a Wednesday night when I put it out at the front of the drive for the nice chaps in the van to pick up on Thursday morning.

1:55Or chapettes. Or chapettes. Do you know what I mean? Disposable means it's kind of not needed. and it's throwaway, which is why I don't like this term. So many of these things, they're just words we need not to obsess about, sort of semantics and grammar and stuff. But I don't think it's a very good message. Most people would never actually think that. They're just like, I suppose. No, of course, yeah. But I guess what it means is it's income that you haven't assigned where it's going to be spent yet. So it's not going out on rent or mortgage. It's not going out on a car payment, on a phone payment.

2:29you're not spending it on food, on presents for your mate's birthday, going out or anything like that. It's not planned. It's so far kind of unspecified. Unassigned, that's a better word. Yeah, right? So unassigned. But disposable I don't think is a great message. I mean this may be jumping ahead, but do you think every penny that we have should be assigned? It is jumping ahead, Kate. Yes, I think when we get into budgeting, we're just going to talk more specifics about next week. to do it next week. Are we doing this weekly? Is that the plan? As opposed to... Yeah, I thought not. I think it is weekly.

3:05No, I think we were thinking weekly. So next week then. That's why I kind of said next time. Next week. Let's start with the intention to do it weekly. But if we get behind, don't... Nah, that would be alright. We'll just be disciplined. We'll be fine. Yeah, it's alright. So we're going to talk about specifics of budgeting next week and part of that is budgeting to zero. So basically giving every single pound that comes in a job. So we'll talk about that more next week. But I don't like unassigned money because it generally gets wasted. That's the issue. That's potentially a generalization, but that's sort of why I don't like it.

3:48So we need to kind of remove the word disposable income. I prefer sort of discretionary. So it's not money that you have to spend on something like rent. You know, if you want to keep the roof over your head, you have to pay the rent no matter what, your mortgage or whatever. But discretionary is more sort of, well, I can now decide a little bit more about where this goes. So perhaps discretionary is better than disposable. So I'd say the first question, speaking as the voice of people who, let's say, are learning from the very beginning about finances. Is it normal to not really know where it's gone?

4:24Is it, you know, should I be ashamed that I've opened my bank and gone, oh my God, where's it gone? That's two questions. Okay, is it normal? Yes, it's normal and no, you shouldn't be ashamed. Okay. Right? If I asked you what you had for tea a week last Tuesday, you probably couldn't tell me. I couldn't tell you what I had for breakfast this morning. What did we have for dinner last night? There you go. My fajitas. Oh, we did have fajitas. So, or as they're known in our household, jeets. How did they get short of that? I don't know. So, you know, I think sort of knowing where your money has gone, there's no way you're going to keep track of that unless you keep track of it.

5:04Right. So as one of the words that's come up repeatedly and it's been a recurring theme over 15 years that I've been sort of teaching about money on the internet is to be intentional. So that's one to sort of write down and remember. Have intention. And unless you are intentional, there's no way you'll know where it's gone. So I think it's fairly normal to be surprised. I mean, we alluded in the sort of intro session last time that my wife, your mom, Jo, taught me everything about how to manage money day to day. Well, it is ironic that I subsequently became a financial advisor and learned the sort of mechanics of it.

5:47But when it comes to the day-to-day sort of understanding of spending, budgeting, all that sort of stuff, she taught me all of that. I used to, when I was a student, I'd go to an ATM, a cash machine, and kind of close my eyes and pray. I had no idea what was in my bank, ever. I mean, this may be a stupid question, but in the days before mobile phones and apps, how did you know the amount? You went to a cash machine and asked it what your balance was. Did you ever do that? Yes, always with a sort of sense of trepidation and dread. It's like, well, hopefully there's some money in there. We should say that you finished uni with...

6:24Well, student loans and zero degrees. And... Two keyboards. And mum finished uni with... A positive credit balance in her bank, a brand new TV and a car.

6:38It's a miracle she took you on, isn't it, really? It is, yeah. I was definitely not a good financial bet at that point. You had many other positives, I'm sure. Maybe. But do you know what I mean? She knew all that sort of stuff. She had some really good lessons from her parents, I think, about managing money. And I never did. Not really an excuse, but it's certainly a reason. But I don't know. It's like anything. There's no way you can possibly know where it's all gone. and unless you're sort of weird sort of savant level mathematician where you can hold this sort of stuff like sheldon often what you say about me savant level mathematician yeah i've almost never said that um so you know i don't know how anybody could keep this stuff in their heads you know maybe some people go to bed that's unfortunate i wonder if you keep that in well you were talking so i probably should but i was just very aware that there's a bit of fluff on my face that was like itching That's an occupational hazard.

7:37You just have to power through. Says the man with no hair. I've got many more inches of hair than you. That is true. A bit easier for me. Digress. Yes, so it's, yeah, if you've not been taught and if you don't have any ways of intentionally tracking, then you're not expected to know. So it's okay if you're going, well, crap, I don't know where it's gone every month. No, but we need to fix that. But we need to fix it. It's not something that needs to stay. No, you don't want to go through life sort of continually living in fear or kind of concern about whether you've got enough or where it's gone.

8:16Money is a great servant, but it's a lousy master. You need to rule it. You've got to sort of keep control it, else it will control you. And it's not good for the mind or the soul to worry about money. and by grabbing hold of it, taking it by the scruff of the neck and telling it where it's going to go, which is basically the whole premise of budgeting and financial control. It underpins everything, Kate. Honestly, you can't, you'll never build wealth unless you can control your spending. You'll never retire unless you can control your spending or you'll end up on the streets, right? But it's also worth mentioning, like, it's not that you shouldn't spend ever, you know, you should still have a life and enjoy life.

8:58And have money for using, right? but it's finding the balance isn't it yeah and it's being intentional right so that's the key word we've got to be intentional we've got to plan and think about this sort of stuff so when I was researching a phrase that came up a lot was emotional spending so you know what's the difference between emotional and intentional spending what's you know can you give me an example

9:23so you know it's like I don't know a Tuesday evening you're a bit bored you've had a crap day at work you've had a glass of wine at home and something comes across your Instagram feed and you go ooh I don't need that but now I really really want it I really do want that authentic foot scrub spa yeah so the sort of electric heat foot massager thing that your sister's got actually her sister's boyfriend's got yeah I think she uses it more than he does oh really but do you know what I mean it's like it's a cool thing but nobody needs one of those yeah so emotional spending tends to be in the moment it tends to be ill thought through you just sort of like you know i'm just gonna do that sod it yeah yeah sod it spending you had it first yeah yeah i like it do you know i mean i think it's it's not thought through that's the point it's unintentional and so you know again it's nothing to feel guilty about or sorry about or beat yourself up.

10:22But we all do it to a degree. I mean, so I think we just need to kind of recognize it though. And self-awareness, I think, is a superpower. So if you sort of get to a point where you think there's a pattern here, quite often when I'm feeling tired or I've had a drink or two or I've had a rubbish day at work, what I tend to do is go on to Amazon and buy stuff I don't need. Well, that's a genuine thing. It's the phrase is eluding me, but the credit card rush, the dopamine rush. that you get from, yeah, but there's a specific name for... Retail therapy? Yeah, there's a scientific term that's, you know, been studied.

10:59You know, when you put that card down, it almost instantly goes when you leave the shop, you know, and you're left with this thing, but the moment as you're buying it, you get this rush. No doubt. It's chemical. And, you know, I think if we can identify when we are more likely to be at risk of emotional spending, we can maybe take steps to try and avoid that where possible. But we are only humans, so we need to not beat ourselves up too much, I think. So when you're looking at your bank account, which you can do on apps now, you don't have to go to an ATM. It's great. Is the number you see there an accurate depiction of the money you've got?

11:46No, not usually. That was usually my problem. No, well, most of us are paid on a cycle, right? So we're paid, most of us are paid monthly, some are paid fortnightly. When I started work in my profession back in 1998, I was paid lunar monthly, 13 times a year. That's great, get an extra payday. Yeah, I mean, it's slightly less each lunar month. I suppose, yeah, because it's the same amount, but spread across more, yeah. Yeah, so it's just the bizarrest thing. That is bizarre. Yeah, yeah. Historical reasons for that. But generally, we're paid on a cycle. So most of us, maybe, let's say we're paid on the last working day of the month.

12:28Well, that's fine. But let's say it's now the 10th of the month. So we're talking a good 20 days, probably, before we get paid again. And you've got X amount in your bank account. Well, that's fine. But until you get paid again, there's going to be other stuff you need to pay for. so maybe the car needs a service and he's kind of vaguely aware that that's this month or MOT it's got to be this month and you know who knows if you know I need new brake pads or two new tyres or whatever or we've got my mate's birthday so I need to think about right I've got 50 quid for a Prezi probably 75 quid for a night out I need to just think about that Oh nice to your friends Okay No you're right I love my friends Yeah do you know what I mean I think between now and when the next lot of money comes in, we have to retain and think about what has to go out.

13:21And some of those things will have to go out. You know, if there's only 30 miles worth of range left in my fuel tank in the car, I'm going to have to put 50 quid with petrol in or 25 quid or whatever. And so the stuff that I know has to be spent between now and when I get paid next. and unless you know what those things are, which is the central premise of financial control, budgeting and spending plans, then the figure you've got is mythical. Right, so if you've got, I don't know, 1 ,500 in your current account. Yeah, yeah. I mean, first of all, you probably shouldn't be thinking, yeah, you've got 1 ,500 to spend.

14:02That's not conducive to spending, but most people aren't like that. but it's actually it's not 1500 you've got because oh hang on i've got 800 quid of rent yeah it's okay that takes me you know so i guess being knowledgeable of what your expenditure is and what your repeat expected expenses are going to be will help you have a clearer picture of how much you actually have yes exactly because just as we get paid in a pattern much of our spending is rhythmical. And so, you know, the rent will go out at the same point each month. You know, there's a reason why a lot of people do a big shop, as they call it in Yorkshire, you know, a big food shop once a week because they know, or maybe even once a month, okay, right, we know we're going to stock up a load of things, get everything in that we need for the month, and then hopefully we'll have to have too many little trips to the supermarket throughout the month.

14:54So a lot of our spending is rhythmical and in a pattern as well, but there's always some ad hoc stuff that isn't. Yeah, and there's always surprises. There is always surprises. It's amazing how many people are surprised by Christmas every year though. I know, that does make me go, gosh, it's come... It's come around again. It's on exactly the same day as it's been for 2 ,000 years. Or whatever. But, you know, there can be, you know, there are surprises that might impact preparation for Christmas. Like, oh gosh, the car's now been written off November 28th. Yeah, exactly, exactly. So we're going to talk in due course in sort of future episodes about how you put a buffer between yourself and things like that, the unexpected, because that's just the way the world works.

15:36So we need to make sure that we are somewhat prepared for that. But your sort of current, your bank balance today is actually, it's that minus all the stuff you're going to have to pay for between now and the next time you get paid. And so being intentional and having control will help you kind of understand that. So do you think it's good to, let's say you get paid on the first of the month, every day is the first, every month is the first say, just for ease. Would you say it's smart to move your, if possible, your rent payment or your phone payment, instead of it being on the 28th, like it was when you signed the lease or whatever, could you move it to the second?

16:19Oh, definitely. I think that's smart. I think as many of your big repeating monthly bills go out either on or the day after your payday, usually the day after is smart because sometimes you get, you know, payday falls on a weekend. Sometimes it's a bit later than you think. And if you've got standing orders or direct debits, they may be pulled out actually on the weekend. Standing orders being pre-set up payments. Yeah, that you're in control of. Direct debit payments are pulled out of your bank account by whoever your provider is. Your mobile phone company, they pull the money. Standing orders, you push it out.

16:57But you've... You're in control. But not manually. You've set it up to be automatic. Yeah, yeah. But you've controlled it. You've set it up, yeah. With a direct debit, you've agreed to have that money pulled from your account. That's interesting. I actually thought those two terms were interchangeable. Not really. No, no. So when you log onto your bank, you'll see. Standing orders are direct. You manage them separately. Yeah. So standing orders, you are in control. With a direct debit, you have agreed to have the money taken. Ah, okay. So you push the money or it gets pulled, right? That's the difference really.

17:24But setting those up to be broadly around the time that you get paid is pretty smart. There's actually a step further we can go, which is to actually have two accounts. And we'll talk about that next week. Yes, that's a good one. when I was researching this I saw a lot about the latte effect and I think it's I think most people have heard of it they might not know the title but it's a bit of a bugbear for me sometimes when it's if you don't buy your coffee every day you're going to be a millionaire well that's complete bollocks thank you don't get me wrong that's kind of like the emotional spending oh it's been a hard day I'm going to have my Starbucks or whatever.

18:09I'm going to have my coffee. But I also think the balance is important because sometimes a hot chocolate really hits the spot. So, you know, I'd like to know the latte effect. Whilst I get the logic behind it, is it quite as black and white as that? I think what the latte effect, I think it was originally called it, it was called the latte factor. I think it was a guy called David Bach came up with it, who's wrote a brilliant book called The Automatic Millionaire. It's a fantastic book. Oh, I've heard you mention that before. Yeah, yeah, it's really, really good. And I think it's in there he talks about the latte factor.

18:46But the point is it's either emotional spending, but more often than not it's habitual spending. I wrote the book on this, right? I never drank coffee until I was 40, and then we moved our office next door to Costa, and then I became addicted. And it almost is an addiction. and there's absolutely nothing wrong with spending money on a coffee if that's what you want to spend it on. And if it brings you joy. Yeah, exactly. But the point is it's got to be intentional. It's like everything. It's like you choose, right? You are in control. You choose what you spend your money on. But so often we fall into habits where actually we're not choosing anymore.

19:26It's kind of a default and it just happens. My issue with the whole point of the latte effect is I think it's lazy and potentially a bit condescending. you've got to be careful, right? Yeah. We don't want to kind of, it smacks potentially. Do you remember when there was a thing where like boomers, which I'm not, by the way, don't anybody ever call me a boomer. I'm Generation X. I'm proud of it. But do you remember when boomers were talking about millennials and Gen Z buying avocado toast? Oh, that pissed me off. Well, it's just, it's really... It's condescending. It's condescending. It's like, hang on, these are the habits that we've made because you haven't fucking taught us.

20:00Sorry. Potentially, yeah. But, you know, no knowledge has been passed down, no education has come from you, and so what if we like some avocado on the toast? Yeah, it's just this lazy and it's condescending. It's blaming, I think. It is a bit of a blame culture as well. Sorry, I got very pressed about that. Yeah, that's a bit of a trigger. Deep weird anger that I didn't know I had. But I think, you know, it becomes a kind of a hook and it's wrong to say that if you fix that, then your finances will be fine. Right. Because if it's not latte, if it's not avocado toast, it's, you know, a couple of pints where you make it on a Friday night or it's, you know, only ever buying one brand of...

20:49I must have champagne, not Prosecco. Yeah, but it's just crap, right? So we've got to be careful of, this would be a red buzzer moment, of reductionist thinking. In other words, making something more simple than it is. Right. So if you want to buy a fucking latte, buy one. I don't care about that, but decide you're going to do it and plan it into your finances. Don't do it by default. Don't do it every day because you walk past it and then don't drink the last third. And then complain that you haven't got any money. That doesn't make any sense. Yes, that's true. It's like, you know, saying you're poor, but you've got a financed BMW on your drive.

21:23Yeah, exactly. Ultimately, we are the product of the decisions we make. There's a million reasons why we make decisions and there's no judgment here. No, maybe that car in that example, I don't know, makes X other reasons easier and that's great. Yeah, maybe, right? But I think what the point is, we don't want, you don't want people to ever feel guilty. No. You want people to be aware because if you're aware of stuff, then you can potentially make a change if you think it's important enough to you. So the latter effect, it's key message and I think sometimes, sometimes, don't want to sort of diss it too much because it's power.

22:02The concept is good. It is. It's power is in actually small things can make a difference because they do add up. So it's a kind of negative compounding. We will in due course talk about compounding and how it's the magic that basically builds wealth for people. But compounding works in reverse as well. So if you spend a little bit each day, that doesn't half add up. Yeah, if you do. You had a conversation with your boyfriend. I did, yes. he has recently moved home and he doesn't for X, Y, Z reasons and he when he lived on his own he very often went ironically for a coffee with his best mate and it did wonders for his mental health both of them they really supported each other and looked after each other and it was just a really good thing for them to do and they did it every day for like two years and he said to me how we are, he said to me that since not living in the same town as his friend, he's saving, I think it was 300 quid a month.

23:04Yeah, right. Now, that's a lot of money, that's crazy. Yeah, but it's one coffee a day, every day of the week. Yeah. Isn't it really, these days? When he put it like that, it freaked him out, because he was like, I didn't realise I was spending that much, because I was actually only spending 280 on a black Americano every day. Yeah, but it really does add up. and so that prompted him to think well why don't we go for a walk why don't we still the coffee wasn't the reason they saw each other they saw each other because they liked each other and they were best friends so yeah you're right that was a good example for him where when he worked it out he went oh okay I think some basic arithmetic tells me that he was also having a muffin no he would eat, they'd have two I'm thinking if it's 280 and it's 30 days in a month then it's not 300 quid.

23:55But if there's a couple of coffees in a muffin each day, then that is what... I don't know about muffin, but there might have been refills. It would have been if it was me. Yeah. But so that was for him. You're right about the little thing. But actually, when you said the little things do add up, which they do, which is what the good part of the latte effect is, myth. The crux of it makes sense. The condescending kind of things around it. Yeah. I think it speaks to spending being habitual, not intentional. And that's good. But the little bit that adds up made me think of, you know, how there's Spotify wrapped every at the end of the year.

24:30Well, actually quite a lot of apps have done that this year. Yeah, Monzo. Monzo did it. Monzo does a thing where if you spend£7.89, it will round up to£8. And it puts those extra pennies into one of your pots. It told me how much it saved for me over the year. And it was like£180. Man alive. And I was like, no way. That's material. That's incredible. Yeah. And I didn't even notice it because instead of spending 7.92, I spent eight quid and those eight P. That's a lot of money. It's mad. In my Monzo rat, the little coffee place just outside the studio here, I was its 14th biggest customer of all Monzo users, admittedly.

25:15I was going to say, because it had me as something, like it didn't have a bookstore as my highest spending. So I wondered if it didn't have Apple Pay. oh maybe but because i was like i definitely spend more money in a bookstore than i do it was something it was it was the local card shop so i'm not there very regularly you know so but but yeah i thought that was a really good insight as to how the little i mean that was pennies each purchase 180 odd quid it gave me this year so that's really good um so what are the basics for budgeting that work for people. I know we're going to talk about the why, or should we leave that?

25:57We'll talk about how next week, specifically, I think. But the main things, I think, to think about, and you might want to make no of these, we'll ask you if you've got it. Okay. To look forward, not back. So for years and years and years, I could tell you to the penny what I had spent, or what we in our household, Joe and I, had spent on, you know, electric gas, mobile phones, internet, whatever, food, even the discretionary stuff. I could tell you what we had spent. But for years and years and years, I never looked ahead at what I was going to spend. The crucial thing about budgeting is that you are in control and you get to tell your money what it's going to be used for.

26:43But most of us don't do that. We're kind of reactive and we look backward. Where has my money gone? Not really sure. The way to know where your money's gone is to tell it where to go, right? So, again, we talk about being intentional and looking ahead, not backwards. That's the first key point. I feel like I should have intentional tattooed on my head. Yeah, spoil your face. Don't do that. That's weird. Yeah, mum would kill me. She would, yeah, and kick you out. So look forward, not back. the other thing that David Bach author of The Automatic Millionaire who I believe coined the phrase the latte factor he also the whole point of that book is to pay yourself first we're going to get deep into that next week you've said that a lot pay yourself first so in other words when you are paid when your salary comes in make sure you are improving your own financial position first either by paying off any debt that you've got we're going to get into debt and how it works and how to get out of it.