Question Time: Is paying via PayPal a bigger risk? How to do a budget? Has the government ever told Martin to stay schtum?

0:00Hello and welcome to the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. And this is the Question Time podcast, in which I answer your questions about absolutely anything and everything within reason. This week, you asked me, what's the best way to budget? And I warn you that your bank account is a little liar. Is paying on a credit card via PayPal a bigger risk? How do I compare electric vehicle energy tariffs? How does an 18-year-old build their credit score? Are wills invalid after marriage? And you asked me, has the government ever told you, i.e. me, Martin, you need to stay quiet?

0:42Play the theme tune. I got meals, I gotta pay, so I'm gonna work for a while and every day. I gotta mouth, I gotta feet, so I'm gonna make sure everybody eats. Okay, it's time to start our Question Time podcast and here with me is the curator of the questions himself, podcast producer Matt. Hello. That was it, I gave you a big bill, you just do, hello. Hello. Alright, we'll do some questions then. I know. Well, I was going to talk about, I don't know if you really care, but I was cutting up a cabbage yesterday and I've got purple nails because the red cabbage dyed my nails. I don't care. What's your question?

1:25Mandy, we'll start with Mandy. She's emailed a question in to martinlewispodcast at bbc.co.uk. She has started it with Hi Martin. Good. Unfortunately. Not Hi Martin. Good. Fab news you're having a podcast. I have a suggestion for you. Budgeting. I think it would be good to go way back to basics on how a budget looks over time to show small steps that make a big impact. I think this would be a great idea going into the new year or for students leaving home, but also people who find themselves in a tough financial situation, e.g. a divorce. My ex-husband controlled the finances. And when I found myself leaving a 30 year marriage, managing my meagre finances was a real wake up call.

2:04It was challenging and I think it's easy to think people know what they're doing when they don't. Great question, Mandy. Thank you very much for that. Matt, remind me to do students at the end because it's slightly different for students. OK. So I'm going to talk the things that people get wrong in budgeting because people know what a budget is. First steps people get wrong when making a budget is they look at a month. We don't do our spending by the month. Sometimes we do it by a week. Sometimes we do it by the year. Sometimes we do it over multiple years. I'll give you an example. If you go on a summer holiday and you're looking at a snapshot of your spending in October, well, the cost of the summer holiday wasn't included, but it needs to be paid for.

2:42The same about Christmas spending and many other things. So what you need to be doing when you're doing a budget is looking at a two or three months worth of statements on your credit cards to see what you spend and your bank account to see what you spend, but also thinking through what are those other substantial transactions. The next thing is don't have a category like motoring. Here's what I spend on motoring. Instead, you want to look at what is the cost of MOTs? Do I have to replace tyres? How much is my petrol? How much is my car insurance? How much is my breakdown cover? The more you granulise it and itemise it, the better your budget will be and that stops you forgetting specific things.

3:22Now, once you've added up your expenditure, you need to contrast that to your income. Now, for most people, your income is what you're paid from work, but you may have other income too. And this becomes very simple. It becomes the Mr. McCorber principle for those familiar with Dickens. If you are currently spending more than you earn, then you need to first do what I would call a money makeover. So that is you need to look at every single thing that you spend money on and say, can I get the same and pay less? That's my stocking trade, of course. You know, cutting the cost of your mobile, your broadband, getting cheaper train fares.

3:56Is your mortgage rate too high? Is your interest rate too high on your credit cards? all of those things, that's the first thing you do. Step two, redo your budget once you've got those new prices in. If at that point you're still overspending, then you need to cut back and you're going to have to start having a lifestyle change. So you're going to have to start impacting what happens to you. And now one of the ways I would do that, it's often very difficult to do, I would take up all the discretionary spends that you found, all the things that aren't necessary. Put them on, say, post-it notes.

4:30I mean, you can do this on a computer too, but I'm trying to give you a visceral idea of how it works. So write them all on post-it notes in the amount of money that you spend on them. And then order those post-it notes in order of what's most important for you to keep and what's least important for you to keep. And then, if the stuff at the bottom that's least important for you to keep, that's the stuff that you try and get rid of. Because actually what you then know is that for you, the most important thing in your world because it's part of your self-esteem is, you know, I get my hair done each month by someone who likes it and that makes me feel good and I couldn't go out the house and it would really give me anxiety if I went out the house and I didn't look that way.

5:06So, I mean, I'm deliberately chosen haircuts that some people would think are frivolous, but for others are absolutely an integral part of who they are. But because of that, I'm going to have to get rid of my subscription to Netflix. And therefore, I know that getting rid of my Netflix subscription is to enable me to have my haircuts, which is why I would do it in that order. So that's how you do the budget in the first place. Once you've done that budget, then you have the really big problem, which is sticking to it. Because now it's all on paper how much you can spend on different things. How do you stick to it?

5:35Well, the next important thing that I need to say to you is, your bank account lies. Your bank account is a liar. When you look in your bank account, it does not tell you how much money you've got to spend. It is a snapshot of what you have on that day. It doesn't tell you what you've already spent compared to what you're going to need to spend in the future. So we need to find a way in that we can organise and structure the way we spend our money so that we have some form of control. Now, I have a system, I've long called it piggy banking. Other people call similar system jam jarring. I don't care what you call it.

6:10Many people swear by it. Quite a lot of people swear at it, but it does work. And this is about segmenting off different areas of your spending. So let's say you'll have a pot for your bills. You'll have a pot that is for Christmas, a pot for summer holidays, and a pot for the kids' new clothes because they grow a lot and they're going to run out of clothes and they're going to need new things. They don't necessarily have to be new. They could be used, but you're going to have to spend on them. So we'll just take those as four pots. So what you do, or you could have a pot for your car as well.

6:41We talked motoring earlier. What you do is each month when you earn, you work out how much over the year, you work out over the year how much each of those categories need. You divide it by 12 and each month, once your income comes in, you put that right amount in each of these separate piggy banks or jam jars. And there are lots of banking apps now that allow you to have these separate accounts so they can do it for you, or you could do it on a spreadsheet, or you could do it manually. It doesn't matter. This is a conceptual point. And then, because bills have been taken out, you know, and you've got enough to pay your bills, and you've got the money going aside into each of those different pots, when you look in your bank account, that is actually what you can afford to spend.

7:19Now, what you have to remember here is you may have started this three months ago and decided you want a holiday. And you've got 150 quid saved in your holiday account. And the holiday account you want is£600. You cannot afford to go on holiday. That is how budgeting works. It is a form of self-imposed financial discipline. It's tough, especially at the start, for the things you're saving for. But after a while, you'll get to the point where you want to pay£600 on a holiday. You look in your holiday account. It's got£600. You can do it guilt-free. And that is what good budgeting is all about. Hopefully, I mean, it's quite a long answer.

7:58It's a sort of a philosophical question. I haven't gone into dotting all the practical I's and T's, but it's about understanding how you stick to a budget. Mandy, I hope that's what you wanted. And well done for managing through your financial quandaries. Excellent. Just picking up, Martin, on one thing that you said. Haircuts. You said some people really care, some people don't. are you the type of person that takes pride in their haircuts and and that's a real thing that you need in your budget well listen when you when you're old old and thinning like i am then you have to go and have a haircut i'm also on telly it's part of my job so i have a haircut every two weeks but i don't i just go for someone cost me about 15 quid each time which is not bad in london and i just have you know uh trim it down the size take a little bit of top and get out of there but yeah i think it is important because for me it's part of my work so i do think it's important yeah Martin, you also said it's different with students.

8:45Yeah, the difficulty with students, and Mandy did mention students when they leave home, is the definition of income. Because, of course, they're not working. For most people, you know, don't spend more than you earn. But for a student, what don't you spend more than? So the definition of income I would have for a student is you add up any money that you get to live off from your loan or any grants that you get, money given to you by parents and any money from working. That is your income. It isn't the amount of money sitting in your 0 % overdraft. It isn't any other formal sources of debts. So when we have students who go off to university, parents will often say, oh, Johnny, oh, Johnny, do a budget, Johnny.

9:28It's very important to do a budget, Johnny, or it could all go wrong. But what they don't do is say, what is your income? what is your expenditure? So we have to give students a little bit more guidance as what counts as income when they're doing their budget. All right, Johnny, is that better? You just be safe, OK?

9:48Or Johnny.

9:52Oh, God. All right, let's go straight from that weird little interlude into a caller. It was very good. Into a caller. We've got Rob in Morton in Marsh on the line. Hi, Rob. Hi, Matt. Hi, Martin. Hi, so regular listeners to the pod, so thank you very much for that. My question is about the use of payment intermediaries. So I always use my credit card for daily spending. Paid off in full. Paid off in full, each one, without a shadow of a doubt. And the question I have is when you're using a payment intermediary such as Apple Pay or PayPal or some other sort of payment intermediary, how does that affect my Section 75 benefits, which I have actually had to take advantage of once and it works.

10:44But does having that payment intermediary in the way affect your Section 75 rights? Short answer, it can. So just to you can help me explain section 75 here. Section 75 rules means if you spend something on a credit card and it costs over£100 and less than£30 ,000, the credit card company is jointly liable with the retailer. So if something goes wrong, you can choose to claim off the credit card company rather than the retailer, especially helpful if the retailer went bust. When did you use it and how did it work? I used it back during COVID when I had some flights booked with an airline and the flights were cancelled and I was being offered a voucher and I wanted my money back.

11:23So the airline didn't give me my money back. I went back to Amex and got a full refund. Perfect. And that's one of the strengths. It's also worth noting one of the advantages of Section 75 is if you're going to take a retailer and you want to take action against a retailer, you have to go to court. I mean, you would go through Money Claim Online, which is sort of what's traditionally known as a small claim service. Whereas if you want to take action against a credit card company for you rejecting you on Section 75, then you can go to the Financial Ombudsman, which is free. And also currently, although they're looking to change it, looks at fairness rules as well.

11:55Worth remembering too, not for you, I know you know all this, I promise I'll answer your question in a moment. Section 75 works if you spend on a card. You don't have to put it all on a card. So if the item costs over£100, even if you only put a penny on the credit card, the credit card company is liable for the entire amount. So if you're buying a kitchen, for example, put your deposit on the credit card for a couple of hundred quid. Even if you don't want to put the rest on the credit card, you want to put the rest on a bank payment, whatever else it is, then you're covered by Section 75. But you are quite right to ask about the payment processor issue.

12:32So let's do this in two. You said Apple Pay, you're fine. Apple Pay is a payment processor. It's as simple as that. PayPal is where the complexity is. So now the first thing to say, where this gets really difficult, is you don't actually have a way of knowing whether you're covered on PayPal. I would not know whether I were covered by PayPal under most circumstances that I'm going to come into. And this is one of the things that I've written to the regulator about saying, if we're going to have this vagary of whether you get Section 75 or not, it should be transparent. It isn't transparent. I'm going to try and give you generalised guidance of when it works and when it doesn't work.

13:10But you hear my caveat first. Yeah. If you are usually covered by Section 75, if you use PayPal credit to buy something, you are usually covered by Section 75 if PayPal is used as a payment processor by an online store and you're not logged into your PayPal account. That's because it is simply acting like as a payment processor. The reason that PayPal sometimes stops Section 75 is Section 75 only works if there is a direct causal link between the credit that you got and the purchase that you made. Therefore, any intermediary breaks that, which is why if you bought a flight via a travel agent, that breaks the link because it's an intermediary.

13:57Now, in some cases, using PayPal, PayPal is an intermediary. The first one that is far less clear cut is if PayPal is used as a payment processor for your credit card, but you were logged into your account. That's because it can make it be harder for card providers to tell whether PayPal acted as a middleman or simply a payment processor. So there is a risk if you're logged in, bizarrely, and paying by PayPal on a separate account. You are definitely not covered by Section 75 if you buy something online using your PayPal balance. Then you are not covered at all by Section 75. So that's about as much as I can do.

14:40Does it make sense? Did you get me? Yeah, it sort of makes sense. And I think the simple answer is if there's any doubt, don't bother using PayPal. Just use your credit card straight with the retailer. Exactly. And if you're using your credit card straight with the retailer and you're not logged into your PayPal account, then PayPal is just acting as a payment processor like Apple Pay would or like a credit card, you know, a World Pay would. So you're fine. Great. Thank you very much. Cheers. Lovely to talk to you. Keep listening to the pod. Thanks so much for calling. Thank you very much, Martin.

15:10Cheers now. Now, I should be really clear here. We're talking about Section 75 protection with PayPal. Of course, PayPal has its own internal payment protection measures. Those are contractual, though, not statutory, not absolutely locked into the law in the way that Section 75 is. And I would always prefer to have statutory protection. But that doesn't mean if something were to go wrong with payments on PayPal, you don't have any protection at all. Thanks, Rob. I also want to say Rob's email started with, hi, Martin and Matt. So thanks very much, Rob. Good, Matt. Take care. So, Matt, what do you have next for me?

15:51So we're just on a caller. Shall we do a question? Yeah. A question from Carl. Hi, Martin. In brackets, Matt. Thank you very much, Carl. Carry on. My son has just turned 18 and we've been talking all things money. One question he asked, which I wasn't sure about, is how someone goes about starting to build their credit profile. Is just having a bank account enough? He says he wants to get a mobile phone contract at some point. Well, absolutely having a bank account will help as long as it's a bank account that has an overdraft, which sounds perverse, me saying you should have a bank account with an overdraft because he's a young person.

16:25But the point is credit scoring, when a lender scores you to decide whether it will give you a product, is based on behavioural prediction. They are trying to work out how you'll behave in future based on how you've behaved in the past. If you have no history, then you will not get credit products. It's a catch-22 because ultimately they're going to say, we don't know how you're going to behave, so we can't score you. Not that you're bad, just we don't know you. Now, often because there are specific young people and students' bank accounts, they're easier to get for someone who has no credit history.

16:54And once you've got one, you've got an overdraft, you're starting to build a credit history. The textbook way to do this, if we ignore everything else, and I will come back to what I'm ignoring, is to also get a credit card. And what you do is you go and get what's called a credit builder or rebuild card. And you'd go into an eligibility calculator and you'd apply for one of those. These are specific credit cards designed to build your credit score. They have hideous rates of interest, really high rates of interest, 30, 40 % interest. So you must make sure that you have a direct debit set up to pay the card off in full every month and never take cash out on a credit card because that can hurt your credit card too.

17:34But then if you were to do normal spending, 50, 100 quid a month on the credit card and pay it off in full each month, I mean, in fact, arguably you'd be better in improving your credit score if you didn't pay it off in full because they like to see that you've got debts that you're paying off and you're paying interest, but you don't want that because that's costly, which is why I say do it in full, then that would be the textbook way to do it. What is the issue with that? Simple. I am nervous about suggesting that an 18-year-old should have a credit card. So it's good that it is the parent, you, Carl, who is asking me the question.

18:06And I'm being, listen, I'm a 53-year-old man. I think of it from the parent's point of view, not from the young person's point of view. I'm not apologising for that. And it's the dad asking me anyway. If your son is financially savvy, trustworthy, doesn't spend on impulse, is going to understand that the fact that he's got a credit card doesn't mean it's money. It has to be repaid. And he is only doing this to follow a recipe to build him a credit score so he can get a contract mobile phone and start to move towards, you know, getting a credit scored for a mortgage later. It's absolutely fine.

18:36If he may get himself into actual debt, not paying it off in full, busting his credit limit, seeing it as just free money that he could get, and he isn't yet mature enough to be trustworthy with that credit card, don't touch it with a barge pole. Building your credit profile isn't important enough. So that would be my rough answer on that. I hope that's helpful. okay matt knowing the way that you work we've gone question caller question so is it a caller no it's not i'm only joking we've got ed on the line he is from devon hi ed hello hello ed welcome on board what can i do for you hi martin um well i'm a big uh fan of the show big fan of the podcast and you inspired me to fix my energy bill okay a couple of weeks ago but i kind of looked into it So I'm on Octopus Energy, specifically on their GoTariff.

19:26You've got an EV, yeah. I've got an EV, that's right, yeah. Electric vehicle. So exactly. So it's kind of quite expensive during the day and then quite cheap at night. And I went on one of those comparison sites. I think I went on U-Switch. And it kind of wouldn't let me compare, do you know what I mean? Because everybody else is all just sort of like a flat rate. And it's quite hard to get your head around. Okay. everything you've said is absolutely right. The comparison models are not yet up to time of use tariffs. And to be fair, Octopus Energy Go is one of the more simpler time of use tariff.

20:01So there are two types of electric vehicle charging tariffs. One is like Octopus Go, where effectively you get two rates for electricity usage. You get a normal rate, and then you get an overnight super cheap rate for any electricity to use overnight, which of course you should be charging your electric vehicle overnight when it's super cheap and any other electricity you use. You have another provider Scottish Power it has a slightly different system and you need the right equipment whereby when it's electric vehicle tariff you get a cheap rate for charging your electric vehicle whenever you're charging it but it only applies to your electric vehicle charging and you can have that as an add-on to any of its normal tariffs.

20:40So with Scottish Power you could go and get a fix and then get the EV add-on because it's only for electric vehicle but you've got a dual tariff if you like you've got a daytime rate and a nighttime rate we'll call it for simple language you with me so far yeah that's that's right yeah exactly so the problem is how do you compare no comparison site is yet up to this i may be working on building one but we're not there yet so what you need to do the first thing is i mean you're obviously on a smart meter if you've got octopus go or you couldn't have it so if you have access to your data, what you will need to do, there's work involved in this, but Ed, it sounds like you're someone capable of it.

21:21So I'm going to go for it, right? You're going to go, I would go over a typical month and work out what proportion of your energy you are using at the nighttime time and what proportion of your energy you are using at the daytime time. Does that make sense? Yeah, I think I know the answer. Oh, go, do you know the answer? Tell me the answer. Well, I think it's, you know, I think it's about 50-50, to be honest with you. oh i mean if it's 50 50 i can tell you right now you're best on the ev tariff right so let's just think about i don't know what your your i don't know what the go tariff is off the top of my head what your pence per kilowatt hour is uh do you know so it's 29 and a half p for the everyday you know for the daytime daytime rate and then i think it's eight and a half yeah um just for four hours at night so look i mean you might be getting down to i haven't got the exact number off the top of my head on a cheap fix you might be getting to 23 24 p per kilowatt hour and of course that's a daytime rate so your discount on that is going to be you're getting about 15 cheaper if across the day but you are currently getting you know a 70 80 cheaper over the night and if 50 of your energy usage is at night there's no way the 15 cheaper overall rate is going to outpower the 70 % cheaper nighttime rate if you're on a 50-50 split.

22:42If you're on a 20-80 split, it would probably be the mass the other way, if you see what I mean. So, I mean, the key for you is you might want to look at other EV tariffs. There might be others that are cheaper out there. That does depend. Although Octopus Go is pretty decent, to be honest with you. Almost certainly you are best as you are. And of course, the more of your electricity usage you can shift to that nighttime period, I presume you've already done that. You've got stuff going on at night. And I don't know if you've got storage heaters or anything like that that you deliberately set on timers to work at night.

23:13Are you doing that? Good idea. Yeah, all of that. Shift your electricity usage to that nighttime rate. I mean, this is why some people get batteries. I mean, the Octopus Agile tariff, which is an even more complicated tariff where the price of electricity changes every half hour. at some points octopus agile goes negative which means you're actually paid to use electricity and so the people who have those get by batteries and put them on their wall i mean they they then super charge it up when they're being paid to charge it up and then discharge it during the day during the high rates so you can get if you're if you know what you're doing you can get pretty technical on this but intuitively of course go and do the mass but intuitively if you are on 50 50 then your ev tariff is a winner and the more you can shift to nighttime uses the only warning i would give you, have your washing machine on at night, but never have a tumble dryer on at night.

24:01Tumble dryers can catch on fire. You don't want that on when you're sleeping. Good point. Brilliant. Thank you so much. That was really helpful. Lovely, mate. Thank you for calling. Appreciate it. Cheers. Cheers, Ed. Are you sitting there thinking, oh, I know what I wanted to ask him? Well, this is your opportunity. If you've got a question, then just send them in to martinlewispodcast at bbc.co.uk and please do start them Dear Martin. No, Dear Matt. Dear Martin. Dear Matt. OK, Matt, where are we going now? So normally we do a fun one. OK. This isn't quite fun, but it's not a sort of help me with my finance kind of question.

24:41So this is from Stephen. He has asked, have the government told you to emphasise or keep quiet about certain topics or subjects? If so, what? No, absolutely not. No way. Never. they would get very short shrift and it would be a very good way of me going out there and talking about that subject. Now, that's the sort of blanket answer. Let's go a little bit more nuanced into the way it operates. So one subject I am talking about more because of the government is investing. Not specifically because they have asked me to invest. You will understand, we've talked about it a lot in this question time pod actually, that there is a threat to the cash iso limit.