The large effect of modest saving
You know how according to my new publishing schedule I am supposed to publish useful and exciting book review and/or discussion today? Well, I have written one; actually I have two because I can’t wait to tell you about the new e-book by my friends at My University Money. But this will have to wait for a day or so because something happened today that took me in a completely different direction. Signs should be respected even by rationalists like me. So, here it goes.
Last night, The Money Principle published a piece on the UK budget; one of the controversial points in it is the withdrawal of ‘child benefit’ – this is a relatively modest payment people with children get. Thinking through the budget and reading through John’s post, I had a niggling feeling that something was trying to come out; something that I have vaguely noticed before but never completely managed to get the grip of.
This morning John and I were having coffee, discussing another sticky point of the budget – the way in which it disadvantages people over 65 – and it suddenly crystallised and took definite shape. We mentioned that the child benefit is £20.30 (roughly $30) which means that we should be getting about £81.20 per month ($128). But I know my numbers and I knew that we have been getting £53.60 ($84) per 4 weeks. This can’t be right!
Next we phoned the Agency that looks after child benefit; after the obligatory checks (I really wonder sometimes what will happen if I forget my date of birth) it became clear that it is true – we have been under-paid by £27.60 per 4 weeks or £29. 90 ($47) per month.
Doesn’t look much, right?
And in some sense it isn’t. My budget shows that this is what we can expect to spend on little treats like chocolate for our son or the occasional packet of crisps (chips) every month. In fact, it probably is not enough if one doesn’t really watch this kind of spending. Include the occasional coffee, drop in a glass of wine here and there – no, certainly not enough for treats.
When we look at it like that – like small change for treats – the amount is negligible. And now is the time to mention that we have been underpaid for almost exactly nine years.
So let’s see what happens to this money now.
£29.90 x 12 x 9 = £3229.20 (~$5100)
This is a bit more impressive; and I haven’t even included the interest but today this is a thorny matter. This is a family visit to New York and Washington (my American friends, here we come); this is almost enough to buy our car at the end of the year; this is a sizable chunk of what is left of our debt – and it all came from a very small under-payment for a long time.
Why am I telling you all this? Well, first because we are getting this money back and I am so pleased that I am telling everybody!
More importantly, I am telling you this because it is another illustration of the very large effect that very modest saving can have over a long period of time. When we think about building wealth, we tend to think about the large gains and investments and often this stops us from acting: we don’t have large sums to invest, we cannot realise large gains.
Also, never assume that others are going to get it right; check!
Acting small is so much bigger than simply thinking big!
And some more good news for The Money Principle:
Thanks to all who mentioned us in your round ups!
We were included in the last two weeks’ Yakezie Canrnivals by