Two identical wages, two very different futures. Discover how simple bank compounding and living within your means buys the ultimate luxury: peace of mind.
Two young men in a town in the middle of England - let's call them Goody Two Shoes and Dennis The Menace.
They both earn the same amount and have a mortgage for the same amount on their own one bedroom flats.
Goody likes reading, listening to music, going online and generally lives a peaceful life. He has some good friends and has a close family.
Dennis likes going out, buying clothes, meeting at the pub and having the latest tech. He has some good friends and has a close family.
Goody pays all his bills on time, saves up to pay his annual costs and lives within his earnings, he always manages to have £100 over at the end of each month. He drives a small economical 5 year old car that he bought with savings and he gets it regularly serviced.
Goody always compares insurance when it's time to renew, and his mortgage. He looks for cheaper energy prices regularly. He uses a cashback site and gets his boiler serviced. He buys a refurbished phone that's good enough for him to read his feed, get the news and take some pictures on. He has a cheap Smarty sim only deal for £6 a month. He goes shopping once a week to a supermarket and gets everything he needs to eat for the week then. He takes a flask of coffee into work each day (he buys the pods, not that instant stuff, he does have standards) and makes his own packed lunch. He is on top of all his finances and never wants to spend more than he needs to on things. He's savvy with a capital S.
Dennis pays all his bills on time but pays monthly for those annual costs, and has to use a credit card for lots of things because he spends more than he earns. He never has any left at the end of the month and as his credit limit gets increased he always finds a way to use it. He drives a new small luxury car because he loves to pull into work in it and see it parked on his drive.
Dennis never wastes his time comparing prices, he's too busy on his phone. That game is for suckers! He always has the latest phone and eats a lot of takeaways. He can't be bothered to go to the supermarket and prefers to pop into the local express store on his way home and just grab a ready meal. He pops in there on the way into work as well to pick up his sandwich and drink. He's too busy to make sandwiches, beside's it's embarrassing, like being at school again taking in home made sandwiches.
After 5 years Goody's savings account has grown with compounding interest to £6618*, so when he needs a newer car, he uses that to buy it. He flogs his now old banger for £200, puts that in the bank and carries on with his life.
Dennis never needs to find a lump sum because he just keeps getting newer cars on finance. His drive always looks really sexy and cool to the neighbours. But, his monthly spare income is getting smaller and smaller and he's not sleeping too well.
And it continues.
By 50, they still both live in their one bedroom flat.
Goody has cleared his mortgage and is sitting pretty on £50k* of compounding bank savings just from saving that £100 a month for 30 years (he's bought another couple of cheap cars along the way too). He feels great. By the time he's 68, that pot should be worth about £132k*. He plans to use that to top up his pension which he's been paying into since he was 20.
Dennis still has a mortgage. Every time he re-mortgaged he took out the equity in the property to clear some of his other debts down, still rents his car, (driveway still looks great). But his credit card bills and loan repayments mean he is sleeping terribly. He has nothing in savings, a car and home he doesn't own and still has 18 years to go to retirement. Oh, and the boiler just broke because he never bothered to get it serviced.
Goody, never worried about debts, nor impressing his neighbours, he always slept soundly and always lived within his means. He always spent every penny he earned solely on him and his future.
Dennis worked exactly the same, for the same wage and has spent his entire life paying back for borrowing against his future earnings and worrying about what his neighbours thought of him. He hardly spent anything he earned on him and his future and owns nothing. When he stops working, he will have a small pension and will be forced to cut back on his spending. He actually doesn't think about his retirement because he doesn't know where he'll actually be. He has no equity in the flat and his pensions will barely cover his bills.
This may be an exaggerated, simplistic, worst case extreme way of looking at a spending career, but one path leads to financial security, peace and sleep, the other leads to constant background worry and stress (a leading cause of heart attacks) and never being able to get ahead or off the treadmill.
Choose peace.
* based on 4% annual bank interest rate @ Sept 26
What path are you currently building for your future self?
Leaving a small buffer at the end of the month isn't just about growing your bank balance - it’s an investment in your sleep and your long-term health. If this story made you rethink your own spending career, let me know or share it with a friend who needs a reminder to choose peace over the treadmill.