To explain more I saw a post a couple of weeks back either Retweeted by the savvy scot or by Elaine. I can't seem to find it at the moment so if you know of it please drop me a comment.
Anyway, it was all about how you must to think about how much your life will improve by overall not just the initial hit, which normally leads to buyers remorse or impulse buying.
I'm not explaining this very well let's get an example going:
Rob over at SEI (who is great btw) was rather candid about his wages recently. So I'll use him :D. He says he earns £18k a year, not too shabby for his first job out of Universtiy I thought, but I bet some of you are thinking - how the hell does he live on that.
So maybe Rob goes looking for another job. At the moment he has quite a low cost of living. But he goes chasing the big bucks (possibly with $ / £ signs in his eyes?) in the big old city of London. He can easily get a job here earning £25k say. Wow you might be thinking or kerching at least! But let's think this through a second.
At the moment he saves £7.5k a year, a phenomenal amount! But say he's now living in London, his after tax on £25k will be £19532 , his student loan contributions will knock him down to £18632.
He's put accomodation down as ~25% of his total costs. This will unfortunately skyrocket. London prices are ridiculous. A room in a house will cost you £500 a month or more (source: rightmove.co.uk). This will push his costs up from ~£3600 (which includes gas/elec/council tax!) to say £35 a month gas/elec (if he's sharing a house I think that's fair enough) + £500 for the room + his share of council tax/water say £50 a month. Which is £7020 a year. Crikey! Almost doubled.
So we're down to £11,612, if we say a 5% increase on the other costs/ food costs that's £3055. That leaves him with £8557.
Woohoo! He is Just over £1000 better off A YEAR!
If you can't tell that's sarcasm it's time to start watching blackadder again.
Don't forget this means he has no transport costs. After speaking to a friend he averages £30 a month, which seems to be about right, although I'm sure Rob would walk or cycle half the time at least. So say £15 a month for him. This brings that £7k payrise down to a paltry £877. Yes he has increased the amount he saves a year.
But only by £73 a month. In the mean time he has had to move house, misses all his great northern friends and will probably have to learn cockney. I feel sorry for him and he hasn't even done it!
This is what thinking Net really is, taking into account the total of the costs that changes in your life make. Not just the initial savings or increases in income.
Obviously this thought process ignores the fact that Rob is awesome at saving money. Also that you will probably start earning more as you get more experienced at work, sometimes you have to pay your dues first.
But this thinking net holds true for other items in life that are supposed to save you money. Like wood burning stoves.
Stay well
Dom
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