So long, and thanks for all the overdraft

Spending money is easy, really easy.  But so is saving money, it’s a similar process, really.  Money leaves your current account and is used to purchase something or it flitters across the financial ether into a savings vehicle.

My chosen savings vehicle

The result of spending and saving completely different, but the mechanism for is essentially the same.  Saving doesn’t require any additional mental or physical capacity, not really.  You’re not required to answer but questions three to cross a bridge to gain access to make a savings deposit or battle with a giant 7 headed bee be allowed a share-dealing account.

But for whatever reason, people generally cannot seem to wait to rid themselves of spare money, as if the cash was a carrier of the rage virus.  Yet after relieving themselves of money at a masterful pace, the desire for more surfaces.  And so the cycle continues.  If only there was a way to hold onto it.

Naughty Zombie
I’m no different, at least I didn’t use to be.

While at University, learning the wonders of astronautical engineering, rocking a bleached Mohawk and being generally studious, I did what many did and took on as much of an overdraft as the banks would let me.  Afterall, I was at University, one of the 50%, the chosen few, selected to further my education,  I was pretty sure I would be handsomely remunerated for my efforts in the near future.  8 months working as a labourer building windows for minimum wage and then at a call centre was a bit of a shock.  It shouldn’t have been, given the shear number of graduates flooding the workplace.  The world wasn’t going to let me ‘make it rain’ money.  At least not because I had a few new letters after my name.

CSI
I started work with a maxed out overdraft, no desire to clear it and so the overdraft followed me around for about 10 years.  10 years, it’s worth repeating.

I had a look through some old bank statements and the sheer pace at which I could spend following payday was truly staggering, impressive even.  An independent observer would have thought I hated money arrogantly swanning around my current account.

Going back six years, looking at my historic overdraft balance just before getting paid each month;

You would be forgiven for saying;

“Overdrawn for nearly every month, that’s pretty fucking dire Mr Z.” 

And I’d flare up like a house cat and hiss at you, temporarily, then my raised hackles would collapse and I’d concede defeat.  It was dire.

In my defence the overdraft was ‘interest free’ throughout university and for a good number of years after.  Just not in any of the six years above.

I was paying overdraft fees nearly every single month over these years;

The two lofty peaks are months where I actually went over my overdraft limit and got suplexed by the bank with charges.  You know what the last expense was one month, whilst being over my overdraft limit, just before payday? Costa coffee.  Haha, oh deary me.  You live and you learn (5 years later) right?

The second line of my defence says that at least I was paying into a pension, a regular saver and sporadically into a share dealing account.  Problem was, the regular saver and the shares tended to be used to either pay off my credit card or temporarily boost my current around into a positive position.

Why?
The question is why.  Not why did I get myself overdrawn in the first place, I imagine plenty of students do.  Why did I let it carry on for so long?  For 10 years after starting work I continued to bounce about in my overdraft.

For one, personal finance never came across as particularly interesting or sexy.  Who wants to budget when you could go surfing instead, I sure didn’t.

It never felt suffocating, I knew that a few months of restrained spending would sort it out, and frequently did.  My spending wasn’t out of control, I had no debt, I lived in a small flat, so bills weren’t a problem.  I was young, dumb and…well, a personal finance idiot.  Looking back, I don’t remember ever feeling bothered or worried by my overdraft, not once.

A few quid a month in overdraft charges didn’t seem like much, so it didn’t bother me.  And it’s not a lot on it’s own.

But it’s not the overdraft or the fees that are the issue really.  It’s the fact that I was saving nothing, other than into my pension scheme.  The grand total of my overdraft, credit card, savings account and share dealing account was around £nil up until some time last year.  Nearly 10 years of work and my net worth was about £nil.  My parents Labrador could claim the same thing, and she gets to pooh in the garden without being shouted at.

The problem was;

Treating my wage like an allowance

Something to be spent, not to be saved.  Each month I was the proverbial 6 year old charging down to the shop for a bag of sweeties, pennies in hand (spell check made an extremely creepy suggestion for pennies).

It never occurred that I had become someone living from paycheck to paycheck, because I wasn’t paid by cheque.  And because I wasn’t scraping by each month, I wasn’t paying back any loans and I wasn’t locking the door at night to keep the loan sharks out.  There was no struggling involved.  And that’s how I’d always imagined those suckers living from month to month, struggling.

The evidence is pretty damming though, I was quite clearly living paycheck to paycheck.  You don’t have to be struggling to be living like this.  There was no terrible terrible debt to speak of, or some other financial horror.  The lack of any obvious mistake gave my cacophony of spending the perfect place to hide, in plain sight.

And this is the issue, there is no immediate issue, so why change our habits.  We need that moment to realise that spending all of our wage every month is an issue.  It just doesn’t seem to come that easy or soon enough.

Lesson learnt?
Clearly, but at a frustratingly slow pace.  It took me until I was in my thirties to realise I had a decade of work behind me and nothing tangible to show for it other than a crooked spine.  Sure, there’s more to work than just money, but some savings would have been good.

It irks me to see my sister doing the exact same thing.  Like I did, she is getting by just fine, there is no terrible soulless loan in the financial mists, no unpaid bills and no grumpy tooled up and stabby loan sharks looking for repayment.  Seemingly just like me, she won’t listen either.  Is it the inevitable circle of finance?  1/2/10/20 years, when will she have here epiphany moment?  Hopefully earlier than I did.

Being told your first financial tasks are to set up a pension and save 3 to 6 months spending money in an emergency fund in case the boiler explodes is hardly financial cat-nip.  It just doesn’t hold any narrative for someone young and agile.  When I started working, the boiler breaking would have meant showering at the gym for two months, no big deal.  Not a strong enough reason alone to sort out my personal finances.

Work becoming optional, which could follow getting your finances in check, does have a narrative that anyone can fit around their lives.  Rather than starting with emergency funds and pensions, the end result of financial independence should be the opening point for financial education.  Would have held my attention.

Anyway, my overdraft is done with.  So long, and thanks for all the overdraft.

MrZ

[As an aside, I don’t blame the banks.  They offered me what I thought was free money and it did help at university.  Perhaps it is unethical to increase a students overdraft each year, but it was I who said ‘yes please’.  My mistake, I’ll learn from it and pay for it.  And pay I did.  The cost over the last 6 years was £280, apparently my overdraft is ‘only’ 19.9%.  Expensive, yes, but it is unsecured debt.]

10 thoughts on “So long, and thanks for all the overdraft

  1. Living cheap in London

    I think you have inadvertently described a good few million people there…. maybe more… though i think many more people have a loan repayment each month too contributing to the dip into the red.

    Despite not getting positive financial teaching from my parents beyond the simple "don't spend more than you earn son, & always save a bit for a raining day" I was always good at keeping out of overdraft, though i did come out of Uni with some debts that took a few years to pay off.

    Likewise i didn't save much in my 20's, though i bought a cheap house aged 25 which meant my money wasn't hemorrhaging to a landlord from a very young age. As we all know from opening the paper on any given day not many people can do that now that.

    Thanks for an interesting & reflective post. LCIL.

    Reply
  2. M from There's Value

    I wrote out a proper reply and then something went POOF into the black hole end of the internet…

    Anyway, interesting post. SO many people are in/were in the same situation post-uni, except me… no bank would give me a student account because I'd been made redundant and had a debt and some minor late payments on cards etc.

    Anyway, it taught me to be even more frugal then ever, living off <£8000 in a HCoL area at a time when an income of £10k was considered adequate by the Rowntree Foundation…

    Bu the whole living paycheque to paycheque thing is rife I feel. At least you had the sense to start paying into a pension from an early age!

    Reply
  3. weenie

    I remember the dark days of being overdrawn within a week of receiving my wage…and regularly being charged for going over my overdraft limit. I carried credit card debt and maxed out overdraft for 10 years before I started making an effort to clear the debt. That took another 5 years (plus the sale of my house) to finally clear it. By this time, I had turned 40 so had 'financially' squandered my entire 30s!

    My parents were savers and I saved money from weekend jobs. I graduated with a small student loan which was paid off after a couple of years but I don't know why I went off the rails with my spending when I started working full time. Easy enough to blame it on my ex (who was just the same) but I should have had more sense to realise that I didn't need to buy stuff, I didn't need to try to keep up with my peers/Joneses and that paying off debt should have been a priority.

    These days, I occasionally dip into my overdraft when expenses have been a bit higher than usual but it's all under control.

    Reply
  4. FIbrarian

    Thinking back to my own Uni days I imagine you would have been in the vast minority if you weren't continually living in your overdraft. You've demonstrated it's never too late and at least you got out of the cycle when you did, I still work with people both older and earning more than me who walk that overdraft tightrope each month. Eventually the overdraft just ends up becoming an artificially extended spending ceiling which you end up acclimatising to.

    Now I know banks are in it to make money but for most young students university is their first real taste of organising their own personal finances. I remember thinking "Gee, aren't these banks nice in giving students an interest free overdraft". How naive of me. Once the graduation robes are off the interest rates start creeping up and you can end up getting trapped. Interestingly drug dealers use the same business model :/

    Reply
  5. Mr Zombie

    Hi LCiL,

    Ha, you are probably not wrong, a few million at least.

    Spend less than you earn…pretty sound basics there! 🙂 I was never particularly good with money when younger and it's interesting how that perception then follows you for years afterwards.

    Reply
  6. Mr Zombie

    Goddam internet!

    I do look back at uni and wonder why I didn't do more paid work, just a little bit would have helped. But no one else was, so I didn't! Fool.

    Pretty tough for you at uni…but taught you how to spend to little on groceries! 🙂

    MrZ

    Reply
  7. Mr Zombie

    Hi Weenie,

    That's kind of what I was doing, I never felt particularly worried though (the thought of being made redundant never even crossed my imbecile mind).

    At least we found our ways in the end!

    Reply
  8. Mr Zombie

    And a few quid a month doesn't seem like much, even though it is a high interest rate, say 19%.

    If they do, then I will stay away from then before I end up in a 10 year crack cocaine bender. I imagine that would be harder to get out of than an overdraft.

    MrZ

    Reply
  9. Pingback: The power of thinking about one thing – The Finance Zombie

Leave a Reply

Your email address will not be published. Required fields are marked *