One of the privileges of being a Financial Planner is getting to see how other people spend their money.
Part of the Financial Planning process is undertaking an analysis of the spending habits of our clients. We ask them to complete a detailed expenditure questionnaire so we can better understand where their income goes each month and, based on some assumptions, how this spending is likely to change in the future.
Nationwide Building Society have published a major new spending report today, with research based on more than 200 million consumer payments made with debit card and direct debits.
This treasure trove of spending data has resulted in some really interesting findings.
One key finding in the research was than online spending increased by 9.7% in the final quarter of last year.
The average person spent £1,061 online during that three month period, an average of £354 a month. Of course this quarter covered Christmas and the Black Friday sales, which might have distorted the figures slightly.
We’re shopping more online but there’s one area of shopping where we still prefer to get up close and personal with our shopping – groceries. It turns out, we like to see what food we’re buying.
Online shopping accounts for less than 5% of supermarket purchases made during the quarter.
My wife often teases me that I’m not happy unless I visit the supermarket several times each day. The Nationwide research identified different supermarket shopping habits for the different generations.
Post-war baby boomers and members of Generation X prefer to do a big weekly shop, with younger adults tending to make multiple trips to the supermarket each week. They do however tend to spend less each time.
A big spending growth area in the last quarter of 2017 was digital music, up 117% on the same period the year before. We’re also spending more on subscription television, possibly because of price rises for popular services like Sky and Netflix.
Contactless payments are becoming increasingly popular; around a quarter were made at supermarkets, 13% at fast food outlets and 8% on tube, rail and taxi fares.
This growing method for spending money might come with a wealth warning; simply tapping a card or phone on a reader to pay for things could make it easier to spend money less consciously.
So how much are we spending each month on average?
The report found we spent £1,195 a month on average on the essentials in the final quarter of last year. This covers spending on mortgage payments, food shopping, insurance, utilities, fuel, telephones and debt repayments.
It equates to 80% of our total monthly spend.
Our discretionary spend in the same period was an average of £262 a month. However, spending on eating out was up by 28% on the same quarter a year earlier.
An 80% spend on essential expenditure might be a little higher than advised.
A good rule of thumb for spending is the 50/30/20 rule. This suggests spending 50% of your net income on necessities, 30% on discretionary spending and 20% towards your financial future.
Something else we appear to be spending more on is our health and fitness. This category of expenditure was up by 11% in the last quarter.
More than a quarter of 18-25 year olds are taking part in paid-for exercise Share on XOne money saving tip for 2018 is to ditch your gym membership and exercise for free, preferably outdoors. Not only is this good for your purse, but it’s good for your soul too.
We all know how important budgeting is as part of the overall financial planning process. Lots of us renew our focus on budgeting in January, as we deal with the post-Christmas spending hangover and deplenished bank balances.
Nationwide found that 58% of us are budgeting by regularly checking our bank balances. Nearly a third of people are writing budget lists, and nearly a quarter are using banking apps.
My parents used to put cash in a series of envelopes as their budgeting system; probably a little outdated in the modern age, but any form of budgeting is better than nothing!
Looking at how our spending habits might change in 2018, there are some things we’re reluctant to give up. Nationwide found we’ve got no intentions of cutting back on social events, eating out or going to the pub.
However, for the chopping block this year are takeaways, expensive lunches and big nights out.
We are, as a nation, still saving our money. Nationwide found that four in ten of us expect to be saving within the first six months of the year. Brits have an average savings goal of £210 a month. How does this measure up to your own savings goals?
