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Apple Pay Experiment

I am not a spendy person by nature, but I do like nice things. That results in infrequent shopping expeditions, but when (reluctantly) undertaken I try to get the right tool for the job. I also tend to pay what it costs to get good quality that should (hopefully) last for a long time… thus postponing the need for a future shopping expedition.

Set and forget

When I find a product that impresses me I tend to stick with it. This approach has seen some wins over the years.

I’m still wearing the same size and style of jeans I took a liking to 20+ years ago while in university. As one pair wears out I just buy the same again. Roughly 15 years ago I found a super comfortable pair of everyday boots. Today I must be on my 6th or 7th pair of those same boots.

When my ancient Motorola candy bar phone died, my wife decided I needed to finally join the 21st century, and bought me an iPhone. Having the internet in my pocket turned out to be surprisingly useful, and I’ve stuck with iPhones ever since.

Vintage Spaceman

Find something that works, then stick with it. Image credit: Mike Barker.

Change is bad

There are some downsides to my shopping approach.

Change is not my friend. Nothing ruins my day quite like discovering Pret has discontinued my favourite sandwich. I was grumpy for a week when my go to business suit style was “modernised”.

It can also prove to be expensive.

My most recent semi-retirement stint spend hibernating in a client’s office was a good example of this.

Pay what it costs

The client had embraced the Bring Your Own Device trend . Staff must supply all equipment required to do their jobs, at their own cost.

Staff must supply all equipment required to do their jobs, at their own cost.

After several years of solid usage, my iPhone died. It couldn’t be repaired, so I reluctantly visited John Lewis (matched prices, while doubling the warranty for free) on the way home to purchase a replacement.

That evening I managed to spill half a glass of a lovely Viognier into the back of my trusty MacBook Pro. Turns out laptops don’t much like wine, protesting with a couple of fizzle crackle pop sounds before indignantly powering down in a sulk.

The next morning the sulk continued, so a repeat visit to John Lewis resulted in a current generation replacement for my much older model.

My credit card then lost the will to live, probably an overuse injury. My wife convinced me to run an Apple Pay experiment until the replacement card arrived. The dead card earns cash back” vouchers that help sustain her expensive shoe habit!

Apple Pay

Apple Pay is a viable alternative to contactless payments.

The Apple Pay Experiment

Getting used to pulling out my phone, rather than my wallet, to pay for things was an adjustment.

Three months on I realised a surprising side effect of the Apple Pay experiment: I had stopped using cash.

I had stopped using cash

I carry my phone in a different pocket to my cash. Once Apple Pay became my automatic payment method, I hardly ever reached into the pocket containing my wallet and loose change.

For many years I withdrew £100 cash per week as “fun money“. This paid for lunches, dry cleaning, visits to the pub, and whatever activities the kids were doing at school.

£5,000+ budget black hole

Mentally cash is spent as soon as it leaves my back account, so I never gave much thought to the annual £5,200 spending analysis hole.

I now had visibility on where that money went. Turns out I spend nearly double what I thought I did on eating out!

The faulty card’s replacement eventually arrived, but I continued using Apple Pay to close that tracking black hole.

Next Steps

  • Do you have any budget or spending tracking black holes? If so figure out how to fill them, it might be as simple as using something like contactless payments instead of cash.
  • If you liked this post then please share it with your friends.
Disclaimer: I may receive a (very) small commission from any purchase you make via links on this website.
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Bank account

According to some of the fascinating old things archeologists have dug up, people have been using money in some form for at least 10,000 years.

Banking and lending soon followed, with archaeologists also finding codes of laws that governed how banks should behave dating back almost 4,000 years.

Archeologist

Archeologists have found evidence of money being used for 10,000 years. Image credit: Alatariel.

Roll forward to the modern day and banking is ubiquitous. Everyone needs a bank account, as it is very difficult to effectively navigate the modern economy without one.

Need to receive your salary or social security payment? Deposit it in your bank account.

Want to avoid forgetting to pay your utility bills or your rent? You’ll need a direct debit or standing order from your bank account.

Financial Inclusion

Everyone needs a bank account, but financial inclusion rates vary greatly.

Cashless society

The world seems to be inexorably moving towards the concept of cashless society. In Sweden by the end of 2017 less than 20% of transactions completed in stores used cash. An ever increasing number of stores no longer accept cash as a form of payment.

Contactless payments by card or phone are rapidly becoming the default payment method in the sandwich shops, supermarkets and pubs throughout the city of London… where you can no longer catch public transport using cash.

That is something to reflect upon if your remuneration is dependent on customers leaving tips!

The humble current account

Branding aside, good current accounts are very similar :

  • You can deposit and withdraw money whenever you like.
  • Funds are protected by a government guarantee, up to a surprisingly large number.
  • You can control your account via internet banking, from a computer or phone.
  • Offers a contactless payment card to make paying for things easier.
  • Allows you to set up bill payments, recurring standing orders, and direct debits.
  • Some still offer cheques, though why anybody still requires such antiquated payment method is beyond me… it has been years since I wrote my last cheque!
Fees are optional

Bank fees are optional.

Fees are optional

Current accounts should be free from account keeping and transaction charges. Your bank benefits from you choosing to deposit your funds with them, not the other way around. In fact, your bank generates considerable income via lending your funds out to others in return for interest payments.

Premium” accounts ship with a host of extras in return for a fee. Before signing up, validate whether the benefits you receive is worth the price paid. Do you need them at all? Could you source those products yourself for a better price?

Be realistic when evaluating accounts offering incentives like “cash back” or loyalty points. In the right hands these features can provide great benefit, but for many the fees may outweigh the actual benefit realised. Anyone who has tried to “travel hack” a family holiday during peak holiday season can attest to this!

A tool in your toolbox

When evaluating current accounts, also consider your broader financial arrangements. For example, a mortgage offset facility may turn an otherwise innocuous current account into an interest saving juggernaut.

Shop around

Periodically re-assess which bank account is the best product for you. Competitive pressures see banks forever updating and changing their offerings. The best deal today may not be the one you would choose this time next year.

Like paper based cheque payments, bank loyalty is an antiquated concept belonging in the past!

Next steps

  • Use a comparison website to evaluate the best bank accounts for you.
  • Open the bank account most suited to your circumstance (you will need your proof of identity, address, and tax identifier if you have one).
  • Periodically validate if the account you have remains the best deal for you.
  • If you liked this post then please share it with your friends.
Disclaimer: I may receive a (very) small commission from any purchase you make via links on this website.
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Lasting value

The other day I found myself running a client workshop that went off the rails. I had lost the room. The participants had turned on me. Images of a lynch mob or the zombie apocalypse formed in the back of my mind.

It had been a long time since I’d had a meeting go south like that.

When meetings start to resemble the Zombie Apocalypse

When meetings start to resemble the Zombie Apocalypse. Image credit: Moochly.

Afterwards, I reflected on where I had gone wrong.

I was prepared.

I had the right people in the room.

I had warmed the participants up to the topics that would be covered, and the main issues that would likely arise.

One the reasons that clients engage my services is to validate their thinking and approach. In this case, they had articulated a strategic goal that made sense, and a set of activities they believed would help them attain that goal.

I observed that one of the proposals, which would cost a great deal of money and require a large amount of time, was not required to achieve their goal.

Unfortunately the proponent of the proposal was very invested in it. His opinion carried a lot of weight in the client’s business, and the rest of the room were terrified of him.

There is an old consultancy maxim: you can give the best advice in the world, but you can’t make them listen. Such is life.

“you can give the best advice in the world, but you can’t make them listen”

A trip down memory lane

I went for a walk to blow off some steam.

I found myself aimlessly wandering, mentally questioning whether I would derive sufficient value from the investment of my time to justify the major headaches associated with aiding this particular client achieve this specific goal.

My circuitous route took me past many of my old stomping grounds, covering nearly 20 years of work history. The question of deriving lasting value from my time was nagging me as I did so.

Lasting value, or fleeting glory before falling victim to demolition?

Lasting value, or fleeting glory before falling victim to demolition?

Symbolically many of the buildings I had previously worked in over the years had been demolished and replaced. So too had many of the solutions I had successfully delivered:

  • The insurer… who subsequently was acquired.
  • The investment bank… who subsequently exited the business function using it.
  • The regulator… who subsequently decided there was too much regulation.
  • The pharma company… who subsequently learned the difference between useful and saleable.
  • The telecoms provider… who subsequently went broke in the dotcom bust.

Many of those projects had been commissioned to replace something that already worked. In time many of my solutions inevitably suffered the same fate.

I was left questioning what lasting value I had derived from investing portions of my life in those projects? Sure I had traded my time for money to support my family, and learned some things that made me better at delivering the next one.

Is that the same thing as value? I’m not convinced that it is.

What could I tangibly point out to my future grandchildren and honestly say “I did that, that exists because of me”? I haven’t yet painted a masterpiece, or built a bridge, or cured a disease, or invented a time machine, or founded a country, or discovered a new continent.

I don’t care about fame and glory and kudos here. What I mean is during those quiet moments of introspection I would love to be able to sit back and feel content about a job well done that was both worth doing and delivered some tangible lasting value.

When you are in a hole, stop digging!

By the time my meandering had taken me back to the client site I had arrived at the answer. Helping this client was not going to provide me with that feeling of lasting value. If something isn’t taking you towards your goals then it is distracting you away from them.

“If something isn’t taking you towards your goals then it is distracting you away from them”

It was time to resume the retirement part of my semi-retired working pattern.

Postscript

I subsequently discovered the approach proponent from the workshop was establishing a business selling the solution I challenged the need for. He intended to use the client’s business as a proving ground for his approach. The problem turned out to be a conflict of interest and misaligned goals.

Next Steps

  • Think about what represents lasting value for the investment of your time.
  • Validate how you currently allocate your time. Does it provide lasting value?
  • If not, then do something about it!
  • If you liked this post then please share it with your friends.
Disclaimer: I may receive a (very) small commission from any purchase you make via links on this website.
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Are you an analyst, a budgeter or a tracker?

A new calendar year promises a fresh start. Downtime over the holidays has recharged batteries, providing time to step back from minutiae and consider the big picture.

Goals are set.

Priorities determined.

Strategies announced.

Diets commence. Gym membership sales skyrocket. Vows of a “dry January” are solemnly sworn.

New Year’s resolutions typically resemble some variant of: eat a little less, exercise a little more, and spend less than you earn (make sure you invest the difference).

A corporate resolution is a “strategy” announcement, typically: earn a little more, spend a little less, and fervently hope for a private equity buyout before the business gets disrupted.

By February normal service has resumed: quiet gyms, full pubs, and the Deliveroo app reappearing on phones.

Year-end financial result production is a similar annual ritual.

S&P500 - 2017 Total Return

S&P500 – 2017 Total Return. Image source: Yahoo Finance.

Portfolio increase of 20.18% over 2017! Congratulations, you matched the S&P500 total return, but… so what?

Saving rate of 50%! Wow, but… so what?

Year-end numbers should be telling the most predictable story ever. You are the central character, who has been living out the plot! It never ceases to amaze me how many organisations and individuals get surprised by the outcome… were they not paying attention throughout the year?

Surprises are evil

I sat down to run my own year-end numbers.

Much to my chagrin I too was surprised… my personal finance software of choice had been derailed by Yahoo and Google discontinuing their free Stock Quote and Exchange Rate APIs.

There is a lesson there somewhere about the risks of building a chargeable service upon a foundation of components reliant on the generosity of others: APIs, open source software components, and email services.

Sometime later, after manually entering the closing prices for my investments, I had my year-end numbers. Tick, job done.

The question is: then what?

Sun Tsu

Sun Tsu had written off budgeters and trackers more than 2500 years ago. Image credit: Brick Generals.

Budgeters are optimists, much like the folks making New Year’s resolutions. Budgets are an attempt to divine the future by allocating anticipated spending into categories. 2500 years ago Sun Tsu wrote: “Strategy without tactics is the slowest route to victory”. Some things don’t change, a budget without an implementation plan is a work of fiction!

Trackers are realists. They can state with perfect hindsight exactly where all their money went. Sun Tsu had something to say about these folks also: “Tactics without strategy is the noise before defeat”. Knowing what went wrong is interesting… but things still went wrong!

Analysts actually think about the numbers. Good spending and investment decisions are well-informed ones. Listening to the story that numbers tell provide that knowledge.

Analysis

Tracking and forecasting are the easy half of the job. Image credit: The Brothers Brick.

Analysis for fun and profit

Tracking and forecasting are the easy half of the job. Take the time to actually listen to the story your numbers tell:

  • What worked?
  • What didn’t?
  • What should you do more of?
  • What should you stop doing altogether?

Now that you’ve heard your number’s story, how will you apply that knowledge to your decision making?

By all accounts, Sun Tsu was a pretty smart bloke and a survivor. He made it to his 48th birthday, a remarkable achievement given his chosen profession and the average life expectancy 2500 years ago. Even way back then he had figured out that defeat was inevitable when budgeting and/or tracking is performed in isolation.

Hear the story your numbers are telling you. Apply that knowledge to your future decision making. Improve!

Finally always “trust, but verify” any advice you receive, including from your numbers. It turns out the markets went on a bit of a surge towards the end of 2017, increasing 9.1% since my software ceased automatically updating. Who knew?!?

Next Steps

  • If you haven’t already, run your 2017 numbers.
  • Analyse what they tell you.
  • Factor that analysis into your future decision making, a well informed decision should be a good one.
  • If you liked this post then please share it with your friends.
Disclaimer: I may receive a (very) small commission from any purchase you make via links on this website.
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How To Adjust For Inflation

Adjusting historical amounts for inflation requires the use of inflation index values published by statistical collection agencies such as the Office of National Statistics.

The formula to adjust a historical nominal amount for inflation is:

[Real Amount] = [Nominal Amount] * ( [Later Period Index Value] / [Earlier Period Index Value] )

Key definitions

There are several ways of describing the value of an item:

  • Nominal Amount – the amount that was actually paid for an item when it was purchased.
  • Real Amount – the inflation-adjusted amount paid for an item, what it would cost using today’s money.

What is inflation?

Inflation represents the reduction over time of the purchasing power of a unit of currency.

In other words, a dollar from the past used to purchase a larger quantity of goods than a dollar from today.

Why adjust for inflation?

People are prone to remembering prices in the past being lower than they are today. Adjusting prices for inflation allows us to compare amounts across different time periods using a common basis. Only then can we assess whether things have gotten more (or less) expensive.

Illustrative example

The battery box that powers my kid’s Lego train recently died. Was the replacement part more or less expensive today than it had been 40 years ago?

In 1978 a Lego model train battery box cost £1.35.

In 2018 the equivalent part cost  £11.99.

Lego prices 1978 to 2018

Lego price comparison 1978 to 2018. Historical data sourced from Brickset.com.

I looked up the Office of National Statistic’s Retail Price Index values for 1978 and 2016 (the most recently published figure available at the time of writing). I then plugged those values into the inflation adjustment formula.

Real Amount = [£1.35] * ( 258.56 / 43.11 ) = £8.09

Today’s price of £11.99 is greater than the inflation-adjusted historical amount of £8.09.

Therefore we can conclude that the price of this item has increased at a faster rate than inflation.

Real economists adjust for inflation

Any good comparative analysis of financial values across time periods will always adjust values for inflation. Failing to do so distorts the facts and tells an incorrect story.

Consider the two charts below. The Department of Education recently issued a report highlighting that university graduates typically earn more than non-graduates. On the left is a chart displaying the median earnings in nominal amounts. On the right is a chart displaying those same median earnings, but this time as inflation-adjusted real amounts.

Adjusting for inflation

Adjusting for inflation

Both charts highlight the earnings difference. The trend lines on both charts finish at identical points.

Now compare the direction of the lines between the charts.

The nominal values chart happily shows earnings increase over time. It tells the story that investing in yourself by completing university will result in higher earnings that increase over time.

The real values chart tells a very different story. What jumps out is the fact that inflation-adjusted earnings have been falling over the last 10 years, at a faster rate for graduates than non-graduates!

While it is still true that graduates earn higher incomes than non-graduates, the context for the invest in yourself decision has changed. Would you be as likely to take on lots of student debt if you knew your standard of living (funded by real wages) would fall rather than rise?

Whenever you see period-on-period comparisons or time series trends presented, always “trust, but verify” that the figures being discussed are using real and not nominal values. If they do not then critically assess the conclusions being drawn.

Next Steps

  • Validate your trends, forecasts, and projections to ensure you are accounting for inflation.
  • If you liked this post then please share it with your friends.
Disclaimer: I may receive a (very) small commission from any purchase you make via links on this website.
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