TaxPersonal TaxComment – We all need the courage to save.

Comment - We all need the courage to save.

It's not just how much we earn that counts; it's how much we spend.

The unemployed man who won a million pounds on Chris Evans’ show over Christmas declared he didn’t wish to work again, that he would support his former wife and their three children without her having to work and he would buy a flat for himself and his girlfriend. He also wanted a corporate box at Charlton Football Club – all after giving his six fellow contestants £5,000 each. No doubt more ideas for expenditure will occur to him. I wish him well, but he needs an accountant doesn’t he? Probably, like many before him, he will be broke again in a short time. The lottery, Who Wants To Be A Millionaire, and Evans’ show all offer the promise that if only we had a million, life would be great. A recent book about American millionaires reported that the majority earned modest sums of money but were focused on becoming financially independent. They saved. Savings were allocated before expenditure. Typically they only ever bought modest cars – second hand at that. They would not spend large sums on consumer goods. It would help if they had frugal spouses. The book also covered the moment when a multimillionaire husband told his wife he had just given her several million dollars worth of shares in his business. She looked up, acknowledged the gift, and continued to cut out the money-saving coupons from the newspaper. As a profession concerned with the measurement of wealth, the retention of wealth, and increasingly claiming to be the profession which can help with the creation of wealth, are we doing enough to explain the fundamentals of financial security – spend less than you earn? Mr Micawber knew this, but like many others, he had trouble practising it. Typed across the top of my cash flow is the legend: ‘It’s not how much you earn that matters, it’s how much you keep’. Many years ago I was asked to help a doctor sort out his finances. His income was £19,000 and his expenditure was £20,000. We looked at each expense in turn. American Express? ‘Surely a man can have a glass of wine at the end of a hard day?’ He explained each item with a similar defence. Grazing rights? Vet’s fees? ‘For the horse.’ When I suggested this may be an expense he could cut out, he collected his papers and marched out of the office, yelling back at me: ‘Surely you don’t expect me to shoot the horse, do you?’ This has become a favourite phrase in our family, whenever we review expenditure. As the credit card statements pop through the letterboxes in January, reminding us of Christmas and sales excesses, it’s not a lucky lottery ticket we need, but the courage to live within our means.

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