COMMENT
Are You One Of The "New Working Poor"?

By Cliff D'Arcy
December 15, 2004

Earlier this year, I came across a message our Dealing with Debt discussion board from a young man who was looking for help. This chap was in his late twenties and worked in the City, earning around £65,000 a year. His splendid salary put him in the top 2% of earners in the UK – and yet he was broke. Thanks to a high-spending lifestyle, he was around £70,000 in debt, not including his mortgage. Ouch!

This guy is a member of what I describe as the "new working poor". They may have good wages, designer clothes and the latest consumer goods, but they are heading towards financial collapse – and even bankruptcy. When you dig deeper into their lifestyle, usually you discover three things: a budget that's out of control; a mountain of debt; and little or no savings and investments.

But it doesn't have to be this way. All you need to do to join the "Quiet Rich" is to set aside some of your wage every month. Ideally, do this on payday, when your finances should be at their strongest. After all, there are dozens of people queuing up to take your money every month, including your landlord or mortgage lender, utility companies, credit-card firms and the taxman. When you think about it, taking money directly from your pay (or your bank account on payday) is simply placing yourself at the head of the queue of your creditors.

Let's say that you decide to save a tenth (10%) of your gross salary each month. For the sake of argument, let's make this a round £200.

You could use this money to:

• Pay off your debts more quickly. Why bother earning 4% a year on your savings, if you're paying 20% a year on your credit cards? Using any spare cash to pay down debt is the most effective use of your money. Learn more in our Get Out of Debt centre.
• Overpay your mortgage. Paying an extra £200 a month off your home loan will knock years off its life, while saving you tens of thousands of pounds in interest. Learn more in Five Ways To Perk Up Your Mortgage.
• Start saving. Best Buy savings accounts pay annual interest of 5%+, with regular-savings accounts paying up to 7%. Visit our Savings centre to view our great deals.
• Consider investing in your employer. Buying shares in your company can be a great way to turn monthly contributions into a juicy lump sum. How about buying shares with a fifth off the price (a 20% discount), or a "buy one, get one free" offer? Learn more in Terrific Ways To Invest.
• Start investing for the long term. If you're saving for, say, ten years or more, the stock market is definitely the place to be. For the record, shares have beaten cash on all but three of the 76 ten-year periods between 1918 and 2003. An index tracker is a cheap, easy and flexible vehicle for investing in shares – and putting an ISA around your investment will keep the taxman's greedy mitts off your gains!

Finally, you don't need to be rich to turn the corner and start strengthening your financial future. Many savings accounts can be opened with as little as £1; the minimum monthly payment into employee share schemes can be as low as £5; and several index trackers accept upwards of £25 a month.

So, start paying yourself first today. After all those hours of hard work, you deserve to keep some money back for yourself!

More: Visit our Get Out of Debt, Mortgage, Savings and Index Tracker centres.