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In 3½ years as a personal finance writer, I've written hundreds of articles about the dangers of debt. One reason why I'm such a fervent anti-debt campaigner is because I managed to get my finances in such a mess that, by 1998, I owed almost £50,000. Getting shot of three personal loans and thirteen credit cards was a horribly painful experience, but it did teach me some valuable life lessons! Having turned over a new leaf, I now: However, many Brits would consider me something of an oddball, given that I "don't do debt" and invest a big chunk of my income into shares. In fact, according to this article, as a nation, we earned take-home pay of £831 billion last year, yet our total spending came to £1,005 billion. In other words, we spent £174 billion more than we earned from work -- oops! Where did this extra cash come from? State benefits, of course, plus £37 billion from borrowing against our homes, known as mortgage equity withdrawal. Additionally, we spent some of the interest earned on our £556 billion savings mountain, plus part of the income earned from investments, such as share dividends. Furthermore, our unsecured debt (credit and store cards, car and personal loans, overdrafts and so on) increased by over £10 billion during the year. Ouch! If we divide the UK's total spending (£1,005 billion) by the figure for take-home pay (£831 billion), we get 1.21. In other words, as a nation, we're spending £1.21 for every pound that we take home from work. So, the over-spending index (OSI) for the UK as a whole is 1.21. However, as I frequently say, "Averages invite comparisons", so what's more likely to be of interest to you is your personal over-spending index, or POSI. To find out your personal financial POSItion, simply add up your annual expenses and divide by your annual income (a year's bank statements will help here). If your POSI is greater than 1.21, you're over-spending by more than the average Brit, if it's less than 1.21, you're over-spending by less than most people. Then again, any POSI of over one for a working person may be cause for concern, because it indicates that you're spending more than you take home each month, so you're relying on other income or borrowing to subsidise your lifestyle. On the other hand, a POSI of, say, 0.8 or below is good news, because it proves that you're living well within your means and generating a healthy surplus income to save or invest. Finally, if a large personal over-spending index is causing you to slip deeper into debt each month, try these links for size. More: Pay less interest with Best Buy 0% credit cards and personal loans| Open a super savings account!
