💰What People Really Spent Their Money On This Year And How These Choices Will Affect Their Overall Net Worth

It’s been a strange and long (but short-at-the-same-time) two years. We went from living our best life; socialising in real-time, going to work and all the other normal things that once made up our days to ones filled with endless Zoom meetings and banana bread. Too much banana bread. All in the space of a couple of weeks. Instead of spending our money on the tube and bought lunches we suddenly found ourselves rushing for loo rolls and face masks.

Since I’m a personal finance enthusiast I’m always on the lookout for what people are (and aren’t) spending money on. My eyes are always peeled! And Covid was the perfect experiment. I’ve spoken to friends, family and outer circles on what their spending has been like since March 2020. And I’ve had the most varied responses. I have friends who now spend as normal. I have friends who choose to spend way less. And I also have friends who spend more. Way more. And don’t really think twice. When it comes to me, I’m not necessarily spending more or less per se. I reckon that I’m just spending a similar amount of money but on different things to what I previously spent on. 

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Since I’ve been attending uni from my bedroom ever since the start of the pandemic, in addition to working from home (as a freelance writer) and pretty much doing (nearly) everything else from home I’ve spent quite a bit on tech! From this laptop I’m typing on to the earphones in my ears. As well as a new phone and a smart watch that I later sold realising I didn’t quite need it as much as I thought I did! But this tech splurge is more of a one-off-thing rather than a regular thing. I’ve also found myself spending loads more on face products. I found that when I wanted to treat myself I preferred to spend on these sorts of things rather than yet more clothes which is what I would’ve probably (more like definitely) done pre-Covid.

Dear reader, what do you enjoy spending on? Does this differ from pre-Covid? I’m ever so curious!

Cool Credit 

A couple weeks back, I was driving (rather being driven since me has no car nor drives) to the countryside. I noticed that there were a ton of new cars on the road. I saw loads of BMWs, Mercs, Rovers and Jaguar’s. Any old Ford/Toyota stuck out like a sore thumb since roads were filled with fresh, flashy cars. The thing is, what we’ve got going on right now is record-low interest rates and consumers have clearly been making the most of it! Since car loans are pretty pricey, the lower the rates, the lower your monthly expenses. And who doesn’t love that.

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People were also finding themselves in the mood to treat themselves. After the year we’ve all had, I can totally see why! The boss of Roll-Royce said that Covid deaths helped them sell a record amount of these luxury cars (sales were up 49% this year) since their customers realised that “life can be short”. Best to enjoy it while you can, right? The thing is, many people who treated themselves to a new car ended up paying well over the odds thanks to supply shortages. That are getting worse by the day. The Mini factory has just had to shut down (temporarily, I hope) due to chip shortages. This is no joke. And to top it all off, a cargo ship carrying ~4,000 luxury cars from Bentleys to Porsches has caught fire and is now sitting at the bottom of the ocean! The silver lining is that the car you’re sitting on is most likely worth more than you paid. But I have a funny feeling that this sorta spending will start to slow down when rates rise. If it hasn’t already taken a hit by low consumer confidence as a result of the war in the East. I certainly don’t wanna be spending right now!

Buy Low; Sell High

On the other side of the spectrum, we had a whole chunk of people who took advantage of assets. When they were on the cheap. Ahem, March 2020. Take these family friends of mine. Both the husband and wife are business owners. Luckily, their businesses were not adversely affected by the pandemic which meant that they were able to pounce on record-low prices when everyone was either too scared or too cash-strapped (eh, me) to be able to do anything. Read here what you can do to become a better investor this year.

This couple were able to buy a couple of properties during the pandemic. After all, property prices had fallen (some areas more than others) and most people were afraid of the uncertainty. Buying a property was probably not on the agenda. But some people, like this couple, dived right in. And they were rewarded. See, real estate always bounces back. It’s just a matter of time. They took full advantage of ultra-low interest rates (which meant that servicing their mortgage would be less costly) along with the Stamp Duty(SDLT) holiday here in the UK, saving them thousands in tax. Not only did they manage to buy on the low but they also locked in the cheapest rates. Lucky chaps! 

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It wasn’t just real estate that people snapped up. It was stocks, too. Major indices fell massively. Take the S&P 500 who lost 30% in less than a month! This meant that there were massive opportunities to be had. But hindsight is 20-20. At the time, investors and consumers alike thought that the world was coming to an end. That there would be no stock market left. But I watched (in sheer awe) as my Dad scooped up as much as he could. He loaded up on REITs (real estate investment trusts) that had also collapsed. Pretty badly. Most of which are now up 80/90%. And he topped up his global holdings. 

But look at how quick markets recovered from their March lows. All of a sudden, there were more buyers in the market (optimists) than sellers (pessimists). People who took that leap of faith were handsomely rewarded and their portfolios will have grown significantly since then. After all, markets are forward-looking creatures which means they move quicker than the economy. So just when tomorrow looks slightly-better than today, you’ll see the tide will have already turned. Timing markets is (near to) impossible and a waste of time but time in the market works. Every time.

Bottom Line 

We all have different-sized pockets. We all have different preferences. And we certainly have different attitudes toward finances. But what I’ve seen this year is that the rich focused on growing their asset pile as much as they could whereas those who don’t own assets either can’t or won’t spend on them. They spent in other areas. On cars, clothes and often take on more credit card debt to do so. More than 90% of people who buy cars do so on loan.

Buying assets (especially when they’re cheap) should be a priority for you. Assets make your money work for you, instead of the other way round. And they’re what sets you on the path to financial freedom. Acquiring assets should come before a lot of other things (like a fancy car). Because, in the end, assets give you money while liabilities take it away. Covid showed us that the brave and bold were rewarded. Like anyone who bought anything after that March 2020 sell-off. 

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It can be really scary to swim in these unchartered waters but those who gave it their best shot were rewarded. And now, they’re sitting on some expensive (appreciated) stuff. 

So yeah, the roads are full of fancy cars. But nothing lasts forever. Despite what you may think. So plan for the worst and hope for the best. You don’t wanna get stuck paying a hefty rate on your car that is literally not generating any money for you. Okay you got me there. Second-hand car prices went through the roof this year so your car became an asset for a whole. But this year was kinda the exception. Not the norm!

No matter your starting point in life, it’s possible to grow your net worth and set up a life for yourself that will give you the freedom you want. But it all comes from prioritising assets (like stocks, houses) over liabilities (cars, clothes ect). Those who spent their cash on assets this past year have done well. Those who spend their cash on liabilities have not done so well. Make the harder choices now to live an easier life later down the line.

If this year’s taught me one thing is that assets are my best bet. They may not be so glam. Yup, I don’t drive nor own a car and there many things I can’t bring myself to spend on because I’m too busy building my asset base. And I only have so much money. It’s hard now, I’ll admit that, but you gotta do what no one else is doing now to live a life no one else will. 

Now would you rather drive an old-ish car (or no car at all!) but have more stocks in your account or drive a flashy Merc with fewer stocks? Take your pick.

The choice is all yours.

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.