Five Ways To Beat The Joneses

If you want to get ahead of your friends, neighbours and colleagues, then use your head. These money-management tips will make you a winner.

Here in the UK, we appear to have a troubling aversion with all things 'average'. Indeed, few of us will admit to being 'average' in any way.

For example, to demonstrate this aversion to 'averageness', ask a group of people whether they are above-average motorists, average drivers, or possess below-average driving skills. Roughly eight in ten adults will claim to be an above-average driver, even though this is nonsense in mathematical terms. (I freely admit to being an awful driver, but you can relax, as I haven't terrorised the roads for more than eight years!)

A similar experiment involving salaries or incomes produces the same outcome. Again, the vast majority of people in a group believe that they have a higher income than the group's midpoint, despite this being a logical absurdity. So, we really don't like admitting that we earn less than others do. This behaviour goes a long way towards explaining the British obsession with 'keeping up with the Joneses' -- a topic which I examined in Does Wealth Make Us Worse?

Without a doubt, deep down, we Brits are afraid to admit that we are 'average' in any way. However, generally speaking, half of us will be above the (median) average and half of us will be below it, so being below average is nothing to be ashamed of. (For more on how to calculate averages, see Why Averages Don't Add Up.)

In a nutshell, if you want to avoid being average and pull ahead of the pack, then you need to behave differently to other people. Here are five ways that you can manage your money better in order to stand out from the crowd:

1. Be better at budgeting

According to a report a couple of years ago from the Financial Services Authority, we Brits spend around a tenth (10%) more than we earn. In other words, for every £100 of take-home pay, we splurge £110. To be blunt, this is a recipe for financial disaster, because persistently living beyond our means will shrink our savings and boost our borrowings.

Hence, if you want to thumb your nose at those wretched Joneses, make sure that you have some surplus cash left over at the end of each month. Ideally, aim to spend no more than nine-tenths (90%) of your take-home pay, and then save or invest the excess. The better you are at budgeting and controlling your spending, the less you need to worry about downturns and rainy days.

2. Don't go on a borrowing bender

Over the past decade, we have been on the biggest borrowing binge in British history. Indeed, our debts are now so high that they exceed 1½ times our annual take-home pay -- and even our American cousins don't owe 150% of their earnings. For the record, at the end of March, we owed £1,104 billion across 11.7 million mortgages, so the average mortgage comes to almost £95,000. In addition, we had a further £214 billion of unsecured debt (credit and store cards, car and personal loans, overdrafts, etc.). Spread across the UK's 25 million households, this comes to almost £8,600 apiece.

So, if you want to be different from the rest of the great British public, do your best to claw your way out of debt. This article will help: Five Top Ways To Clear Your Debt.

3. Be a superior saver

These days, Joe Public is a scrappy saver at best. Back in 1995, we Brits saved more than a tenth (10.2%) of our disposable income. By the end of 2006, this proportion had fallen to less than a twentieth (4.9%). Apart from the 3.7% recorded in 2004, this is the lowest savings ratio since 1960, which is a shocking statistic and shows how bad things really are today.

Still, with savings interest rates on the rise, I sincerely hope that the public sees the light, and we turn our backs on borrowing in favour of saving. If you'd like to put more aside in your emergency fund or nest egg, then check out these high-interest savings accounts, which pay up to 6.05% a year before tax.

4. Be an intelligent investor

The UK stock market began to dive at the turn of the century, and this slump continued for more than three years. Indeed, the FTSE 100 index more than halved between the end of 1999 and its low of 3,287 reached on 12 March 2003. This 'bear market' frightened off millions of people from investing in shares, which partly explains the ongoing popularity of property investing.

Nevertheless, as I explained earlier this week in Property Versus Shares, shares beat property in 2005 and 2006 -- and I believe that this trend is set to continue. However, you don't need to be brainy to make the most of long-term investment in companies. For instance, you could adopt the same strategy as my five-year-old son, which is to 'buy a little bit of everything'.

As I explained in this article, my boy keeps things simple by investing in a cheap, simple index tracker which tracks the FTSE All-Share Index. Indeed, for a total cost of just 0.3% a year, D'Arcy Junior grabs his share of the growth and income generated by seven hundred of the UK's largest listed firms. Since last October, the value of his investment has growth by an eighth (12.5%), which is an excellent start for someone who only learnt to read last year!

5. Steer clear of scams

Finally, once you've strengthened your finances and started to build decent wealth, don't lose it all to greedy fraudsters. Every year, large numbers of Brits are caught out by scams ranging from minor rip-offs to major cons organised by career criminals. Although I can't point out every scam out there, I have put together a list of seventeen different scams to steer clear of. You'll find these swindles in the following three articles: Steer Clear Of These Scams, Five More Scams To Shun and Scams: The Next Chapter.

That's it from me -- good luck with steering clear of those free-spending Joneses!