Housing
The true cost of renting is not just the rent
Comparing rent to a mortgage payment is the wrong comparison, and it misleads in both directions.
Harriet Nkomo
Editor, Finance Ridge
Harriet edits Finance Ridge and spent nine years in consumer credit before deciding the explanations were the interesting part.
Contact Harriet through our contact page — mark your message for their attention and it will be passed on.
47 articles
Budgeting
The 50/30/20 rule breaks wherever rent takes half the income
A budgeting heuristic written for a different housing market still gets quoted as though the proportions were laws of nature.
Budgeting
Subscriptions cost more than the sum of their monthly prices
Recurring charges are priced to sit below the threshold at which you would think about them, and they are designed to renew…
Budgeting
Every pay rise is already spent unless you decide otherwise
Lifestyle creep is not a moral failing. It is what happens by default when a larger number lands in the same account.
Saving
Notice accounts and fixed terms sell you a rate in exchange for access
A higher savings rate is not free. You are being paid for giving up the ability to change your mind.
Saving
A regular saver pays roughly half the rate on the headline
Accounts that require monthly deposits advertise a rate that no deposit in them actually earns for a full year.
Investing
What you actually own when you buy a share
A share is a legal claim on a residual, and almost every feature of stock market behaviour follows from what that claim is and is…
Investing
An index is a rule somebody wrote, not a fact about the market
Tracking an index feels neutral. Every index encodes decisions about what counts, how it is weighted and when it changes.
Investing
Drip-feeding money in is a decision about regret, not about returns
Investing a lump sum gradually usually costs you expected return. It buys something else, and that something else is sometimes…
Investing
Rebalancing is a rule that makes you sell what went up
It is the least intuitive part of running a portfolio, and the discipline it imposes is the reason it works.
Investing
Tax wrappers usually change the outcome more than fund selection does
Choosing where an investment is held is a decision most people make last, and it frequently matters more than what they chose to…
Debt & Credit
Minimum payments are calculated to keep the balance alive
The smallest permitted payment on revolving credit is a product feature, and the feature is duration.
Debt & Credit
A longer loan term lowers the payment and raises the price
Stretching a loan is sold as affordability. Arithmetically it is a transfer from your future self to the lender.
Debt & Credit
Overdrafts became one of the most expensive ways to borrow
The borrowing most people use without thinking of it as borrowing is frequently priced above credit cards.
Debt & Credit
Income-contingent student loans behave more like a tax than a debt
Where repayment is a percentage of income above a threshold and the balance is eventually written off, standard debt arithmetic…
Housing
Early mortgage payments are almost entirely interest, and here is why
Amortisation is not a trick played on borrowers. It follows inevitably from charging interest on a balance that starts at its…
Housing
Fixing your mortgage rate buys certainty, not a better outcome
Choosing between fixed and variable is usually presented as a forecast. It is better treated as a question about what you could…
Housing
The energy cost of a home is decided before you move in
Insulation, heating system and building fabric set a running cost that behaviour can only partly change.
Housing
Property taxes and local charges are the bill nobody negotiates
Recurring charges levied on where you live are treated as fixed, and in several respects they are not.
Housing
Moving is a recurring cost, and short tenancies multiply it
Each move carries fees, deposits, overlapping rent and days off work, and the total is rarely counted against the housing decision.
Long-term Planning
Retirement planning starts with an annual figure, not a total
The pot everyone talks about is an output. The input is what you intend to spend in a year, in today's money.
Long-term Planning
The safe withdrawal rate is a research question, not a settled figure
A single percentage circulates as though it were established. What the research actually shows is narrower and more conditional…
Long-term Planning
An employer pension match is the closest thing to a guaranteed return
Where an employer adds money conditional on your contribution, declining it is a decision with a measurable price.
Long-term Planning
A will mostly decides who has to deal with the paperwork
Estate planning is presented as being about who inherits, and a large part of its value is about who is authorised to act, and how…
Long-term Planning
Powers of attorney matter while you are alive, which is the point
The document people delay is the one that would be needed at the moment nobody could arrange it.
Long-term Planning
Planning for the age you might reach, not the one you expect
Life expectancy figures are averages, and roughly half of people exceed them. Planning to the average underfunds half of all…
Long-term Planning
Nobody can find your accounts if you have not written them down
Assets that nobody knows about are functionally lost, and modern financial lives are unusually easy to lose.
Long-term Planning
The order of returns decides retirements that started the same
Two people with identical average returns and identical savings can end up in very different positions, purely because of when the…
Long-term Planning
A financial plan is a set of decisions, not a document
Plans fail less often from bad forecasting than from never being revisited when the facts changed.
Budgeting
The categories you pick decide what a budget can tell you
A category is a question you have decided to ask every month. Choose them badly and the answers are unusable.
Budgeting
The daily coffee is not the reason the budget failed
Small purchases are visible, memorable and easy to blame. The arithmetic usually points somewhere much duller.
Saving
Money market funds and deposit accounts fail in different ways
Both hold short-term cash and both look safe. What happens under stress is where they separate.
Saving
Saving in a second currency adds a variable to a simple product
A deposit in another currency pays that currency's rate. What it is worth to you depends on something else entirely.
Saving
Prize-linked saving swaps your interest for a ticket
Some schemes replace a predictable rate with a chance of a larger payout. The pool of money is the same either way.
Investing
Small companies are a different asset, not a smaller version of one
Size is not a dial on the same investment. It changes liquidity, failure rates and how the position behaves under stress.
Debt & Credit
Lending within a family changes terms nobody wrote down
The money is straightforward. The unwritten expectations around it are where these arrangements usually come apart.
Debt & Credit
A fee added to the loan behaves exactly like more interest
Arrangement fees are quoted as a one-off. Roll them into the balance and they compound for the whole term.
Debt & Credit
Borrowing in a currency you do not earn adds a second debt
The repayment is fixed in one currency and your income arrives in another. That gap is a risk in its own right.
Housing
An offset arrangement pays you the borrowing rate on your savings
Linking savings to a mortgage reduces the interest charged instead of earning interest. The arithmetic differs from a normal…
Housing
The rate you are moved to when a deal ends is the one to plan for
Fixed and discounted periods expire. What happens next is set out in the offer and rarely looked at.
Housing
Porting a mortgage is a permission, not a right
Taking your rate with you when you move sounds automatic. It involves a fresh application and can be declined.
Long-term Planning
A pension is a tax structure wrapped around ordinary investments
The word describes a container, not an asset. What is inside it is usually the same funds available anywhere else.
Long-term Planning
Defined benefit and defined contribution put the risk at opposite ends
One promises an income and works out how to fund it. The other collects contributions and hands you the outcome.
Long-term Planning
An annuity buys an income by giving up the capital
The trade is simple and permanent. Understanding what is being bought explains why the pricing looks the way it does.
Long-term Planning
A guarantee is only as good as whoever wrote it
Long-term products often promise something. The promise depends on an institution surviving for as long as the promise runs.
Long-term Planning
Dying without a will hands the decision to a formula
Every legal system has a default set of rules for an estate. They rarely match what anyone would have chosen.
Long-term Planning
Inheritance rules vary more between countries than almost anything else
Assets in more than one country turn a simple estate into several. The systems involved do not agree with each other.