It is appraisal time at work. Your boss says "You’ve done really well this year. I am going to put you up a couple of points on the salary scale and that will boost your pay by more than £900 a year." Wow. But be honest. That may not happen. In this lifetime. So why not give yourself that pay rise? Here’s how.

Did you buy a coffee on the way to work this morning? A nice cappuccino or latte? A large one at Starbucks to get you going? For £2.70? Do you do that every day? That’s £13.50 a week. If you did that for a year, taking account of holidays and sickness, you would spend £607. On coffee. But the cost does not end there. How much do you have to earn to have £607 to spend? Tax and National Insurance contributions cost us 33 pence off every extra pound of pay. So you need to earn £906 a year to buy that coffee. Put another way, if you gave up the cappuccino it would be like a pay rise of more than £900. Wow. Without an appraisal. Or a decent boss.

Over the next four days we are going to look at how you can be thousands of pounds better off a year. And I mean thousands. It is not all as hard as giving up coffee. And I know you probably won’t do that every day. But stick with us and you will be better off. Promise. The coffee shop, your bank, the news vendor, your mortgage company, the man you never liked in accounts who’s leaving, the tax inspector, and those nice people who pump electricity into your home will all be a bit worse off. Tough. They are not your responsibility.

But first a word about debt. When you buy something what do you pay with? You are probably thinking ‘small things cash, the rest on plastic, what’s the big deal?’ Well, the big deal is that plastic is not one way of paying. It is two. Debit and credit. With a debit card the money comes straight out of your bank account, normally the next day. It’s like writing a cheque (if you remember those) only less trouble and the money comes out of your account quicker. But with a credit card you borrow the money. At the end of the month the card company sends you a statement of what you owe and how much you repay is pretty much up to you. So, debit cards are just using your bank account and the money in it. Credit cards are borrowing money to buy stuff. Write it on the back of your spending hand now.

The trouble is that many people treat them the same. They buy things on their credit card which they would not dream of taking out a loan to buy. A third of our plastic spending is on a credit card. You put it behind the bar when you meet friends and then use it to buy groceries on the way home. You get new trousers on a whim but they are uncomfortable and you wear them twice. You run out of cash and use your credit card to buy a DVD and a take-away for a lazy evening in. Then the monthly bill comes and you pay the minimum. You might owe £1000 and you pay off £20. Leaving £980 but interest adds back £13. So you still owe £993. You have paid £20 and your debt has come down by £7. Buy a round and it’s back up to £1000.

You are borrowing money over an indefinite period for stuff you no longer have. The golden rule is never borrow to buy something which will be gone before the debt is paid off. So if you pay for Christmas on your card, pay it off by next December. If you pay for a holiday, pay it off in six months before you are hankering for another. Pay off clothes in four months – you know you won’t wear them much after that. And never borrow to go to a concert or eat out or buy a week’s groceries. You could be paying interest on them for years.

It is no surprise that personal debt in the UK is now well over a trillion pounds. That’s a million million or 1,000,000,000,000. In fact at the end of July it was £1,113,600,000,000. It is a huge number but it does include mortgages. If we take those out we actually owe a shade under £190 billion or £189,800,000,000 on credit cards, overdrafts, personal loans, hire purchase and so on. And given that just over half the population does not owe anything, the 21 million adults in the UK who do, owe around £9000 each. If you have a credit card and you do not pay it off in full – or at least pay more than the minimum – then each year you are spending more than you are earning. Anyone can see you can’t do that forever. A lot of that spending is wasted money. And it is stopping that waste we are about in The Scotsman this week.

Let’s get back to what you spend each week. I know it is a bit dull, but we are talking a pay rise of thousands here. Just from spending a tiny, almost imperceptible, bit less. Stick with me, you’ll be surprised.

I do arithmetic a lot – it’s OK, I’m not asking you to be my friend, just read what I write. But even I was shocked when I worked out what we can all waste just going to work. How often have you run out of cash and said to yourself ‘I don’t know where it’s gone. I only went to the cash machine yesterday.’ Then you wrack your brains to try to work out where it went and write it down. And the arithmetic never adds up does it? You can never manage to write down all the things you bought and make it come to the £30 you know you took out just 24 hours ago. And it’s not as if you have been anywhere! Eventually you conclude you must have lost a tenner somewhere. You haven’t. Here’s where it went.

Newspaper to read on train, sweets to pass the time, cappuccino and croissant see above, tea at work with biscuits, sandwich for lunch with espresso to ward off drowsiness, more tea at work, bottled water because offices make you so thirsty, chocolate to get through the afternoon, leaving present for the man in accounts you never liked, quick drink with Sally your round with crisps, evening paper on journey home, milk and bread from the local shop and you couldn’t resist some ice cream. That comes to £30.69. In one day. And none of it will last until tomorrow. Except half the ice cream. And how much do you have to earn in a year to have £30.69 to spend each working day? £10,306. So more than ten grand of your wages draining away on incidental spending.

You can do without the papers – read them at work or on the internet; the sweets and chocolate – ’nuff said; the cappuccino and espresso – drink the subsidised tea and coffee at work; the croissant – a moment on the lips and all that, the sandwich – make one at home; the bottled water – use the free fountain at work, give £2 not a fiver for the weird man who’s leaving who you hardly know; tell Sally you can only have one drink and share the round without crisps; and do a proper shop for milk and bread at the supermarket. Total spending per day now £7.60. Total saving £23.06 a day which is the same as a pay rise of £7754.10. Yes, £7,754.

Now it might not work out that well for you. But remember that each pound you spend every working day is like a pay cut of £335 a year. Think ‘335’ when you get a pound out of your purse or pocket and you will soon spend less. And that means you have more money for fun. Because there are a lot of things that are more fun than bottled water – or even a cappuccino.

It is not just nice things you have to give up to have more money. You can give less to your bank manager, cut the cost of your mortgage, reduce your interest payments, buy cheaper electricity, pay less for your phone. And by using some of this money to pay down your debt – the most expensive first – you will end up debt free and a lot better off. Honest.

September 2005