Frugal but fabulous - Alvin Hall interview

Living by the money-saving maxims he preaches, Alvin Hall thinks we all need to get more imaginative with our finances, finds Lee Randall.

WITH a naughty giggle, Alvin Hall confides, "Growing up in Wakulla, Florida, I was raised so poor we couldn't afford the O-R.

We were 'po'!" But that didn't mean a life entirely without treats, he stresses. "My parents told us that you could have some of what you wanted but you needed to think about it and save for it." While his siblings saved for sweets, young Alvin pocketed his pennies to buy Viewmaster slides, which sparked his imagination.

We'll all need to be imaginative over the next five to seven years, he cautions, because the old models of free credit are gone for ever. "The old model was that mortgages were relatively easy to get, credit was loose. This was the result of Thatcher saying that owning your own home was a national imperative, so banks eased lending standards. People forget that there was a time in Britain when there were mortgage queues. You had to open an account at a building society and be there for a while before getting in line to be eligible to receive a mortgage.

"But then mortgages became available to anyone who could minimally afford to buy a house, and eventually you didn't have to verify loans or income. This extended to other forms of credit. Anybody could get a credit card and many saw this as validation – the bank must think I'm worthy and therefore they're offering me a credit card."

"Memory is short when it comes to money," says the financial guru, who's now 55. He points to our collective amnesia about the crash of the early 1990s, which found people living in negative equity. "This is just the new cycle. Someone has taken an old trick, tweaked it, and made it more sophisticated, so the damage goes deeper into society."

Hall, familiar to UK viewers as the genial host of the BBC's Your Money or Your Life, knows whereof he speaks. After earning a degree in English at Bowdoin College in Maine and working as a teacher and in retail, he began working for a firm that created training courses for Wall Street players. Thus his deep knowledge of the machinations of the financial world comes largely from on-the-job training rather than an education in economics. Hall went on to become director of marketing for Chicago's Longman Financial Services Institute, and the executive director of the New York Institute of Finance.

A chance meeting with the BBC's Jonathan Drewery in London led to an audition. Hall paid for his own screen test, then waited nine months to hear back. The BBC, impressed by his ability to translate complicated concepts into entertaining everyday prose, gave the man a contract. Since then he's written best-selling books and made numerous radio and TV programmes, all the while running his own company, Cooperhall Press, which creates training programmes for the financial market.

Although the future looks less than bright, Hall says there is a way to ride out the storm. "People have to think about money in a very different way. Look at money as a way to give yourself enough of what you want to be happy, but to prioritise that happiness. You can't start spending your future before you earn it.

"Go back to really simple ideas. If you want something, compare its importance to other things, such as your mortgage payment, or school fees. If the mortgage payment will make you happier, say, 'At least I have my house. Sure, I don't have that thing I was going to spend £400 on, but maybe I should wait and get it later.'"

But that's exactly what we don't want to hear! "Most people live in the economic fantasy land of the future, where everything's going to be better; you're always going to get a raise; you're always going to have more money; you won't lose your job. I'll be blunt about this: I have a business in New York designing training programmes about the financial industry. I've been doing this for a long time, but I've always followed my own rules about saving and have a year or two's worth of cash banked in case of an emergency.

"If ever there was a moment that I said 'Thank goodness I follow my own advice' it was two weeks ago, when one of my best clients went bankrupt. Who was it? Lehman Brothers! We had classes booked out all the way to the middle of December. All of that income I had planned for was gone. Luckily, I never spend money before I earn it. Now I joke that I am richer in free time but poorer in cash flow."

With that, he bursts into peals of laughter so delightful and infectious that I resolve on the spot that if cost-cutting means no new CDs, this happy sound would see me through the drought.

And Hall really walks the walk, focusing on attaining some of the luxuries he wants – such as an outstanding art collection – while paring back on expenditures that, however tempting, have proven less relevant. A while back, for example, he set himself a test. Realising that his wardrobe overflowed with shirts, he imposed a year-long moratorium on new ones. Hall is a snappy dresser, so this required enormous self-control.

"I'd go to the store and look at shirts, touch them, hold them up thinking how cute I'd look in this one or that one – but I could not buy any. Every time I successfully resisted temptation, I would take the money I didn't spend on a shirt and put it into savings. Every time."

Was all that self-denial depressing? "I did not even miss buying them. In fact, it's become such a strong feature of my life that I'm always looking at how I can make the shirts I have work better, such as buying a vintage tie for £2, which gives it a new context. I am down to buying about six shirts for the whole year and last year only three."

He follows similar strictures with cufflinks – for every pair in, one must be sold, to ensure he only owns five pairs at any given time.

"I hate the phrase retail therapy," he says of the fashionable idiom, "it's just a way to justify spending. Retail therapy would be if you didn't buy anything and said, 'Well, I feel better for looking, but I don't need to have it.' Most people want shopping to be an almost intuitive, fate-filled experience. 'Oh my god, it must be meant to be – this purchase will transform my life!'

"People forget to look at what something costs over time. If you choose well, today's happiness can stop you from buying things for months. For example, I have a Rolex watch and when I know I'm going to be weak – I love watches – I put it on, because then I know I don't need to buy another: I already have the best."

So where should we put all this money we're saving? "Hold on to your cash – this is not over yet! Put it into a savings account or into several banks, for safety. Look for a high-interest timed deposit. Unless you're comfortable with risk and volatility, nothing is safe at the moment. I'd sit like a vulture on the line, buy a nice big piggy bank and wait for the right deal to come along."

Alvin Hall's top tips for reining in your spending:

||1110|| KEEP a month-long daily spending diary. Track every penny spent, and describe your emotions whenever you're tempted to overspend. You'll discover where your money goes and what triggers overspending. Get your emotions under control and the money will follow.

||98|| REMOVE all your credit and debit cards and go out with just £10 cash. You must spend something and whatever you buy must satisfy you for five whole days – but it can't cost more than £10. This forces you to really think about what you're buying.

||76|| COMPARE something you're about to spend money on as a percentage of an essential expense. That'll stop you cold. If you're spending the equivalent of your phone bill, you're effectively spending the phone bill twice. Or worse – not paying it in the first place!

||54|| GO TO THE cashpoint just once a week, taking out only what you need. If need be, divide the money into seven envelopes and use one each day. Eventually, your attitude toward the daily spend becomes your default behaviour and you start making sensible choices before even leaving the house.

5 MAKE your money work twice, with the right credit card that offers rewards which fit your lifestyle, whether that's cash back, frequent-flyer miles or store vouchers. Always pay the balance in full. Two is the maximum number of credit cards anyone needs – and no store cards.

6 SAVE first! Even if you start with just 5 per cent of your earnings, take that out before paying any bills and sock it away. Then see if you can cut your remaining spending so you don't overrun. Most people make saving their last priority, but if you pull it off the table first you have to rethink how to spend what's left. Start with 5 per cent and you may find in a couple of months you're up to 7 and then 10 per cent. That way you start to accumulate.

Alvin Hall's Show Me the Money (Putting the Fun into Finance) is out now, published by Dorling Kindersley, £9.99.