Most people struggle with personal finance. Not because it’s complex and confusing – but by ignoring some basic fundamental key things !
Although the idea of investing and personal finance may appear daunting, and puzzling to most people. The initial steps you take should be relatively simple to understand.
So let’s look at some key rules:
Pay Yourself First:
Most people save whatever is left over after paying bills and spending. Which usually mean they have nothing left to save or invest.
They may be living pay check to pay check, so can sometimes struggle in the days prior to the next pay day.
The rule is to automatically move a portion of your income
into savings or investments the moment it arrives, before touching anything else.
So pay yourself 1st !
Don’t buy to impress others
Spending money on status symbols (designer items, flashy cars) to look rich usually keeps people broke.
True wealth is what you don’t see-the assets and investments working quietly in the background.
So make a conscious decision to buy assets not liabilities that work for you.
These assets will grow in value it left untouched – what we call passive income.
Spend Less Than You Earn:
Lifestyle inflation is a constant trap. When people get a raise or make more money, they immediately upgrade their lifestyle instead of keeping costs steady and expanding the gap.
The biggest killer for most people is something called lifestyle creep.
So as your income increase each annual pay award, so does you’re living expenses.
But you are on a never ending hamster wheel, and once on it, most people can’t get off it.
Or keeping up with the Joneses, the neighbours, friends and work colleagues.
If you can survive on less than you earn, you are financially ahead of the majority.
Learn to live life on your terms !
Build an Emergency Fund First:
People who skip saving 3 to 6 months of living expenses, (an emergency fund) are leaving themselves one bad car repair or household repair bill away from possible high-Interest debt.
Which could be in the form of short term bank loan, or excessive credit card debt at extortionate rates.
Imagine how stress free, live could be if you have some money set aside to cover any emergency at short notice.
Usually held within a designated account for that purpose.
I personally like to have £ 1,000 set aside for that reason.
This may be out of reach for most people, but set aside a small amount each month and you can soon reach a little nest-egg.
Avoid Expensive Debt, Not Plastic:
People often say “never use credit cards,” but the real
rule is never pay expensive interest.
Credit cards used properly and paid off in full every month offer safety and
sometimes useful rewards. It provides security if buying big ticket items, holidays etc.
But if you fail to pay the outstanding balance in full, they interest charges and carried balances destroy your future wealth.
Good debt could be to a mortgage to fund a house purchase. Which is essential and normally increases in value over time.
Bad debt relates to cars, holidays, which normally lose value, but are seen as short term fixes.
Make you money work for you:
Keeping all your money sitting idle in a standard bank account means inflation slowly eats away at its purchasing power.
Whereby its true value is being eroded.
So make your money work for you by beating the rate of inflation.
Even small, consistent
investments compound heavily over time. So make them work for you and not against you.
So learn to get actively involved with any savings or investments that you have. Most people see it as inertia.
The stock market will beat simple cash accounts held within a bank or building society. If held for the medium or long term.
Thereby creating greater riches or wealth, if compounded and re-invested for many years.
Create multiple sources of income:
Most people only rely on 1 source of income. Such as main source of employment.
They rely on the goodwill of the employer, and they determine how much they pay you. Due to your role, function, responsibility and the number of hours you work for that contract.
We all know people that have been made redundant, or lose their jobs through a company restructuring or closing down.
You then panic to find another job in that sector or a new industry.
But what you have several sources of income. Such as dividend stocks, bank interest, rental income, side hustle or part time employment.
Most successful people have numerous sources of income and don’t rely on 1 source.
Time is money – stop wasting it:
We all have the sae anoint of time each week. But how we spend that time can greatly improve our financial situation and well being.
If you are working a 40 hour week for an employer.
How do you spend your remaining time ?
Is it watching TV all evening, after a hard day at work. It is socialising with friends in the pub or restaurant.
Or can you improve your situation by enrolling in a new course, Learning new skills or reading books and watching videos etc, that improve your situation.
So make a decision to stop scrolling all the time on you’re mobile or being glued to the latest series on Netflix.
How about using some of the time to improve your financial knowledge, new worth or earning potential.
I’m not saying you stop having fun – but some small steps can improve your financial awareness greatly. It will reward you many times over in later years.
Remember:
If you found this blog post useful and informative, please feel free to check out my other posts on pensions, saving and investing, and investment book that I recommend on https://moneyminted.co.uk
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