To stop being broke forever, you must fix your core money habits, behaviours and traits.
These can be fixed quite simply if you take some simple steps when starting out. But you first have to change your mindset – which is the hardest part for most people.
Quite simply because we are never taught the basics about personal finance, budget planning, saving or investing.
Whether it’s early on in life through school education, or by our parents as most people thinks it’s somewhat taboo to discuss our finances with others.
If you can avoid spending more than you earn, trying to impress people, relying on only one income source, and ignoring basic financial knowledge.
True wealth comes from becoming disciplined, budgeting, and investing instead of saving over the long term.
You can improve your financial situation on the first day of action you make.
By changing your mindset and making a conscious decision to change your future.
But the goal should be too create long term wealth or financial freedom for you and your family.
It just starts with some simple steps. Lets just at these in more detail:
1 – Build an emergency fund
Ideally you should build up a cushion of security, known as emergency money.
Which you can get at immediately to cover short term issues or emergencies.
This could be for car repairs or breakdown, MOT or road tax. Emergency in the house such as boiler breakdown, appliance not working such as washing machine, cooker etc.
What we call essential items that you need on a daily basis. Which need to repaired or fixed immediately.
You ideally build up between 3 to 6 months monthly expenses, to cover such items.
This should be set aside in a separate cash account, that you can gain immediate access.
With the aim that it’s only used for emergencies, not day to day treats or luxuries.
I personally like to have £ 1,000 set aside. With the option that I can use credit card on interest free basis to cover any additional larger unforeseen emergencies. Although my wife does hold a similar amount also.
The idea to set aside several thousand into such account.
It may be daunting for most people so start off small say £ 50 or £ 100 per month.
You will soon reach that target.
By creating an emergency pot, it will alleviate any undue stress or worry.
As we all know important things break down at the least expected moment.
It will avoid the need to get short term loan at expensive borrowing rates.
Or topping up any credit card debt at unaffordable repayment terms. Or worst case, boring money from loan sharks or a short term bridging loan at extortionate lending rates.
But remember to set aside any such funds into a separate designated account.
If you do have to access the funds, then make sure that it is topped back up to your preferred level of comfort.
2 – eliminate high interest debt
Avoid expensive credit card at high rates of interest.
Credit card debt and interest rates in the UK at present, can appear very costly. Normally around 20% to 25%.
It’s ok to use credit cards sensibly if you pay the outstanding balance off in full each month.
But if you don’t if could prove to be very costly, especially over a long time period.
This could be evident if you only pay off the minimum outstanding balance. Of which excessive interest is charged on any outstanding funds.
So if you are going to use credits for daily spending or the purchase of big ticket items.
Always remember to pay the outstanding balance in full to avoid any unnecessary fees charges, interest which can compound.
You may have some other forms of debt which are more manageable. Such as personal loan to cover car payment, for new kitchen, or other home improvements.
But the rates of interest charges is usually a lot lower say between 5 to 10%, which may appear more manageable.
The aim however is become debt free so you can use those funds to save and invest. Whereby the money is then working for you to improve your own financial situation.
Not to make profits for banks, and other financial institutions.
Imagine being in a position, where you were completely debt free. With no worry or stress about how they can be cleared.
It may be that you have debt such as a mortgage to cover your home. But this is usually considered good debt as it is usually charged at lower rates, over a much longer period.
With the aim being in later years, that you become mortgage free. Plus your home has increased in value as you have lived in it.
See my blog post on eliminating debt:
https://moneyminted.co.uk/the-fastest-way-to-pay-off-debt
3 – increase your income
Don’t rely on 1 only source of income. We all trade our time for money, through employment such as working 9 to 5 job. But we are limited to what we can earn and we can only work so many hours per day or week.
But you are at the mercy of that employer. What happens if that employer is struggling and lays off staff through restructuring or redundancies.
How will you pay your bills in future ?
Can you find another job quickly in that sector, or would you have to train for another industry.
Imagine if you created numerous income sources, such as bank interest, dividends, premium bond winnings or rental income.
Or it could be a part time job or side hustle, doing a hobby that you enjoy.
Could you do some studying or get a promotion, to increase your earning potential with your current employer.
It may be that your respective employer, pays for the studying which could be a great incentive for both parties.
So make a conscious decision to increase your level of earnings – or your ability to increase those earning through salary or 3rd party means.
4 – learn to invest
The idea of investing for most people, is considered taboo or complex. As we aren’t taught it in school or by parents.
It may be that you are lucky in that you aren’t living pay check to pay check and you can put some money aside for savings.
But if you really want to improve your financial situation massively.
You have to invest on regular basis, to beat the rate of inflation. So your money grows through compounding.
Remember investing will beat savings all the time over the long term.
You could put some funds aside in a simple stocks and shares ISA. Which can be set up in matter of minutes via an online platform.
See my blog post about investing and how to get started:
https://moneyminted.co.uk/the-world-of-investing-should-be-simple-and-easy
5 – track your spending
Find out where your money is going.
Ideally you should create a simple budget planning record. For say a period of 3 months, you will be amazed and probably shocked at where all your money is going.
It could be a simple spreadsheet or notebook record, logging each time you spend money.
You should allow ideally break your spending into 3 buckets:
50% for essentials, (rent / food / heating /utilities) 30
30% for luxuries, treats (social, eating out, entertainment, hobbies etc)
20% for savings and investing (i.e emergency money, holiday fund, pension)
But most people get it the wrong way around, you should learn to pay yourself 1st. Preferably each pay day, or automated at the start of each mnth.
However the vast majority, decide to save money if they have any funds left. Then wonder why they cannot afford to save as they are living pay-check to pay-check.
Over time you will see a pattern emerging. Are you living beyond your means. Do you find yourself wasting money on using gym memberships, monthly subscriptions, numerous entertainment packages.
Are there any items of unnecessary expenditure you could eliminate to improve your current and future financial situation.
See my blog post about the 50/30/20 rule in create detail.
https://moneyminted.co.uk/what-is-the-50-30-20-rule
6 – invest in yourself
A great way to improve your financial situation, salary or income is to learn new skills.
This could result in a promotion, or attain new job role as a much better salary.
Have you got relevant skills that make you invaluable to an employer.
Or are you willing to take the time to learn new skills, such as computer courses, speaking better, communicating skills, new qualifications.
Are you willing to take some time outside of work to improve your income, such as attain night school, Open university, online courses etc.
It could be that your employer offers course within the workplace, or at least offers you fund any studying if relevant to your job role.
So ask them to see what’s available to you to improve your salary and financial situation.
Most employers will be happy yo helping assist, if they think it’s in their best interests and also for you. If it brings benefits later on to that company.
Or could you do some part time work, in another sector to improve your future employment prospects. It could be something that you are interested in to improve your future employability.
It may even be a side hustle, or hobby that you pursue to create some additional income.
So think of some ideas whereby you can improve your income, salary. Then that money can be used to secure a better future for you in the short term.
7 – protect yourself with insurance
Sometimes people avoid some key essentials such as life insurance or income protection cover.
You may wish to purchase simple term insurance to cover the mortgage at least in a worst case scenario.
Most providers will insist that you some kind of life cover in place.
Or you could buy life cover to cover a parent, if you have young children. That aren’t earning and are financially dependant on you or a partner.
Some employers may offer death is service benefits, equals to several times annual salary. As parts of its benefits packages, but this may be restricted to certain large employers only.
If you work for a small employer, could you survive on statutory sick pay.
Let’s say you are self-employed and go off sick. How will you manage to pay your mortgage, rent, food, bill etc. If you are off sick through illness or injury.
So it may worthwhile, advisable or crucial to set up a income protection policy. Which could provide some income provision, if you were unable to work.
Some people see insurance as unnecessary or an expense they could do without.
But it gives peace of mind and security in the unforeseen occasions when things go wrong.
8 – think long term
Don’t believe all the hype online about so-called get rich quick schemes. Most of them are untrue and give people false hope and impressions. Sometimes they can be simple SCAMS and people may act in haste and appear gullible. In the fear of missing out (known as FOMO)
By the time it is out in the open to the general public, the money has already been made by others.
No matter what they peddle, nobody creates wealth in the short term.
A simple example it took me 12 years to build an ISA pot of over £ 100K (so 6 figures), but it then only took me 2 years to get to £ 200K, due to the power of compounding and staying invested.
Break your goals down into same bitesize and manageable values which are achievable and attainable.
This will give you hope and encouragement as you reach and attain your next target.
Also break them down into short (1 year), medium (3 to 5 years) and long term over 10 years.
The idea of improving your financial situation should be seen as boring over many years.
But due to the power of compounding and investing on a regular basis, within tax free wrappers. You can create a sizeable saving or investment portfolio.
If you stay disciplined, focused and avoid short term market noise, speculation and the latest investment FAD or get rich quick schemes.
The world of investing should be simple, but they want it to appear complex and confusing so you stay poor.
It can be for everyone not just the rich or the elite.
Finally:
You can can become wealthy in later years. I applied these principle albeit later in life, but it allowed me to become net millionaire in my early 50’s
This blog post isn’t intended to boast or brag and say look at me.
But it’s aim is to give people hope and ideas to achieve their financial goals and dreams – so it can become possible for you. If you take some simple long term steps.
Remember:
If you found this blog post useful and informative. Check out my other posts on saving, investing, pensions and investment books I recommend on https://moneyminted.co.uk
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