Happy New Year folks! If 2018 is going to be your year, then start it by taking control of some financial fundamentals. Here are some ideas from me.
- Spend less than you earn:
Sounds simple, doesn’t it? But how is that working out for you? Most people struggle with this basic concept because, lets face it, budgeting is boring! Wealth can only be built on solid foundations, so take a morning to lock yourself away from the noise and take ownership of your income V’s expenditure. Don’t forget to factor in those random, small, discretionary expenses that so often slip through the cracks, they can soon add up!
For example, if you spend £5 a day on your work lunch, that could cost in excess of £1,000 per year!
I challenge you to track every expense for 1 month…you might be surprised what you find.
The Money Advice Service has a very useful budget planner here (I have a regulatory responsibility to warn you that if you click this link, you will be departing from the regulatory site of Clarity Lifestyle Financial Planning. Neither Marc Hoyland nor Intrinsic are responsible for the accuracy of the information contained within the linked site).
2. Pay yourself first:
One book that really opened my eyes to the World of wealth building was ‘The Richest Man in Babylon’, by George S. Clayton. The book introduces the concept of ‘paying yourself first’. So, what does that mean? Put simply, as soon as you get paid, put 10% of your NET income into savings. You will soon get used to it and no longer miss it and it will compound over time too!
‘But I can’t afford to do that right now’ I hear you cry; well, let’s imagine you take home £2,000 per month (after tax, et al). If your boss called you into her office and explained that things aren’t going great right now, so they will have to pay you slightly less from now on, meaning that you would take home £1,800 NET pcm. Would you ‘manage’ somehow?
3. Tidy up your Banking:
In my career I have come across many basic banking faux pas, most notably those who:
- Have too many bank accounts with different institutions, yet have no idea what’s going on with any of them. (Thin them out & take control!)
- Have old direct debits for things they don’t need or want anymore. (Scrutinise those bank statements!)
- Don’t have online banking. (Sort it out people, it’s 2018!)
Sara and I have the following set up:
- 1 x basic current account each for wages and personal costs (gym membership, discretionary expenditure)
- 1 x joint account for all our joint bills (Mortgage, utilities, insurances)
- Our own Individual Savings Accounts (ISA)
I believe that by having a joint account for the bills, we are both making a commitment to the upkeep of our home life. Then, whatever money we have left individually after that is our own money to do with what we like. So if Sara decides to treat me – then none of our essential commitments are at risk!
I sometimes come across couples who have a single joint account for everything, but I think this is asking for a domestic because at some point along the way, one of you will make an individual purchase that will cause disharmony!
Financial mismanagement can be a major contributor to the break-up of a relationship, so if yours is important, then take time to get this part right!
4. Insure against disaster:
Using the example from earlier, imagine you were told you would have to sacrifice a small percentage of your NET income to keep your job, you might be disappointed, but you would manage somehow, right?
Yet imagine that you suddenly lost your ability to earn any income whatsoever due to illness or injury, and you had no idea how long you would be out of action for. How would you cope then?
Your ability to earn an income is your single biggest asset. If you are spending ALL of your income NOW in order to enjoy your lifestyle, imagine how unenjoyable your life would be if you had no income.
Stop messing about and put some money to one side to fund a financial parachute – Hopefully you will never need it and it will have been a complete waste of money! Yippee!
5. Invest wisely:
When the time comes to make an investment, consider your options carefully. A wise investment could mean different things to different people. Warren Buffett is the 2nd richest man in the World according to Forbes, with a fortune of around $76Bn! Mr Buffett is quoted to have once said “The most important investment you can make is in yourself”. After all, your career could be the engine room for your own prosperity, self-worth or overall happiness.
If the stock market is for you, then investing should be like watching paint dry, boring….if you want excitement, get yourself off to Vegas or go bungee jumping!
Right, enough from me – get cracking and TAKE CONTROL of your financial future!
Until next time…
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