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Personal finance is a crucial topic that affects everyone but as it’s not taught in schools most people have poor financial literacy. Developing a basic understanding of how to save, invest, and think about money can greatly impact your journey to becoming financially secure. As personal finance is something I am genuinely interested in and passionate about, I’ve decided to start writing more about it and sharing resources from some of my favourite authors on the topic.
Below I’ve outlined 11 rules for managing money and building wealth. These are simple ideas that anyone can implement and are just good habits to try and build.
- Salary is not everything. How much you earn isn’t the most important thing for building wealth. It’s how much you save. Someone who earns £100k but saves 10% of their money builds less wealth than someone who earns £40k but saves 30% of their money. Making lifestyle changes and increasing your savings rate will make a really big impact.
- Save first. When they get paid, many people make the mistake of spending first and so have little left to save and invest. The trick to saving more is to save first, then you can spend what’s left on whatever you want. Aim to save about 10-20% of your income (obviously, the more the better!)
- Live below your means. Linked to the first point, if you live below your means you give yourself the chance to save. Spending everything you earn is a surefire way of living paycheck to paycheck meaning you will always be dependent on your income and will find it a lot harder to save for big occasions or purchase.
- Avoid avoid avoid credit card debt. Credit cards are brilliant for earning cash back or rewards and for building up a credit score. A good credit score makes borrowing money in the future (like for a house) much easier and at more favourable terms. But the worst financial thing that anyone can do is consistently carry credit card debt. Not only will it cost you loads in fees but it will ruin your credit score. If you cannot pay off your credit card balance in full every month then do not get a credit card.
- Only spend money on the things you care about. It’s easy to throw money at everything everyone else is doing but some of those things just won’t be worth it for you. Think about what you really enjoy and care about. Even if it’s that amazing morning coffee – have it. Spend on the thing that matter. Just cut back on things that don’t.
- Automate everything. The best way to make saving and investing easier and less stressful is to automate it. Set up direct debits that pay off your credit card bill in full and move x% of your income into savings or investments accounts. This way, there is no willpower required from you and it’ll help your nest egg grow consistently over time.
- Think about who you hang around with. Our friends, neighbours, spouses. They all influence how we spend our money. Robert Cialdini has written about social proof and how we mirror the actions of others to gain acceptance. If you’re around people with expensive habits you’ll likely end up spending more than you bargained for.
- Get the big purchases right. Be careful how much you spend on purchases such as cars and houses. Overextending yourself on these can put you in a difficult position as these are fixed costs with high ancillary expenses. Even signing for a flat you absolutely love might lose its charm once you end up spending everything you earn on the rent or mortgage payments with not much leftover for anything else.
- Try to save more every year. While saving upwards of 20% right away might be tricky for some people, make an effort to save a bit more every year. Try and avoid lifestyle creep every time you get a pay rise. It will help propel your wealth creation.
- Aim for financial freedom. Making money and building wealth shouldn’t be some never-ending goal or only to help us enjoy retirement. Achieving financial freedom is the real goal. Not having to worry about money and being able to spend your time doing the things you truly want, not just what you have to for a paycheck, is the real goal. The one truly finite resource is time. Build your wealth so you can spend your time how you want.
- Educate yourself. There are so many brilliant resources out there – go and learn! By learning about how and where to save and invest, you can make your money work for you and start taking steps towards financial freedom. My favourite personal finance book that I would recommend is I will teach you to be rich. It’s super accessible and outlines a few straightforward actions that you can take today to really set yourself up in the future.
Bonus
Here’s an easy action you can take today: Be mindful of recurring expenses. Subscription services like Netflix, Amazon Prime, Spotify etc. slip under the radar. Consider how many of those services you actually need or use. If it’s not being utilised much just cancel it. £10 here and there can really start adding up! Also, if there’s anything you can split with friends or family do that. No more free riding!
There’s a whole lot more I can talk about in the world of personal finance so let me know if there’s anything you’d be interested to learn more about. I hope this has helped get you started on your personal finance journey and thanks for reading! 🎉💰
PS. While saving is important, investing your money can potentially have a greater impact in propelling you towards your financial goals. Watch out for my next post where I’ll share how I invest my money with minimal hassle (no choosing individual stocks/bonds/other assets).
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