I used to get pocket money as a kid and was expected to save up to buy things I wanted. As 1 of 4 children, there wasn’t a lot of spare money in the family budget. But for birthdays & Christmas I feel as if we got what we needed.
My Dad had an uncle who was terrible with money – a bit of a gambler so it was drilled into me that wasn’t a good way to be. My Dad had also been short of money when he was at school, so he borrowed off other people as a stop-gap, until he gained a bad reputation. Lesson learned for him & passed onto me – don’t borrow money, but if you have to, always pay it back as soon as possible. Even now if someone buys me a drink or a treat, I’m uncomfortable until I can return the favour.
I’ll share a few general guidelines on the basis of sound financial management – keeping this simple because maths troubles me – if you’re someone who has a love of spreadsheets or dabbles with stocks and shares, this post is not for you. If you’re still counting on your fingers and sweating when it comes to splitting a bill 5 ways, we might be on the same team!
Follow a budget
Note down your regular expenses:
weekly/ monthly/ quarterly outgoings of bills/subscriptions/ repayments. Balance them against your regular income:
salary/ allowance/ benefits.
Hopefully a balance is left over, that is the money you have available to spend or save. But keep an eye on the expenses coming up next month – some months more bills are due than others. To help with this, some utility companies let you make payments which are ‘averaged’ out over the year.
If more money goes out than comes in, consider if there are any ways you can economise.
Live within your means
This follows on from my previous advice. For example: buy a sensible car that runs economically, not a flashy one. If you don’t need a car (with its associated cost of services, insurance, fuel) then ride a bike/ use public transport. Use charity shops or e-bay pre-owned versus buying new, take packed lunches instead of shopping at fast food places – you get the idea. (I know some of this advice is less than Covid friendly, but normality WILL return!)
Plan for emergencies
Try to have 6 months’ money (as prescribed by your budget) set aside – in case your income stops for whatever reason.
Create financial goals & a plan
I have to confess, my husband suggested this – he’s more structured than me. But it IS uplifting to have clear goals: when you can start a family, pay off your mortgage, make a big trip/ holiday, retire.
(If you can construct a spreadsheet – they’re a great tool for such planning.)
Understand the power of compound interest
It makes your savings grow!
Understand the effects of inflation
Sadly this does the opposite! Firstly by moving the goalposts as to what you can afford to buy. Secondly the interest on any savings you have won’t necessarily increase to match inflation.
Avoid bad debt
Bad debt doesn’t have a black and white definition but, in general, good debt improves your situation, bad debt makes it worse. A mortgage might be described as good debt because you own a house at the end of it, bad debt is often taken out to pay for something that depreciates in value the longer you own it (e.g. a brand new car off the forecourt). Another type of bad debt is one which escalates, or had a silly interest rate to start off with.
Know your net worth
This is sort of an equation:
List all your assets e.g. Savings Pension Investments: in the ‘plus‘ column
Anything you owe – e.g. Mortgage Loans Credit cards: place these in the ‘minus‘ column
The sum you have at the after subtracting owed from assets is your net worth.
Regularly review your plan and goals
Because situations change!
Managing finance – it’s one area where so many struggle, people shy away from understanding how it all works. A common complaint is that there is too much information out there, sometimes identifying what’s relevant is the tricky part. If it’s all greek to you, a financial coach might solve your problem.
If you have debt concerns, or are unsure if you are claiming all the benefits to which you are entitled, people in the UK can call their local Citizens Advice Bureau.
Money isn’t everything but it can be if you don’t have enough.
There are abundant links to information on the web which expand on each of the above topics. I’ve shared a couple of sites which I know offer balanced advice with no bias or self interest. Thanks go to my savvy husband for help and tips writing this!