1. Make your purse – or wallet – fat.
That doesn’t mean filling it with receipts for every item you bought with your credit card. It means, fill your bag with money. And the best way to do that is to spend less than you earn. This cure stems from the first golden rule we looked at last week: Aim to save 10% of your income. Minimum. Save more than that if you can. Save for the long term, for your mortgage or pension deposit, depending on where you are in life. If you need to save for short-term or medium-term things, like a vacation or a car, it should be in addition to and separate from the 10% or more you save for long-term needs.
Your 10% can include your pension contributions, ISAs, premium bonds, or any type of high interest/restricted access savings account. With compound interest, your portfolio will fill up a lot in the coming months and years, even if interest rates stay low.
2. Control your expenses.
If you are going to save at least 10% of your income in the long term, you should make sure that your current expenses do not exceed 90% of your income. This means that wherever you are on the income ladder, you will need to apply some self-discipline when it comes to treating yourself and those you love.
For starters, keep your credit card(s) for emergency use only, and if you use them, pay them off before they start accruing interest. Likewise, avoid taking out loans unless you can justify the interest you’ll end up paying for that privilege. A car purchased on one of the popular leasing schemes may be justified if it is essential to your job or business. But a loan for a vacation? Staycation would be a better option. Learn to distinguish between wants and needs. A roof over your head and food on the table are necessities; a month in the Maldives is a wish. Enjoy that when you’ve saved 10% of your income for a year or two and can afford to fly to paradise without dipping into those savings.
The secret to controlling your spending is to create a budget and then stick to it. If you have Microsoft Excel, you can download a template to help you track your spending for a week or month. You can also find ready-to-use templates on the Internet or applications for your phone. Calculate how much you spend on mortgage, rent, travel to work, etc. and set limits on things like eating out, entertainment, travel, etc. This will help you stay below 90% of your income.
3. Make your money multiply.
You’re looking for consistent long-term returns, not a lottery jackpot. What you need is a steady increase in your principal, your principal equity, such as compound interest from an ISA or savings account or, riskier, dividends from stocks you own in well-managed companies, including your employer. , if they have an employee stock ownership scheme. If you are not an expert in financial products and investment vehicles, find someone who is. Don’t commit until you speak with a professional financial advisor. Explain what your investment goals are and ask them to help you develop a plan to achieve them.
4. Protect yourself from loss.
The sickening nightmare of watching your dreams of wealth turn to dust when Bitcoin plummets or the guy you met at the pub the other night disappears with your life savings. One way to protect yourself against loss is to make it a hard rule that you don’t touch that core wealth you’re saving and investing for the long term. Keep a ring of steel around it! If you are tempted to try your luck with Bitcoin or forex trading, only use money that you can afford to lose. That means whatever money you have left after you’ve saved your 10%, paid the bills, and filled your belly. Money you might otherwise spend on nights out can be turned over to online bookmakers, if you can budget for it; see the second cure above. Never use a credit card or loan to make bets, bets or high-risk investments. However, before you engage in any high-risk investing or betting, make sure you have thoroughly researched the field and understand what you are getting into. If online poker is your dream, practice with your friends first to get matchsticks.
5. Make your house a profitable investment.
Owning your own home (and ideally some buy-to-let properties) has become an obsession in the last thirty or forty years. Given how property prices have skyrocketed during that time, it makes a lot of sense to get on the property ladder as soon as possible, especially when home prices are rising at a much faster rate than income. .
However, keep in mind that at some point the bubble may burst. Yeah, people have been saying that for years and it hasn’t happened yet. But it is increasingly likely that the authorities will take steps to let some of the air out of the property market. Possible measures include reassessment of property tax bands and punitive taxes on properties that are bought to rent and those that are left vacant. A large increase in home construction is unlikely to have much of an impact on home prices on its own, but when combined with potential tax changes, we could see prices plateau and stay there for some time. weather.
Given all of that, the best approach is to find an affordable house or flat in an area where you’d like to live for the foreseeable future, factoring in things like local amenities, schools, and commuting. Also think about the benefits of paying off a mortgage and gradually acquiring full ownership (leasehold and freehold issues aside) of your home over 25 or 30 years, compared to being indebted to a landlord who may raise the rent or evict you with a month’s notice. and who will still own the roof over his head despite all the thousands of pounds he put in his pocket.
If you can’t afford to buy directly in the area where you want to live or work, consider options such as share ownership and self-build. See what schemes are available in the area where you want to live.
If you already own your own home, you can use it to generate additional income by hosting a tenant. If you live in a major city, a good source of guests are contractors: professional people working on a local project who need a place to stay for a few months and don’t want to use hotels. They will often go home for the weekend so you can have the place to yourself. Another option is to host exchange students. Usually they will come for a week or two. You provide them with a bed, breakfast, packed lunch and dinner, and they pay you to do it. Another option is to use your home for vacation rentals while you are on vacation yourself. This works especially well if you live in a major city or historic town.
Even if you rent, take on a tenant (if your landlord allows) or run a business from home (see below). You can still make your home a source of extra income, even if you don’t own it.
Two other things to consider. First, home and contents insurance. Make sure you have adequate coverage for the worst that can happen: fire, flood, theft. Second, if you have a mortgage, consider insuring it against unemployment and sickness. Follow the advice and make sure the policies you buy are fit for purpose and will pay if the worst happens.
6. Develop a future income.
Who wouldn’t want to wake up in the morning knowing that whatever happens, they are assured of a steady income for eternity? Well, you can do this through your long-term savings, that 10% or more you put away month after month, year after year.
When you talk to your financial advisor (as you should!) about your savings and investment goals, the first two things to focus on are a pension for you (and your partner, if you have one) and supporting your family when you are no longer, that is, life insurance. Your financial advisor should also tell you about other investments that can provide additional income for you and your family, such as ISAs, investment trusts, and government bonds.
Its objective is to guarantee a sufficient income for a long old age. Remember, people live longer, but they are not always healthier. It’s not nice, I know, but think of the worst that can happen to you (barring an untimely death). You or your partner have a chronic illness or disability and need long-term care. How are you going to finance that? If you sell your house, what are you going to leave to your children? This is the kind of problem you need to discuss with a financial advisor. You need a pension, in addition to other sources of income, that will cover all your needs for perhaps thirty or forty years after you stop working. Develop a plan, implement it, and then get on with enjoying life.
7. Increase your ability to earn.
There is no longer such a thing as a job for life. These days, even professional occupations like lawyer, accountant, and insurance underwriter are threatened by automation and offshoring. So it makes sense to develop additional skills that you can use if you find yourself out of a job.
If you think you are at risk of being replaced by a robot, you should take a very careful look at “future-proofing” your career. Think about jobs that are unlikely to be automated or offshored in the future. They tend to be the ones that involve face-to-face contact, eg, complementary therapies, nail technician, hairdresser, personal trainer, life coach, counselor. Also, jobs where local presence is essential: electrician, plumber, locksmith, bricklayer.
Of course, many of these jobs are relatively low-paid and in highly competitive sectors. That means you need to find a unique selling point: something that you do that no one else does, or that no one else does as well as you do. Focus on something that really interests you, or better yet, that you’re passionate about, and that you know you can be brilliant at. Be realistic about potential revenue, competition, and the time and energy required to get it up and running. Unless you already have experience in your chosen field, you will need to spend a lot of time, and perhaps money, acquiring the necessary skills and certifications. You will also need to decide how you will operate: sole trader, limited company, franchise. Get advice before committing to anything.
A popular option for generating additional income is selling online. Even if you have a full-time job and are happy with your income, you can try it out in your spare time and get a feel for what it entails. A regular clutter will reveal all sorts of things you can sell: clothes, DVDs, cell phones, unwanted gifts. If you like to sell online, you could build a successful business without risking your principal.
