Managing Money
Laid back about money matters, with the potential to neglect the disciplines of financial planning and management
10 unwealthy habits. There are ways of thinking and acting that hold us back from optimising our financial well being. These become ingrained habits that shape how we see ourselves, others, and our attitudes to money, wealth and success. Identify which habits are constraints for you and how to move to a different way of thinking about money. www.changethis.com
“It’s not the money, it’s the principle of the thing.” Invariably it is the money, not the principle. Don’t allow an appeal to your ideals or better nature distract you from the reality that “money makes the world goes round”. Develop your commercial shrewdness to make decisions that are in your financial interest and not to advance someone else’s goals at your expense.
Be tough in analysing your attitudes and beliefs about money. Do you see money as:
- the point of life: to spend, spend, spend while you have it?
- a scarce resource to be hoarded and you feel guilty when you spend it?
- a good way of indicating your status to impress others?
- an expression of power to give you greater control over your life and that of others?
- a reminder of past hardships which trigger difficult memories?
- a distraction in life you would rather not deal with?
Be honest in your assessment. Your attitudes to money, how you earn, spend and save it, are important indicators of your overall approach to life. Where do these beliefs and ideas come from? Your parents, upbringing and early family environment, peers, partner, career success, any business difficulties you have experienced? Don’t look to blame but do understand why you see money the way you do. Do you need to rethink how you view money and its role in your life?
Manage the paperwork. Establishing some kind of order over your financial affairs begins with the basics: a filing system to keep important documents (bills, statements, policies) in one organised place. It might not sound like much but this one discipline will make it much easier for you and your financial adviser to assess your current situation and the implications for your future life options. Don’t bury your head in the sand by burying the paperwork.
Be “brutal with the facts” of your current financial position and the implications for your future well being. Do you know the facts? If not, conduct a detailed analysis of your income, savings, expenditure, debt and net worth. Collate all the relevant paperwork to establish a profile of your financial well being, the opportunities and risks, in the short and long-term. If your initial analysis is proving too complex, be willing to involve a financial adviser to help get to grips with your financial standing.
Understand what you earn, spend, save and invest. Master the financial basics of the flow of money in and out of your life and the implications for your long-term well being. What % of your income is being spent on surviving (the necessities), on enjoying (the luxuries) and on building (your future security)? Does this expenditure reflect your life goals and priorities or is it taking you down a different route? Track your expenditure for a one month period. Keep a detailed log to identify the flow of money in and out of your life. Be prepared for some shocks.
The 10% Rule. If you aren’t setting aside 10% of your income for savings and paying off your credit card bills in full at the end of each month, then you are spending too much. Either your life “business” is heading for bankruptcy or you are gearing yourself for future rapid growth. You know the realities; what for you is the likely scenario?
Keep control of your expenses. Take control of your spending. Like any good business that examines its cost base regularly to identify any unnecessary costs and then implements efficiencies, you need to pinpoint where money is going out of the business that is your life and isn’t supporting your strategy. Don’t let your expenses grow at the same rate as your income. If you do, however much you earn, it won’t be enough. And worse, it will create debt problems for the future. Review your expenses – in detail. Look at your expenses through the eyes of an accountant. Why are you spending money on that? Do you really need it? And if you do, can you get it cheaper it elsewhere? www.thisismoney.co.uk
Create a financial buffer. This is your emergency fund for life’s unexpected crises. Can you access immediately three times your monthly income? If you can’t, then begin a savings programme to build up the kind of funds that you can draw on if and when life gets tough.
Keep informed. It might not be your idea of exciting weekend reading but a quick scan through the money sections of the quality newspapers will begin to shape your thinking. You won’t become an expert but you should begin to identify the questions you need to ask and the issues you need to tackle. www.moneysurgery.co.uk
Get professional advice but keep a hands on involvement. Draw on the experience and expertise of trusted advisors but don’t delegate every aspect of money management to others. Know the issues, the key questions to ask and keep involved in the review of your options and the implications. Don’t allow others to make key life decisions for you. business.timesonline.co.uk
Know your worth in the marketplace. Keep a close eye on salary trends (newspaper advertisements, specialist web sites) to strengthen your bargaining position with your current employer. Know your value within the organisation. Find out the remuneration of your peers. Assess how much money you bring into the company (or calculate the organisational cost if you had to be replaced.) And time salary negotiations well. Don’t wait for the annual performance review. Ask for a pay rise when the organisation is performing well, when you have made most impact and when you are feeling at your most confident. Be specific. State a figure and be prepared to justify it with reference to your internal peers and external market forces.
Build net worth. Don’t confuse “income rich” with net worth. Your net worth is the difference between your total assets (the combination of liquid assets such as bank balance, savings accounts and illiquid assets like your house, cars, household goods) and total liabilities (short and long term debts). This should be positive and it should be growing year by year. A large salary doesn’t provide you with financial security. Net worth does.
Know how to shop. There are two shopping styles. Shopping as entertainment and shopping to buy what you need at the lowest cost. Don’t confuse the two. Shop for entertainment (occasionally) but see it for what it is: a leisure activity. And shop for life’s necessities with a defined budget and clear list of requirements.
If it sounds too good to be true it is. Some people get lucky with high risk investments (winning the lottery) but most don’t. Don’t speculate in the attempt to recover past investment mistakes. Speculation hopes for quick and spectacular growth. It is also high risk. Speculation may have its place in an overall financial strategy but not when driven by the need to play “financial catch up”.