Understanding finance can be hard, but knowing the basics is a good place to start.
N.B. This blog post contains finance tips for those based in the UK.
Current accounts
Don’t have all your eggs in one basket! Having different accounts is a great first step for getting your finances together. A separate spending account can help to control excess spending, helping you to avoid going into overdrafts or dipping into savings to support your monthly outgoings.
Set aside a specific amount of money each month for dinners, lunches, going out and other leisurely things, put this money into an account you spend from and use this as your spending card/account. This way you can keep your bills separate from frivolous spending and be sure you have enough money to pay household and personal bills when due.
Keep just what you need for the month in your current account, any additional funds should be going into a savings account to earn interest.
Savings
It’s always good to have an extra bit of cash put away for a rainy day. Or as many like to call it – Fuck You money. Imagine having the power and the ability to walk away from a job you hate and take some time out or even having some money aside in case of redundancy or being fired.
Saving just £3 a day will work out to over £1,000 in a year. As a rule of thumb, a good amount to have put away would be 3 month’s salary put aside as a minimum.
Ideally, you should open an easy-access savings account with a good interest rate in line with the current Bank of England base rate. For more finance tips on where to find the best savings rate, money saving expert is very good for this.
Pensions
The earlier you start saving for your pension, the better off you will be in retirement. That being said, it is also never too late to start saving for later life. Most employers will match what you pay into your pension so you are essentially getting a free contribution towards your future.
If you are self-employed, there is no reason not to pay yourself with a contribution towards your pension. Setting up a Self Invested Private Pension (SIPP) may be a good place to start.
With ever-changing government policies, there is no guarantee how and if the state pension will be enough to support you in later life. Therefore, it is important to have a secondary source of income to supplement the state pension offer. You can check whether you have contributed enough National Insurance years to your pension by checking the Gov website.
Investing
Investing is probably one of the last areas you should look into but also one of the most important. In most cases, you’ll want to make sure your debt is cleared down before you put your money at risk. What makes investing different from Saving? Savings are generally cash in the bank but investment is allocating your money into appreciating assets – in this case, stocks and shares.
When investing it is best to invest for the long term, i.e. five years or longer. It is best to start small if you are not too confident and build holdings over time. Index funds are highly recommended as a low-cost way to diversify a stocks and shares portfolio offering you exposure to a wide range of companies via a tracker fund for a minimal fee.
Death – We’re all going to die
Sooner or later we will all die and most of the time it’s something we all think of as being so far away. But you never know what can happen. So it is important to be prepared especially if you have children/family dependent on you financially.
Do make a will, it can be as simple or as detailed as you like. Think about your Estate – Make sure you carefully consider how you want your estate to be divided and who you want to look after your money when you are gone.
If you are based in the UK there is free wills month in October each year where you can work with a provider to get a discounted if not free will.
Hopefully, these finance tips will stand you in good stead for the start of your financial journey.
Recommended finance reading
Rich Dad Poor Dad by Robert Kiyosaki https://amzn.to/3SQnskG
Kiyosaki offers great advise on expanding your thinking and moving away from the corporate ladder
Simple Path to Wealth by J L Colins – https://amzn.to/3SO5L4W
Colins breaks down investing in a way that is easy to understand
I will teach you to be Rich by Ramit Sethi – https://amzn.to/4fHfcNE
Sethi is able to get readers into the right mindset and onto the right patheay for creating wealth
Unshakable by Tony Robbins – https://amzn.to/46Hwk1D
Robbins sets out the principles that lead to a great foundation for financial success
Please note I’m not a financial expert or adviser, the finance tips are my personal experience and knowledge.
Loula