Seven Cures for a Lean Purse
1. Make your purse – or wallet – get fatter.
That doesn’t average filling it with receipts for all the items you’ve bought with your credit card. It method, fill your purse with money. And the best way to do that is to use less than you earn. This cure follows from the first law of gold that 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 place or pension, depending on where you are in life. If you need to save for short to medium term things, such as a holiday or car, that should be in addition to and separate from the 10%+ that you save for your long-term needs.
Your 10% can include your pension contributions, ISAs, premium bonds or any kind of high interest/restricted access savings account. With compound interest, your purse will get very plump over the coming months and years, already if interest rates keep low.
2. Control your expenditure.
If you’re going to save at the minimum 10% of your income for the long-term, you must make sure that your current spending is no more than 90% of your income. This method wherever you are on the income extent, you’ll need to apply some self-discipline when it comes to treating yourself and your loved ones.
For a start, keep your credit card(s) for emergency use only, and if you do use them, pay them off before you start racking up interest. Similarly, avoid taking out loans, unless you can justify the interest you’ll end up paying for that privilege. A car acquired on one of the popular leasing schemes can be justified if it’s basic for your work or business. But a loan for a holiday? Staycation would be a better choice. Learn to discriminate between wants and needs. A roof over your head and food on the table are needs; a month in the Maldives is a desire. Treat yourself to that when you have saved 10% of your income for a year or two and you can provide to fly off to paradise without dipping into those savings.
The secret to controlling your expenditure is to build a budget and then stick to it. If you have Microsoft Excel you can download a template to help you track your spending over a week or month. You can also find ready-made templates on the internet or apps for your phone. Work out how much you use on mortgage, rent, travel to work etc. and set yourself limits on items such as eating out, entertainment, travel etc. This will help you keep below 90% of your income.
3. Make your money multiply.
You are looking for steady returns over the long-term, not a lottery win. What you need is a steady increase in your capital, your chief wealth, such as compound interest from an ISA or savings account, or – more risky – dividends from shares you keep up in well-managed companies, including your employer, if they have an employee proportion ownership scheme. If you are not an expert in financial products and investment vehicles, find someone who is. Don’t make any commitments until you talk to a specialized financial adviser. Explain what your investment goals are and ask them to help you develop a plan for realising achieving them.
4. Guard yourself from loss.
The sickening nightmare of seeing your dreams of wealth turn to dust as Bitcoin plummets or the bloke you met in the pub the other night disappears with your life savings. One way to guard against loss is to make it an unbreakable rule that you do not touch that chief wealth that you are saving and investing for the long-term. Keep a ring of steel around that! If you are tempted to try your luck with Bitcoin or money trading, only use money that you can provide to lose. That method any money that you have left over after you have saved your 10%, paid the bills and filled your belly. Money that you might otherwise use on nights out can be handed over to the online bookies, if you can budget for it – see the second cure above. Never use a credit card or a loan for spread betting, gambling or any high risk investments. Before you include in any high risk investing or betting, though, make sure you have thoroughly researched the field and that you understand what you’re getting into. If online poker is your dream, practice with your mates for match sticks first.
5. Make your home a profitable investment.
Owning your own home (and ideally a few buy to let similarities) has become an obsession over the last thirty or forty years. Given the way character prices have ballooned over that time, it makes perfect sense to get on the character ladder as soon as you can, particularly when house prices are increasing at a much faster rate than incomes.
However, be aware that at some point the bubble may burst. Yes, people have been saying that for years and it hasn’t happened however. But it is becoming increasingly likely that the authorities will take steps to let some of the air out of the character market. possible measures include revaluing character tax bands and punitive taxes on buy to let similarities and similarities left empty. A major increase in house building is doubtful to have much impact on house prices by itself, but when combined with the possible tax changes, we could see prices reach a plateau and stay there for some time.
Given all that, the best approach is to find an affordable house or flat in an area where you would like to live for the foreseeable future, bearing in mind such things as local amenities, schools and the journey to work. Think also of the benefits of paying a mortgage and little by little acquiring total ownership (leasehold and freehold issues aside) of your home over 25 or 30 years, compared with being beholden to a landlord who can raise the rent or evict you at a month’s notice, and who will nevertheless own the roof over your head despite all the £000s you put in his or her pocket.
If you can’t provide to buy outright in the area where you want to live or work, consider such options as shared ownership and self-build. Check out what schemes are obtainable in the area where you want to live.
If you already own your own home you can use it to generate additional income by taking in a lodger. If you live in a major city, a good source of lodgers is contractors – specialized people working on a project local to you who need a place to stay for a few months and don’t want to use hotels. Often they will go home for the weekend so you have the place to yourself. Another option is to take in exchange students. They will usually come in for a week or two. You provide them with a bed, breakfast, a packed lunch and an evening meal, and get paid for doing so. Another option is to use your home for holiday lets while you’re on holiday yourself. This works particularly well if you live in a major city or a historic town.
already if you rent, take a lodger (if your landlord will allow this) or run a home business (see below). You can nevertheless make your home a source of additional income, already if you don’t own it.
Two other things to consider. First, home and contents insurance. Make sure you have adequate cover for the worst that can happen: fire, flood, burglary. Second, if you have a mortgage, look at insuring it against unemployment and illness. Take advice and make sure that any policies you take out are fit for purpose and will pay out if the worst happens.
6. Develop a future income.
Who wouldn’t want to wake up in the morning knowing that in any case happens, they are assured of a steady income for eternity? Well, you can unprotected to this by your long-term savings, that 10%+ that you put by month after month, year after year.
When you talk to your financial adviser (as you must!) about your saving and investment goals, the first two issues you should focus on are a pension for you (and your partner, if you have one) and providing for your family when you’re no longer around, i.e. life insurance. Your financial adviser should also point you to other investments that can deliver additional income for you and your family, such as ISAs, unit trusts and government bonds.
Your aim is to ensure an adequate income for a long old age. Remember, people are living longer, but not always healthier. It’s not pleasant, I know, but think about the worst that can happen to you (short of an early death). You or your partner become chronically ill or disabled and need long-term care. How will you fund that? If you sell your home what will you leave to your children. This is the kind of issue you need to discuss with a financial adviser. You need a pension, plus other income flows, that will pay for all your needs for perhaps thirty or forty years after you stop working. Develop a plan, implement it, then get on with enjoying life.
7. Increase your ability to earn.
There is no such thing as a job for life anymore. These days, already specialized occupations such as lawyer, accountant and insurance underwriter are threatened with automation and off-shoring. So, it makes sense to develop additional skills that you can make use of if you find yourself out of work.
If you think you’re at risk of being replaced by a robot, you should look very carefully at “future-proofing” your career. Think about jobs that are doubtful to be automated or off-shored in the future. They tend to be ones that include confront to confront contact e.g. complementary therapies, nail technician hair stylist, personal trainer, life coach, counsellor. Also, jobs where a local presence is basic: electrician, plumber, lock-smith, builder.
Of course, many of these jobs are comparatively low-paid and are in highly competitive sectors. That method you need to find a rare selling point: something you do that no one else does, or no one else does in addition as you. Focus on something you are genuinely interested in – or better nevertheless, passionate about – and that you know you can be bright at. Be realistic about the possible income, the competition and the time and energy needed to make it work. Unless you already have experience in your chosen field, you will need to devote a lot of time, and perhaps money, to acquiring the necessary skills and certifications. You will also need to decide how you will function: only trader, limited company, franchise? Take advice before committing yourself to anything.
A popular option for generating additional income is online selling. already if you’re in complete time work and happy with your income, you can try it in your spare time and get a feel for what’s involved. A regular declutter will show all sorts of things you can sell: clothes, DVDs, mobile phones, unwanted presents. If you enjoy online selling, you could develop a successful business without risking your chief capital.