We all make money mistakes. That’s just life. Some we can learn to avoid in future, some we can’t avoid without a crystal ball. I’ve documented my biggest money mistakes on this blog before, but to cut a long story short, I ended up in a right debt pickle.
I’m now powering my way out of this mess and in the process, I’ve been doing a whole crap-ton of research on personal finance.
Certain bits of simple-to-follow advice just keep cropping up all over the place, so I thought I would share them here for anyone who thinks their finances could do with some fine-tuning.
Some of these ‘money rules’ I now live by (hooray!), some I hope to follow one day and some I frankly don’t find that useful. But hopefully there will be one or two tips here that might work for you.
FIRST UP, THE GREAT FINANCIAL RULES I LIVE BY
Live below your means
The rule: We’re starting off with a simple one – spend less than you earn – but it is pretty much the bed-rock of a sound financial footing. If you can get this one down, you’re way ahead of many people.
Why I stick by it: After years of not just living paycheque to paycheque, but spending more than I earned each month, I ended up with thousands of pounds in credit card debt. It’s a mistake I’m literally still paying for now. Living below my means now allows me to pay back those debts and when I’m done it means I will be able to start saving for the first time.
The rule: Never get a red reminder letter through the post again. Sign up to direct debit payments for all your bills, and set them to come out of your account a few days after payday. Worrying about bills becomes a thing of the past.
Why I stick by it: Life is too short to spend on admin, so getting these automated was a no-brainer for me. Quite a few firms offer discounts for direct debit payments, so I can save money as well, and increasingly it’s now given as the only option when you sign up with a new utilities company.
Shift credit card debts onto 0% deals
The rule: Credit card interest rates can be eye-watering, and if you have debts you can end up seeing the costs spiral. So, shift them using zero per cent balance transfer offers and you can effectively get a free loan (although small transfer fees usually apply) for up to a year or two. It means you’re now properly paying back your debts rather than just paying whopping amounts of interest.
Why I stick by it: I used to pay around £800 a year in interest alone on my consumer debts. No wonder I wasn’t paying them off very quickly. This is one of the most important moves I made when I started to get serious about becoming debt-free.
Challenge all your outgoings
The rule: Go through all your regular bills and payments and see if you can get better deals elsewhere. Use comparison sites to make this easier. Cut anything you don’t need any longer and don’t be afraid of calling up your current providers to haggle better deals. People who haven’t done this before will save a lot of money.
Why I stick by it: It’s a really simple way of saving cash without feeling deprived. Honestly, who cares where your electricity is coming from? I wouldn’t dream of not shopping around now, it’s become an ingrained habit and I’m pretty sure it’s one that will stick with me forever. Haggling lower prices over the phone is also really satisfying.
Save into a pension and take full advantage of any employer match
The rule: If you work for the man, chances are the man will have a company pension scheme. If you’re lucky, the man will match any contributions you make towards your retirement. Take the man’s money, for goodness’ sake.
Why I stick by it: My employer offers a match of up to 6 per cent, meaning that if I pay in 1 per cent of my earnings, I get another 1 per cent thrown in free, but if I pay in 6 per cent of my earnings, I’ll get another 6 per cent thrown in free. Guess how much I pay in? Up yours, the man.
Pay yourself first
The rule: If you want to either save money or pay off debts, decide how much you want to set aside and then take that immediately from your paycheque when you get paid. Don’t save what’s left after spending, spend what’s left after saving.
Why I stick by it: Like the ‘automate your bills’ rule, this is just a great way to keep things simple. If I pay my debts early, I’m not worrying about whether I’ve got enough money to pay them at the end of the month. Also, it is a statement of intent: my debts are my priority, and they will be gone from my life!
Track your net worth
The rule: Take a regular snapshot of your overall financial wellbeing by totting up your total assets and subtracting your total debts. This is your net worth. Monitor once a month/quarter/year to see how it is changing over time.
Why I stick by it: Firstly, it’s really easy. Secondly, I’m an utter gimp and I like plotting graphs to chart my progress on things. As I’m also a big fan of oversharing, my current net worth is £14,720.
AND NOW, FOR THE GREAT FINANCIAL RULES I DON’T FOLLOW
Have an emergency fund
The rule: Put aside around three to six months’ expenses in an easy-access savings fund. Then, if the boiler breaks or you write off the car, it’s a minor niggle rather than an all-out fecking catastrophe.
Why I don’t stick by it: I know I need one of these. But I’ve been prioritising paying down debts for the past few years. It’ll be my priority after that, promise??!!
Save at least 10 per cent of your income
The rule: Put aside a big chunk of your wage. You know it’s the responsible thing to do. You’ll reduce your reliance on debts, accrue interest and generally be a boss at life.
Why I don’t stick by it: As with ‘have an emergency fund’, I just haven’t got here yet. No, one’s perfect, right? Right?
Invest in the stock market
The rule: If you leave your money in the stock market, for long enough, it sprouts new money. How awesome is that? Returns tend to be better than with savings accounts, but that’s because you’re taking greater risk. After all, no returns are guaranteed and you may even end up losing money. One top tip is to diversify your investments (ie invest a bit in bonds as well as stocks, and/or invest in lots of different companies by choosing some kind of fund rather than shares in specific firms). Another is to see the stock market as a long-term thing, and a third is not to panic and withdraw your investments if the market takes a tumble.
Why I don’t stick by it: So I was investing a bit of money in the stock market once a month for a year, until recently, when I decided to pull it out to pay off some debts. I made a fraction of profit (I think it was £10?) but nothing to write home about. In hindsight, I went down the investing route too early. This should really come after I have an emergency savings fund in place.
Have a budget
The rule: Give every £1 (or $1 or whatever) a job to do at the beginning of the month. This one will pay the phone bill, this one will be on food, etc. You can set up lots of separate bank accounts to divide up your money in advance so you know you’re not overspending in one area.
Why I don’t stick by it: Honestly, life is too short to obsess like this. By automating my bills and ‘paying myself first’ I know that once that’s done, I can spend the rest on food or petrol or class A drugs* or whatever.
Run a side-hustle
The rule: You have a main wage packet, but what if you could supplement that by making extra money on the side? AirBnB hosting, filling in surveys, freelancing, blogging, mystery shopping, Uber driving and starting a small business are all common side-hustles. It means you have a back-up income if your regular job hits the skids, and side-hustles can even become a main job, given time.
Why I don’t stick by it: Honestly? I have neither the time nor the energy. I have tried various survey websites and found them an utter waste of time, given the hours you have to put in. Ditto mystery shopping.
As for blogging, well, yes, I do already do that, but I make no money from it (in fact, it costs me a little money). I dislike blogs covered in adverts and I particularly hate those that carry advertorials, so I’ve never wanted to take that route for my blog, especially given that I’m blogging about saving money and wanting less stuff.
I’m sure there are better ways to make extra money, but I’ve never been that motivated to pursue one.
The rule: You can save thousands in interest by paying off your mortgage early. Then after that, you have a house, for like, free.
Why I don’t stick by it: I really want to do this. I really want to. And I will. Just not right now, ok? Stop hassling me, perfect internet finance peeps, with your shit together.
So there you have it. Have I missed any big tips that you live by, or ones that you find just don’t work? Tell us in the comments section!
*I don’t really buy class A drugs.