Budget, Pension, Save, Protect, Invest.
It is as simple as that. I am revisiting the basics as my daughter is moving between Jobs.
There is more money in the new job and also a pension in the old job that needs to move along with my daughter to the new position. As always, with more money in the pocket, we sometimes raise our spending, so we don’t always benefit from the pay increase. The increase in spending is usually within some of the more everyday items; an extra coffee and muffin, more eating out for lunches or dinners or extra clothing items because, you know, I have the money.
I am stressing with my daughter that she needs to keep the discipline, but she probably won’t, and that’s ok, because she is her own boss at the end of the day. So my job is to prompt and remind her of the basics and be there if she needs further advice.
So for that, I always lean back into the five key points.
- Budget, budget, budget – manage your money and look to spend wisely. Run a budget, stick to it, and build into the budget key money disciplines, including paying yourself first and providing a realistic food and clothing allowance. Manage your money to be under budget and sweep what you have left into a savings account. All of that is an excellent discipline for life and also for business.
- Pensions are free and ‘tax free’ money – always take out the company budget to what % match they offer. This is free money, and it is a great way to build long-term future financial planning. Start a pension in your first job and take it with you wherever you go. It is easier than you think to move your pensions between positions and providers, and it is also tax-free until you take the allowance in later life. One other pension tip is to manage what funds your pension is invested in: when you are young, go high risk. The closer you get to retirement, then reduce the risk.
- Save your hard-earned money – pay yourself first and look to save money as you go. Money attracts money, so get into this habit and save, save, save! It is the mindset to have, and once you see your cash build, it gets addictive. When you see your money make money while you sleep, then that becomes exciting.
- Protect yourself – have a saved amount of money put aside for when you might need a rainy day plan of action. It should be a minimum of six months expenses, and it has to be in a place where you can get quick and easy access. The other way to look at protecting yourself is to get the correct insurances in place. Take advice on this and shop around – not all insurances are necessary, and it depends on age and circumstances. But, and this is a big but, be careful of the hidden fees.
- Invest for the long term – lock your money into your tax-free (ISA) investment account and keep the fees as low as you can. Fees are a long-term money killer, so be clear on the actual cost of fees. Use your ISA’s because that is Tax-Free and has ongoing benefits. Keep your investing simple and know that you are not Warren Buffett, so pick indexed linked funds (the US accumulative funds will give you the best returns) and lock it and leave it. Review every six months to a year and don’t panic on the downturns – they will always happen.
That’s it. Simples.
There is much more to it than what I have outlined above. However, as a framework for your children as they move into the workplace and grow as adults, this advice is enough for guidance. It is a solid base to build upon.
The last piece of advice I would give is to get comfortable with talking about money because so many people avoid it and end up in the wrong place – that is never a good thing.
Oh, and one more thing. Credit is expensive so avoid it at all costs. Smart people manage credit well, but very few people stick with it, and any gains are sometimes fecked by their lack of control. So it is not worth the hassle to bounce credit about.
Stay away from credit and take the credit for doing so.