When it comes to managing your money better there are some easy ways you can make a big difference. It isn’t so much about how much money you have, but what you do with the money you do have that counts.
Here are our 5 golden rules of personal finance.
#1 Start to change your money mindset
Your money mindset is all about your habits around money. Like for example, some people are good at saving, where as others always spend everything they have. A lot of people think that you can only save when you have more money, but the truth is, no matter how much money (big or small) you have, you can start saving now. Even if it is only £1 a week!
If you always spend what you have, then it won’t matter how much money you have. This is one of the reasons why some people who win the lottery end up with nothing. When you start to notice what your habits are around money you can start to change the ones that aren’t serving you so well.
What is a good money mindset then? Well, saving for a start and again, doesn’t matter how much, just start the habit of saving. Being savvy about your spending and asking yourself if you need the things you are spending money on is also part of it. Looking at other ways you can save money too. A good starting point is to get a spending tracker to find out what you are actually spending your money on. When you start monitoring this I guarantee you will be surprised to learn where your money actually goes!
Decide what being good with money looks like to you. Remember, it is not about how much you have but what you do with it that matters. Once you know this, this becomes your money mindset. Then, whether you have a lot or a little, you will begin to notice your money situation changing. Who knows, the money coming to you might increase too!
#2 Know your financial situation
One of the biggest problems with personal finance is not knowing what your current situation is. Debt especially is an area people avoid being honest with themselves about. However, to overcome debt you must face it and so it is important to know where all your money comes from, where you spend it and what you owe.
You can work this out quite simply by using an app or making lists in a computer or a notebook/piece of paper. To know your financial situation you can make three columns – money in, money out and debt. If you aren’t dealing with your debt this is something you must address. There are lots of free advice organisations and tools you can use to help with this. Have a look at the Money Advice Service who offer free and impartial money advice.
Once you know your financial situation you will be in a much better situation to improve it and make changes.
One of the golden rules of building wealth is to save 10% of all your income. So if you get £1500 a month you would save £150, get £3000 and save £300 and so on. This would be ideal and a great starting point. However, not everyone is in a situation where they can take 10% off all their income and put it to savings. Definitely something to work towards though.
To start with just save what you can. As mentioned before, even if it is only £1, put it into a savings account. Saving is a habit and can take time to get used to, so stick with it and you’ll soon create a good habit. As you see your savings grow it also becomes much easier and you will find you are wanting to save more!
#4 Live within your means
One of the main reasons people get into debt is because they don’t live within their means. If your monthly household income is £2000 but your outgoings are £2500, you are not living within your means. If you have £100 a week to spend but are spending £150, you aren’t living within your means. If you are constantly needing to borrow money or can’t afford to pay bills, you aren’t living within your means and this can soon spiral and get out of control. The good news is, debt can always be managed, even when it is out of control.
There is nothing you can do to change the past, but you can change what you do from today. Start now. Make a commitment to yourself to live within your means and start looking at the money you have coming in, money going out and what you have left to live on.
#5 Separate wants from needs
There is a big difference between wanting and needing.
Separate the things you want from the things you need. We all need a roof over our heads, food in the fridge and clothes to wear. This is such a good practice and it will take you far by starting it. Ask yourself each time you need to spend money whether it is something you need, or something you want.
There is nothing wrong with wanting, but if you are living beyond your means or can’t afford it, there is little point in getting it. Will it make you happy? It might for a short time but if you can’t afford it, owing money or being in debt will certainly affect your happiness negatively.
A good way to start getting the things you want is in saving. Have a savings pot generally, but there is nothing to say you can’t have pots for specific things. Say if you really want a new watch – you know you can’t afford to get it and you know that you can’t spend your grocery money on getting one. You know also that borrowing the money will only mean having to pay more out each month. By saving a little each week you can get the watch you want (or whatever your want may be).
5 Golden Rules to Personal Finance
You could think of these 5 golden rules to personal finance as being in a circle. One naturally feeds into the other. By separating your wants from your needs you are working on creating a good money mindset. When you have a positive money mindset you start to save and through this process you begin to look at your financial situation and want to live within your means.
The key point is just to start and with so many free apps and online resources to help you, there is no better time than right now.