1. Get your purse – or your wallet fat.
This does not mean filling it with the receipts of all the items you have purchased with your credit card. It means, fill your bag with money. And the best way to do this is to spend less than you earn. This cure comes from the first gold law we looked at last week: aiming to save 10% of your income. Minimum. Save more if you can. Save for the long term for your mortgage deposit or pension, depending on where you are in life. If you need to save on short or medium term things like a vacation or a car, this should be in addition and separate from the 10% + that you save for your long term needs.
10% may include pension contributions, ISAs, premium bonds or any type of high interest / limited access savings account. With compound interest, your bag will become very plump in the coming months and years, although interest rates will remain low.
2. Check your expenses.
If you plan to save at least 10% of your long-term earnings, you need to make sure that your current spend does not exceed 90% of your earnings. This means that wherever you are on the income scale, you will have to apply some self-discipline when it comes to treating yourself and your loved ones.
To begin with, keep your credit cards for emergency use only and, if you use them, pay them before you start collecting interest. Similarly, avoid taking out loans unless you can justify the interest that you will end up paying for that privilege. A car purchased on one of the most popular leasing schemes can be justified if it is essential for your job or business. But a loan for a vacation? Staycation would be a better choice. Learn to distinguish between desires and needs. A roof overhead and food on the table are needed; a month in the Maldives is a wish. Do this when you have saved 10% of your income for a year or two and can afford to fly to heaven without diving into those savings.
The secret to controlling your expenses is building a budget and then sticking to it. If you have Microsoft Excel, you can download a template to help you keep track of your expenses for a week or a month. You can also find ready-made templates on the Internet or apps for your phone. Find out how much you spend on mortgages, rent, business trips etc. And set limits for eating, eating, having fun, traveling etc. This will help you keep 90% of your revenue.
3. Multiply your money.
You’re looking for long-term steady returns, not a lottery win. What you need is a constant increase in your capital, your main wealth, such as the interest made up of an ISA or a savings account, or – more risky – dividends from shares they hold in well-managed companies, including the your employer, if they have an employee share ownership scheme. If you are not an expert on financial products and investment vehicles, find someone who is. Don’t make any commitments until you speak to a professional financial advisor. Explain what your investment goals are and ask them to help you develop a plan to achieve them.
4. Protect yourself from loss.
The disgusting nightmare of seeing your dreams of wealth turn to dust as Bitcoin falls or the guy you met in the pub the other night disappears with your life savings. One way to protect yourself from loss is to make it an unbreakable rule that does not touch that fundamental wealth that you are saving and investing in the long term. Keep a steel ring around! If you are tempted to try your luck with Bitcoin or currency trading, use only money that you can afford to lose. This means that all the money you left after saving 10%, paying your bills and filling your belly. The money you might otherwise spend on nights out can be delivered to online bookmakers, if you can budget it – see the second cure above. Never use a credit card or loan for spread bets, gambling or high risk investments. Before committing to any high risk investment or bet, make sure you have thoroughly studied the field and understand what you are interested in. If online poker is your dream, practice your games first with your teammates.
5. Make your home a profitable investment.
Owning your own home (and ideally few to buy to leave real estate) has become an obsession in the past thirty or forty years. Given the way property prices have risen over time, it makes perfect sense to move up the property ladder as soon as possible, particularly when house prices are rising at a much faster rate than income.
However, keep in mind that at some point the bubble may explode. Yes, people have been saying it for years and it hasn’t happened yet. But authorities are becoming increasingly likely to take steps to get some air out of the housing market. Possible measures include the revaluation of property tax bands and punitive taxes on the purchase to leave buildings and properties empty. A noticeable increase in house construction is unlikely to have a noticeable impact on house prices alone, but if combined with potential tax changes, we could see prices reach a plateau and stay there for some time.
In light of all this, the best approach is to find an affordable home or apartment in an area where you would like to live for the foreseeable future, keeping in mind things like local services, schools and the journey to work. Also think about the benefits of paying a mortgage and the progressive acquisition of the total ownership (rental and ownership costs aside) of your home for 25 or 30 years, compared to being held by an owner who can increase the rent or evict you with a month’s notice, and who will continue to have the roof over your head despite all the £ 000 you put in your pocket.
If you can’t afford to buy directly in the area where you want to live or work, consider options such as shared ownership and self-construction. Find out which schemes are available in the area where you want to live.
If you already own your home, you can use it to generate extra income by taking in accommodation. If you live in a big city, a good source of tenants are contractors: professionals who work on a local project for you who need a place to stay for a few months and don’t want to use hotels. Often they will come home for the weekend so they can have their place. Another option is to take students in return. Usually they come in for a week or two. Give them a bed, breakfast, packed lunch and evening meal, and get paid for it. Another option is to use your vacation home while on vacation alone. It works particularly well if you live in a big city or in a historic city.
Even if you rent, take a tenant (if the landlord allows it) or run a household business (see below). You can still make your home an extra source of income, even if you don’t own it.
Two more things to consider. First, home and content insurance. Make sure you have adequate coverage for the worst that can happen: fire, flood, burglary. Secondly, if you have a mortgage, try to insure it against unemployment and illness. Ask for advice and make sure that all the policies you take out are suitable for the purpose and will pay if the worst happens.
6. Develop a future income.
Who wouldn’t want to wake up in the morning knowing that whatever happens, they have the certainty of a constant income for eternity? Well, you can get it through your long-term savings, that 10% + that you put in month after month, year after year.
When you talk to your financial advisor (how you should!) About your savings and investment goals, the first two questions you should focus on are a pension for you (and your partner, if you have one) and provide for your family when you are no longer around, that is life insurance. Your financial advisor should also direct you to other investments that can generate additional income for you and your family, such as ISAs, mutual funds and government bonds.
Your goal is to ensure adequate income for a long old age. Remember, people live longer, but not always healthier. It’s not pleasant, I know, but think about the worst that can happen to you (unless you die early). You or your partner are chronically ill or disabled and need long-term care. How will you finance it? If you sell your house what will you leave to your children. This is the type of problem you need to discuss with a financial advisor. You need a pension, in addition to other income streams, which will pay for all your needs for maybe thirty or forty years after you stop working. Develop a plan, implement it, then go on enjoying life.
7. Increase your ability to earn.
There is no longer a job for life. These days, even professional professions such as lawyer, accountant and insurer are under threat from automation and offshore. So, it makes sense to develop additional skills that you can use if you find yourself out of a job.
If you feel you are at risk of being replaced by a robot, you should carefully examine the “career” for the future. Think about jobs that are unlikely to be automated or off-shored in the future. They tend to be those that involve direct contact, e.g. Complementary therapies, hairdresser for nail technician, personal trainer, life coach, councilor. Also, jobs where a local presence is essential: electrician, plumber, blacksmith, builder.
Of course, many of these jobs are relatively underpaid and are located in highly competitive sectors. This means that you need to find a unique selling point: something you do that nobody else does or nobody else does as well as you do. Focus on something you’re really interested in – or rather, passionate – and that you know you can be brilliant. Be realistic about the potential income, competition, time and energy needed to make it work. Unless you already have experience in the chosen field, you will have to devote a lot of time, and perhaps money, to acquiring the necessary skills and certifications. Will you also have to decide how to operate: sole proprietorship, limited liability company, franchising? Get advice before committing to anything.
A popular option for generating extra revenue is online selling. Even if you work full time and are happy with your income, you can try it in your spare time and get an idea of what is involved. A regular declutter will reveal all sorts of things you can sell: clothes, DVDs, cell phones, unwanted gifts. If you like to sell online, you could develop a successful business without risking your main capital.