7 Steps To "Adult" Your Money
When it comes to money, it’s easy to feel overwhelmed as there’s never really a time that you get “told” what to do with your money. It’s easy to be left asking yourself “When was I meant to learn about this?”
One of our favourite Lustic Lifers and finance specialist Georgie Loxton is sharing her top 7 tips for how to “adult” your money (and make money work for you!):
You feel like an adult (ish) in most areas of your life. You hold down a sensible job. You set yourself up for a new week of errands, groceries, work commitments, a bit of exercise and some socialising. You get through the month feeling respectable and fairly darn responsible. You feel like you got this.
Except, perhaps, with your money. When it comes to that part of your life you don’t feel like an adult. You find yourself feeling a bit out of control, unsure what to focus on, and suffering from anxiety varying from low-grade to sweat-inducing.
And you’re not alone. We are sent out into the world with knowledge of the Ancient Greeks, Advanced Calculus, the Capital Cities, but we are never taught how to manage our money.
Here are seven simple principles to apply to your money life today that will have you moving from anxiety and confusion to clarity and confidence.
1) Pay Yourself First
Warren Buffett said “Don’t save what is left after spending; spend what is left after saving.” It’s a simple concept but overlooked by many. Take an honest look at your fixed expenses (rent, mortgage payment, utility bills) and other basic needs and then decide what you want to save each month. Set up an automatic transfer to your savings account on the day you get paid. What you have left over is your guilt-free spending.
2) Build up an emergency fund
Use the ‘Pay Yourself First’ concept to build up a cash emergency fund. Think of it as your ‘curveball’ account – your car breaks down, a hurricane hits, someone gets sick, you lose your job – these things happen but when you have cash readily available you can cruise through these life events. How much you save depends on your circumstances – if you are young and single then three months of living expenses is probably enough, if you are the sole earner and have a family dependent on you, that needs to be higher.
3) Avoid lifestyle creep
We have all succumbed to this to some degree. We earn more money and we spend more money. We eat at fancier restaurants, stay at nicer hotels. The problem is that our savings never increase, and often they reduce. The key is to automatically increase your savings when you get a payrise. Learn to keep splurges as just that – splurges. Once they become regular and normal you lose the joy that comes from occasionally treating yourself.
4) A house is a home, not an investment
Your home is the biggest purchase you will make in your life and it will almost certainly end up costing you more than you think. When calculating what you can afford to spend on your house, give yourself a good buffer and remember that your bank will always lend you more than you ought to borrow (that’s their incentive). If you find yourself justifying the purchase of a house because ‘it’s a good investment’, you are probably taking on too much debt.
5) You don’t have to be rich to invest, but you do have to invest to be rich
The stock market is the greatest wealth builder ever devised by man, but it’s not a ‘get rich quick’ scheme. It requires patience and discipline. Visualizing how our money can grown in the stock market is hard because it involves us thinking exponentially, not linearly. Small amounts invested regularly over long periods of time can have extraordinary results.
6) Risk and return go hand in hand
The reason we get rewarded so handsomely over time in the stock market is that we take on volatility. There is no return without volatility. You can’t separate one from the other. In the long-run volatility looks like a tiny blip, nothing more than a speed bump. In the short-run, it can be really painful. The only way to make a long-term return is to ride out the waves.
7) Personal finance is personal
Reading personal finance blogs can be helpful, but there is no “one size fit all” when it comes to your money. What is right for you might be completely wrong for your neighbor. We all have different values, priorities, hopes and dreams. Clarifying yours and building a plan that you can stick to is what matters. It involves tuning out a lot of noise – from the markets, the news and media, and from your friends.
Money isn’t meant to be feared. It’s a tool that when used wisely enables us to live our best life. We have to start by knowing what that life looks like and then build a plan that propels us in that direction. That’s the role of a real financial advisor.
If you are looking for help with your finances, seek out a fee-only fiduciary advisor. You pay a fee-only advisor directly for the advice you are given and they do not receive payments in the form of commissions or other kick-backs from product providers.
Here is a good explanation of the differences between a fee-only advisor and other types of advisor. Don’t be afraid to ask questions and to interview multiple advisors. You work hard for your money – trusting someone to manage it for you is one of the most important decisions you will make.
Georgie Loxton is a CFA charterholder, Oxford graduate, wife and mum of three, with over 15 years of investment management experience helping people achieve true wealth through proper financial planning and savvy investing.
Georgie guides us to financial freedom with her straight-talking money sense, market insights and practical advice on Lustic Life and through her financial planning and investment management company, Liberty Wealth.
If you would like to find out more about Georgie’s services, or be added to her newsletter subscription list, please visit Liberty Wealth or contact her at email@example.com.