Take a couple of minutes and try to come up with a definition of money. Don’t cheat. Below I look at some tried and tested money use rules for guidance.
Market Commentary
BoE small increase in rates but inflation likely abating. Covid is becoming old news – press hopeful that BA.2 will revive interest. Putin rattles hammer & sickle. Holidays beckon.
What is Money?
Here are a couple of definitions; A medium of exchange, a method of survival, a way of keeping score, a type of security &c. See also postscript.
Money - Guidelines
Many of you have heard my analogy – handling finances is like eating an apple, try to stuff the whole thing in your gob and you choke; I suggest always you take bites at it:
1. Find out where you are now, this makes the whole thing less daunting - make a list of what you own and what you owe, what you earn and what you spend. We can help with this – see the section at bottom. If you are lucky, you will earn more than you spend, if not then read about Mr Micawber for what happens next…
2. Tidy up your finances after making your lists; keep them simple and easy to check. Consider ditching any complicated stuff – this will make it easier to check and review where you stand – you need to do this monthly.
3. Target saving one quarter of your net income. Spend half of your income on your living and enjoyment costs and the remaining quarter on personal improvement - consider charitable giving under this latter heading. Note use of word ‘target’ – take it slowly to start with.
4. Pay in full for everything that is not likely to increase in value. If you have kids, you will be used to paying in full, many times over but teach them this lesson. Many young people are not familiar with the old concept of ‘if you cannot afford something, then do without it’.
5. Emergencies; imagine losing your income – what would you do? Make sure you have at least six months essential expenditure in cash, with easy access; do not keep under the bed in cash.
6. Use boring, reliable tax planning rather than ‘sexy’ tax planning; trust me on this one.
7. Conserve your precious time by buying in people to do stuff that you don’t want to – from servicing the car to painting and decorating; to accountants, financial advisors (particularly important) and lawyers.
Summary
Most of the time people worry about money because they have vague feelings of not being as involved financially or as organised as they should be. Knowledge conquers fear and, in this context, record stuff - write it down. Strangely one of the biggest fears people have is of forgetting something – this is why you must write it down. Baby steps to start with.
p.s. What is Money? - part 2
Personality affects answers here, to son #1 it’s ethereal stuff which just seems to evaporate, son #2 (Martyn) looks at it as a way of keeping score. I view it as a medium of exchange but also a form of security – my main concern is to have an ongoing grasp of what my income and expenditure look like and of what I own and what I owe.
p.p.s.
We have a simple spreadsheet that will help you to make a start on your assets, liabilities, income and expenditure – contact us if you would like a copy.
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