A fat purse is desirable and a lean purse is not. Especially if you want to live a decent life, a good life and a great life.
Money is at the foundation of everything we want in life. Therefore it only makes sense that you learn how to cure a lean purse.
1. Make your purse – or wallet – get fatter.
That doesn’t mean filling it with receipts for all the items you’ve bought with your credit card. It means, fill your purse with money. And the best way to do that is to spend less than you earn. This cure follows the first law of gold that we looked at in a previous post.
Save for the long term, for your mortgage deposit or pension, depending on where you are in life. If you need to save for the short to medium term. Save for things such as a holiday or car. That should be in addition to and separate from the 10%+ that you save for your long-term needs.
2. Control your expenditure.
If you’re going to save at least 10% of your income for the long-term, you must make sure that your current spending is no more than 90% of your income. This means wherever you are on the income scale, you’ll need to apply some self-discipline when it comes to treating yourself and your loved ones.
For a start, keep your credit card(s) for emergency use only. And if you do use them, pay them off before you start racking up interest. Similarly, avoid taking out loans, unless you can justify the interest you’ll end up paying for that privilege.
A car acquired on one of the popular leasing schemes can be justified if it’s essential for your work or business. But a loan for a holiday? A staycation would be a better choice. Learn to distinguish between wants and needs. A roof over your head and food on the table are needed. A month in the Maldives is a desire. Treat yourself to that when you have saved 10% of your income for a year or two. Then you can afford to fly off to paradise without dipping into those savings.
3. Make your money multiply.
You are looking for steady returns over the long term, not a lottery win. What you need is a steady increase in your capital, your core wealth, such as compound interest from a savings account, or something riskier – dividends from shares you hold in well-managed companies, including your employer, if they have an employee share ownership scheme.
If you are not an expert in financial products and investment vehicles, find someone who is. Don’t make any commitments until you talk to a professional financial adviser. Explain what your investment goals are and ask them to help you develop a plan for realising achieving them.
4. Guard yourself against loss.
The sickening nightmare of seeing your dreams of wealth turn to dust as Bitcoin plummets or the bloke you met in the pub the other night disappears with your life savings. One way to guard against loss is to make it an unbreakable rule that you do not touch that core wealth that you are saving and investing for the long term. Keep a ring of steel around that!
If you are tempted to try your luck with Bitcoin or currency trading, only use money that you can afford to lose. That means any money that you have left over after you have saved your 10%, paid the bills and filled your belly. Money that you might otherwise spend on nights out can be handed over to the online bookies if you can budget for it – see the second cure above.
Never use a credit card or a loan for spread betting, gambling or any high-risk investments. Before you engage in any high-risk investing or betting, though, make sure you have thoroughly researched the field and that you understand what you’re getting into. If online poker is your dream, practise with your mates for match sticks first.
5. Make your home a profitable investment.
Owning your own home (and ideally a few buy-to-let properties) has become an obsession over the last thirty or forty years. Given the way property prices have ballooned over that time, it makes perfect sense to get on the property ladder as soon as you can, particularly when house prices are increasing at a much faster rate than incomes.
However, be aware that at some point the bubble may burst. Yes, people have been saying that for years and it hasn’t happened yet. But it is becoming increasingly likely that the authorities will take steps to let some of the air out of the property market. Potential measures include revaluing property tax bands and punitive taxes on buy-to-let properties and properties left empty. A major increase in house building is unlikely to have much impact on house prices by itself, but when combined with the potential tax changes, we could see prices reach a plateau and stay there for some time.
Given all that, the best approach is to find an affordable house or flat in an area where you would like to live for the foreseeable future, bearing in mind such things as local amenities, schools and the journey to work. Think also of the benefits of paying a mortgage and gradually acquiring total ownership of your home over 25 or 30 years. This is better compared to being beholden to a landlord who can raise the rent or evict you at a month’s notice, and who will still own the roof over your head despite all the $000s you put in his or her pocket.
If you can’t afford to buy outright in the area where you want to live or work, consider such options as shared ownership and self-build. Check out what schemes are available in the area where you want to live.
If you already own your own home you can use it to generate extra income by taking in a lodger. If you live in a major city, a good source of lodgers is contractors – professional people working on a project local to you who need a place to stay for a few months and don’t want to use hotels – AirBnB offers a great solution to help you find tenants.
6. Develop a future income.
Who wouldn’t want to wake up in the morning knowing that whatever happens, they are assured of a steady income for eternity? Well, you can achieve this through your long-term savings, that 10%+ that you put by month after month, year after year.
When you talk to your financial adviser (as you must!) about your saving and investment goals, the first two issues you should focus on are a pension for you (and your partner, if you have one) and providing for your family when you’re no longer around, i.e. life insurance. Your financial adviser should also point you to other investments that can deliver additional income for you and your families, such as unit trusts and government bonds.
Your aim is to ensure an adequate income for a long old age. Remember, people are living longer, but not always healthier. It’s not pleasant, I know, but think about the worst that can happen to you (short of an early death). You or your partner become chronically ill or disabled and need long-term care. How will you fund that? If you sell your home what will you leave to your children? This is the kind of issue you need to discuss with a financial adviser. You need a pension, plus other income streams, that will pay for all your needs for perhaps thirty or forty years after you stop working. Develop a plan, implement it, then get on with enjoying life.
7. Increase your ability to earn.
There is no such thing as a job for life anymore. These days, even professional occupations such as doctor, lawyer, accountant and insurance underwriter are threatened with automation and off-shoring. So, it makes sense to develop additional skills that you can make use of if you find yourself out of work.
If you think you’re at risk of being replaced by a robot, you should look very carefully at “future-proofing” your career. Think about jobs that are unlikely to be automated or off-shored in the future. They tend to be ones that involve face-to-face contact e.g. complementary therapies, nail technicians, hair stylists, personal trainers, life coaches, and counsellors. Also, jobs where a local presence is essential: electrician, plumber, lock-smith, builder.
Of course, many of these jobs are relatively low-paid and are in highly competitive sectors. That means you need to find a unique selling point. Find something you do that no one else does, or no one else does as well as you. Focus on something you are genuinely interested in – or better still, passionate about – and that you know you can be brilliant at.
Be realistic about the potential income, the competition and the time and energy needed to make it work. Unless you already have experience in your chosen field, you will need to devote a lot of time, and perhaps money, to acquire the necessary skills and certifications. You will also need to decide how you will operate: sole trader, limited company, franchise? Take advice before committing yourself to anything.
A popular option for generating extra income is online selling through an online business. Even if you’re in full-time work and happy with your income, you can try it in your spare time and get a feel for what’s involved. A regular declutter will reveal all sorts of things you can sell: clothes, mobile phones, unwanted presents and other popular items in marketplaces like Amazon. If you enjoy online selling, you could develop a successful business without risking your core capital.
Apply the Seven Cures diligently and you will place yourself firmly on the road to greater wealth and peace of mind.