It’s always amused me that when I left school I knew the names of six wives of a king that’s been dead for 600 years but not a clue about using quality money management techniques to help me live my life to the full. I got a job, got a credit card and I overspent every month. The Rat Race already had a hold on me and I was only 19.
Money Management behaviour
Money management is the process of maximising your income whilst controlling your expenses, that’s all. And it’s surprising how few people take this seriously. There are 4 activities you can introduce into your life today that will kick start you on your journey to financial freedom which will ultimately lead to you leaving the rat race behind. There is nothing is this list that I haven’t implemented myself so I can vouch for their efficacy. Let’s look at each one in turn.
Debts to Zero
The basic premiss of money management is to grow your capital base so that one day your money can work for you so you don’t have to work for your money. Only then when you have a large enough capital base that can buy ‘passive income streams’ will you be able to attain financial freedom. The first thing you need to do is reduce your debts to zero. The loan on your house can stay ( it’s the cheapest loan you will receive and it’s tax efficient too) but everything else must go. Let’s take a look at the types of debt that are readily available to us.
- Credit card
- Car Hire Purchase
- Holiday Loan
- House refurbishment loan
- Student loan
- Store Cards
I find it ridiculous that people think having, say 10K in savings in the bank earning 4% interest is a good thing when they are servicing all these types of loans and cards; each one charging considerably more than the interest received on any bank deposit. If you are in this position use the savings and pay off the most expensive debt you have. You have just started your journey to Financial Freedom.
This is a key necessity and no matter how long it takes reduce your debts to zero.
Time Management
Part of your new approach to better money management is managing your time. I’ll let you into a frightening statistic. The Planet is 4.5 billion years old. Homo sapiens have been on the planet for approx 200,000 years only. The average age of a human being before they die is 80 years. In the whole history of life on planet earth we don’t get very long so we need to manage our time more effectively. Take a look at how much time you waste that could be better spent being productive. Evenings and weekends watching TV could be spent doing extra paid jobs to pay off your debt levels for instance.
Control your spending
How much do you spend and on what. Let’s talk facts. This is how much is spent each year on the following markets.
- 22 billion on Takeaways (take-out)
- 20 Billion on Christmas
- Valentines day is worth 300 million
- 1.4 Billion is spent on greetings cards
- 58 Billion is spent on clothing
These are staggering figures. How much is it just to have a coffee in Costa or Starbucks? Do you replace your car every two years? On average each UK household spends £740 more during the Christmas period than at any other time.
Controlling your spending is an essential part of money management. It’s just as important to minimise what goes out as it is to maximise what comes in. Do you really need your TV subscription, your Gym membership? Can you not use the outdoors to stay fit and pay for your sports events individually? I do. Do you need the latest iPhone, iPad, Camera? Stop spending money on stuff you really don’t need.
Turn ‘stuff’ into cash
I was recently introduced to the concept of ‘cost per wear‘. Take an item from your wardrobe ( suit, dress, jumper, leather jacket etc) and divide the purchase cost by the amount of times you have worn it. If the cost per wear is excessively high sell it off and turn it back into cash. That cash can then be used to either pay off your debts first and then it can be added to your investment portfolio. Everything has a value to someone. I had 20 or so bricks in the back garden that I was going to take to the waste disposal unit. My wife said ‘I’ll sell them on facebook market place’. And she did. If you’re like everybody else, you have a house full of stuff that can be turned into cash. Make it a game and see how much money you can make.
Money Management – It’s not difficult
You might think that all of these activities are just penny pinching but if I tell you that money management techniques like these are commonplace amongst the rich because they understand the value of money and how important it is to control it, that should be a sign to you to you to really take them seriously. It should be of no surprise to you that if you don’t start adding these attitudes to your life you will never attain financial freedom and you will be stuck in the Rat Race forever. Here’s a quote to ponder on.
If you always do what you’ve always done, you’ll always get what you’ve always got
Henry Ford
In my next post- The Banking System. Friend or Foe?
Great advice Myles! I don´t understand other peoples spending, but its their life. But it feels strange when they envy my freedom when they keep trapping themselves with loans and imo strange spending 🙂
The narrative pushed on us at Christmas time is shocking in my opinion. Shops and media pushing it in September and October! And don’t get me started on the amount of money spent on things on Christmas day that probably gets used once…or never. What a waste. Glad we’re away from that now.