Financial freedom is a great thing, and it’s probably the best part about growing up, moving out, and putting down our own roots. From new jobs, pay raises, a great flat, and of course new phones and cars, we enjoy the rewards our labours provide. However, too often those rewards come with hidden pitfalls, or at the expense of things we might not have even considered, such as our own health, or the health of our finances.
Because of this, knowing what you should spend money on first is often far more important than what you can spend money on. A great example is a new hire, fresh out of university, earning about £35,000 a year. This person might have a shared flat or home, and be paying out around £400 a month in rent. To them, it seems like they are rich, and can do anything they want, earning a great salary for their living circumstances.
Before long this new grad is spending money on trips, concerts, and weekend revelry in the pubs. They’re sporting a new iPhone 6, or the latest and most expensive Android model phone, and eyeing a £30,000 car over five years of payments. To them, life is grand, and they are only looking up. Unfortunately, they aren’t planning, or considering what happens if they lose their job, or have a downturn in either health of living circumstances. Worse, they are establishing and reinforcing poor spending habits.
Spending money with smarts means you have more to spend.
It’s actually a bit ironic, that someone can go from living on instant noodles and conserving toilet paper, to jumping the gap and shopping for Armani and Louis V on their trips to Milan and Paris. However, this is exactly what happens to some. Frugal financial management in universities ends up taking a back seat to the joys of those newly minted bank notes that come with your first real job. Worse, banks are all too eager to extend credit after credit, sucking the life and freedom from unwary and often financially illiterate people just entering the workforce.
This is why you need to be smarter. In fact, one of the great phrases on the topic is to work smarter, not harder. This means putting your money to work for you, rather than working for your money. Learn to invest, or pay someone who already knows how, and then learn from what they do. Start a pension early, and pay into it often. Plus, keep track of your expenses, and never live beyond your means. When you start learning that focus and apply it, you’ll be in a position to pay attention to the things you should be spending money on, rather than the things you want to.
Spend more on what matters, and you’ll have more for what you want.
Seems like a simple philosophy, but people don’t think about all of the little things they do every day that drain their finances. It’s usually due to them being drunk on the freedoms they never had at home. They can take hour-long showers, leave the windows open in December, and come home at any hour, bringing whomever they want with them. Mum and dad aren’t there to make an issue, and friends are usually all too eager to join in the fun – especially those who aren’t as responsible. Few ever think about the things they should spend money on.
Just like attitude and ability gets one through university at the top of a class, or started off with a great job, it can also be applied to wise spending. Bringing that attitude, and a focus on what you’re doing that is wasting money, is a great way to save more. That means you’ll have more to spend later on things that matter. Little things, like making your own latte at home, can save you £10 or even £20 a week, each. Throw in just three things a week that you can cut costs like that on, yet still enjoy at home or in a packed lunch, and you’re saving around £50 a week. That’s £2,600 a year you could be saving, just by spending money on the right things.
Keep finding ways to cut costs, and over time you can increase your weekly savings to £100 a week or more. Then you’re saving £5,200 a year. Ten years in, assuming you invest and manage that savings wisely, you’ll be on the way to having £100,000 saved. All it takes is taping up or insulating some windows, fixing a leaky pipe, using a different tea kettle, or eliminating other unnecessary expenses like multiple phone lines. By cutting things out one at a time, you’ll be able to do more with your money, but not feel the pinch.
Other little things can make big differences later in life too, like spending an hour a day improving your fitness, versus spending a few hours a day in the pub with your mates. Being more fit will boost your overall health, saving significantly on medical costs now and as you age. Getting a low cost car will also make a difference, as you’ll learn more about what you do and don’t like in a car, while also paying significantly less for insurance and maintenance. Both of those car related expenses are absolutely unnecessary costs if you’re paying too much.
Think about it. Unless you’re on the road four or more hours a day, your hourly costs for owning a car are outrageous. Figure the yearly average in the UK of about £5,200 for running your car, and then divide that by the 52 weeks a year you own that car. That’s £100 a week. If you drive 10 hours a week, you’re paying £10 an hour for your car, not even considering the costs of purchasing it, which obviously adds in more.
It’s the things like this, and all of the other little ones we spend money on without thinking, that slowly eat away at our finances. Spending your money on the wrong things just accelerates the loss, and over time builds bad spending habits. Then you fast-forward ten years, when you’re earning closer to £70,000 a year, and you find that you have less money than you’ve ever had, despite having twice the income you started out with.
Spend your money on all the right things, and you’ll always have more to spend in the long run.