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How you manage, spend, and invest your money has a profound impact on your life, yet most of us reach adulthood without ever being taught basic money management. It can feel like a lot of paperwork and numbers, but it is just as much about psychology, habits, and the values you choose to live by. So your mindset matters just as much as the math, and the fundamentals should never, ever change.

Here are a few simple rules that will help improve your financial life:

  • Spend less money than you earn:Spend more than you earn, you’ll end up in a spiral of debt that’s hard to recover from. Spend exactly what you earn, and you’ll never be prepared for major life changes. Spending less than you earn allows you the freedom to save, and prepare for the future. The bigger the gap between your income and spending the better.
  • Plan for the future:Try to pay bills ahead of schedule. Hold an emergency fund that allows you to deal with unexpected car repairs or medical bills. Have a solid retirement plan to maintain income when you’re unable to work anymore. Finances should always look beyond the current month.
  • Make your money make money:Money can grow while you sleep, provided you actually save some. Properly invested money grows over time, so invest in things that will earn you more money than you had before. Sometimes that’s an investment account, starting a business, or improving your education to get a promotion.

It is vital to know where your money goes, rather than it just disappearing from your account. A budget even a basic one – is probably the best way to make sure you’re spending less than you earn, and starting early is important. A habit of categorizing bills & tracking expenses will help prevent financial problems before they start.

Calculate what you make each month, then write down all of your regular expenses. This includes recurring costs like your rent or mortgage, utilities, car payments, etc. For more variable costs, you may need to track what you spend over time. Monitor all expenses for a month or two, adding up everything to see how much you’re spending. Ideally, the amount spent each month should be lower than the amount you earn. If not, carefully examine your list and see which expenses can be reduced. For some, this could be as easy as cutting luxury items, for others, hard decisions may have to be made.

Once set up, a web based service like Mint can even manage it for you. Connect your bank account and it will automatically tag transactions, so you can track spending on bills, groceries, and shopping. You can also use it to set budgets for individual categories and notifications if you go over.

Once you make a habit of tracking your spending, it’s time to establish a budget. Approaches may vary for different people, with some opting to allocate amounts into specific life categories:

  • Fixed costs (50-60%):This should include every cost that you know is coming each month, – rent, gas, groceries, cellphone bill, and anything else that generally stays the same. These are core expenses essential for day-to-day living.
  • Investments (10%):As you build savings you’ll eventually want to invest some money so it grows over time. If you have any investments like a company pension that come out of your salary, count them here.
  • Savings (5-10%):Shorter-term savings go in this category – saving up for holidays, gifts, or large purchases like a new TV. Also include cash for an emergency fund here, a liquid amount for unexpected emergencies or bills.
  • Guilt-free spending (20-35%):For the finer things in life. Dining out, drinking, or splurging on entertainment or luxury goods. As long as you have the other three categories covered you can spend this money without feeling guilty about your budget.

Ultimately, budgeting means knowing where your money is going and planning ahead. If you don’t want to go to the trouble of writing down every penny you spend, this model will still cover most of what you need to budget for. The only thing you need to decide is how much to place in each category.

The suggested percentage allocations should be adjusted based on your age, financial goals, and what is most important to you at any given phase of life. Remember, the more you save now, the more money you’ll have to buy a house, retire early, or achieve other goals later in life.

So, you’ve started budgeting your money, you’re building credit, and you’re spending less than you earn. Now comes the next part: saving for the future, which for a lot of people can be even more daunting. Far too many people find excuses to put this off, perhaps because it seems too far away to matter, or it feels impossible and overwhelming. However, the consequences of not paying attention to this from an early stage can be far reaching. The earlier you start saving, the better off you’ll be later on in life. Not only that, you’ll also spend less effort trying to get there later.

Remember those sections in your budget discussed last week called Savings and Investments Start trying to make sure you’re adding to these as a matter of habit. If your employer uses direct deposit and your monthly salary goes directly to your bank account (which tends to be the case for most of us), you can ask for different portions of your pay sent to multiple accounts. You can use this to send money to a separate savings account that you don’t have a debit card for, or that’s not easy to transfer to your regular checking account. Note – The money you never have access to is the easiest to save.

Having money in a savings account will help you save for little things, like your emergency fund or a new computer. But your real, long-term savings are going toward something far more important: retirement. One day you’ll want to stop working, and you’ll need a big chunk of savings to keep you going in your golden years. A modest savings account isn’t the best way to do this, and this is where more sophisticated and structured investments will come in to play. If you can allocate a portion of savings into some fairly simple, low-risk investments, it will make money for you while you sleep and over the course of years and decades, that can add up to an awful lot.

Long-term investments may come in part from your employer. Many companies offer pension plans that you can fund with money deducted from your paycheck before taxes. In some cases, employers will also match some or all of what you contribute, which means you’re literally getting free money just for having an investment account with them. Company pensions are by no means risk-free however, and the rapidly increasing pensions deficit in countries like the US, UK, France and Germany unfortunately means many final salary schemes are no longer available to new employees. This means more and more people are turning to private pension schemes to help fund their retirement.

Investing doesn’t have to be complicated, either it doesn’t mean picking winning stocks or timing the market. If you’re just starting out and don’t yet have the knowledge or market understanding, you can even use an online service to do it all automatically for you. These can guide you through the process of setting up an investment plan based on your age, goals, and risk preferences  and will then automatically pick which companies or industries to invest in. If you prefer a more personal touch when discussing financial priorities, then you are best consulting a professional advisor. By employing the services of an IFA you should be able to find the investment product that is best suited to your specific needs, but be sure to do your research carefully. Ensure the firm advising you are fully licensed and legally able to operate wherever you might be living. Holding the correct FCA license means a company can provide truly independent advice and should have access to a much wider range of products and providers. More importantly by working with a properly licensed advisory firm you have the additional peace of mind that they can be held accountable for any advice and services they provide.

Getting started with long-term investments will often be one of the hardest parts of your financial life because, when you’re just starting out, you don’t have much money. It is important that you re-examine your investments every time you get a raise or a new job that pays you more. When you make more money, it will of course be tempting to upgrade your life with a new car or apartment to match your new budget. This is known as Lifestyle Inflation, and while it’s okay to move up, the smartest among us will make this priority number one, reaching financial independence that little bit sooner.