Your first five steps to become brilliant with money
Money can be such a complex subject that it can be overwhelming to know where to start.
The best route to becoming brilliant with money will always vary depending on your background, current position and goals for the future. There are however five steps that often make up this roadmap.
1 – Sort out your budget
Before you do anything with your money, you need a budget. Write down what you earn and what you plan to spend. You then need to track both items. The aims of budgeting are to understand what you spend and, more importantly, widen the gap between your income and expenditure.
Until you are in the position where you consistently earn more than you spend, improving your overall financial position will always be an elusive dream.
2 – Get rid of your debt.
Put simply, your debt is a drag on your ability to achieve your future financial objectives. Unsecured debt, such as credit cards, is typically expensive. It also reflects an unhealthy and unstructured attitude towards spending. It is usually cheaper to buy something rather than borrowing; not to say more satisfying!
3 – Protect yourself.
The best laid financial plans can be quickly knocked off track by an unexpected catastrophe. The big three to think about are death, the diagnosis of a critical illness (such as cancer) and being unable to work due to an illness or injury.
Consider what impact each of these would have on your financial plans and then place them in order of priority before exploring suitable financial protection plans to insure yourself against the risks.
4 – Start saving.
The foundation of a good financial plan is a cash emergency fund. This needs to be readily accessible money and should be equivalent to between three and six months typical expenditure. This is the cash which will give you an all important breathing space in the event of a financial emergency.
5 – Think longer term.
The first four steps were all about taking action to deal with immediate issues. Step number five is all about the future. You need to start planning ahead for two main things.
Firstly, any large items of capital expenditure, such as a new car. You might fund these through saving if they are in the near future or investing your money if it is longer term. Secondly, you must plan for the day when your income from employment runs out due to retirement.
For people seeking to make a start on their road to becoming brilliant with money, these five steps are likely to be the most appropriate immediate strategy for getting started. There is a tendency when it comes to money management to over complicate things. Becoming brilliant with money should be reasonably simple. In fact, a simple financial planning strategy is more likely to succeed than one which is unnecessary complex to implement or sustain.
Martin Bamford is site editor at BrilliantWithMoney and a Chartered Financial Planner with Informed Choice.
