There are many critical errors (many of them habitual) that people make throughout their working lives which if unchecked will lead them to a miserable retirement.
It should go without saying, but the age-old tip of only spending what you have is one that must be adhered to if you are going to give yourself and your family any chance of a secure future. The easiest credit to spend and therefore (I have found) the facility landing the most clients in trouble is the credit card. These ‘helpful’ tools are designed to help with cashflow when your spending needs increase in a month. Therefore, your maximum credit limit should probably not be more than the amount you can afford to repay the following month. Any more than this can trap people into a cycle of constantly making purchases from – and payments to – a maxed out credit card, essentially increasing the cost of everything they buy.
We are all flawed, and sometimes human nature can get the better of us causing illogical and self-sabotaging behaviour. When it comes to our personal finances, letting feelings of envy towards your neighbours who might have for example quarterly holidays, privately educated children, or a brand-new car can be dangerous if it prompts you to live outside your means in order to keep up. In fact, without the full financial picture of those around you it is impossible to know whether they can afford these things either!
Budget Control and Saving:
The central principle in the timeless book, “The Richest Man in Babylon” is that “a tenth of all you earn is yours to keep”. Meaning you should set aside 10% of your net income for savings and investments. Having a buffer in your bank account for unexpected occurrences is sound financial management and will help prevent you from using your credit card when they arise, which we know can be a slippery slope. In order to effectively apply this principle, work out a budget of your income and expenses, account for 10% as a “rainy day” expenditure and I expect you will be pleasantly surprised at how easy an adjustment that proves to be, and thank yourself for it later.
Investing for the Future:
Once the household budget is under control it is time to consider investing for the future. Throughout our working lives most of us can count our earned income (e.g. from employment) as the biggest resource that we have and provided our earning potential is appropriately insured, it is also the most reliable and low risk. As such, not investing part of this resource is akin to squandering what you have. At some stage in your life, hopefully sooner rather than later, your assets should reach a point where they become your livelihood and allow you to give up work to enjoy what you have created. Whether you invest in property, the stock market, pensions, alternatives, or a combination of these, there are associated risks that you need to be aware of. Nova can help you with this on a one to one basis.