After reading several books, watching countless personal finance gurus on YouTube, and doing my own research, I wanted to pool together all of the main and most valuable lessons I’ve learned. These are golden lessons experts in finance preach to enable you to reach financial freedom.
At first glance, it might seem like a lot, but most of the steps are actually very simple to understand and follow- especially if you’re really committed. You can start by understanding them and implementing them one by one. And honestly, anyone can do them- it gets easier the more you learn and practice.
If you want to find out more about why I’m learning about personal finance or the importance of financial literacy, check out my other posts below:
Disclaimer: All golden rules listed below are principles I have personally learned from following other financial experts and reading books. I am not a financial expert, and these should only be used as a guide and mere advice.
1. Be motivated and consistent
This is a step that might be overlooked, but it’s actually one of the most important. Without motivation and consistency, it’s unlikely that you’ll succeed with following the rest of the steps below. First, you need to know why you want to take control of your finances. Are you saving up for something? Do you have bad money habits that you want to change? Or, are you simply just more or less clueless about personal finance and want to learn more?
Your reasons for wanting to take control of your finances should encourage and motivate you to be consistent when you’re building good money habits. Consistency is key. But, it’s also quite difficult to be consistent when it comes to money. Everyone’s money situation is different and constantly changing. It might be harder to always commit to all these steps and that’s fine. The most important thing is that you cultivate and apply as many good money habits when and where you can.
- Watch videos about why it is important to be financially literate. There are some really great YouTubers that fueled my motivation to actually want to be in control of my finances. My favourites: @RyanScribner, @NateO’Brien, @WealthHacker, @GrahamStephen, @TheDaveRamseyShow, @MinorityMindset, @FinancialEducation.
- Follow good finance Instagram accounts: @getjoemoneyright, @rvnfinance, @financialintellec.
- Read articles or books that will motivate you. Have a look at my post on 5 Books on Personal Finance and Investing if you want to know what I’ve personally read.
2. Keep track of your finances
This is one of the most important rules! I’ve heard many Finance gurus on YouTube say that if you’re keeping your finances on track, you’re already better than the majority at personal finance. I think this is what makes or break your financial future because it really puts your spending in perspective.
Control your money or it’ll control you.Everyone
- Know your income and outgoings. Be aware of how much you earn each month, and keep track of how much you’re actually spending and on what.
- You can do this by:
- Writing it down on paper or on your phone notes.
- Some money management apps allow you to track your expenses (Emma and Yolt) or some online banks automatically track them for you (Monzo and Starling).
- Keep an Excel Spreadsheet. You can easily find a template and just enter your personal figures. This is what I do because I find it easier to plan for the next month knowing what I need to budget for.
3. Pay yourself first
Again, this is another important rule. When people say “pay yourself first”, it basically means that whenever you receive income, make sure you put money towards the most important things straight away. This includes paying back any debt, building an emergency fund, savings, rent, bills, investments, and retirement.
One of the immutable laws of personal finance is that expenditure rises to meet income. In other words, there will never be enough money left at the end of the month unless you plan that to be the case.Pete Mathews, The Meaningful Money Handbook
- Decide on proportions: how much of your pay do you want to put towards the important things. The proportions are relative to you, but these are some suggested rule of thumbs:
- 10% towards savings
- 10% towards retirement
- Equity investments= 120– your age (Investing Demystified, Lars Kroijer)
- Every time you receive your pay, immediately move money towards paying the important things listed above. The money left over should be spent on your general expenses. Don’t save what is left over after spending. Spend what is left over after saving.
- Stick to your proportions! It will give you peace of mind throughout the month knowing that you’ve paid the most essential things.
4. Set up the right bank accounts for you
I found that having different bank accounts is what made it easy for me to track and control my expenses. Also, having different saving accounts and wrapper allows you to save, grow, and keep your money safe. A wrapper is an account you hold your investments in. For example, a Stocks and Shares ISA.
Click here if you want to have a read of what bank accounts I have (as of March 2020).
- Have at least two bank accounts for spending: one for bills like rent and ongoing charges (Spotify, Netflix, etc.) and one for general spending.
- Make sure you have a savings account and some sort of financial wrapper like an ISA.
- Consider a digital bank like Monzo or Starling. These are fully licensed banks that are FSCS protected, which means that if the bank fails, up to £85,000 of your money is protected (Revolut is also another one that I’ve used. It has similar features but is not FSCS protected).
Benefits of getting a Monzo or Starling:
- The apps categorise your spending.
- They let you set up several Savings Pots or Spaces, where you can put money aside for different types of savings!
- They send you immediate notifications of spendings.
5. Budget- spend less than you earn
If you’ve followed the previous rules, you would have laid an important foundation for building a secure financial future. Now, it is the slightly more difficult task of actually practicing good spending habits.
The first is budgeting. This was quite difficult for me because I believe in the power of retail therapy. But to my surprise, I have managed to shift my spending mentality. Rather than experiencing a short period of happiness after buying material things, I’m more satisfied with the thought of not wasting my money and growing my savings and investments.
It’s a greater feeling to know you are financially secure and that you can afford to do nicer and more fulfilling things in the future like buying a house or travelling!
You’ll have your own weaknesses and things which distract you- the trick is to be aware of them and be prepared for how to deal with them.Pete Mathews, The Meaningful Money Handbook
- Identify the unnecessary and trivial things you can stop spending money on. You really don’t need them. For me, I stopped buying Starbucks (coffee is one of the biggest money killers!) and spending less on fast fashion.
- Ask yourself: When am I most likely to spend money? What usually triggers my appetite to go on ASOS? How do I react when I see a nice new dress on a model?
- If you are aware of these cues and triggers, it is more likely that you are able to prepare yourself to not act on them.
- Stop buying/ paying for things you can’t afford and have no practical use. Some great rules of thumb:
- 1/3: Don’t spend more than a third of your income on rent.
- 5 X: If you can’t afford to buy 5 times of an impractical item (e.g. designer bag/ trainers), then you can’t afford to buy one.
- 7 days: If you see something you want to buy, put it on your notes, and if after 7 days you still want it, you can consider buying it.
The first part of Personal Finance 101 is about getting the most essential rules of good personal finance, and it should give you good footing on how to be in full control of your finances!
Read Part 2 here.