I am not a financial advisor. This is just one random persons take on personal finance. If you are in a bad way (financially) please seek a professionals advice. Stepchange are great place to start.
As can be seen from my previous post I am debt averse. Things like Klarna, Car finance and payday loans are in my opinion a tap on your finance that offer long term pain for short term gain.
What do you do once you have paid off your debt? Aside from going out to spend an obscene amount of money celebrating!
If you’re anything like me your next step should be saving what you earn, or as the richest man in Babylon would explain it “Pay Yourself First”. This is important habit forming behaviour, start building a savings pot and embrace what a good feeling it is!
This saving is the first step towards financial freedom. It will teach you a lot about yourself, about self control and as your pot grows you will naturally start to wonder how best to use it. I broke my pot into milestones. First was the F U fund, second was a house deposit and third was investments.
F U Fund
My first milestone was named the F U Fund. I saved enough to cover my outgoings for 8 weeks to mitigate my employer having power over my choices. To this day I keep my bank account around the £4,000 mark.
This has two benefits, firstly if there is an emergency I can cover it, just last week I had to spend £815 on a car repair, that would cripple a lot of people. Thankfully, the fund came to the rescue. The second benefit allows me to lose my job or chuck it in without having to worry (at least for a few weeks) about money. That level of cushion makes my life a lot less stressful.
The reality is that if you’re an average Joe and you lose your job you have lost your only source of income, this was one of the realizations that pushed me towards dividend investing. The same logic can be applied to anyone who contracts. Multiple income streams are safer than relying on a single employer.
Firstly it is important to note your needs will differ from mine. Homeownership is not for everyone but as a Brit I have a genetic disposition to own land and property.
I put a lot of energy into saving for a deposit prioritising it over investing.
There are benefits to renting. You have a choice of location, low cost to entry and no maintenance. This is great for certain people and situations however, these benefits do not outweigh building equity in my own home.
Owning my own home means even if I can’t invest in stocks my mortgage payments are still investments! It also means no crappy landlord. No random monthly increases and I am in control of the style of my house.
Part of my retirement plan is that I own my own home, this will reduce my monthly expenses by roughly £600 per month.
Finally with the buffer and the deposit sorted I have started throwing money into investments. These are going into massive companies that pay dividends. These dividends will compound my investments and eventually will be enough to live off.
Now, this style might not be for you but It is important to research and figure out what is a good fit for your situation and temperament. You do not want to be panic selling at the bottom of the market. If you’re interested in my specific investments and dividend I document it monthly in this blog.
In conclusion, if you’re in a position start saving at least 10% of your wage do it! start building that pot up, form a habit, if nothing else having a decent sum of money on hand will improve your ability to enjoy life. If you find that you want to put the money to work consider homeownership or investing. This will improve your ability to grow your pot via compounding.
Please feel free to leave a comment, especially if there’s something you don’t agree with or think could be improved upon.