Earlier this week I gave a talk to the PwC Muslim Network about personal finance. There were a few things in there which I wanted to write about separately in a bit more detail. They form the basis of some of the most overlooked secrets of wealth-building that I can think of and I wanted to share that with you all.<\/p>\n
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I\u2019d love it if you commented with your thoughts on all of this, especially if you\u2019ve had success with any of the steps below or if you are now going to implement something off the back of this article.<\/p>\n
I don\u2019t think people appreciate this as much as they should. Job-hopping can bring you serious gains<\/em>.<\/p>\n Now look, there are a whole host of reasons not to job hop. It doesn\u2019t look ideal on your CV and there is an awful lot to be said for sticking in an environment which you are developing well and which you enjoy. Those are perfectly good reasons to stay with your employer.<\/p>\n But if all other things are equal and you can gain 20%+ of your salary by moving companies, it can have a serious effect. Particularly if you multiply that effect by 2 or 3 times in the space of 5 years or so.<\/p>\n If you\u2019re earning \u00a330,000 somewhere and you move two times for a 20% increase each time, you\u2019ll be on a smidge under \u00a345,000. It\u2019s highly unlikely that you\u2019d get a 50% salary increase at your original place in that time.<\/p>\n Some industries lend themselves to much bigger increases as well without even changing your job role or seniority. Questions you can ask yourself are:<\/p>\n Sometimes though, loyalty can pay. You might be somewhere where you are going to get fast-tracked or you know for a fact that the powers-that-be know you and rate you and will compensate you fairly. Just make sure they keep their end of the bargain in reviewing your salary regularly. You should know your worth in the wider market as part of those discussions too.<\/p>\n Budget is a scary word because it has a connotation of control and restriction. But budgeting done well is actually liberating<\/em>.<\/p>\n What does budgeting mean? For me it means getting a proper handle on your incomings and outgoings. You should basically see your personal finances like a business does. Really careful scrutiny on the ins and outs and a close eye on cashflow.<\/p>\n Thanks to the wonder that is Open Banking (the infrastructure behind letting apps connect safely with your bank feed), there are plenty of budgeting apps. I\u2019ve recommended Money Dashboard, Emma and Yolt before but you can try out any. Also check out YNAB and FreeAgent. Both are paid but very useful because you can create your own categories and I think they go a step further. FreeAgent is actually designed for freelancers but I use it for personal finances and I like it as it gives me the customisability that I need.<\/p>\n The idea with these is that you get your bank transactions line by line and you have to categorise them. Over time, that builds up really good data for you to visualise. You\u2019ll know for example that you spent an average of \u00a3342.61 per month on average on grocery shopping over the last 6 months. Or that you spent on average \u00a378.94 per month for the last 3 months on coffees and other unnecessary food purchases.<\/p>\n That is data you can act on. You might cut back the coffees and put the slack elsewhere in your budget.<\/p>\n The great thing about getting step 2 right is that it will really show you exactly what all you spending looks like. One bit of data you will glean from it is your fixed costs<\/em>.<\/p>\n Like businesses have fixed costs (things like rent, salaries, etc), we individuals have fixed costs too. Your phone bill, gas, electricity, and council tax are all examples of fixed costs.<\/p>\n Given that we have<\/em> to spend on these things, it makes sense to try and drive the costs down. Some things you won\u2019t be able to bring down \u2013 try as you might with your local council, I suspect they won\u2019t budge on your council tax payments!<\/p>\n But when it comes to your energy provider, your mobile phone provider and your broadband provider you will definitely be quids in if you regularly shop around.<\/p>\n Some quick wins here:<\/p>\n A full analysis of all your fixed spending should bring out the key question of where you can negotiate lower rates with existing providers or switch altogether.<\/p>\n This might only seem like a few quid here and there, but over a few things and across a number of months and years, it can add up to a good amount of money.<\/p>\n Another thing step 2 should flush out is how much spending you\u2019re doing on luxuries (a.k.a things you don\u2019t need)<\/em>.<\/p>\n Be honest with yourself about what things are luxuries and what things are necessities. Once you have enough data, start asking yourself some serious questions.<\/p>\n Are you comfortable with how much you spend monthly on a whim? I\u2019m not advocating for zero luxury spending. I\u2019m saying you should have a controlled element of luxury spending within a controlled overall budget.<\/p>\n A few cool tips here:<\/p>\n Again, this might seem like a few quid here and there, but it can add up to a lot.<\/p>\n Opting out of workplace pensions is one of the most damaging things you can do.<\/p>\n The reason? Employers are legally obliged to contribute to your pension and in many cases, they\u2019ll go above the legal minimum. This is free cash you\u2019re turning your nose up at if you are opting out of your workplace pension.<\/p>\n It\u2019s also just good practice to get into the habit of siphoning off money to invest long-term. When you put your money into your workplace pension, it gets invested and you enjoy the benefits of years of investment.<\/p>\n\n
2. Proper budgeting<\/h2>\n
3. Savvy fixed spending<\/h2>\n
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4. Careful luxury spending<\/h2>\n
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5. Pension savings<\/h2>\n