A fool and his money, as the saying goes, are soon parted (although I prefer James Van Den Bosch’s quip that ‘a fool and his money are some party’), but fools aren’t the only ones afflicted this way. Many highly intelligent people find themselves with financial problems, too. This is because your IQ has absolutely nothing to do with how well you manage your money. What is considerably more relevant is your attitude to the stuff and your timing. If you want to survive (and prosper) during the bad times and the good times you need to focus on your personal finances. If you shudder at the thought, remember as I have said before that the only boring thing about money is not having enough of it. One other point before we consider how to transform your finances in 10 easy steps…if you run a business, what holds for your personal finances, holds for your corporate finances, too.
Step one. Get a plan, Stan ( apologies to Paul Simon )
If you want to transform your finances the first thing you need is a sound financial plan. Set short, medium and long term goals. These might be such things as ‘pay off all my debts’ or ‘sort out my retirement.’ You can’t go forward until you know what you want to achieve.
Step two. Stop digging.
You can’t get out of a hole if you keep digging. If you have a financial problem – such as debt – then stop doing anything that might be making it worse. There are many options when it comes to getting help from MABS ( Money Advice Budgeting Service ) to ISI ( Insolvency Service of Ireland ) to your local independent financial adviser. Pub talk is cheap and easy to access – get professional help.
Step three. Be patient.
It is difficult to get rich quick, but very easy to do if you take it slowly. By the same token, you won’t solve any financial problem by being in a hurry.
Step four. Work out a budget.
Budgeting has nothing to do with self-denial – it is simply about making a plan for how you will spend your money over a specific period. Start by working out your current position. Calculate your income and expenditure over a typical year (breaking it down month by month). Email me for an easy to use spread sheet with all the categories – tots up itself… all you have to do is populate those categories. Then draw up a list of your assets and liabilities.
Step five. Waste will seriously damage your wealth.
For years, my children would roll their eyes when I went round the house switching off lights or complained when they were talking on the telephone for too long. Eventually, they were persuaded that what I was doing was worthwhile when I offered them a percentage of any utility bill savings we could make as a family. I reinforced the message by pointing out that everyone in the world – even Bill Gates – only ever has a finite amount of income and that, once you’ve spent it, you can’t get it back. Now, more than ever, you need to cut out all waste. Remember the adage waste not want not..
Step six. Shop well.
No financial ill can befall anyone who shops carefully. Value for money means more than just the lowest price but can incorporate convenience, service, quality and speed of delivery. Don’t be afraid to negotiate and rejoice in the fact that the silver lining to our country’s woes is that there are some great deals to be had.
Step seven. Cut the cost of your borrowing.
There is a simple but effective formula for dealing with debt. If you can, consolidate all your debt into a single, less expensive loan and then pay it off as quickly as possible. If you can’t, hustle all your lenders until they give you a better rate and always pay the most expensive debt off first. The rate of interest you pay makes a huge difference especially at this time of year when you might be searching for that new car loan. Don’t be complacent.
Step eight. Aim for high returns and minimal risk.
There are plenty of ways to make a high return on your investments without taking undue risk. The first secret is not to consider what the market is doing and the second is not to chop and change your mind. Over the medium to long term the stock market has always (and I mean always) produced greater profits than any other asset class or anything else. Investors who split their money between shares and bonds and achieve average returns do better than almost everyone else. Check out Exchange Traded Funds (ETFs) as the low cost way to invest or the plethora of managed funds on offer with their easy to understand risk categories and simple operation. Don’t, by the way, waste money on unnecessary management fees.
Step nine. Get protected at the right price.
Review all your insurance every year. Have you got the cover you actually need? Could you switch providers and save? It is possible to make huge savings by reviewing your insurance (and other financial products) on a regular basis. For instance do you realise if you have quit smoking over 12 months, you could be entitled to a 50% reduction in your life cover premiums !
Step ten. Be optimistic.
The economy is cyclical. Everyone talked gloom, gloom, gloom now but now it/s boom, boom, boom again and there will be some – the canny – that will make a fortune. If you are entrepreneurial the recession is your friend. The costs of starting and running a business are lower in real terms than they have been for over a decade. Suppliers, desperate for sales, are offering great deals and if you are happy to buy second-hand equipment there are amazing bargains to be had. Professional advisers are charging less and – crucially – there are plenty of skilled employees looking for work. 2017 could be a bumper year for everyone.