How to start looking after your money –
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Introduction 👋
If you want to get better at looking after your money, the first question you might find yourself asking is:
Where do I start? 🤷♀️
Whilst personal finances are a very individual thing that’s unique to each person – there are some easy first steps that people can take to get their money on track. 🛤️
Today we’ll be teaching you what they are! 👣
Disclaimer: This website provides information for guidance and educational purposes only. The Grown-Up School does not provide regulated financial advice. You can seek independent financial advice from a suitably qualified and regulated professional advisor. Check out our disclaimer policy for more information.
Step 1 – Get emergency savings 🚑
Financial emergencies are a lot more common than you think. 🔥🚒
One minute your bank account seems full – the next you find yourself needing money for things like:
- Unexpected bills 🧾
- Car repairs 🚗
- Pet veterinary bills 🐶
- Increased shop prices 🏷️
- Phone repairs 📱
- Broken fridges/freezers/washing machines 🔧
- Home repairs 🏡
Not only are these events really stressful –
It makes it so much worse when you have to worry about scraping the money together to cover those costs. 😟💸
Having an emergency fund is probably the most important step towards getting in control of your finances. 👣
Having a pile of savings set aside gives you: 🗻💰
- lower likelihood that you need to borrow money in an emergency 💳🧯
- peace of mind knowing that you have something in the bank to cover you 🧘☔
Emergency savings give you a great safety net. 🥅
I mean who here wants to lie awake at night, worrying about their washing machine breaking? 🤔💭🧽
Whilst this is a really important step – it isn’t easy. It takes a lot of patience, work, and self-control to build up emergency savings. 🧗♀️
How to keep control of your money 💸
How much money should I save for emergencies?💸
The 3 month rule 3️⃣📆
Some financial experts recommend that you need 3 months’ worth of your typical income saved away for emergencies.
This means that if you make £2,000 a month, some experts think that you should have £6,000 saved away for emergencies. 💰
This means that if you lost your job or income, you would have 3 months to fix it before it becomes a bigger problem! 🛠️
If your job or income is less stable, (e.g. if you run your own business!) you may want to consider saving more e.g. 6 months’ worth of income for peace of mind. ⚖️
Did you know?
In June 2021, Yorkshire Building Society found that 1 in 5 UK adults have less than £100 in savings.
If you have less than £100 in savings, it’s a great time to start saving! 🐽
Save regularly
Try to commit to saving a regular amount every month for emergencies. 📆
If it’s a struggle to get money saved quickly, saving 10% of your income might be an easier start. –
For example – if you make £2,000 a month, according to the “3 month rule” your target should be £6,000 in emergency savings.
You could save 10% (£200 a month), and reach your £6,000 emergency savings goal in 2.5 years. 🪜
Having an emergency fund can help you to feel more prepared for the future and financially comfortable.
It could be a good idea to keep your emergency savings in an easy to access, separate savings account, to avoid accidentally spending them. 🏦💸
Step 2 – High interest loans 📈
(When you’ve borrowed money from someone, and they’ve made you pay back lots of interest!)
A lot of financial experts say that your next step should be to focus on paying off any high interest debts/loans. (What is interest?)
What counts as “high interest”? ☝️
A lot of experts say that money you owe with an interest rate above 7% should be the priority.
This could include things like credit cards or personal loans you’ve taken out with an interest rate above 7%. 📈💳
This is because 7% is an estimate of how much you might be able to make from investing the money instead, meaning you’re losing a lot of money/opportunity by not paying off those interest rates. 💰
If you have multiple loans, you should consider paying off the loan with the highest interest rate first – that’s the one that’s costing you more money. 💸
Then, once you’ve paid off your high interest loans, it’s worth working hard to stay out of high interest debt, because it gets really expensive! 🌪️
You can get free debt help and advice in the UK from:
- Citizens Advice Bureau – https://www.citizensadvice.org.uk/ – “The Citizens Advice Bureau give people the knowledge and confidence they need to find their way forward – whoever they are, and whatever their problem. Their network of charities offers confidential advice online, over the phone, and in person, for free.”
- Stepchange – https://www.stepchange.org/ – “Contact the UK’s leading debt charity to get expert debt advice and fee-free debt management to help you tackle your debts.”
Step 3 – Retirement, investments, and low interest loans 🧓📊📉
Next, you can get started on thinking about retirement, investments and any lower interest debts (less than 7%) you might have.
Retirement/old age 🧓
It might seem AGES away, but the earlier you start to think about getting older and quitting work the better. 💰
This is because:
- The earlier/younger you start, the more time your money has to grow, meaning the more rich your retired self will likely be🪴😎
- People can make a lot of money from retirement plans– would you rather be older with a chance of getting rich, or potentially never rich at all? 🤔💸
- Money from the government (state pension) isn’t enough for a lot of people to live comfortably – planning your retirement and investing in pension schemes can help you to control how comfortable you want to be. 🏖️ (state pension and pension schemes explained below!)
- A lot of people don’t think about retirement planning for many years, by the time they start thinking about it, they’re too old for their money to make a big difference, and regret it when they get older 🧓😭
- A lot of workplaces offer a large amount of money in free pension contributions – who really wants to miss out on free money? 💸🤑
Think about pensions 🧠
In the UK, there are 2 main types of pension:
State pension 🏛️
This is money that you can claim from the government at “pension age” (66-68 years old depending on when you were born). 🧓
You get this money after paying “national insurance tax” to the government when you work. 💼
You need to pay towards “national insurance” for 35 years to get the full state pension money from the government. 🗝️
In 2021/22 people can get up to £179.60 per week as their state pension.
For a lot of people this isn’t enough money to comfortably live off when they retire, which is why they invest in pension schemes/workplace pensions (see below)|⬇️⬇️
Pension schemes/workplace pensions 💼
Pension schemes are a type of long-term savings plan. 🐷
You save some of your money regularly whilst you’re working. 🌱
This gives you money to live off in later life, when you want to work less or retire. 🌳
There are different types of pension schemes —
Some might be set up by your employer, others you can set up by yourself. 🙋♀️
If your employer sets up a pension for you this is called a workplace pension. 💼
A lot of workplaces offer free pension contributions, depending how much you put in. 💸
For example, if you pay 8% of your salary into your pension savings, your employer might double that, meaning every year an amount equal to 16% of your salary is going towards retirement. 💸💸💸
How cool is that? 😲
That could be a crazy amount of free money from your employer, which might grow over time with your pension investments 🤑🪴
Why pensions are important ✅
It is important to consider investing in pensions because they:
- give you a steady income for the rest of your life 🌇
- help to make sure that your family is taken care of financially 👪
- give you security and peace of mind when you’re retired 🧘
- help you build wealth over time (people can make a lot of money from pension investments!) 📈
Investments 📊
If you’re keen to grow your money, and happy to take on some risk to do that, investments might be your next stop. 👩💻🪴
Investing is where you buy something, expecting that it’s going to increase in value. 💸
You could invest in exotic things like: 🌴
- Art 🎨
- Wine 🍷
- Vintage cars or motorcycles 🚗
Or the 3 main traditional investments: 📜
- Stocks/shares (small slices of businesses – you own a small part of the business) 💼🍰
- Bonds (loans to a government or business – they pay you back – with interest!) 🏛️💰
- Funds (your money gets pooled together across lots of investments, can be both shares and bonds) 🏊♀️💦
If you want to get started investing, there are lots of resources available online to help you!
Lower interest loans 📉
If you’ve got debts left with lower interest (between 0 and 7%), it might be worth trying to pay them off so that they’re not hanging over you. 🪂
Whilst the interest rates on these debts are “lower”, they could still be higher than the amount of money/interest you could earn from a savings account 🐷
This means that it’s a good idea to still get your lower interest debts paid off, because you’re losing money by not paying them off! 💰
Step 4 – Save for the big stuff 🏖️
What big things do you want to do in the next 7 years?
- Buy a house? 🏡
- Have kids? 🍼
- Get married? 💑
- Go on a big holiday? 🏖️
- Buy a car? 🚗
Next, you should start planning and saving for these big things.
If you plan for your financial goals, you are far more likely to be able to actually achieve them!
You could open separate savings accounts for each goal, and start tucking away money each month to help you reach your goals. 🪜
Conclusion 👍
So that’s it!
You can get started on looking after your money by:
- Getting emergency savings 🚑
- Prioritizing high interest loans 📈
- Planning retirement, investments, and low interest loans 🧓📊📉
- Saving for the big stuff 🏖️
Hopefully these ideas have helped you on your way to looking after your money.
If you know any friends or family members who might benefit from learning how to start looking after their money, share this post with them!
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