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What money lies have I stopped telling myself? What is my biggest financial asset? How do I spend and save today? A few years ago I had ZERO knowledge about money and in this post, I look back to see what key mistakes I've stopped making that have become a game changer in my life.
My 5 money mistakes
I remember always being so surprised that I had nothing left at the end of the month
Spending and spending with no real plan
Before I began to get an handle on my finances, my money would come into my current account and all of it would stay there. Slowly my rent, bills would get paid and if at all anything was left, I would still have a reason to spend it.
I remember always being so surprised that I had nothing left at the end of the month and when I thought about the effort it would take to go through my spending, in my mind, it was not worth the effort. The money was already gone.
Today, I have a budget which I optimise (find ways to reduce my expenses and increase my savings and investments) regularly. Nothing stays in my current account after all bills are paid (my current account doesn't pay interest) and monthly savings and investments have left. Every planned spending is accounted for and I no longer suffer the end-of-the-month-where-did-my pennies-go-syndrome. If you need a money goal to help you plan your spending start here.
To be honest, by the time I was 23 years old, no one or school had taught me how to save, no one sat me down to talk about debt or showed me savings accounts and it definitely did not come up as a topic amongst my friends. I simply had no positive money role models.
Not being deliberate about saving
Just as I spent with no real plan, it is no shocker that I had nothing to save and this happened every time. To be honest, by the time I was 23 years old, no one or school had taught me how to save; no one sat me down, showed me savings accounts, opened a piggy bank and it definitely did not come up as a topic amongst my friends.
I knew I wanted to have money but to me it was magic that makes this happen and this magic happens to special people. Little did I know that magic starts with a budget. A budget is the greatest energy source for your money - no lie, they are like batteries you charge to take you far. It shows you where all your money goes and how you are doing. Today, I know of many magic wands that are accessible to all of us where it is savings accounts, the stock market, pensions, private equity, real estate, peer to peer lending, Crypto.
This is how I am now deliberate about my savings are as follows:
Thinking I've got my pay-check. That's all I can make right now...
Once I got my first proper job, I breathed a sign of relief I now have money. I revised this thinking after my first pay-check (with National Insurance (NI) and taxes deducted, very little was left). Since this was my only source of income, there wasn't much else I could do except find ways to increase my income constantly - this was a hard task. I knew I had to find a way to fatten my income outside of my employment.
I went to a seminar once and they spoke about making money while you sleep and multiplying your hourly rate. Since then, this quote from Dave Ramsey has stuck with me-Your most powerful wealth building tool is your income. One of the ways I am applying this principle is by allowing other companies to work for me by buying into funds or shares. When these companies do well, their prices increase and/or they give a dividend. If they don't do great, I take the risk of having lower return but on average and over a long period of time, I should win.
Of course there are other things you can do like getting another job for your 5 to 9 but if want an 'simple' co-worker earning for you without any additional effort, you now know your options.
Before writing this post, I looked at my overall pension to see the current value and hands down - it is the largest financial asset I own today.
Not setting my pension to the max matching to get free employee match
When I started my first job, I think I opted out of the work pension plan initially or I may have begun with saving 1%. At this time, if I put in up to to 5% of my salary, the company would match that 5% and I would have 10% paid into my pension pot.
Now as a 23 year old, why would I give away 5% of my money for old age when I am young and in my view at that time, close to the London poverty line? I kept this view for about a year and half when I got serious about transforming my financial life.
I spoke to a friend at that time who advised that the easiest place to start getting money was by increasing my pension saving to the 5%. This not only allows me to get free money but it also reduces my taxes.
Before writing this post, I looked at my overall pension to see the current value and hands down - it is the largest financial asset I own today. This is not surprising given this UK research where pensions can make up to 60% of households net worth. This are some reasons for the growth:
I am now looking forward to being older; I've even calculated how much I'll need to live comfortably. I also have some peace of mind that the efforts I am putting in now will lead to a beautiful life and that is exciting. I like pensions because they force us to save for old age (otherwise, we will just stumble into it), once the money is gone it is out there working, growing to make the most for you.
Fast forward to age 24, I read a book by Tony Robbins which simplified the foreign language and and so I quickly open my brokerage account with £25. I have not looked back.
Believing the stock market is scary
As a young girl, I remember watching CNN evening news and at 9pm GMT, we would hear the NYSE Bell ringing to close the day of trading. I must have watched this happen hundreds of time but I never understood why the bell was there in the first place and what those green and red triangles next to names like LSE, NYSE, DAX etc. meant. I did not know that I was witnessing the opening and closing of money making opportunities. The commentary the pundit gave after each closure was like a foreign language to me, one I found very boring.
Fast forward to age 24, I read a book by Tony Robbins which simplified the foreign language and and so I quickly open my brokerage account with £25. I have not looked back. Today, I know the stock market is a huge source of wealth for the top 1% in the UK and is designed to be confusing (with the graphs and financial terms). It is actually not confusing and I am very supportive of the low fee robo-advisors that make it easy for you and me to take part this huge wealth engine.
Last week, a family member was discussing a real estate scheme that guaranteed 8% return if she put in £5000. I immediately opened by brokerage app and told her that one of my fund is posting 22% gain. Five years ago, there is no way I wold have been able to suggest this as an option to explore but now I know more and can suggest ideas that could generate a 14% pay bump. This is the true power of knowledge.
Now, your turn, do you have any mistakes you've made?
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Is your country making you rich?
I've written extensively about what we can do on our own to build wealth over time; have a savings goal, build an emergency fund, stock market investments, a pension and more. Let's change the focus for a moment and imagine you don't have to do 80% of this because your government has programmes to easily help you build wealth. How would that feel?
In this post, I explore the United Arab Emirates (UAE) and the perks given to it 1.4 million Emirati citizens who have an average net worth of $99,000.
Infographic: What do you get an a citizen of UAE? Plenty!
Healthcare (free). Roof over my head (check). Job (guaranteed), Large pension (check) & more
UAE is a country known for Dubai, its oil wealth, architectural landmarks, home to millions of expats and more. Its government has created a financial cushion for its citizens with the focus on giving them a high standard of living. It seems Emirati citizens might have the dream quite a lot of people are after, much akin to lottery winners; you don't have to worry about a job, your old age, your health even your marriage costs!
Some lessons and next steps