When it comes to personal finance, Money (2018), the well-known guide to everything money, cuts through the jargon and explains everything in simple and easy language. It is jam-packed with practical information that will help you finally deal with those annoying financial issues you've been putting off for far too long, from debt management to retirement planning. It's time to regain control of your money and to feel good about yourself.
Who is it that reads the Money book?
- Millennials are trying to make ends meet in a financial system that is both complex and costly.
- People who are always worried about their expenditures because they are cash-strapped.
- Anyone who wishes to reduce their financial stress while also increasing their wealth for the future.
Who is Laura Whateley, and what is her story?
Laura Whateley is a multi-award-winning journalist who focuses her work on consumer financial issues. She is most known for her money-themed agony-aunt column, which she writes under the pseudonym "The Troubleshooter" for The New York Times and which is published weekly. She also contributes to various publications on the topic of personal finance, including The Guardian, The Observer, Dow Jones, and Moneywise magazine.
What exactly is in it for me? Make better use of your money and you'll feel better about your financial situation.
Do you ever find yourself in a situation where you don't have enough money? Do you ever feel that money is slipping through your fingers as quickly as a bar of soap? Does it make you feel more comfortable to bury your head in the sand rather than deal with your expenses or go through your bank statements? If this describes you, you are not alone in feeling this way. Being financially literate is not something that most of us take for granted.These notes are intended to assist you in gaining control over your finances by providing you with the information and skills you need to make educated financial decisions in the future. So, what are you holding out for now? It is past time to begin studying, to begin saving, and to look forward to a more peaceful and secure future.
The following topics will be covered in these notes: how the Japanese have elevated budgeting to an art form; how your income may be funded by immoral businesses without you being aware of it; and why you should definitely invest more in your retirement than you think.
By saving for a bigger down payment and cutting down on your expenditures, you may get a better deal on your mortgage.
As a starting point, let us consider one of the most difficult financial issues of our times – and one that is most likely your biggest cost – namely, housing. House prices in Western nations have risen significantly in recent decades, particularly in the United States. For a whole generation of young people, the possibility of house ownership has become nothing more than a pipe dream as a result of this. According to a study by the Institute for Fiscal Studies, typical home prices in the United Kingdom have increased to at least 10 times the average income of 25 to 34-year-olds, and in London, they have climbed to as much as sixteen times the average pay. In light of the fact that you will almost certainly be unable to borrow more than four or five times your annual income with a mortgage, it is easy to see why there is an affordability issue - the numbers just do not add up.
Unfortunately, for individuals looking to climb up the housing ladder, there are no fast fixes. Instead, they must be patient. However, there are steps you can do to make yourself seem less dangerous to lenders, which will allow you to borrow more and get a more affordable mortgage. The most important lesson to take away from this is: By saving for a bigger down payment and cutting down on your expenditures, you may get a better deal on your mortgage. Whether or not you can afford to purchase a home is mostly determined by two factors: whether or not you can raise enough money for a down payment and whether or not you can persuade a bank to let you borrow the rest of the money.
When it comes to deposits, the general rule is that the more money you can put down as a down payment, the less money you'll have to borrow and the lower your interest rate will likely be. The majority of first-time buyers will only be able to afford a deposit that is equal to 5 percent of the total value of the home they want to purchase. However, here is some advice: If you can scrounge together at least a ten percent deposit, you should do so, since this is the minimum required to qualify for much lower interest rates. How much money you can borrow from the bank relies mostly on your income, which you are unlikely to be able to do much about in the short term. One option is to form a partnership with another salaried individual, which will essentially double the amount of money you are able to borrow.
It's also essential to consider your outgoings. When applying for a loan, you'll be required to provide at least three months' worth of bank statements – or two to three years of bank statements if you're self-employed – so making late payments or making extravagant purchases during this time period is critical. This in-depth examination of your financial situation may seem excessive, but it should prompt you to consider if you can really afford to make monthly mortgage payments for the foreseeable future. Or even if you really want to.
Improving your credit score may result in better terms for loans and mortgages in the future.
Your credit score is another important element that banks consider when assessing you for a mortgage, or for any loan, for that matter, is your financial history. Credit reference agencies calculate your credit score, which is shown on your credit report. All of your contacts with financial institutions, such as banks and energy providers, are tracked by these organizations. The purpose of a credit score is to analyze your previous borrowing behavior in order to provide lenders with some indication of how likely you are to repay a loan in the future, if you are approved for one. The most important lesson to take away from this is: Improving your credit score may result in better terms for loans and mortgages in the future.
Credit ratings are required for a variety of transactions, ranging from qualifying for a credit card to getting approved as a renter. But, most significantly, they are required in order to qualify for lower interest rate mortgages. Any mark on your credit report, whether as a result of, for example, repeatedly failing to pay a bill, may result in you being turned down for a lower-interest mortgage, costing you thousands of dollars in additional interest. The credit-score system also contains a peculiarity that has long confused consumers: having no credit history is frequently worse than having a bad credit history. This is a quirk that has long perplexed borrowers. But consider this: if a stranger approached you and asked for money, and you didn't know anything about their history of loan repayment, you'd be hesitant to give them money as well. Lenders need some kind of basis for their decisions.
Especially for first-time purchasers who have not yet had the opportunity to establish a credit history, this may be a challenge for them. The quickest and most straightforward solution is to begin borrowing modest sums of money. Use credit cards for everyday expenditures, for example, but make sure you pay them off in full every month. When it comes to improving your credit score, there are many options available to you. For starters, you'll be able to pay all of your payments on schedule. For the next six years, defaults will appear on your credit record. Avoid applying for too many financial products in a short period of time, such as savings accounts, loans, and credit cards. This is frowned upon by many lenders, who will reject your application. And keep in mind that even if your application is denied, it will still have an impact on your credit score.
It may be very irritating to realize that these mystery credit bureaus have such a scary degree of influence over your financial and personal affairs. It's important to realize that you do have some legal protection. If you see anything on your credit report that you believe is incorrect, contact the credit reporting agency to have the problem investigated and, if possible, removed from your report.
No matter how much debt you have, it is not impossible to pay off.
One of the issues that characterizes this generation is the inability to purchase a home; another is debt. We're in debt up to our eyeballs, whether it's due to long-term mortgages, exorbitant student loans, or rising credit-card debt.Approximately 21 million individuals in the United Kingdom are struggling to make their bill payments on time, with 3.3 million people suffering from a serious issue of debt, according to the debt relief organisation, StepChange. You are not alone if you are suffering from debt, so don't feel bad about yourself. You must, however, maintain control of the situation. You will save a great deal of time and money in the long run if you learn how to handle your debts properly. The most important lesson to take away from this is that debt is not insurmountable, no matter how much you owe it.
Although it may seem simple, the general rule of thumb when borrowing money is to borrow as little as possible and to pay it back as soon as possible, regardless of the circumstances. The amount of interest that must be paid on top of the amount borrowed is reduced as a result of this strategy. So, let's say you owe £3,000 on your credit card and are required to pay interest at a rate of 19 percent. The minimal necessary payment each month, for example, £74, would take you 27 years to pay off your debt in full, and it would cost you a total of £7,192 to do so. That's more than double the amount of money you borrowed. As an alternative, if you forced yourself to pay £108 a month, you would be able to pay off the whole debt in three years and would only have spent £3,879 in total. It just does not make financial sense to bury your head in the sand and pretend your obligations do not exist. You will just amplify the pain you will have to deal with in the future.
If you're having trouble keeping up with your debt payments, you should speak with your creditors about arranging a more manageable repayment schedule. After hearing your story, many creditors will extend you an interest-free grace period of at least 30 days if you explain your circumstances. If it doesn't work, you still have alternative choices. Debt is not something that should keep you awake at night.It's important to remember that no debt is insurmountable. Even bankruptcy isn't that tough to recover from if you choose to wipe the slate clean and start from scratch later on. If you have a significant amount of issue debt and are finding it difficult to pay it off, you should seek professional assistance. Fortunately, there are many organizations devoted to assisting individuals in your situation. If you live in the United Kingdom, you could take advantage of StepChange's online debt calculator and free advice service.
You can budget efficiently without having to reduce your quality of life in the process.
Unfortunately, because of rising housing prices and loan repayment obligations, the majority of us are always in need of more funds. In the event that we are unable to generate additional money, there is basically just one choice left: budgeting. Budgeting, on the other hand, does not always come easily to us. It is frequently more convenient to flash our credit cards than it is to resist our temptations. We may have a problem since we often resort to retail therapy in order to make ourselves feel better. As a result, when we hear the term budgeting, it conjures up images of puritanical austerity and a life as simple as a plate of breadsticks.
Budgeting, on the other hand, does not have to indicate a reduction in the overall quality of life. We are all aware that a large portion of what we purchase does not make us happy. In other words, budgeting isn't about denying oneself the joys of life; rather, it's about reducing wasteful spending. And in order to do this, we must be a little less thoughtless with our debit cards and a little more attentive to our credit cards. The most important lesson to take away from this is that you can budget efficiently without sacrificing your quality of life. When it comes to this, the Japanese notion of Kakeibo may truly come in handy. Literally, the term refers to a kind of home ledger in which you keep an account of your daily expenditures, such as food and utilities. In addition, personal money management refers to the concept and skill of managing one's own finances.
Kakeibo's primary goal in accomplishing this is to instill a sense of awareness in your daily spending.To be really honest, sometimes all it takes to keep your spending under control is just to be aware of it. If you were aware that the £4 tray of prawn gyoza you purchase for lunch every day costs you more than £1,000 per year, you would most likely pack your own lunch more often than you do now. The first step in using the Kakeibo technique is to do some basic accounting calculations. Count up your entire monthly income, and then deduct all of your essential expenditures from this number, such as rent and utility bills. Next, choose a savings goal for yourself — for example, 20 percent of your salary – and remove that amount from the total. Then split what's left into four parts, and you'll have enough money to get by for the rest of the week.
The next step is to split your money into several pots. After all, if you have money in your checking account, you are likely to consider it fair game for spending in your own opinion.As a result, as soon as your paycheck is received each month, divide it into three distinct accounts: one for savings, one for necessities, and another for general expenses (such as groceries). The Kakeibo technique makes it easy to save money with the least amount of effort. Because you have completed all of the calculations in advance, you will not need to battle with mental arithmetic when your card is already in position.
Putting your money into a mutual fund is a risk-free method to increase your money.
Since the financial crisis of 2008, interest rates have dropped to historic lows, even falling below the rate of inflation. This implies that your savings are increasing at a slower rate than the rate at which the value of the currency is falling. To put it another way, you're losing money. This is why it may be preferable to transfer your money out of your savings account and into an investment fund instead, since the returns on investment funds are often higher. The most important lesson to take away from this is: Putting your money into a mutual fund is a risk-free method to increase your money. But hold on a second. Investing? Isn't it true that you have to be flush with cash to invest? Well, not really, unless you're planning on going full Wolf of Wall Street on everyone. It is true that investing your money is no more difficult than establishing a savings account - all you need is a few hours after work on a weekday to complete the process.
However, it is possible that you have no prior experience in the field of investing. How do you get started? The majority of the time, you'll make your investment in a fund via an online platform known as a fund supermarket. These are businesses that handle your assets on your behalf in return for a charge, and in exchange, they provide you with a variety of tools, advice, and visuals to assist you in managing your portfolio. Unless you have a strong desire to become engaged, you are not required to make any choices about which stocks or assets to purchase. One of the most important decisions you'll have to make is which investment funds you wish to participate in. Investing in mutual funds is similar to putting money into a large pot in which a group of different investors have pooled their resources. A fund manager, or someone with experience in the field, is the only one who can make the tough choices about where and what to invest in a fund.
This is all fantastic, but isn't investing a hazardous proposition? To some extent, yes, there is a level of risk associated with investing in theory. However, in reality, if you are just investing in mutual funds, you are very unlikely to wind up with less money than you began with. This is due to the fact that the whole purpose of an investment fund is to reduce risk. This is accomplished by providing each and every member of the fund with a proportional interest in a far wider and more diversified range of assets than any person could purchase on their own. The greater the diversification of assets held by investors, the less susceptible they are to changes in the value of any one kind of asset. This approach is known as diversification – sometimes known as not placing all of your eggs in one basket – and it is considered to be one of the foundations of risk-adverse investment.
Ultimately, the experience of putting your money in a fund is quite similar to that of keeping it in a savings account. Thus, it is a genuine alternative to increasing your money that should be considered.
Setting up a pension plan as soon as possible is recommended.
Even among personal financial subjects, pensions rank as one of the least appealing — and that is saying something. Saving for a future that may or may not occur, in accounts that you may not be able to access for decades, is the least enjoyable kind of saving. At the very least, saving for a home or a vacation offers you something concrete to look forward to in the near future. Nonetheless, it is critical to set aside money for the future. You may not want to hear it, but you will get old at some point. And, with the average life expectancy increasing by the day, you probably won't want to be pouring coffee when you're far past your 100th birthday. The most important lesson to take away from this is that the sooner you start saving for retirement, the better.
The harsh reality is that it is preferable to begin contributing to a pension when you are still in your twenties. You will have more time to make donations and see your pot increase as a result of the miracle of compound interest if you begin as soon as possible. But why do you need a pension in the first place? Why aren't you able to just place your money in a savings account? Governments, on the other hand, are eager for their people to begin saving for retirement while they are still young and earning income. As a result, in order to encourage people to save, the government provides substantial tax breaks on money invested in pension plans. At its most basic level, a pension is nothing more than a savings account or an investment fund that has been wrapped up in a tax benefit to make it more appealing.
That is why investing in a pension is a more profitable method of saving than just depositing money into a current account or stashing it under the bed until you are 70 years old, for example. The disadvantage, of course, is that you have to keep that money locked up until you reach retirement age. So, how much money should you put aside? Prepare yourself, because it will most likely be much more than you expect.The majority of experts believe that, in order to maintain your present standard of living in retirement, you will need about two-thirds of your current income for every year of retirement, which you should anticipate to be at least 20 years. As a result, assuming your current income is around £30,000, you will need to save £400,000 in order to get an annual payment of £20,000 over the course of 20 years of retirement. In order to save that much money, you would need to put aside about £750 each month for your pension fund.
This may or may not apply to your own circumstances, but it should serve as a catalyst for a change in your mind. Using an online pension calculator is the quickest and most accurate method to find out how much you need to save.
Discussing money with your partner on a frequent and open basis may help to strengthen your relationship.
A plea to the author's agony-aunt column was once received from a young lady who was caught in an unusual predicament. She said that she had just moved into her boyfriend's flat in order to save money on rent. However, her boyfriend, who was the owner of the property and had a mortgage on it, demanded that she pay him rent. She commented that, although it seems fair that they should split the expenses, she wonders whether she isn't just assisting him in paying down his mortgage on a home in which she has no ownership interest. What are your thoughts? Is this a reasonable situation? Is she being taken advantage of, or is she being taken advantage of? You should be aware that there is no one correct way to divide your financial resources.It is ultimately up to each couple to negotiate a settlement that is satisfactory for them both. The reality is that couples will not always agree on everything, so they should be prepared for some uncomfortable discussions at the dinner table.
The most important lesson to take away from this is: Discussing money with your partner on a frequent and open basis may help to strengthen your relationship. That money is the most frequent cause of conflict between couples in relationship therapy should come as no surprise to anybody. The fact that spouses often have quite different expectations about the social worth of money and how it should be spent is a contributing factor to the issue. For example, one spouse may consider extravagant clothing expenditures to be a sign of success, while the other may consider them to be a waste of money. As a result, couples' counselors advocate open and frequent discussion about financial expectations – particularly if you and your partner have shared financial resources.
Any resentments you may have regarding money need to be expressed and discussed with your spouse. While they may seem insignificant and unworthy of discussion, they have the potential to spiral out of control and result in more catastrophic disputes. Contracting is a method that couples' counselors use to help rebuild trust in their relationship when it comes to money. You may also test it out at home. The concept behind contracting is that you and your partner work together to develop a set of financial rules that you both agree on before proceeding. As an example, you might include in your contract that the other person is not permitted to comment on any purchases you make using your own account. Alternatively, you might determine how much each individual should pay for rent and expenses based on their respective incomes.
Remember that being fair in a relationship does not necessarily imply that each partner must give the same amount of money to the relationship. Finding a couple that earns the same amount of money when they first meet and continues to make the same amount of money for the rest of their lives together is very uncommon.
Managing your finances necessitates the management of your emotional connection with money as well.
Although money can not be used to purchase happiness, continually feeling as if you do not have enough of it may have a negative impact on your mental health and overall quality of life. The unfortunate reality is that financial stress and mental health issues often compound one another, producing a downward spiral. Our mental health is affected by money when, for example, we are pushed too thin to fulfill our financial responsibilities or we feel overwhelmed by our debt obligations. According to the mental health charity Mind, individuals who are in unmanageable debt are 33 percent more likely than the general population to suffer from despair and anxiety than those who are not. When we're sad or stressed, we may find it difficult to confront the bills and debt letters that come into our mailboxes unexpectedly. Alternatively, we spend it in order to feel better about ourselves.
The most important lesson to take away from this is: Managing your finances necessitates the management of your emotional connection with money as well. Financial therapy, which has lately gained popularity in the United States, is founded on the understanding of the relationship between our money and our state of mind. Financial therapy combines practical financial guidance with more conventional emotional and psychological therapy to provide a comprehensive treatment plan. What this practice shows is that dealing with money issues entails much more than just performing some accounting and putting up budget plans for the future. At the end of the day, money management is about controlling your relationship with money – that is, how money affects your feelings and behaviors. Let's take a look at some practical suggestions that should make you feel a little better about your financial situation.
First and foremost, be realistic when it comes to your financial planning. Trying to stick to an unreasonable budget may leave you feeling miserable when you wind up going over budget. You may therefore decide to abandon your budgeting efforts entirely. Always remember to set aside some money for enjoyable and pleasant activities as well. Next, consider buying a file folder to keep all of your financial information, such as bills, receipts, and statements, in one place.You should definitely try it if you haven't already. It's a really cathartic ritual that works wonders in the treatment of scatter-brain syndrome.
In addition, you may want to think about integrating a mood journal into your household ledger. This implies that, in addition to keeping track of your regular expenditures, you may also keep track of how you feel when you spend money. Perhaps you've noticed that you only do internet shopping in the evenings when you're tired of the day's activities. As a result, you might institute a rule stating that you are only permitted to make purchases in the morning - at which time, you will most likely no longer want the item.
Ethical funds are a more secure and profitable investment choice for your money.
Do you agree with the National Rifle Association's position? What about oil corporations such as Shell or ExxonMobil, for example? It's possible that you're not a loud supporter of gun rights or fossil fuels, but there's a good possibility that you're indirectly supporting these businesses without even realizing it. Even if you've never had your name entered into a workplace pension, there's a high possibility that one or more of the investment funds selected by your pension provider contain shares in businesses that you think are ethically and ecologically irresonant in their business practices. So, what can you do to combat this situation? Isn't it true that you have no say in who your pension provider chooses to invest in? Fortunately, it is becoming simpler for individuals who are concerned about the ethical effect of their money to take action to address the issue.
The most important lesson to take away from this is that ethical funds are a more secure and profitable investment choice. Most employment pension plans should provide you with the option of switching your default fund to what is known as an ethical fund, if you so choose. This is an investment fund that excludes businesses that are considered to be harmful to society or the environment, such as gun manufacturers and gambling websites, among others. You may even be able to invest in a positive impact fund that goes one step further in its efforts. These adopt a more proactive approach to investing by only investing in businesses that are considered to have a beneficial effect on the environment or the community. For example, Dame Helena Morrissey established the world's first "female fund," which exclusively invests in businesses that have a strong track record in the areas of gender equality and diversity, according to the Financial Times.
Historically, one of the main arguments against investing in ethical funds was that they were not as profitable as conventional funds. Of course, if you're investing in money, you're most likely doing it because you want to see your money increase. As a result, you may be inclined to put your own interests ahead of the general public's interests. To one's advantage, the notion that adopting an ethical position entails foregoing financial gain is no longer prevalent. Experts, on the other hand, are increasingly expressing an opposing viewpoint. In the long term, ethical investments may prove to be both safer and more profitable.
This is a result of the shifting values of society. They are much more socially and ecologically aware than their baby-boomer forefathers and foremothers, whose riches they will shortly inherit. Due to the growing demand for governments to regulate these sectors, businesses such as gun manufacturers and fossil fuel suppliers, which were previously considered safe bets, are now increasingly seen as hazardous. We must always remember that our actions and decisions have an effect on the actual world. Therefore, we must make smart financial decisions.
These notes should leave you with the following take-away message: Getting on top of your finances requires addressing both the practical side of money – learning how financial products work and how to use them to your advantage – and the personal side of money – learning to control how money affects your feelings and behaviors. Taking on the practical side of money requires a little study, and perhaps these notes have already helped to demystify esoteric subjects such as increasing your credit score or setting up a retirement account. The first step in getting a grip on the personal aspect of money is to conduct some self-reflection. If you want to bring your personal beliefs and attitudes about money into line with your and your partner's spending patterns, it's critical to examine them first. Advice that can be put into action: Make use of the 50/20/30 method. It is beneficial to divide your money into different pots as it comes in every month in order to budget efficiently with the least amount of work. The 50/20/30 method provides you with a decent idea of how you should split your money based on your circumstances. Rent, bills, and transportation expenses all qualify as necessities, so put 50 percent of your salary into an account for them. The remaining 20% goes toward debt repayment, or if you have paid off all of your debt, it may be placed into a savings account. The remaining 30 percent is deposited into your current account, which is the absolute maximum amount you may spend on drinks throughout the month.
Written by BrookPad Team based on Money by Laura Whateley