Personal finance is just that. Personal. Yet there is a lot to learn from other people’s stories. It isn’t straightforward as a I learned when I graduated.
Everything changed the day I left University. I left Switzerland for the UK. A new country meant a new financial system. It also meant losing my financial security net.
“But Lionel, you are Swiss of course you can manage money”
My gosh, have I cursed, the reputation the Swiss bankers gave us… Yet I can’t deny it, I have a passion for personal finance. There I said it… a walking stereotype that’s what I am. The good news is I’ve learned some stuff along the way. Keep reading to start your journey with Personal Finance
1 Download a Budgeting App
The first thing you should do is get an expense tracking app. It’s stores all my current accounts, credit cards and saving accounts. I’m able to visualize all my expenditures, find the hidden money sinks, and track my overall wealth.
I personally use Emma, it categories my expenses automatically! As soon as I get close to reaching a budget – I receive a notification. I had no excuse for forgetting to track an expense. Not only could I visualize my expenses – I got to know myself.
I have now set up an external sheet for my budget but I still use Emma daily. It keeps me on top of my finances with one quick stop.
2 Apply the 50-30-20 Rule
At the start of my personal finance journey, it was difficult to grasp what my spending targets should be. After learning about Elizabeth Warren’s 50-30-20 rule. I had found a framework on which to base my decisions.
It suggests you should spend your after-tax income as follows:
- 50% for needs (rent, food, transport, insurance)
- 30% for wants (entertainment, gym, holidays)
- 20% for savings (investments, paying off debt, saving accounts)
This rule helped me when deciding which country I should move to when graduating. And whether it was financially sound to do so. Since moving to the London, I’ve aimed at decreasing the 50% to grow my savings.
I have managed to shift take it down to around 40% in a couple of years. I cannot say I have achieved my goal but I am on my way.
Currently, I’m saving 43% of my income mostly supported by lockdown diminishing my expenses. Thankfully, it has lead me to increasing my investment rate to 25%. I mostly invest through Vanguard and ETFs although I also invest through Trading 212. (You can get 1 free share worth up to £100/$100 with my link.)
Wealth consists not in having great possessions, but in having few wants. — Epictetus
3. Paying off debt is an investment
Debt is like a weed. It will grow especially if you ignore it. Paying off your credit card debt should be at the top of your priorities. Most of the money they make comes from the predatory APR interest rate they charge.
When you pay off a debt you do not only increase your credit score. You lower your future debt as you curb the interest growth.
4. Build an emergency fund
Since COVID-19 hit I have become a massive Emergency Fund advocate. I keep upwards of 3 months of expenses saved at all times. It allows me to keep my mind at ease. When the ghost of unemployment comes looming — I have breathing room.
Whenever I need to tap into this fund my priority is to refuel it as soon as possible. You can learn more about how to build your own with my article “How to Build an Emergency Fund in 2020“.
5. Check your finances daily
Every day, I take a couple of minutes to go through my budgeting app. It helps in making the money real. I know where, when, and what I spent.
Of course, I end up letting myself down every now and then; but my impulse purchases have gone down tremendously. Instead of treating “mistakes”. they are now learning opportunities.
6. Educate yourself
I try and read as much as I can about financial law, investment opportunities, and saving tips. The world of personal finance is ever-changing and different from 1 country to the next. Researching what applies to your area will help you grow and be critical about what you read online.
“Winning at money is 80 percent behavior and 20 percent head knowledge.” — Dave Ramsey
7. There is no "get rich quick"
When I started reading about personal finance; every other article talked about the X trick. I quickly learned that there is no such thing as easy money. Passive income is not a myth but it takes a lot of work before it becomes sustainable.
Take your time, let your money grow, and be disciplined it will all come eventually. Remember that passive income although it’s attainable is often looked at through rosy lenses. You can learn more here “Passive Income It’s All a Lie“.
Here’s the major problem with going on strike for more money: You cannot get rich by demand! — Jim Rohn
Personal Finance Is Worth It
Starting off with personal finance isn’t an easy thing. It takes rigor, discipline, and courage. It means tracking expenses and making every penny count. Yet, I find it freeing. It gives me control over my life and lets me decide where I’m going. You’ve now seen a few of my tricks. I hope they will help you begin this exciting journey.
Share you experience of Personal Finance and what gave you the bug! I would love to hear your thoughts and tips.