I used to work in a big corporate company and earned significantly more money than I do now. By the end of the month I would manage to get very close to zero in my current account. Goodness knows what I was spending my money on, but in any case I wasn’t increasing my wealth! Does that sound familiar? Essentially this is a guide to what I wish I would have known a couple years ago. Easy peasy: read this, start saving and thank yourself in a year’s time!
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On Wikipedia, wealth is defined thus:
Wealth is the abundance of valuable resources or valuable material possessions.
And a resource is defined as:
A resource is a source or supply from which a benefit is produced.
Here I define wealth not as some arbitrary number but as having the resources to do what you really want to do. The idea is to bring some intention to how you spend your money, in order to bring you more joy and peace of mind. Sounds good? Then read on!
A few basic assumptions
- I’m assuming that you have some money coming in on a regular basis. This could be a salary, student loan, allowance from your family, state benefits… If absolutely none of these apply, keep reading as this guide will give you solid principles to base yourself on when you will start to make money. There are opportunities out there, so maybe look for jobs in the newspaper (do they still exist? ha!) or start your own blog and little money-making adventure online?
- I’m also assuming that your bank allows you to access your accounts online. Some make this more tedious than others (BNP Paribas I’m looking at you…). I now bank with Nationwide in the UK and it’s pretty straightforward to open and manage saving accounts. This post isn’t at all endorsed by them, but hey if you work for Nationwide and want to send me some money, feel free to do so, ha!
Now that we’ve got those two prerequisites out of the way, let’s move on to how to actually build wealth on a regular basis!
If only I could afford…
Do you sometimes think of an activity or a thing you would like to be able to do / buy, and then auto-respond to that thought with “nah, I can’t afford it”. This could be a hobby, giving to charity, buying a house, traveling…
First of all, catch yourself doing this and question if it’s actually true. Can you truly not afford it, or are you just prioritising other things? In the words of Paula Pant:
You can afford anything… but not everything!
Secondly, take a minute now to list these things that you would do if you had more money. Pen and paper is best for this! Some of these things might be desire-based (e.g. travel more, go scuba diving), while others may be more fear-based (e.g. have some financial “cushioning” when I finish my degree in case I don’t get a job straight away). It’s all good, just list away!
The big secret
The big secret isn’t much of a secret… It’s to save before you spend! The idea is to be more intentional with your money, rather than just spending it away before it’s gone.
The process of saving and building wealth is pretty straightforward. Have a look at the list of the things you would like to be able to afford. Then create savings accounts for each item. When you get paid, transfer a certain amount (we’ll get back to that) into each “bucket” and hey presto you’re saving! That way the money is out of your current account and slowly building in your savings accounts.
Depending on how many items are on your list, you’ll want to adjust the percentage of your income going into each bucket. For example, this is my breakdown:
- Buying a house: 5%
- Wedding (& future big expenses): 5%
- Travel: 5%
- Emergencies (this includes periods of joblessness): 5%
- Student loan: 5%
- Investing in my business: 5% (I’ll talk about this more later in this post)
- Charity: 1% (I was giving more and I’m planning do so again when I get a job)
Identify your baseline
You might be thinking, that’s great Jessica, but that’s 31% of your income you’re putting away, and I definitely can’t afford that.
Well, let me first say that I live with my partner and that we both contribute to our common expenses, so that does make things easier. However, I’m also “only” receiving a PhD scholarship and still putting a lot of money away, so anyone can do this.
The key to figuring out your percentages is to figure out your baseline. What I am calling “baseline” is the non-negotiable expenses that come out of your account every month. Think rent, utilities, phone bill, transport to work, food, etc.. Go through last month’s bank statement to figure out what these are. Be kind to yourself, but also be open to reconsider what is truly non-negotiable!
What do the truly non-negotiable expenses add up to? If they’re higher than your income, you have a problem. There are lots of websites and guides out there about how to be frugal. Simple (not easy, but simple) solutions involve packing your own lunches, finding cheaper ways to commute and moving somewhere less expensive. The alternative is finding a way of making more money. In any case, you can’t save if you’re spending more than you make!
If your basic expenses are lower than your income, that’s where you have room to save and build wealth. Let’s use a completely invented example with easy numbers. Say you make £2,000 per month and your non-negotiable expenses add up to £1,200. That still gives you £800 to play with every month! You could put away £400 per month, divided into four saving accounts (based on priorities identified above) and still have £400 of play money to do whatever you want with.
That’s one of the keys of this system: it’s not about saving everything and eating pasta and ketchup for the rest of your life. You put money away into savings accounts when you get paid, and then you do whatever you want with the rest, until you hit your baseline. So you could buy some new running shoes, go to the cinema, buy a dress, etc. etc. until you reach the £1,200 bar. Then you stop spending money on optional “nice to haves” and you wait patiently for the next pay day!
Regular check-ins
Excel nerds unite! This system is improved by regularly checking in to your online banking website and tracking the progress of your different accounts. I do this in a spreadsheet, but if you want to do it with pen and paper, rock on!
I then get to see my wealth growing (and sometimes dipping, but mainly growing) day to day on a chart. I do this by having the different accounts as columns and days as rows. If you wanted less granular detail, you could do this with weeks or months as rows. Then you just type in each cell the amount in each account on that given day / week / month.
I check in with my “money spreadsheet” at the end of every week, when I check my progress on my big goals. One of these goals is to make an extra £10,000 on top of my PhD scholarship. So I have another tab on the money spreadsheet to keep tags on where the incoming money is coming from. This is completely optional, but might be interesting if you have multiple streams of income!
Regularly checking in (rather than burying your head in the sand!) allows you to monitor how close you are getting to your “baseline” and thus how much “fun money” you have left until the next pay day.
Investing
I am by no means an experts in stocks etc., but these are three investment options that I am keen on playing with to build even more wealth.
In property
My partner and I are planning on buying a property to rent it out and thus make money every month mostly passively. Of course it will be hard work at the start, with possibly some hard decisions to make, but once we figure it out, it will hopefully complement our current incomes (and be a bit of a safety net later on).
Check out the further reading section below for a great podcast with more info on building wealth through renting out properties.
In yourself / your business
If you have a “side hustle” or are planning on developing one, there might be training and expenses that you will benefit from paying for.
One example is if you want to blog, you’re better off paying for your own domain name (e.g. www.jessicagoodenough.com). I outline this more in my Becoming a blogger: How to create the website of your dreams post, so check that out if you’re interested!
You may also benefit from training in certain skills that could turbo-charge your profits. Continuing with the example of blogging, I recently paid for Sam Brown’s Grow your Blog and Promote your Blog workshops. They were only $9 each, but I’m still considering them investments.
In cryptocurrencies
I haven’t yet started investing in cryptocurrencies, but it’s something I’m definitely interested in trying. If you’re not sure what a cryptocurrency is, check out the Wikipedia entry for it here.
When you’re not completely sure what you’re doing with investment options, it’s worth doing a bit of research around it and only investing small amounts at the start. It could be 1% of your income or £10 a month – the important thing is that it’s not money you’re relying on.
Neither a borrower nor a lender be?
One of my principles is to never take out a loan on something that doesn’t create more wealth. Mortgages and student loans I would say mostly pass this test: I may be able to sell my house for more / get access to better opportunities with my degree.
Cars, televisions and goodness knows what else you can buy in instalments probably don’t pass the test. If you do have a car (which will eventually break down), I definitely recommend putting money into an emergencies account. That way when you need to replace it, you’re not scrambling around like a crazy person.
Be flexible, but maybe keep this principle in mind when you’re tempted to buy something you can’t afford.
Further reading (& listening!)
- Say Goodbye to Survival Mode: 9 Simple Strategies to Stress Less, Sleep More, and Restore Your Passion for Life by Crystal Pain – this is a great practical book that doesn’t only relate to money, but Crystal tells the story of how intentionality and frugality helped her and her husband survive and thrive on a low income;
- Think and Grow Rich by Napoleon Hill – I have only just started reading this, but it’s about the mindset part of wealth;
- The Four Hour Work Week: Escape the 9-5, Live Anywhere and Join the New Rich by Tim Ferriss – I find some passages a bit problematic, yet this is still an interesting guide to making more money in order to travel and experience more things;
- The Afford Anything podcast by Paula Pant – she’s saved up to travel for extended periods of time and now she makes passive income with rental properties, allowing her to spend more time on her passions (like her blog and podcast).
These principles and methods are all of course personal. So I would love to hear from you about what you do / don’t do to build wealth. Please share in the comments below!
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