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How to start looking after your money ๐ŸŒฑ

How to start looking after your money

How to start looking after your money –

Introduction ๐Ÿ‘‹

If you want to get better at looking after your money, the first question you might find yourself asking is:

Where do I start? ๐Ÿคทโ€โ™€๏ธ

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. ๐Ÿ›ค๏ธ

Today we’ll be teaching you what they are! ๐Ÿ‘ฃ

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 ๐Ÿš‘

Financial emergencies are a lot more common than you think. ๐Ÿ”ฅ๐Ÿš’

One minute your bank account seems full – the next you find yourself needing money for things like:

  • Unexpected bills ๐Ÿงพ
  • Car repairs ๐Ÿš—
  • Pet veterinary bills ๐Ÿถ
  • Increased shop prices ๐Ÿท๏ธ
  • Phone repairs ๐Ÿ“ฑ
  • Broken fridges/freezers/washing machines ๐Ÿ”ง
  • Home repairs ๐Ÿก

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. ๐Ÿ˜Ÿ๐Ÿ’ธ

Having an emergency fund is probably the most important step towards getting in control of your finances. ๐Ÿ‘ฃ

Having a pile of savings set aside gives you: ๐Ÿ—ป๐Ÿ’ฐ

  • lower likelihood that you need to borrow money in an emergency ๐Ÿ’ณ๐Ÿงฏ
  • peace of mind knowing that you have something in the bank to cover you ๐Ÿง˜โ˜”

Emergency savings give you a great safety net. ๐Ÿฅ…

I mean who here wants to lie awake at night, worrying about their washing machine breaking? ๐Ÿค”๐Ÿ’ญ๐Ÿงฝ

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. ๐Ÿง—โ€โ™€๏ธ

How to keep control of your money ๐Ÿ’ธ

How much money should I save for emergencies?๐Ÿ’ธ

The 3 month rule 3๏ธโƒฃ๐Ÿ“†

Some financial experts recommend that you need 3 months’ worth of your typical income saved away for emergencies.

This means that if you make ยฃ2,000 a month, some experts think that you should have ยฃ6,000 saved away for emergencies. ๐Ÿ’ฐ

This means that if you lost your job or income, you would have 3 months to fix it before it becomes a bigger problem! ๐Ÿ› ๏ธ

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. โš–๏ธ

Did you know?

In June 2021, Yorkshire Building Society found that 1 in 5 UK adults have less than ยฃ100 in savings.

If you have less than ยฃ100 in savings, it’s a great time to start saving! ๐Ÿฝ

Save regularly

Try to commit to saving a regular amount every month for emergencies. ๐Ÿ“†

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 ยฃ2,000 a month, according to the “3 month rule” your target should be ยฃ6,000 in emergency savings.

You could save 10% (ยฃ200 a month), and reach your ยฃ6,000 emergency savings goal in 2.5 years. ๐Ÿชœ

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. ๐Ÿฆ๐Ÿ’ธ

Step 2 – High interest loans ๐Ÿ“ˆ

(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”? โ˜๏ธ

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%. ๐Ÿ“ˆ๐Ÿ’ณ

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. ๐Ÿ’ฐ

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. ๐Ÿ’ธ

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! ๐ŸŒช๏ธ

You can get free debt help and advice in the UK from:

  • Citizens Advice Bureau“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“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 ๐Ÿง“๐Ÿ“Š๐Ÿ“‰

Next, you can get started on thinking about retirement, investments and any lower interest debts (less than 7%) you might have.

Retirement/old age ๐Ÿง“

It might seem AGES away, but the earlier you start to think about getting older and quitting work the better. ๐Ÿ’ฐ

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 be๐Ÿชด๐Ÿ˜Ž
  • 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? ๐Ÿค”๐Ÿ’ธ
  • 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. ๐Ÿ–๏ธ (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 ๐Ÿง“๐Ÿ˜ญ
  • A lot of workplaces offer a large amount of money in free pension contributions – who really wants to miss out on free money? ๐Ÿ’ธ๐Ÿค‘

Think about pensions ๐Ÿง 

In the UK, there are 2 main types of pension:

State pension ๐Ÿ›๏ธ

This is money that you can claim from the government at “pension age” (66-68 years old depending on when you were born). ๐Ÿง“

You get this money after paying “national insurance tax” to the government when you work. ๐Ÿ’ผ

You need to pay towards “national insurance” for 35 years to get the full state pension money from the government. ๐Ÿ—๏ธ

In 2021/22 people can get up to ยฃ179.60 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)|โฌ‡๏ธโฌ‡๏ธ

Pension schemes/workplace pensions ๐Ÿ’ผ

Pension schemes are a type of long-term savings plan. ๐Ÿท

You save some of your money regularly whilst you’re working. ๐ŸŒฑ

This gives you money to live off in later life, when you want to work less or retire. ๐ŸŒณ

There are different types of pension schemes

Some might be set up by your employer, others you can set up by yourself. ๐Ÿ™‹โ€โ™€๏ธ

If your employer sets up a pension for you this is called a workplace pension. ๐Ÿ’ผ

A lot of workplaces offer free pension contributions, depending how much you put in. ๐Ÿ’ธ

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. ๐Ÿ’ธ๐Ÿ’ธ๐Ÿ’ธ

How cool is that? ๐Ÿ˜ฒ

That could be a crazy amount of free money from your employer, which might grow over time with your pension investments ๐Ÿค‘๐Ÿชด

Why pensions are important โœ…

It is important to consider investing in pensions because they:

  • give you a steady income for the rest of your life ๐ŸŒ‡
  • help to make sure that your family is taken care of financially ๐Ÿ‘ช
  • give you security and peace of mind when you’re retired ๐Ÿง˜
  • help you build wealth over time (people can make a lot of money from pension investments!) ๐Ÿ“ˆ

Investments ๐Ÿ“Š

If you’re keen to grow your money, and happy to take on some risk to do that, investments might be your next stop. ๐Ÿ‘ฉโ€๐Ÿ’ป๐Ÿชด

Investing is where you buy something, expecting that it’s going to increase in value. ๐Ÿ’ธ

You could invest in exotic things like: ๐ŸŒด

  • Art ๐ŸŽจ
  • Wine ๐Ÿท
  • Vintage cars or motorcycles ๐Ÿš—

Or the 3 main traditional investments: ๐Ÿ“œ

  • Stocks/shares (small slices of businesses – you own a small part of the business) ๐Ÿ’ผ๐Ÿฐ
  • Bonds (loans to a government or business – they pay you back – with interest!) ๐Ÿ›๏ธ๐Ÿ’ฐ
  • Funds (your money gets pooled together across lots of investments, can be both shares and bonds) ๐ŸŠโ€โ™€๏ธ๐Ÿ’ฆ

If you want to get started investing, there are lots of resources available online to help you!

Lower interest loans ๐Ÿ“‰

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. ๐Ÿช‚

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 ๐Ÿท

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! ๐Ÿ’ฐ

Step 4 – Save for the big stuff ๐Ÿ–๏ธ

What big things do you want to do in the next 7 years?

  • Buy a house? ๐Ÿก
  • Have kids? ๐Ÿผ
  • Get married? ๐Ÿ’‘
  • Go on a big holiday? ๐Ÿ–๏ธ
  • Buy a car? ๐Ÿš—

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. ๐Ÿชœ

Conclusion ๐Ÿ‘

So that’s it!

You can get started on looking after your money by:

  1. Getting emergency savings ๐Ÿš‘
  2. Prioritizing high interest loans ๐Ÿ“ˆ
  3. Planning retirement, investments, and low interest loans ๐Ÿง“๐Ÿ“Š๐Ÿ“‰
  4. Saving for the big stuff ๐Ÿ–๏ธ

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!

Finally, don’t forget to check out our similar articles below!

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