Wednesday November 20th 2019

Money, money money….

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Dave Reynolds International 2It’s often said that money doesn’t buy happiness. Maybe that’s true. But sinking under a mountain of debt is absolute misery. I know…because I’ve been there. Admittedly that was many years ago, but it’s an experience that I’ll never forget. Lack of sufficient money to pay your bills, and struggling to cope with your debts, can destroy your self esteem, your health and even your marriage.

It shouldn’t be that way and it doesn’t have to be that way.  Yet for a huge percentage of the population that’s the way it is.

Every week millions of people in the UK buy tickets and dream of winning the Lottery.  But if you were born and raised in the UK you’ve already won the lottery!  If you don’t believe me then you‘ve never witnessed the abject poverty and hopelessness that is the day-to-day life of more than half the World’s population.  Although you may not have witnessed it firsthand you’ve certainly seen enough fund raising and news programmes on TV to know this is fact.

People in the third world have little or no chance of escaping from the appalling conditions in which they live,  through no fault of their own; but anybody living in the UK who is  broke and in debt has only himself or herself to blame. 

They’ve spent money they didn’t have to spend; they’ve bought things they didn’t have to buy and they’ve succumbed to the temptation offered by easy credit.  In other words they’ve been living beyond their means.    This is exactly what I was doing when I got in a real mess.

If this is uncomfortably close to home, then it’s time to face up to the fact that you’re heading for disaster… unless you make some dramatic changes to your behaviour and your attitude to money.

Now I have to tell you right up front that I don’t know of any quick fix. I’ve yet to come across anybody who has got rich through a ‘get rich quick’ scheme regardless of the hundreds of appealing invitations I see on the internet. 

Over the centuries people have been drawn, like moths to a candle, to whatever the latest opportunity to become wealthy overnight may have been.  Thousands of people rushed to California and Australia when gold was discovered.  Most died penniless.

If you think there is something just around the corner that’s going to solve all your problems in the ‘blink of an eye’ you’re living in ‘cloud cuckoo land’.

But you can acquire wealth if you are prepared to discipline yourself and take on board a resolve to dramatically improve your current situation.

So here’s what you need to do:

First it’s vital to understand that you are most unlikely to become wealthy through what you earn. Even investment bankers, with their huge bonus payments, and premier league footballers, earning thousands of pounds a week, have been known to go broke. The key to accumulating wealth lies in saving some of the money you earn and putting it to work.

 

This is the most valuable thing you’ll ever learn on how to become financially independent.

And the time to start saving is right now……today!

Forget all the advice you may have heard or read about paying off your debts first.  Contrary to what it may appear, that’s not good advice.

Of course it makes logical sense to pay your debts before starting to save because the interest charged on debt is bound to be substantially more than what your savings will earn. So you may justifiably be asking why I believe it’s the wrong thing to do.

I’ll tell you why. It’s because logic doesn’t take into account human nature.  The fact is if you promise yourself you’ll seriously cut back on spending, and really make an effort to reduce your debt; you’ll almost certainly lapse back into your previous habits.  The only certain way to get rid of a bad habit is to replace it with a good habit.

 

So you need to start saving now regardless of any debts you have that need to be ultimately paid off.

If you are currently debt free that’s great…but you still need to get into the savings habit if you haven’t already done so.

You’ll only ever become financially secure by putting your money to work for you. It’s through asset appreciation that wealth can be accumulated.  And if you don’t save you can’t invest…..it’s as simple as that!

 There are two lessons I was fortunate to learn which have dictated my attitude to money since I was in my twenties and I simply can’t stress these two principles enough.

The first was something I learned from a small book written many years ago entitled ‘The Richest Man in Babylon’. The principle in this little book is so simple but will change your life if you follow it.

It goes as follows:

‘Ten percent of all I earn is mine to keep. I will pay myself first and invest it wisely’

That means taking ten percent of your income before any deductions for tax and National Insurance, and before paying rent or your mortgage or anything else. If you are older than thirty you really need to add a percentage point for every three years. So if you are 36 years old, for example, you should save 12 percent of your gross income.

With regard to investing I’ll cover this later. But initially just open a simple savings account at a bank or building society.  I know the interest rates are rubbish, so I’ll go into some much better investing strategies in my next article.

This brings me to the second lesson I learned which is: The Magic of Time and Compound Interest.

It’s probable that you haven’t really thought about compound interest since ceasing your formal education. So just as a reminder do the following brief calculation:

Take one pound (£1) and double it. Then do it again, and continue to do so. If it takes a year to double your money you would only have £32 at the end of five years. But keep going. At the end of ten years your £1 has become £1,024.  Keep going.  At the end of twenty years your £1 has now become £1,048,576.

 

Now it’s highly unlikely you will double your money every year in the real world. However we aren’t talking about a one-off investment of a pound. We are talking about prudently and successfully investing ten percent of your income month after month, year after year.  The compounding effect of even modest growth will be colossal given sufficient time.

In the next article I’ll give you some suggested strategies for investing and my full guide for becoming financially independent.

Part two coming soon…

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