Each year the Institute of Financial Planning picks a week to promote good financial planning practices across the UK. They encourage all in the financial planning community to do as much as they can to promote the week.
Essentially the idea is to get the message across to the UK public of what financial planning is all about and how it can make a big difference to people’s lives.
I believe strongly in applying the principles of financial planning to every individual’s personal finances. Just sticking to some of the basics can have a big impact on what your finances do look like and what they could look like in time. The problem is that not enough people know what even the basics are.
So here are some of my personal favourites.
1) Spend less than you earn – this is rule number one in any language. It sounds simple but can be difficult to master. Without this you seriously harm your chances of future financial success.
2) Think income not assets – most people see success in having lots of financial assets. In reality they are no good to you if they generate no income. Your home for example is a luxury item. It will not generate an income for you and therefore should be considered an expense rather than an asset. It is a lifestyle choice. Generating income will ensure your financial position remains strong and you can stop working sooner rather than later.
3) Hold a short term, medium term and long term pot of money – the short term is basically cash that you do not access unless you really have to. The medium term might be cash savings again but a pot that you have earmarked for spending, e.g. a deposit for a home, a holiday, a car etc. It is money that you have set aside for a certain goal. The long term pot can be everything else. This is money that you have invested for long term financial success and security.
4) Make sure your interest rates are the best they can be – checking the rate you earn on your savings or the rate you pay on your mortgage frequently will ensure you are making the most of your current position. Savings rates in particular are notorious for being reduced without you really noticing so be careful not to let these slip for too long.
5) Get a financial planner – seriously, I know it probably comes as no surprise coming from a financial planner but I do believe this is one step you can take that will make the biggest difference to your finances. Don’t worry about how and why, just approach one and ask them how you might work together. Having your own personal finance director, someone that can answer your questions, stop you making mistakes, encourage you to do the right thing every time because they are not making the money decisions with the same emotions that you are, is invaluable.