6 Money Making Lessons They Should Be Teaching In Schools Instead Of Algebra
So, in school...
In school, I was always the kid who kept his head down, listened to the teachers and my parents alike. As they told me "Stay in school, do well in every subject. What they teach you now, you will need later in life!" I strived to succeed in every lesson and so I did.
The problem is, this didn't work out to my best advantage; I was made homeless for a couple of years and when I found accommodation, already too old to go back to college funded by the government to specialise in a subject, too overqualified to study a lower-level subject and progress onto higher levels through there and not quite qualified enough to go to university.
No relevant experience and such diverse range of skills and qualifications, I'm almost unemployable.
So, no Dad. You was wrong. I do not need "these tools" later in life. I need money management skills!
So, kids, teenagers and adults alike; here is today's lesson:
This means making your money last until next pay-day. Covering your bills, rent, council tax and food and hopefully have enough left over to save.
Most people would not think about the occasional £2 cup of coffee on the way to work, that copy of heat on the train or that 3 for 2 mix and match on confectionery at Tesco. I know I certainly didn't up until about a year ago. But it all adds up to money you can save to prevent yourself from struggling to make ends meet.
You see, I had what could only be described as a frivolous lifestyle. Money was easy come, easy go. In one hand, out the other... in fact, it barely made it to the other hand before it was spent. I'd get paid one every two weeks and within a day I would be broke.
So I told my bank the situation and they couldn't do anything about it. They had no financial advice for me about budgeting. So for three years, I was wondering how I could go about disciplining myself?
I came up with the Three-Account-Technique.
Here in the UK, we can have a tax-free cash ISA which is a savings account with a maximum yearly deposit, it is capped because anything about that is not exempt from tax. My goal was to hit that maximum deposit each year and leave the money there.
I also opened a regular savings account and also had my current account. All with the same bank, easiy manageable by the android banking app.
So, I would get paid into my current account.I'd pay all my expenses and buy that weeks food using my visa debit card (with chip & pin) associated with my current account.
After my expenses, I will store the money in my regular savings account and all of those unnecessary impulse spends I would usually buy, I would take mental note of and at the earliest possible convenience, transfer that exact amount from my regular savings account into my ISA.
This allows you to actually see how much your impulse buys would have cost. The regular savings account is good because I don't have a visa debit card with it so I can't make purchases online or in store, but I can withdraw from the cash point if I need to for whatever reason. The other benefit of this middle account is, if you have any unexpected overheads you can transfer the money from your regular savings account into your current account and pay that way without disturbing your ISA (once you remove money from your ISA, the allowance is still spent, you can not put it back in).
At the end of the year tax year, I will transfer everything from my savings account into my ISA to get as much in there for this tax year, tax free (because you can leave it in there, you get a new yearly allowance you can add on top of it at the start of the next tax year). Then, I will have an empty regular savings account to start again.
If you can't seem to make your money last, it simply comes down to whether you need to spend less or earn more; easier said than done I know, especially faced with the temptation of going on a massive shopping spree when your monthly wages come in or worse, your student loan! Even if that temptation is too great to overcome, it is paramount you pay your bills, rent and tax first!
2) Know your limits!
There are three basic questions you must ask yourself every single time you get paid;
- How much are my critically necessary expenses?
- How much is the bare minimum I need to survive until next payday?
- Can I afford to waste this money when I could possibly lose my job next week, no matter how secure I naively believe it is?
I would avoid credit cards, I'm going to bring them up here because we are talking limits... Some people say they are the devil's work, others believe they are necessary to maintaining a good credit file in case you ever want a mortgage.
I have never owned one or would want to at this current moment in time. Yes, they can improve credit but so can a far cheaper SIM only 1-month rolling mobile phone contract if you pay your bills on time. Even paying a £10 a month SIM only contract on time will have the same effect on your credit file as paying a £1000 credit card bill on time every month. The value of repayments do not matter so long as payments are made on time. Credit agencies look for consistent repayments, not who can pay more the most erratically.
In fact, scrap lesson two, it's self explanatory. Let's talk about your credit file,
3) Your credit file.
There are many credit referencing agencies, in the UK we have three popular ones; Xperian, Equifax and Call Credit (in that order).
My credit was super poor for several years due to many small unpaid debts which totally about £1000. For two years, I paid very low (I'm talking £1 or £2) weekly payments to these debts, depending on the size of the actual debt for each individual debt, at the same time.
So for two years, I had several (very low) consecutive weekly repayments going to several companies for several debts and 6 months later, my score had gone from probably absolute zero to not far from fair. Now, I am safe in the knowledge I can apply for a mortgage and based on my credit file alone (not affordability), I would be accepted.
Your credit file is the single most important financial detail about you. It does not matter how much money you have in the bank if your debt supersedes your available funds.
Did you know, if you had 0 debt and only $10 in the United States, you would be more wealthy than over half of America?
A poor credit file can even prevent you getting many jobs and can positively snub your chances of getting a job in the finance industry. Even mobile phone shops will ask you to do a credit check before you get a job on the basis if you can not manage your own credit, how can you possibly, responsibly give credit to someone else?
Does your money see you through until next pay day?
This is only a quick one, haggling is not illegal in the US or UK, you can legally haggle with Asda, Tesco or any other supermarket giant just as you can an open market-stall.
My friend once bought 5 40inch TV's for his bar from Tesco and got the display model free through negotiating the price (a fancy term for haggling) with the manager. You probably won't get far unless you're spending big bucks, not with the giants anyway, but the little merchants will allow you to test your haggling ability.
5) Shop Around!
Go to Google and type in Compare X.
Oh my gosh, that is one of the rare times I have ever used algebra since leaving school!
Now, trawl the billions of search results. Click on any of them and find the same X for the lowest price and buy it from there.Notice: Do take into consideration postage/travel costs. It is not cost effective to buy just one item for £1 cheaper and pay an extra £3 picking that one item up. However, there are many websites such as mySupermarket which will compare your entire shopping list and tell you where to go to get the cheapest overall bill.
Also, with brands comes like-brands, such as Aldi. They sell near-identical products in taste and quality as well known expensive brands to the point even The Queen prefers the Aldi Christmas pudding to the Harrod's Christmas pudding!
And last but not least...
6) Start paying into a pension as soon as you have your first job, try to pay into two pensions if possible (this is called spreading your assets).
This comes as no surprise that the earlier you start paying into a pension, even if you just put £1000 in there and leave it, the time it does actually mature for you to draw upon, it will have grown substantially.
Some employers provide a workplace pension (now the law in the UK for all employers to provide a work based pension) so it is always worth keeping track of your work history so you can find out about any pensions you may have forgotten about or didn't realise you had.
Life insurance is also a good 'investment' (it isn't a financial investment) near end of life but do not confuse this with a pension. Insurance is not saving money.
Final things to bear in mind...
When it comes to shopping, remember buying in bulk is always cheaper. For example, a pack of 12 toilet rolls which will last say 4 weeks will work out to be cheaper than 1 pack of 4 toilet rolls every week for four weeks.
Use online deal checkers to see where the juiciest multi-buy offers and freebies are.
And my final, ultimate piece of advice:
And if you don't need it, don't buy it.