Editor’s note: This article was first published in December 2015; its remarks that Christmas practically arrived in September and that, with the property market down, some prices can be very attractive refer to Spain in late 2015.
Time to review some of the most important tips about our money and personal finances. Since many people make resolutions to improve at the end of the year, here are a few points that are really just a brief summary of topics we have already covered in previous articles on financial education.
And since this year Christmas practically arrived in September, which means some people will have made their New Year’s resolutions back in October, remember the reasons why these resolutions are almost never kept.
1. Set savings goals and targets
If you’ve never planned your finances, perhaps it’s time to start. Look at the income you receive and where the money you spend goes. Which expenses could you avoid? How much can you save, and how much would you like to save? What alternative sources could you use to earn some extra money?
You can download our free Excel template to keep track of your spending and financial goals.
2. Start the good habit of “paying yourself first”
So as not to depend on our willpower, and to build a saving discipline, let’s try to automate our savings: arrange for part of our money (ideally at least 10% of our income) to go automatically into a savings account every month. That’s for the lazier and less financially disciplined among us. For the disciplined, the advice is to start saving and investing as soon as possible.
3. Live well below your means
I’ll never tire of saying that “just because you can pay for something doesn’t mean you can afford it”. Stop trying to impress others and keep up appearances, because trying to look good and impress people often turns out to be quite expensive. You don’t need big expenses and luxuries to be happy and enjoy life (at least the good things in life). So spend less money and invest the difference.
4. Drink half as much as you drink and smoke half as much as you smoke
Although the ideal, without a doubt, would be not to drink or smoke at all, because of the harm we’re doing to our own health, let’s at least try to cut down. And not just for our health, but because of the creativity and mental sharpness people lose through drinking. At the very least, avoid it during the week. Whatever you save, invest it.
5. Focus on increasing your income
If we’re given the choice between saving or earning more money, let’s always choose earning more, because saving has a limit, but if we play our cards right, earning more money can be limitless. Nowadays it’s easier to earn an extra €300 a month than to save €300.
6. Before any other investment, invest in yourself first
For Warren Buffett, this is the most profitable investment you can make in your lifetime. Invest in acquiring new knowledge, in preparing yourself better, in specialising in something. Cultivate your mind through reading and your body through exercise and a healthy diet.
7. We can save on many things, but not on the dentist
Looking after our teeth will save us from having to resort to expensive treatments in the long run. Your mouth is one of the places where it doesn’t pay to cut corners.
(See: The best tips from financial advisers to grow your personal wealth)
8. Entrepreneurship is the best path to financial freedom
You don’t have to quit your job, but you can build a side business so that you don’t depend on a single source of income. Remember that if you’re striving for financial independence and you only ever work for someone else, you’re working for someone else’s financial independence. There’s nothing wrong with that, as long as you’re aware that your financial future is in that other person’s hands.
(See: Why working for someone else is the least profitable, riskiest investment)
9. If you’re young, don’t buy a house
The moment you buy a house, your capacity to save and invest is gone. That said, if your income is stable, you’re confident it will stay stable, you have a sizeable emergency fund and your mortgage payment won’t take more than 30% of your income, it’s a matter of working out whether buying makes more sense for you than renting. All the more so given that at the moment, with the property market down, some prices can be very attractive.
(See: 5 questions to help you decide whether to buy or rent a home)
10. Avoid debt
Avoid debt for as long as possible and, above all, avoid high-interest debt. Remember that the secret of finance lies in making our money earn positive interest. Debt, on the other hand, is a way of generating negative interest against ourselves. Above all, avoid toxic debt, which usually means credit cards.
In our article on the myths about money, we explained that debt is good only when it works as an investment: we only take on debt if it will give us a substantial return, for example borrowing to start our own business or expand it.
11. Take advantage of free money
By free money we mean buying a product that can be paid for in instalments at 0% interest (though watch out for the small print in many cases). Opening an account with a bank that gives you a discount on your main household bills (water, electricity, internet) is also free money. And so are those cards that give you points for paying with them, which you can later exchange for gifts or discounts.
12. Don’t pay more than you should for certain products
A few months ago we published 11 things you could save a lot of money on and are paying more for than you should. Among them we talked about:
- Smartphones.
- Computers.
- Tech accessories.
- Extended warranties.
- And so on.
If we really analyse what we want and need, we sometimes pay up to twice as much for these products, buying features we don’t need.
13. Avoid buying a new car
We’ve already looked at why keeping your old car is much cheaper than buying a new one. That said, it depends on your needs: obviously, if you travel a lot, peace of mind and safety must come first. But remember that the more money you pay or invest in a vehicle, the more money you’re throwing away, since a car is the fastest-depreciating asset there is.
14. Use public transport and apps
If we do the maths, getting around town by car is much more expensive than using public transport. For long-distance journeys, apps like BlaBlaCar can not only save us money on the trip straight away, but also save wear and tear on our own vehicle.
15. Review your contracts, drop some and bundle services
It’s time to review the cover on any insurance policies you have and drop the ones you don’t need. Ask your insurance company how much they would knock off your premium if everyone in your family took out all their insurance with them. If you have your mobile with one company and your internet with another, work out how much you’re paying in case it’s worth bundling everything with the same provider. We covered these and a few other ideas in our article “11 ideas to save a large amount of money every year”.
16. Do it yourself, or don’t
Sometimes we try to save money on a product by making it ourselves. And that’s fine, unless you spend hours saving yourself €10 instead of using those hours to earn more money. Remember that your time is worth money too. Then again, if you weren’t going to do anything with that time anyway, it might be a good idea. And it may be more worthwhile to do jobs like painting the house ourselves, because the saving would be bigger. In other words, learning some DIY can save us money, but sometimes it’s better to simply pay for the finished product. It depends on how much your time is worth.
17. Finally, adopt a financial philosophy
Buy only what you really need, and sell the things you don’t need. To sell your things you can use Wallapop or eBay.
Put off big expenses for as long as possible. You’ll often end up not making them at all, once you realise they weren’t necessary.
Don’t spend all the money you have and, certainly, don’t spend money you don’t have. Avoid personal loans and consumer credit. If you have to borrow to buy something, it’s clear you can’t afford it.
Don’t lose euros to save cents. Sometimes you have to spend money to make more money.
Don’t sell time for money, because the time you’ve sold, used well, could often bring you far more money.
Beyond that: earn more money, save more money and invest more money.
Featured image: Øyvind Holmstad, CC BY-SA 4.0, via Wikimedia Commons.
