Spend Less Than You Earn
To say that this is the linchpin of all financial progress is to underplay it by some margin. You simply cannot make progress with your finances until you master this basic skill. If you think about it, in order to pursue retirement or FI you’re spending less than you earn now in order, one day, to be able to spend MORE than you earn.
There are, of course, two sides to spending less than you earn: Spend less and earn more, so let’s talk about each in turn.
Spending less, or perhaps a better way to put it is controlling spending, is about knowing where your money is going and then optimising that by telling it where to go. So first you track, and then you direct. This requires you to be deliberate – intentional – about every pound that goes through your hands.
I’d love there to be a more palatable, easier-to-swallow, sugar-coated way of putting this. We can rename our budget as a spending plan, or something like that, but the mechanics are the same. You have to know where your money has been and more importantly, where it’s going.
There are ways to make the process easier. My two-account system takes much of the strain out of it, but still, it requires you to be on top of your spending, making smart decisions at every turn. We all slip now and again, but this needs to be the exception rather than the rule. Nothing worth doing comes easy, I find, which is why I’m still chunkier than I should be.
There’s more about setting and sticking to a budget in episode one of the podcast season these blogs are based on, and even more in the first phase of Meaningful Academy, called Financial Foundations. You can use the coupon code PODCAST to get a discount.
The flip side of course is earning more. This may or may not be easy for you. Perhaps you have kids and a demanding job and there just isn’t any bandwidth to do any more work. Maybe you could negotiate a pay rise with your current job, or go for a promotion? I did a whole season on making money back in 2018 and much of it is still very relevant.
When we’re starting out, the skill of spending less than you earn is absolutely everything. As we then go through life it can be easy to take our eyes off the ball and let things slip. Aggressive budgeting is a mark of the FIRE movement, and if that’s your thing than go for it. Personally, I like to enjoy the present and have no interest in retiring super-early. But I am still intentional with my spending and I always pay myself first.
When we eventually retire, we’ll likely be spending more than we earn as we possibly won’t be working at all, or will just be doing volunteer or charity work – who knows? The skills acquired through careful budget management throughout life will stand us in very good stead.
I’ve seen couples who have never been great at controlling costs retire and then inherit, and it’s clear they’re going to burn through the inheritance money before they die, which doesn’t bode well for later life… So, spend less than you earn; it’s so important – that’s why it’s the first point in this Ultimate Guide…
Protect Against Disaster
We can have a perfectly thought-out plan, with immaculate budgetary controls, a clear investment strategy and all that, but sometimes the universe has other ideas. An unexpected job-loss. A long-term diagnosis. These things can completely derail our plans and leave us floundering.
We tend to insure the things that are valuable to us – our houses, our cars, our mobile phones. And yet we leave our single biggest asset to chance. What is that asset? It’s our ability to earn an income. If spending less than you earn is the linchpin of financial progress, than actually having an income to spend less than is clearly pretty important!
If you think about it, your ability to earn underpins everything else. You can’t buy a house without an income. You can’t pay your bills without an income. And you certainly can’t build wealth for the future without an income. And yet we just assume our income is safe for the rest of our working life, when it may not be.
Redundancy, as difficult as that is, isn’t usually a very long-term thing. It might mean you have to change roles and do something for which you’re not suited for a while, just to bring in some money, but usually, before too long, you should be able to find work which you enjoy. But an ME diagnosis, or MS or even chronic mental health issues might preclude you from working indefinitely – what will you do then?
Anyone who’s listened to me for any length of time knows where I’m going here, and that’s to insurance, specifically income protection insurance, which I’ve covered in the past, not least in episode three of the Ultimate Guides podcast season.
If you have debts and loved ones who are dependent on you, then you should also consider life insurance and possibly critical illness cover too. Yes, it’ll seem expensive for something you hope you’ll never need, but if you do, then you’ll be very glad you’ve paid it.
You should also keep an emergency fund of 3-6 months of your basic monthly expenses in a bank account you can access easily. This is the first step to insuring your loss of income. Not only is it a pot you can draw from if you have an unexpected expense, but if you do lose your job or have to take a few weeks off sick, this will cover you. And then you should consider insurance to pick up from there.
The best people I know to help you with this are the good people at LifeSearch – they are the masters at advising in this field. There’s no hard sell, just really good, tailored independent advice. Everyone who has fed back to me says they’ve had a good experience with them, so definitely check them out: https://meaningfulmoney.tv/lifesearch.
Full disclosure: that’s an affiliate arrangement so MeaningfulMoney gets a cut of any commissions earned if you go through them, for which I’m very grateful!
Don’t neglect this. It’s not the sexy side of personal finance. You don’t get many TikTokers talking about this stuff, whereas you get all kinds of 17-year-old idiots saying how they’re making a bomb with Bitcoin or CFD trading or whatever. But it is SO IMPORTANT – please, if you take nothing else away from this, please look at your protection programme and make sure it’s fit for purpose.
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