6 Things You Can Do Now on Your Path to Financial Wellness
1) Keep a money journal for your expenditures and how you felt at the time
Financial security and safety are linked with significantly lower rates of depression. But how do you get there? One way to ease your anxieties regarding money is by keeping a financial journal.
A financial journal – or ‘money diary’ – can help you learn how to budget, an invaluable skill in relieving yourself of financial anxiety. When you spend time being conscious of how and where you’re spending money and how you were feeling at the time, you’re less likely to binge on things you don’t need. This can improve your entire financial, emotional and mental well-being.
Here’s all you need to put into your journal (if you can, it would be better if it was an actual paper journal!)
- The date
- What you bought
- How much it cost (and how you paid for it)
- How you feel about it or your mood at the time
You can also try writing out an ‘ideal’ budget for the month. Where would your finances go if you didn’t overspend or go shopping? Then, at the end of the month, compare what you spent – and where that money went. This can help you become aware of areas that need improvement. As you continue each month, you’ll be able to narrow down more ways to cut out unneeded spending habits, ultimately loosening the grip your financial anxiety has on you.
Alternatively, use a budgeting app. These apps are a fantastic way to view all financial information in one place. However, these are only a great way of tracking your expenditure if you remember to open the app regularly! Also, most banks have improved their features, so check your main bank’s app.
2) Make a budget and stick to it
A solid budget prevents you from overspending each month and protects you from spiralling into debt. It should also help identify what you can afford each month, helping you stay within your means while helping you save for your future.
That said, creating budgets isn’t enough; you still must learn to stick to them.
Many people follow the 50:30:20 rule, a financial rule that involves dividing your after-tax income into three categories: essential needs (50%), discretionary spending (30%) and savings and investments (20%).
Tips on how to stick to a budget
- Use a separate spending account
- Track your spending as you go
- Track by business
- Use a budgeting app
- Be realistic! Not every expense of yours needs looking at and adjusting
- Incentivise yourself (e.g. new silk scarf or a cocktail at a hot new venue)
- Few elements of your budget are guaranteed, and your income, expenditure and lifestyle habits will change over time
3) Pay yourself first
We promote the “pay yourself first” version of the 50:30:20 budgeting rule. The ‘pay yourself first’ rule emphasises the importance of doing the 20% savings and investments part first. This method prioritises long-term saving goals, such as retirement.
By saving first and spending later, you’ll have fewer funds available for the remaining period before you get paid again — meaning you’re more likely to spend sensibly. With that said, it’s important to note that what you are saving for should be of high importance and focused on the long term – do not ‘pay yourself first’ if it is for a holiday, especially when you have high levels of outstanding high-interest debt (which also counts as paying ‘yourself’).
Few elements of your budget are guaranteed, and your income, expenditure and lifestyle habits will change over time, meaning your budget may not always perfectly align with the 50:30:20 rule. Hence, we believe the ‘pay yourself first’ approach is more sensible. You should avoid substantial monthly variations, but if your budget follows this rule over the long term, you’ll be on the right track financially.
Keep checking in with your budget to assess your budgeting success! You may need to adjust your budget accordingly.
4) Save and invest half of your raises forever
Increased income → increased sense of entitlement → upgraded lifestyle → larger retirement lifestyle required
If your salary goes up from $50,000 to $60,000 and you maintain a saving rate of 10% of your income, then the amount you save, in absolute terms, would increase from $5,000 to $6,000. The issue with this is that it doesn’t account for “lifestyle creep”.
Mo’ Money, Mo’ Problems…
Saving half your raise forever is how to fix that. By spending half of your raise and putting the other half towards retirement, you are gradually increasing your standard of living whilst also committing to accelerating the growth of your long-term savings and the option of early retirement.
Permitting yourself to spend half of every future raise, it becomes easier to make the long-term saving commitment of saving half of every future raise. Practising saving this way could encourage those currently poor at saving to become effective savers. But being poor at saving does not necessarily mean financial irresponsibility.
Let’s take a look at a scenario with two individuals, where the below table applies to both:
- Saves 20% of annual income
- Spends all of their raises
- Can retire at 58 years old
- Starting at the same % of income
- Spends (and saves) 50% of all raises
- Can retire at 49 years old
- Can retire 9 years earlier than the conventional saver
By saving half her raise, Person B saved a much higher percentage of her pay than Person A, who never made it above 20%. After just ten years of saving, Person B already saved 28% of their annual pay.
By the time of Person B’s retirement age (49), she was saving 35% of her annual pay. A staggering difference between the two!
5) Find a side hustle!
Nowadays, many people work more than just their 9-5 jobs. They’re also taking up side hustles, which can be defined as an additional job taken on the side of the main occupation. It presents a way of earning extra income.
People are taking up side hustles for numerous reasons, such as increasing their wealth, paying off high-interest debt, or financing an emergency fund.
Arguably, it has never been easier to set up a side hustle. The rise in social media and digital platforms has presented a wave of new side hustle opportunities, such as content creators, DIY crafters or bloggers. On the other hand, there’s nothing wrong with conventional methods of earning cash, such as waiting tables, house sitting or starting an offline business!
6 Tips for Starting a Side Hustle
- Don’t overdo it. Remember, this is a side hustle, so start small. The need to earn an extra income shouldn’t mean that your side hustle starts to conflict with the commitments to your full-time occupation.
- Do your due diligence. Just like a regular job, don’t start a side hustle that you aren’t in a position to perform. Although you’re likely to be better at performing a side hustle in something that’s a current hobby, that’s not to say you can’t retrain to perform in something else!
- Beware of pyramid schemes. Yes, side hustles really can be scams. Again, this comes back to doing your due diligence before committing.
- Value your time. Don’t charge fees way below the service’s average rate! Lowering your prices to increase sales can be detrimental to you. It’ll attract customers who prioritise saving cash rather than best solving their problems.
- Pinpoint a suitable side hustle for YOU. Embrace your most vital skills in deciding the most practical side hustle for you.
- Know precisely why it is that you’re setting up a side hustle. Knowing what your motivation is will help you set objectives. For example, a side hustle set up to fund a $2,000 holiday in 12 months requires earning an average of $166.66 profit (after-tax) per month.
It’s crucial to note that a side hustle is not for everyone! For reasons such as:
- The opportunity cost of spending that time on your primary occupation
- You are not allowed to do a side hustle. (Not all employers will allow you to have a side hustle on top of your primary occupation.)
- Side hustles may drain you
- Lost time is never found again
6) Start investing (even if small)
Investing is all about planning for the future. The investment landscape is complex and ever-changing, but you can easily understand the fundamentals. Studying the basic concepts and asset classes pays dividends to best judge where the gains lie in the long run. However, the most important message is to make a start, even with just a small sum. Great if it goes up, of course! But also of value if it goes down, whether immediately or later on from a higher level (as it inevitably will, at some point), as you will learn not just about markets but, crucially, about your reaction to losses and emotions around money in general.
Ask Yourself About the Two Investing Considerations: Return and Risk
There are two main investing considerations every investor has:
- Accomplishments: What are the end goals of your investments?
- Time horizons: Are your investments suited to the time frame of your goals?
- Risk appetite: How much risk (i.e. volatility, with a real chance of losing money) can you stomach? How much risk can and should you take on?
- Grow or protect? Are you aiming to grow your existing assets or protect them from inflation?