Manage your money well
Make sure you're in charge of your money, or your money could end up running you. Managing your money is an essential life skill, and once you know what you're doing, it really isn't so difficult. Once you've left home, the only person responsible for your financial health is you, so it's good to know the essentials.
The most important thing is avoiding unmanageable or crippling debts. That means high-interest debts such as credit cards, store cards, or loans that you don't really need. Note that this doesn't include low-interest student loans, business start-up loans, or mortgages, which can be seen as long-term investments in a way.
Before you start saving or spending, or investing, pay off those debts. You will lose more money on high debt interest payments than you're ever likely to make with most savings and investments - you'll be better off in the long run if you work harder at ditching the debt.
Once your debts are paid off, get yourself some money saved up for a rainy day. You really never know when you're going to have an emergency, or need that cash cushion. An unexpected pregnancy, a job loss, essential household repairs, or a new interview suit can be made less of a worry by keeping some cash to one side.
Keep it in an instant or easy access account, and check from time to time that you're getting a competitive rate of interest on it. If you're really good at money management, you could just keep the sum in your current account, if it pays enough interest.
Ideally, if you're working, have enough money saved to cover three to six months of basic living costs. If that's unrealistic, just save whatever you can, even if it's only a pound here and there. Anyone who is on a very tight budget, such as living on benefits, should concentrate on breaking even, and avoiding debt wherever possible.
Basic savings and investments
Once the debts are paid off, and you have some emergency money saved, think about some of the less risky ways to save and invest. That could be high interest savings accounts, property, pensions, bonds, and perhaps insurance, and so on. You won't always make a fortune with these, but if you research the market and choose carefully, they have traditionally been safer long-term choices.
Taking more of a risk
This is only for people who have a stable financial foundation first! With riskier investments, you might make more money, but you also run the risk of losing the lot. This includes unit trusts, shares in single companies, and alternative investments. Don't be greedy and get sucked in by offers of high returns, always read around the subject and do your own research before committing to a purchase.
If you're still not sure what you should be spending your money on and how much you have left at the end of the month, try out the FSA's budget calculator.
To avoid getting into debt in the first place follow these simple rules:
- Make sure you know where your money is going - keep a note of all your incomings and spending. This will help you decide where you can cut back if you're living beyond your means.
- Keep a bit of money tucked away - just in case.
- Be realistic about what you can afford - if you're having trouble paying your phone bill it's probably not a good idea to fork out £800 for a high-definition TV.
- Pay for everything outright if you can - it might seem like a money-saver if you pay for something over a five-year period, but if the APR is at an astronomical rate you could end up paying double the price.
- Use standing orders to pay for your regular bills - this will allow you to arrange a specific date for the companies to take the money out of your account, i.e. payday.