Last week we began a three part special looking into the basics of personal finance by examining the differences between needs and wants (see personal finance guide). This week we take a more precise look at ways to help you spend less than you earn.
Living within your means
The fundamental rule of personal finance is to keep your outgoings below your income – this will help you to avoid getting into debt and to start saving. Of course, this philosophy is easier to talk about than it is to follow – after all you work to enjoy the good things in life; and everyone wants to move up the social ladder by making large purchases that usually plunge us into debt – such as buying a home or car.
There are actually four main decisions that will affect our financial future:
– Buying a home: Purchasing a house is likely to be the most expensive investment you ever make. It’s not just about taking out a mortgage: it also means allowing for expenses such as property taxes, house insurance, maintenance and more. While owning a home is a dream for almost everyone; you should strongly consider whether you are on a strong financial footing before making the leap. Some people consider that renting is “money down the drain” – however, it is a far more sensible option than buying if you’re going to struggle to pay your debts every month and would ultimately lose the home anyway.
– Where to live: Along with buying a home, strongly consider the location. Many of us have our living arrangements dictated to us by job opportunities; family; and so on. However where you live can have a massive impact on your outgoings with the cost of living largely dictated by the postcode area in which your home is located – so examine these costs thoroughly before you make a move.
– Children: Most couples want to have a child at some point in their lives – however, the timing of this decision is crucial. Kids are hugely expensive: from paying for their education and healthcare; to potentially paying out for a bigger car and home. This impact could be lessened dramatically if you wait a few years and invest your money wisely; allowing your savings to build up. By creating a strong financial backdrop, you’ll not only have money to turn to when your child is born, but you’ll also be able to continue to build up these savings during their lifetime.
– Car: Carmakers may want you to buy new but remember that a car will lose more than half its value through depreciation in three years. So you may benefit by buying a used car or even considering leasing.
Check out the final part of the basics of personal finance guide next week – including the role voucher codes can play in helping you save money.