The FT guide to managing your money- Book Summary
Managing your money is like driving a car, Making financial improvements is similar to progressing through the gears
Don’t spend life stuck in first gear
D’Arcy in The FT guide to managing your money give two pieces of advice: spend less than you earn and live below your means. However, I’ve never found these two sayings to be particularly inspiring, so I prefer this more positive and exciting motto: boost your income and batter your bills!
Bashing your bills and trimming everyday expenses
Three ways to do this:
- Completely cut out spending on unnecessary or frivolous items.
- Buy less of a particular item or service.
- Pay less for what you must have (what I call ‘gains without pain’).
Beware of your ‘latte factors’
If your disposable income is a little too low for your liking, then you may need to ‘sweat the small stuff’. In other words, you should identify and curb what Americans call your ‘latte factors’. Read Bavid Bach book Latte Factor.
Keep a spending diary
Learn to love your bills- In other words, pay them by monthly, quarterly or yearly.
Becoming a better borrower
No matter how hard you work at managing your money, you’re highly likely to turn to a lender at some point in your adult life. For example, most of us are forced to borrow in order to pay for major purchases such as homes and cars.
The basic rule of borrowing is deceptively simple: borrow as little as you can, for as short a time as possible, while keeping repayments affordable. By going down this route, you pay the smallestamount of interest.
Credit cards
In some ways, credit cards are like razor blades. When used correctly, they are simple, convenient tools which perform a useful task. However, when used recklessly, they can do considerable damage. Indeed, at their worst, they become WMDs: Weapons of Money Destruction!
As with most financial products, credit cards exist for one reason and one reason only: to make money for card issuers.
Ideally, your goal should be to avoid paying any interest at all on your credit card. You can do this in different ways. The simple way is to become a ‘full payer’ – someone who always pays off their monthly credit-card balance in full. The slightly more complicated way is to avoid interest by using 0% cards. In other words, the smart way to use credit cards is to use them to spend only what you can afford.
Store cards: the devil’s debt
In many ways, store cards are very similar to credit cards, but with one notable difference: the rip-offs are taken to extremes.
Indeed, store cards could be described as ‘the crack cocaine of credit’, because they can do serious damage, yet are surprisingly easy to acquire!
Shockingly high interest rates and amazingly overpriced payment protection insurance, store cards can easily become the devil’s debt.
Never be tempted to borrow more than you need, as this will cost you more in the long run.
Getting out of debt
I divide borrowers into three separate groups:
Group one: stragglers
People who could easily take a knife to their debts, but have yet to do so, I call ‘stragglers’. They may have missed a repayment or two, but have the capacity to pay off their debts without outside intervention.
Group two: strugglers
One step down from stragglers are strugglers. These borrowers frequently struggle to make ends meet, and often rely on credit to subsidise their lifestyle. Paying off their existing debts over a reasonable period will be hard work, but it can be done with outside help from professional debt counselling services.
Group three: strangled
A further step down brings us to the most desperate of the debt-ridden: the strangled. For these people, their debt burden has become so heavy that it is squeezing the life out of their finances.