Introduction
Money is a topic that many people find stressful and confusing. We often feel like we don't have enough of it, struggle to manage it wisely, and worry about our financial future. In her book "Money", personal finance expert Laura Whateley aims to demystify personal finance and equip readers with the knowledge and skills to take control of their money.
This practical guide covers all the key aspects of personal finance - from budgeting and saving to mortgages, investing, pensions, and more. Whateley breaks down complex financial concepts into simple, actionable advice that anyone can apply to improve their financial wellbeing.
Whether you're looking to get out of debt, save for a house deposit, start investing, or simply gain more confidence in managing your money, this book provides a comprehensive overview of personal finance essentials. By understanding how money works and developing good financial habits, you can reduce financial stress and work towards a more secure financial future.
Let's dive into the key ideas and advice from "Money" by Laura Whateley.
Getting a Mortgage
For many people, buying a home is their biggest financial goal and expense. However, with rapidly rising house prices in many countries, home ownership has become increasingly unattainable for younger generations. In the UK, average house prices are now 10-16 times the average salary of 25-34 year olds.
While there's no quick fix to the housing affordability crisis, there are steps you can take to improve your chances of getting a mortgage and securing a better interest rate:
Save a larger deposit
The more you can put down as a deposit, the less you'll need to borrow and the lower your interest rate is likely to be. While many first-time buyers can only afford a 5% deposit, try to aim for at least 10% if possible. This is often the threshold for significantly cheaper interest rates.
Team up with another person
Buying with a partner or friend allows you to combine incomes and borrow more. Just be sure you trust the person and have a legal agreement in place.
Clean up your finances
Lenders will scrutinize your bank statements, so avoid defaulting on bills or making excessive purchases in the months before applying. Demonstrate you can afford the repayments.
Consider if you can truly afford it
A mortgage is a major long-term commitment. Carefully assess whether you can comfortably make the repayments for decades to come.
Improve your credit score
Your credit score significantly impacts whether you'll be approved for a mortgage and what interest rate you'll get. Take steps to boost your score:
- Pay all bills on time
- Don't apply for too many financial products in a short period
- Build a credit history by using a credit card responsibly
- Check your credit report for errors and dispute any inaccuracies
Remember, having no credit history can be as problematic as having a poor credit history. Lenders need some track record to assess your reliability.
While the process of getting a mortgage can feel daunting, being prepared and understanding what lenders look for will improve your chances of success. Take time to save, clean up your finances, and boost your credit score before applying.
Managing Debt
Debt is a reality for many people, whether it's student loans, credit cards, or mortgages. While some debt can be useful for achieving goals like education or homeownership, excessive or unmanageable debt causes significant stress and financial hardship.
The key principles for managing debt are:
- Borrow as little as possible
- Pay it back as quickly as possible
This minimizes the total interest you'll pay. For example, if you have £3,000 in credit card debt at 19% interest:
- Paying only the £74 minimum monthly payment would take 27 years to clear and cost £7,192 total
- Increasing payments to £108 per month would clear the debt in 3 years and cost £3,879 total
Clearly, paying more than the minimum makes a huge difference. Avoid burying your head in the sand - facing your debt head-on will save you money and stress in the long run.
If you're struggling with debt repayments:
- Contact creditors to arrange a more manageable repayment plan
- Ask for a temporary interest-free period (many offer 30+ days)
- Seek free debt advice from charities like StepChange
- Consider debt consolidation to simplify repayments
- As a last resort, look into options like bankruptcy
Remember, no debt is truly insurmountable. There are always options and organizations that can help, so don't suffer in silence. Taking action to tackle your debt will provide huge relief.
Budgeting Effectively
For most people, the key to improving their finances is learning to budget effectively. Yet many of us find budgeting challenging - it can feel restrictive and we may associate it with deprivation.
However, smart budgeting isn't about cutting out all life's pleasures. It's about being more mindful of your spending and cutting back on unnecessary expenses that don't actually improve your life.
The Japanese concept of "kakeibo" offers a helpful framework for mindful budgeting:
- Calculate your monthly income
- Subtract fixed expenses (rent, bills, etc.)
- Decide on a savings goal (e.g. 20% of income) and subtract it
- Divide the remaining money into weekly spending allowances
This method helps you allocate your money purposefully at the start of each month. To make it even easier to stick to your budget:
- Divide money into separate accounts for different purposes as soon as you're paid (e.g. bills, savings, spending money)
- Track your daily expenses to increase awareness
- Identify areas where you're overspending without much benefit
- Allow some room in your budget for treats and fun
Remember, the goal of budgeting is to align your spending with your priorities and values. It's not about depriving yourself, but spending more intentionally.
Some other helpful budgeting tips:
- Use cash for discretionary spending - it's psychologically harder to part with than using a card
- Wait 24 hours before making non-essential purchases to avoid impulse buys
- Look for ways to reduce fixed costs like bills and subscriptions
- Build an emergency fund to avoid relying on credit for unexpected expenses
- Review and adjust your budget regularly
With practice, budgeting becomes second nature. You'll feel more in control of your finances and able to direct your money towards what truly matters to you.
Investing Basics
With interest rates at record lows, simply keeping your money in a savings account means its value is likely decreasing due to inflation. Investing offers the potential for better returns, allowing your money to grow over time.
Many people assume investing is only for the wealthy or financially savvy. In reality, anyone can start investing with relatively small amounts. The key is understanding some basic principles:
Diversification
This means spreading your money across different types of investments to reduce risk. If one investment performs poorly, others may do well, balancing out your returns.
Investment funds
These pool money from many investors to invest in a diversified portfolio of assets. Funds are managed by professionals, making them a good option for beginners.
Risk vs return
Generally, higher potential returns come with higher risk. Consider your risk tolerance when choosing investments.
Time horizon
The longer you can leave your money invested, the more time it has to weather market fluctuations and grow.
To get started with investing:
- Decide how much you can afford to invest regularly
- Choose an investment platform (often called fund supermarkets)
- Select funds that match your goals and risk tolerance
- Set up regular investments to benefit from pound-cost averaging
While there is always some risk with investing, choosing diversified funds and investing for the long-term helps mitigate this. Start small, educate yourself, and gradually increase your investments as you become more comfortable.
Remember that past performance doesn't guarantee future results. Only invest money you won't need in the short-term and be prepared for some ups and downs along the way.
Planning for Retirement
Saving for retirement may not feel like the most exciting financial goal, but it's crucial for your long-term financial security. With increasing life expectancies, you could easily spend 20-30 years in retirement.
The earlier you start saving for retirement, the better. This gives your money more time to benefit from compound interest - where you earn returns on your initial investment plus previous returns.
Most experts recommend aiming to have about two-thirds of your current salary for each year of retirement. So if you earn £30,000 now, you'd want about £20,000 per year in retirement.
To achieve this, you may need to save more than you expect. For example, to have £400,000 saved by retirement (providing £20,000 per year for 20 years), you'd need to save about £750 per month.
Key points for retirement planning:
Workplace pensions
Take full advantage of any employer pension contributions - this is essentially free money towards your retirement.
Tax relief
Pension contributions receive tax relief, meaning the government tops up your savings. This makes pensions a very tax-efficient way to save.
State pension
Don't rely solely on the state pension - it's unlikely to be enough to maintain your lifestyle. Check your state pension forecast to see what you're on track to receive.
Pension options
Understand the difference between defined benefit and defined contribution pensions. Most workplace pensions now are defined contribution.
Investment strategy
Consider how your pension is invested. Younger people can often take more investment risk for potentially higher returns.
Regular reviews
Check your pension statements regularly and increase contributions when you can afford to.
While retirement may seem far off, starting to save early makes a huge difference. Use online pension calculators to estimate how much you need to save and make a plan to reach your goals.
Remember, your pension is likely to be one of your largest assets, so it's worth taking the time to understand and optimize it.
Money and Relationships
Money is often a major source of conflict in relationships. Partners may have different attitudes towards spending and saving, or unequal incomes can create tension.
Open and regular communication about finances is crucial for healthy relationships. Some key points to consider:
Discuss financial expectations
Talk about your attitudes towards money, financial goals, and how you want to manage shared expenses.
Be transparent
Secrecy around finances can erode trust. Be open about your income, debts, and spending habits.
Decide how to split expenses
There's no one-size-fits-all approach. Some couples split everything 50/50, others contribute proportionally based on income. Find a system that feels fair to both of you.
Consider separate and joint accounts
Many couples find a combination works well - joint accounts for shared expenses and separate accounts for personal spending.
Set spending limits
Agree on a threshold for purchases that require discussion (e.g. anything over £100).
Plan for the future together
Discuss your long-term financial goals and how you'll work towards them as a team.
Address income disparities
If one partner earns significantly more, discuss how this impacts your lifestyle and financial decisions.
Be mindful of financial abuse
Control or manipulation around money can be a form of abuse. Be aware of the signs and seek help if needed.
A technique called "contracting" can be helpful for couples. This involves setting out agreed financial guidelines that you both sign off on. For example, you might contract that each person can spend up to £100 per month on personal items without discussion.
Remember that fairness doesn't always mean equal contributions. Consider the overall balance of your relationship - one partner might contribute more financially while the other does more household labor, for instance.
Regular "money dates" to review your finances together can help keep you on track and prevent resentments from building up. Approach these discussions with empathy and a problem-solving mindset.
With open communication and a willingness to compromise, couples can navigate financial challenges together and build a stronger partnership.
The Psychology of Money
Our relationship with money is often complex and emotional. Financial stress can significantly impact mental health, while mental health issues can make managing money more challenging.
Understanding the psychological aspects of money is crucial for improving your financial wellbeing. Some key points to consider:
Emotional spending
Many people use shopping as a way to boost their mood or cope with stress. Recognizing your emotional triggers for spending can help you develop healthier coping mechanisms.
Money scripts
We all have unconscious beliefs about money, often formed in childhood. These "money scripts" can drive our financial behaviors, sometimes in unhelpful ways.
Financial anxiety
Worrying excessively about money is common but can be paralyzing. Learning to manage this anxiety is important for taking positive financial action.
Scarcity mindset
Constantly feeling like you don't have enough can lead to poor financial decisions. Cultivating an abundance mindset can help you make more rational choices.
Social comparison
Trying to keep up with others' spending can derail your financial goals. Focus on your own priorities rather than what others are doing.
Delayed gratification
The ability to forgo immediate rewards for longer-term benefits is crucial for financial success. This is a skill that can be developed with practice.
To improve your psychological relationship with money:
- Reflect on your money beliefs and where they come from
- Practice mindfulness around your spending decisions
- Set meaningful financial goals that align with your values
- Celebrate small financial wins to stay motivated
- Seek support if money worries are impacting your mental health
Some practical tips:
- Use a mood diary alongside your expense tracker to identify emotional spending patterns
- Implement a "cooling off" period before making large purchases
- Visualize your future self to make long-term saving more compelling
- Practice gratitude for what you already have
- Reframe budgeting as a tool for achieving your goals, not a restriction
Remember, managing your finances isn't just about numbers - it's about understanding and reshaping your relationship with money. With self-reflection and practice, you can develop a healthier, more positive attitude towards your finances.
Ethical Investing
As awareness of social and environmental issues grows, many people are becoming more conscious of how their money is being used. Your investments, including workplace pensions, may be supporting industries or practices you disagree with.
Ethical investing allows you to align your investments with your values. Key points to understand:
Ethical funds
These exclude companies deemed socially or environmentally harmful (e.g. tobacco, weapons manufacturers).
Positive impact funds
These proactively invest in companies making positive contributions to society or the environment.
ESG investing
This considers Environmental, Social, and Governance factors in investment decisions.
Greenwashing
Be aware that some funds may exaggerate their ethical credentials. Do your research.
Performance
Contrary to old beliefs, ethical investments can perform as well as or better than traditional investments.
Risk management
As society's values change, ethical investments may actually be lower risk in the long term.
Steps to invest ethically:
- Define your ethical priorities
- Research ethical fund options
- Check your current investments for alignment
- Consider switching to ethical alternatives
- Stay informed about the companies you're invested in
Remember, your money has power. By investing ethically, you can support positive change while potentially growing your wealth.
Practical Money Management Tips
Here are some additional practical tips to help you manage your money more effectively:
Use the 50/30/20 rule
Allocate 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment.
Automate your finances
Set up automatic transfers for bills, savings, and investments to reduce decision fatigue.
Use cash for discretionary spending
This can help you stick to your budget and be more mindful of your spending.
Negotiate your bills
Regularly shop around for better deals on utilities, insurance, and subscriptions.
Build an emergency fund
Aim for 3-6 months of living expenses to cover unexpected costs.
Use cashback and rewards
Take advantage of credit card rewards and cashback sites, but be careful not to overspend.
Learn to cook
Preparing meals at home can significantly reduce your food expenses.
Practice mindful consumption
Before buying, ask yourself if you really need the item and if it aligns with your values.
Educate yourself
Continuously learn about personal finance through books, podcasts, and reputable online resources.
Review your finances regularly
Set aside time each month to review your budget, track progress towards goals, and make adjustments.
Seek professional advice
For complex financial decisions, consider consulting a financial advisor.
Remember, good money management is a skill that improves with practice. Be patient with yourself and celebrate small wins along the way.
Final Thoughts
Managing your money effectively requires addressing both the practical aspects - understanding financial products and how to use them to your advantage - and the personal, emotional side of money.
On the practical side, educate yourself about topics like budgeting, investing, pensions, and mortgages. This knowledge empowers you to make informed decisions and take control of your financial future.
On the personal side, reflect on your attitudes and beliefs about money. Work on developing a healthy relationship with money that aligns with your values and goals. This might involve challenging ingrained habits or beliefs, but it's crucial for long-term financial wellbeing.
Remember that everyone's financial journey is unique. What works for others may not be right for you. The key is to find strategies that fit your personal circumstances and goals.
Don't be afraid to talk about money with your partner, family, and friends. Open conversations can help break down taboos and provide mutual support.
Finally, be patient and kind to yourself. Improving your finances is a marathon, not a sprint. Celebrate small victories, learn from setbacks, and keep moving forward.
By combining practical knowledge with self-reflection and consistent habits, you can reduce financial stress and work towards a more secure and fulfilling financial future.