So I’ve been asked a few times by different people about the things I invest money in. I’m not a qualified financial advisor, so I’m always reluctant to give advice as such. When I talk about money I find that most people are not very receptive to the conversation. I see either a blank look in their eyes or irritation or even anger. I love food and I love travelling. I post a lot of pictures of the food I eat and the places I travel. People ask how I can afford it. It’s not about having lots of money but rather how you manage that money.
A previous post of mine detailed how even just on minimum wage it is possible to get by with some basic money management and an awareness of where your money is going. Obviously every person’s circumstances are different. I will not tell you how to spend your money because I’m not qualified to do that. What I would recommend you do is take some time to really analyse what you spend your money on. Read some books, articles, blogs. Listen to podcasts. Read the financial pages of newspapers online. There is a wealth of information out there for free about how to manage money. Some of the information is better than the rest. I can’t tell you what the golden rule is but as a general rule, if it sounds too good to be true then it probably is. If someone says they can make you millions overnight, then it’s almost certainly not true. In my own personal experience, making money is a process. It requires thought, action and experience. This is my experience. What follows does not constitute advice or a recommendation.
I want to make money. I want to be wealthy. I don’t want to have to work. I want to be able to do what I want, when I want, where I want, with whom I want. The lottery is a con. Gambling will only lose you money in the long run. And as far as I know, I don’t have a wealthy uncle in Luxembourg ready to leave me millions. As such, the responsibility for making money is on me alone.
When I first started looking at how to make money I did some really stupid things. I invested in the stock market without really doing any research. This was just another form of gamble. I lost money. I wanted the quick hit and although some people do make insane money from the stock market, from what I can tell you need serious capital upfront to make overnight riches. I personally believe the stock market is a fairly risk free method of making money long-term but I appreciate there is always the risk that the company I invest in could go under and I lose my money. However, my thought process is roughly as follows.
I don’t put all my eggs in one basket though. I have shares in five companies. I’m not going to name them as I don’t want to be seen to be making a recommendation, but they are spread across different sectors and are all listed on the FTSE. I made sure to research each business thoroughly after being guided through different books on sharedealing. A good starting point in my opinion is the book Shares Made Simple for which I will include a link at the bottom of this article if you want to buy it on Amazon. A major factor for me is passive income; that is income generated without me actively doing anything. Part of the reason I chose these shares is because I receive dividend income in ten of the twelve months of the year. I’m earning around 4% on these shares each year; that is 4% of the value of the investment. Compared to the best savings account my bank offers (2%) it’s a no brainer for me. But I’m fully aware of two things; the value of my investment can fluctuate drastically over the short term and it might not be possible to quickly release the money invested if I need it.
Another way I am investing my money is through crowd funded property. There are several websites out there that offer this service. There is also peer-to-peer lending. The internet is great for this sort of thing. Before I signed up to invest my money I monitored the website I use for months. I researched it. I read reviews. I thought about it and thought about it and then made the decision to invest.
Investing without research is gambling.
All of this requires you to actually have money to invest though. There’s no magic solution here either, you have to have more money coming in than going out. Most people I speak to have absolutely no idea where their money goes. They don’t budget. They simply live payday to payday. I check all my accounts daily. I check all my investments daily. I have a monthly budget spreadsheet which details all my commitments and the days they are due. It sounds like a lot of work. It isn’t. It takes five minutes each day, or less. There was time to be invested upfront. It took time to go through my accounts and through the direct debits. It took time to set the spreadsheets up but all a spreadsheet replaces is a pen, paper and calculator. The best thing I ever did was track every penny spent on a normal month of household shopping. I thought I knew how much we spent on groceries. I was way, way out. Again, it sounds like a lot of work but it isn’t. How much work is it to have a note on your phone, or a post-it on your fridge, with a running total of how much you have spent on food? You can’t know how much you have to invest until you know how much you are spending. If you have more money going out than coming in, then I guess you’re in trouble and I would strongly recommend you seek financial advice at the earliest possible opportunity. There are resources out there with the Money Advice Service, Stepchange and Citizens Advice.
"Live in days. Work in months. Think in years. Plan in decades."
I don’t know where that quote comes from. I stumbled across it sometime ago and it struck a chord with me. My plan for over a decade has been to build a foundation to allow me to retire from work by the time I am fifty. I’m on track to do that earning just above the UK national average wage. I am using the power of compounding to help me along with this.
“Compound interest is the most powerful force in the universe.” Albert Einstein. Possibly.
There is some debate over whether or not Einstein actually said this but it is hard to argue with the statement. Compound interest is where interest is earned on interest. For example; if you have £100 and that earns 5% interest then you will have £105. If you earn another 5% then you do not have £110. Instead, you have £110.25. If you have £100,000 and you earn 5% then you will have £105,000. If you earn another 5% then you will not have £110,000 but rather £110,250. If you project this over years and decades then the power of compounding really starts to snowball.
As well as investing a proportion of my salary into investments each month all the money I earn from those investments in put back into those same investments. My money is making me money. This is the secret of passive income.
I have a figure in my mind; a figure for the income I need to have the life I want without having to work. Once my passive income hits that figure, then I will retire.
Live in days. Work in months. Think in years. Plan in decades.
Will my plan work? Maybe, maybe not. But I think my plan is better than no plan. Most people I speak to don’t have a plan beyond working until the age they can draw a pension and they see this as a safe option. Well there have been enough well publicised pension scandals recently to make me doubt how much more safe this is than educating oneself and taking control of ones’ own financial future. Especially when you consider many of these pensions tend to be tied to stock market anyway!
Like I said, I’m not a qualified financial advisor. I don’t have any professional experience in investments or pensions. I’m just someone who has read a few books and decided to tackle my future head on. What works for me may not work for you. If you want to learn more then there are a vast number of books out there on the subject of money. Some of my favourites are linked at the bottom of this article to their Amazon listing.
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