Finance Roll

Once again today I was reminded of the fact that Personal Finance is, in fact, simple. Never mind The Credit Crunch, mortgage rates, Inflation, discretionary income, interest rates ad infinitum. You only need to make sure of three things in order to be a success in Personal Finance. You only need to:

1) Resist taking on new debt.
2) Minimise the amount you spend.
3) Maximise the amount you earn.

Live by these rules and you won't go far wrong. Unfortunately for us these simple rules seem much harder to observe in real life. We seem by nature to be able to blatantly ignore common sense even when it is banging on our door with an oversized gavel. The same notions occur when we look at weight loss. We all know that in order to lose weight we need to eat less (equivalent of rule 2) and exercise more (the equivalent of rule 3), and yet the Weight Loss industry makes mega millions every year on the back of the new "breakthrough" whether it be good natured or modern-day snake oil.

Another quaint notion that we always seem to follow is the idea of starting new procedures around a datal attraction. The new diet will commence on return from your holidays, or I'll start saving after my birthday. The most common manifestation of this is, of course, the New Year's Resolution.

Today is August 27th 2008, and we quickly approach the final quarter of the year. Please take this opportunity to look beyond the hype to realise the simplicity of Personal Finance. A primary school child could understand it, but it takes an adult to enact the processes.

The first action to be taken is to resolve to obtain no credit during the month. Cash is king. If you don't have enough cash to buy something between now and the end of the year then don't get it. The Rolling Stones were absolutely correct when they sang "You can't always get what you want, but if you try sometimes, you just might find, you'll get what you need". This is very true. Happiness is not in trinkets, but inside your own mind.

The second action to take is review your spending. Get your Bank or Credit card statement out to see what you actually spend. Split up all costs and drill them down to the penny. Once you have done this look to the findings line by line and decide whether each thing was worth it. Whilst looking at my own spends I can see that the money I've spent on electricity has given me a return whilst the money I (over)spent on beer has just left me a headache! By making sure you get your money's worth from every penny that leaves your pocket your spending will automatically err towards the minimal sustainable level. Repeat this exercise often and by the end of the quarter you'll find you have a whole new attitude towards personal finance. I myself have been very surprised by the change this simple exercise has brought about.

Finally, begin to take action in the way of bringing more money into the family purse. This may be by working overtime, asking for a raise, taking on a second job or instigating new income streams. The trick is not the accumulation of extra cash - for anyone can bring in a little bit more money if they look for it. Rather the trick is acquiring extra monies without it also resulting in lifestyle inflation. If you get a promotion don't rush out to reward yourself with a shopping spree. If you have a huge sales month then don't spend that commission cheque on a new car. Keep the extra cash and make it work for you by means of investing it. Even a vehicle as simple as an ISA will be keeping you in pocket long after any new car is rusting in the scrap yard.

In conclusion, keep it simple. It's Personal Finance - not Rocket Science!