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A short guide to money

It's all about getting the right balance

Handling money is all about getting the right balance between what you get in and what you pay out, and between what you own and what you owe.

Income 

what you get in

This could be your wages, benefits you receive, or money paid to you on your savings. It's best to look ahead, to plan where your income is going to come from and how you could increase it in the future.

Spending 

what you pay out

This could be rent for housing, food, clothes or transport. If you’ve borrowed money it could be interest and repayments. Make sure you cover the essentials before spending on luxuries. And it's a good thing to keep your total spending less than your total income. That way you can put extra money into your savings.

Assets 

what you own

These could be your mobile phone, a car, a flat or your savings. The mobile phone and car may be good to have, but they lose their value and cost extra to run: so resulting in more spending. A flat may go up in value but, unless you take a lodger, it won't pay you any income. Savings, if they're held as investments, can go up in value and can pay you some income. Their value can also fall, but they're good for a rainy day when you really need the money.

Building your income-producing assets will gradually put you in charge, rather than your money needs. Save money as cash deposits first, up to 6-9 months’ worth of your regular spending. After that – dependent on your risk appetite - you could start investing in stockmarket based assets such as funds or shares. Remember that they too can go down as well as up in value.

Borrowing

what you owe

This could be a mortgage to help buy a flat, a personal loan to help buy a car or a payday loan to tide you over to the next payday if you’re working. These last two are generally very expensive and will cost you heavily in terms of both interest and repayment. Try to avoid borrowing by waiting until you can afford what you want to buy. If you do get in a scrape try contacting the nearest Citizen’s Advice Bureau or credit union.

Here’s the contrast between keeping your money in good shape - good - and always being under stress - bad.

The first way, where extra income feeds extra savings and therefore more income you don't have to work for, is ‘making your money work for you’. 

The second way feels like being on a treadmill, working harder and harder to cover the cost of borrowing.

So if you handle your money well, your savings will grow.

If you handle your money badly, your borrowings will grow.

It’s as simple as that.