I’m going to be honest â€” back in uni, I always had the assumption that once I got a good job that paid a decent salary, I would somehow automatically attain financial stability. After entering the working world, I’ve come to realise how I’d grossly oversimplified things.
Especially with the high costs of living in London, if you don’t actively manage your money, you won’t be moving forward. You could finding yourself stuck in a rut â€” going into work, earning a wage, paying off your rent, taxes etc, and not have made any progress towards your financial goals (for instance buying your first house or paying off debts). And many young professionals and fresh graduates have fallen into this trap. It’s good to think about having a personal finance strategy even from as early on as when you’re still at uni, so that you have a game plan when you start working. Otherwise, you could end up just grinding it out at your day job, staying afloat each month, without some sort of long term objective in mind.
As a recent graduate, my current personal finance strategy has three broad dimensions, and I’ve found it to be quite useful for accumulating some degree of personal wealth, even at the earlier stages of your career and professional life. Some of these things I’ve picked up from various sources and through educating myself over the years, and while not entirely new, is just my take on how I approach my personal finances and what works for me.
1. Increasing Revenues and Side Streams
If you really want to be growing your bank balance and be heading towards financial freedom one day, you can’t rely solely on the income you get from your job (unless you happen to be working in Investment Banking or Law) and your employer’s pension programme.
For the last few years, I’ve been working out what ‘hustles’ I can do on the side that won’t get in the way of a full-time job/degree, and can give the best returns on the time I put in. Through the process of trial and error and continuous experimenting, I now have a clearer idea of what works for me, and what I should prioritise.
In general, side hustles should be things that you:
- Enjoy doing and that are aligned to your interests and time commitments
- May be able scale up over time, to generate more income with less time commitment (i.e. moving towards a passive income stream)
- Can do alongside your day job, with minimal interference, and still add value to your life, and your savings account
Some examples of side hustles that have worked for me:
- SIM Card promotion and recruitment: Even as early as first year of uni, I began recruiting for a contract-free SIM card provider that I was using, and earning commission from recruiting new members to the network. Over time, I got some friends involved and built a mini recruiting network, which has been consistently generating revenue. This helped to pay for some nice meals out and holidays during uni.
- Freelance tutoring and coaching: This is a good one if you are knowledgeable in a subject or skill, and enjoy teaching. People value education and are prepared to pay a premium for great teachers (depending on your subject and experience, expect to get paid anywhere from Â£25-Â£50 per hour, or even more). Over the years, I have been involved in teaching guitar, and coaching on careers and interviews. You might think of scaling up over time, and having a professional website to advertise your services, as well as moving towards Skype/online lessons, to reduce time commitment and transport costs. Get started by posting an ad on Gumtree.
- Reselling items: If you know a particular market really well, and know when to spot a good deal, buying and reselling items for profit might be a good way to reel in some spare dough. As a guitarist and musician, I often find myself browsing Facebook Marketplaces and eBay for good deals on gear (amplifiers, effects pedals) and snapping up bargains when I see them. I’ve resold some items that I longer wanted and made some decent profits. You could do this for any number of goods, e.g. designer handbags, clothes, toys and collectibles, etc. The downside of this particular hustle is that you might end up spending loads of time on the hunt for deals, with no guarantee of finding a suitable one.
- Employee referrals: If you work in a large corporate firm, and are a good networker, this could be a lucrative hustle for you. Many companies have internal referral schemes to encourage employees to recruit from their own social networks, with very attractive bounties attached to successful referrals and hires (we’re talking at least a couple of grand for someone coming in a level above fresh graduate, and a few hundred for graduates, depending on the organisation). It doesn’t hurt to know what your company’s referral procedure is and keep on the lookout for potential recruits.
Once you’ve established good and healthy side streams of income, you can slowly become less reliant on the income you get from your day job, which for most people is their main stream of revenue. More streams = more money = more accumulated savings over time, especially if you’re scaling up on those hustles and making them passive generators of income.
2. Maintaining costs and avoiding lifestyle creep
The second dimension of my strategy, is maintaining your costs despite an increase in spending power, and avoiding ‘lifestyle creep’.
Lifestyle creep is the concept of people spending more than they need to be spending, because of a salary rise or having more disposable income. What you previously considered luxuries are now perceived as necessities, for instance, which is a behaviour that can be really detrimental to achieving your financial goals. You start buying more expensive things, spending carelessly, or go for the premium option that you couldn’t afford before. The amount of money that people spend increases, and they wonder why their savings don’t grow and remain stagnant or even shrink.
If you take home Â£2000 a month, and you spend Â£200 on fancy meals, that means you spend 10% of your income on dining out. If your take home salary goes up to Â£3000 a month, should you then be spending Â£300 (10%) on nice meals out? No â€”keep it at Â£200, with maybe a bit of wiggle room (1%-2% increase from the previous amount, so around Â£220). If you manage to maintain this, over time you should see your savings start to grow significantly, in line with your increase in disposable income.
I don’t agree with penny pinching to the point that it hurts, and some level of spending and treating yourself occasionally is reasonable. In fact, in the long run, I’d say growing revenues is far more meaningful and sustainable than scrimping and trying to be thrifty. However, having the discipline to maintain your spending and lifestyle is key to growing wealth.
3. Saving intelligently – investing and ringfencing
So you’ve got a decent amount of money put away at the end of every month â€”great. However if it’s just sitting there in your savings account, are you optimising your money and its potential to grow?
There’s two things I do with my savings to make the most of my money.
Invest (some of) your savings
The first is to make sure you’re getting the highest possible amount of returns with your savings, at a risk you’re comfortable with. This means that, as much as possible, you should avoid leaving your savings in a typical savings account (on average, a standard savings or current account only offers a measly 0.5%-1.5% annual interest rate).
Get yourself educated on the range of other savings options/investments out there. For the fresh graduate who’s just starting out in the working world, I would recommend looking into ISAs (Individual Savings Account), which are great alternatives to saving in a bank account, and there is a variety of options catering to different saving habits and risk tolerance profiles. When I first started at my job, I took a generous graduate loan that was offered upfront and interest-free (the purpose of the lump sum loan was to help graduates get settled in and get started off), and stuck it in a Stocks and Shares Lifetime ISA (LISA) with AJ Bell. That amount has since grown sizeably, where it would not have if I had just left it in my bank account. If you’re thinking of buying a house at some point, you should definitely read up on Help to Buy ISAs.
Always put in the research beforehand so you know what you’re investing in, and consider your exit options! Investing is not a surefire way to make money, so make sure you are aware of the risks and what you’re willing to lose.
‘Ringfencing’ your savings – using multiple accounts
I’m a firm believer in compartmentalising your money and segregating your spending money from your savings. Having all your money in one place could potentially lead to you spending above your monthly budget (assuming you have one) and not saving anything. I ‘ring-fence’ my money through having multiple bank accounts for specific spending and saving purposes.
If your monthly spend is budgeted at Â£1000, then take that amount from your monthly paycheque and put it in a current account (Monzo is good if you want to track your spending on an app on your phone, and is also really easy to sign up for). The remainder should go into a savings account (leave your debit card for this account at home so you don’t get tempted to tap into your savings on a night out!) or ISA. Treat this account as a piggy bank which you don’t break unless absolutely necessary.
I also carry a separate contactless debit card specifically for use on public transport, and set a budget on that as well. Having multiple accounts and cards is a good way to mentally segregate your money and create barriers that allow you to be more careful with managing your money.
- hustle outside your job to build supplementary revenue streams that suit your lifestyle and working hours
- maintain your spending habits within reason even as your income increases over time
- be intelligent with the way you manage your accumulated savings – invest wisely and create barriers to accessing savings
Let’s face it, trying to save money and spend within your means is always a challenge, especially if you live in the City. There are always temptations to spend more than you budget to, and good finance habits take time to build. Start thinking about what are the objectives you want to achieve, and take steps to work towards those goals. Start sooner rather than later, and you should start to see some positive effects on your personal finances.