With superior money-management skills, you could become wealthier than your manager. Here's how to beat the system.
A survey for the Guardian revealed that the pay packages of directors of FTSE 350 firms (the largest companies listed on the London Stock Exchange) rose by 28% in 2005.
What's more, executives at the biggest firms can expect to earn £1 million+ a year. Wow, it's alright for some, isn't it? To put these increases into context, the average British worker's pay has increased by about 3.7% in the past year, during which time the CPI measure of inflation rose by 2.5%.
Of course, there's no point in envying successful people their wealth, because this road always leads to sorrow. After all, even the world's second-richest person, investment guru Warren Buffett, has the wealthiest individual on the planet (Microsoft founder Bill Gates) ahead of him!
Nevertheless, I reckon that a sensible worker with a will to win can end up richer than his/her immediate boss. This is particularly true if your manager lacks the money-management skills that make such a massive difference over the long haul. Although s/he may earn more money than you right now, by making use of superior financial planning, you can come out on top at the end of the day.
Now for a cautionary note: acquiring wealth is a marathon, not a sprint, which means that many people lack the stamina to strike it rich. However, it's not as tough a task as you'd think, because all you need are eight good habits, a few hours a year and plenty of patience! Here's how to beat the system:
Skill 1: Master budgeting
Budgeting is the foundation -- the very cornerstone -- of sound financial planning. Just like the finance director of a FTSE 350 firm, you need to know exactly what's coming in each week/month/year and how much is going out. Indeed, budgeting is the best tool at your disposal for maximising your disposable income, because it allows you to boost your income and reduce your expenses.
To get your budgeting boost off to a cracking start, read Your Guide To Easy Money, Get A Bumper Pay Rise This Year and Ten Top Tips To Win A Pay Rise.
Skill 2: Control your spending
Once you've got to grips with your household budget, you can then move on to the next step: cutting your core expenses. For example, you can slash your energy bills; find cheaper insurance; batter your phone bills; massacre your motoring costs; and so on. Another useful skill in the battle to curb your expenses is haggling, as I explained in The Best Ways To Pay Less. Also, it's worth remembering that "convenience costs", so aim to resist impulse buying; instead, shop around for discounts on everything significant that you buy.
Skill 3: Bash your borrowing
The Golden Rule of Borrowing is simple: borrow only what you need, pay it off as quickly as you can, and hand over as little interest as possible. Alas, most borrowers fail this test, because they borrow more than they should ("a little extra for a few treats"), pay off their debts too slowly, and pay far too much interest because they fail to shop around.
Generally speaking, most consumer debts fall into four main categories: mortgages (home loans, secured loans and second mortgages); store and credit cards; car and personal loans; and bank overdrafts. If you learn to master all of these, you can avoid enriching lenders too much. These articles will help:
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Skill 4: Switch on to saving
Having been raised in a period of national austerity, our parents and grandparents were super savers, but the same cannot be said for the latest generation. Sadly, the art of saving has fallen out of favour these days. Frankly, if you don't have any savings, you don't have any solid financial foundation at all, so read Ten Tricks To Boost Your Savings without delay.
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Skill 5: Repel risk
No matter how cautious you are and how much you try, you cannot entirely eliminate bad luck from your life. At some point, Foolish Fortune is going to overhear your plans, laugh and then hit you over the head with a pig's bladder. Thus, you need to take action to dispel the everyday dangers of life -- How To Master Disaster will help.
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Skill 6: Invest in your future
Once you've got to grips with the first five steps in my wealth-creation programme, you reach my favourite stage: investing. There's nothing quite like your money making even more money for you while you work, rest and play. Hence, this next phase is absolutely crucial: you must set aside some of today's money to invest in a brighter future.
You may decide to invest in yourself by starting your own business, or in property by becoming a landlord, or by buying shares in well-run companies and holding them for as long as possible. Thanks to ultra-high prices, I'm not a fan of property investing for now, and I started my own business last year, so all of my spare cash gets funnelled into the stock market, as I explained in Ten Ways To Win With Shares.
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Skill 7: Plan for retirement
Unless you're a workaholic, there'll come a time when you part company with the world of work. When you do, you'll need alternative sources of income to fall back on, or you could suffer a substantial drop in your living standards.
As with investing in general, retirement saving is horses for courses: you could live on the proceeds of property, shares, cash or whatever you see fit. However, most of us rely on company or personal pensions to augment our retirement income, which you can read about in Pensions In Plain English. Thanks to their inflexibility, pensions are far from being the perfect vehicle for retirement, but they do the job for most workers. You can learn more about them here.
Skill 8: Be suspicious!
No matter how little or how much lolly you own, there'll always be some dodgy geezer keen to nick it, so you need to be on your guard against scams and swindles. I'd recommend reading How To Spot A Scam and Ten Ways To Get Ripped Off to learn the ropes.
For the record, any investment which promises returns of over, say, 6% a year carries a risk to your capital. In other words, unlike a safe savings account, it could lose you money. Thus, be wary of 'get rich quick' schemes offering mouth-watering returns over short periods. Ninety-nine times out of a hundred, they'll be a complete con, as victims of boiler rooms, Ponzi schemes and fake lotteries have learned to their cost.
Good luck with your plan to make your millions -- now is a good time to start!
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