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FOOL'S EYE VIEW
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I recall reading somewhere recently (and forgive me if my figures are slightly out) that the Financial Services Authority is responsible for monitoring something like 10,000 financial firms and 158,000 registered individuals! That's a huge amount of ground to cover and reflects the increasing complexity of financial services in the UK. It's no wonder that some companies, such as Equitable Life, slip through the cracks. However, those that subscribe to the KISS approach to situations (Keep It Simple and Straightforward) would argue that money management may appear complex at first but is, in fact, very simple. Most of us want to take our wealth in one direction: upwards. A notable exception was Richard Pryor in the film comedy Brewster's Millions, who had to blow $30 million in 30 days in order to inherit $300 million! So, if you want to increase your wealth (and maybe get rich someday in the process), you need to keep an eye on five key areas (and one golden rule: shop around). Get these steps right and everything else should fall into place: 1. Budgeting One elementary approach is to write down a list of all your outgoings and income to see where you can make the biggest savings. Once you've done this, target your top three expenses and make them sweat (then repeat for the next three and so on)! For example, you could fine-tune your shopping habits (such as buying in bulk to get more for less), reduce the cost of motoring or cut your fuel bills with just a signature. Visit our Living Below Your Means discussion board to learn from frugal Fools and budgeting boffins. 2. Borrowing If you can avoid borrowing at all, do so. The only acceptable reason to take on a big debt is buying a home with a mortgage. If you already have a mortgage, move it around as often as you can without paying hefty penalties. Active disloyalty in this area can save you £1,000 a year or more. If you have unsecured (non-mortgage) loans and plastic cards, rank them in order of the interest rate you're paying, then tackle them one by one, from highest to lowest rate. You need to keep up your minimum payments and then simply use any spare cash to pay off some of the most expensive debt. Alternatively, buy yourself some time by switching to interest-free cards. Learn how to tackle mortgages, credit cards and personal loans in How To Diminish Your Debts and visit our Get Out of Debt Centre. 3. Protecting If you own or choose to buy any of following products, you'll always find a better bargain by shopping around via the web, telephone and brokers. I often quote the "Rule of Three": you can usually find two insurance policies which are almost identical in every respect, yet one will cost at least three times as much as the other! Shop around for the most popular insurance products that we buy: motor, buildings and contents (household), life assurance and mortgage protection, long-term sickness (income protection), critical illness, health (private medical insurance), travel and pet cover. Visit our Insurance Centre to save money on your premiums. 4. Saving Visit our cash mini-ISA centre and learn more about how to save. 5. Investing One Foolishly fine way to invest in shares is via an Individual Savings Account (ISA). Your best bet for low charges, flexibility and simplicity is an index tracker, which tracks the stock market ups and downs. You'll see countless adverts for managed funds but, despite the hype, these rarely beat index trackers over the long term. So, you've done it: massaged your household budget, paid off your unsecured debts, got the best deal on your mortgage, found some good value-for-money insurance, built up a cash emergency fund and started investing for your future (don't forget your pension). What's left to do? Well, if you're feeling helpful, share the secrets of your "five-step strategy to get rich sensibly" with your family and friends. Get Out Of Debt | Insurance | Savings | ISAs | Financial Freedom Seminar
The cornerstone of good financial planning. Whether you're getting by on £300, £3,000 or £300,000 a month, spending more than you rake in will put you in the poorhouse. The trick is to manage your expenses downwards as hard as you can. It doesn't involve much physical effort – a couple of telephone calls or an hour of surfing often does the trick.
There are very few truly wealthy people who are also burdened with massive debts – it just ain't Foolish. When did you last hear someone saying, "I'm getting rich through borrowing by the bucketful"?
As far as I'm concerned, Scottish poet Robert Burns was spot on when he claimed "the best-laid plans of mice and men go oft astray." I worked in insurance for 15 years and dealt with countless people caught in truly tragic and terrible circumstances. It's not Foolish to assume that the dice will always roll your way – you need to manage the risks of life.
Which is putting money away to earn interest on it, it's simple as that. The basic rule is to find the highest interest rate with the fewest restrictions, preferably tax-free as well. Cash mini-ISAs do the job splendidly, allowing anyone over 16 to save money for a rainy day or nest egg. National Savings & Investments, the government's savings arm, also offers several risk-free, tax-free accounts. Once you've got the savings bug, keep going until you've got an emergency fund big enough to tide you over for at least three (and preferably six) months.
Start by reading our guide to getting started, because investing carries risks, especially if you're looking to the stock market to generate long-term returns. Note that shares have outperformed cash, bonds and property over the long-term. When investing long term, you need to steer clear of plans that are difficult to understand or packed with jargon, have high charges or are inflexible and lock you in with penalties. See what we mean in A Plain English Guide To Investment.