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FOOL'S EYE VIEW
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Many years ago, I read somewhere that behavioural psychologists believe that it takes around 28 days for the typical person to make a major change to their pattern of behaviour. In other words, it's possible to drop a problem habit completely, or take on a new one, in less than a month. Of course, the main reason why most of us don't do this is simply because we don't go the distance -- our willpower usually gives out first! However, positive reinforcement -- rewarding yourself for doing (or not doing) certain actions -- and negative reinforcement can be powerful tools to support your self-control. So, given that it's possible to change your life radically in just 28 days, what money-management and wealth-creation skills could you learn in this time? Here are five ideas that I've come up with. 1. Begin to budget/slice your spending As I explained in this article, I underwent a financial detox throughout January. My goal was simple: to spend as little as possible on top of my usual monthly outgoings, which I call extreme budgeting. I set myself a target of spending less than £30 in 31 days, and I beat it easily, spending just £14.85, or under 50p a day last month! Naturally, becoming a financial hermit meant give up all of my vices and life's little luxuries, which meant no alcohol, cigarettes, convenience food, snacks and so on. Indeed, most of my spending went on weekend newspapers, which became my little treat to look forward to each week. What's more, for the first time in my adult life, I didn't use my credit and debit cards for an entire month, which means that I've had the shortest monthly statements ever! Obviously, you don't have to become a complete miser in order to get a better grip over your spending. However, keeping a spending diary (in which you record every single item of expenditure, whether by cash, cheque, plastic or whatever) will show you where your money goes and can be a real eye-opener. Equally, leaving your plastic at home and taking only a few quid to work each day will prevent you from being tempted into splashing out on overpriced coffee and muffins and so on! 2. Bash your borrowing Ah, debt -- perhaps my biggest financial pet hate. Having struggled with close to £50,000 in debt in the late Nineties, you'll understand why I'm a passionate anti-debt campaigner today! Hence my belief that avoiding debt (or at least managing it well) is perhaps the most valuable financial talent. Alas, the majority of Brits seem to have forgotten this, as the last twelve years have been one long borrowing binge. Indeed, since the start of this century, our total personal debt (including mortgages) has increased by nine-tenths (90%), from £610 billion to £1,158 billion. Ouch! The problem with borrowing is that the odds are stacked heavily in favour of lenders, not borrowers. For example, although the Bank of England's base rate is a mere 4½% a year (pretty low by historical standards), high-street lending rates are well above this level. For example, the typical standard variable rate for mortgages is over 6½%, the average rate on a credit card is 15½% APR and all but three store cards charge more than 18% APR. Now can you see why profits for the UK's five biggest banks will total around £35 billion for 2005? Demolishing your debts is probably the most worthwhile step that you take on your journey to financial enlightenment. These will help: We've found Best Buy 0% credit cards and personal loans for you! 3. Start to save more One of the great moments in my financial life came after I'd paid off my debts and started to save, because I went from paying interest to earning it. The difference was (and still is) amazing and, what's more, without any debts, I was able to put away a lot more money into my savings account. Naturally, I didn't want to pay tax on my interest, so I poured money into tax-free savings accounts known as cash mini ISAs. I also found a no-notice savings account which paid a market-beating rate of interest, and kept an eye on it to make sure that my rate remained competitively. Finally, I also tried my hand at a more disciplined approach to saving by opening a regular-savings account which paid an ultra-high rate. If you'd like to become a super saver, then read Your Ultimate Guide To Saving, which includes ten lessons to change your life. Check out the great rates in our Savings centre and visit our Saving for Children centre! 4. Pump up your protection So, you're living within your means, not borrowing to support your lifestyle, and saving a decent chunk of your take-home pay. However, what happens if disaster strikes? What will save you, your family and your new-found wealth from Lady Luck's temper? Of course, if your emergency fund, rainy-day money or nest egg is sufficiently large, say, a year's expenses or more, then you can clear most financial obstacle with ease. However, you still need to protect yourself against the really damaging risks, such as premature death, serious or long-term illness, major damage to your home and car, and so on. This is where insurance in its various forms comes into play. One complaint that people make about insurance is that it's "dead money", because millions of us pay in without ever receiving a payout. Then again, these people should thank their lucky stars because they didn't have to claim. As someone who handled many claims over a fifteen-year career in insurance, I know you don't want to have to claim! The crucial lesson here is a simple one: shop around very carefully so that you find your best deal, not your first deal. Whether you need life, health, motor, travel, buildings and contents insurance, or income protection, it pays to find the best cover at the lowest price. These articles will help: Pound your premiums with a visit to our Insurance centre! 5. Increase your investments Now for my favourite bit, which is also the place where much of my disposable income and spare capital goes nowadays. I'm talking about investing through buying shares in good companies, not in property or speculating in "alternative" investments such as art, antiques, cars, coins, stamps, whisky and wine. One of my favourite quotes about investing in shares comes from renowned US fund manager Peter Lynch, who said, "Although it's easy to forget sometimes, a share is not a lottery ticket... it's part-ownership of a business." Unsurprisingly, if you pick the right company and goes on to prosper, you share in the spoils as the share price increases (known as a capital gain) and though higher cash payouts (known as dividend income). Sadly, following the stock-market plunge of 2000/03, many adults were frightened off from investing in shares. Others find the whole language of investing nothing more than complicated gibberish. On the other hand, you can invest with confidence -- and sleep easy at night -- even if you have a limited knowledge of the financial world. Simply buy a cheap, simple, low-charging stock-market fund inside a tax-free wrapper and let time and patience do the work for you! Learn more in Three Ways To Win With Shares. Check out this cheap, simple investment and invest tax free inside an ISA! Finally, following this formula won't make you a millionaire overnight, but it will make you steadily richer and, given time, you could well end up very well off indeed. At least, it seems to work for me! More: Let the Fool help you find better 0% credit cards, personal loans, savings accounts, insurance and investments!