Business, Investment planning, Protecting

Improving your Financial Literacy and other Quora questions

10 July 2023

With people tightening their belts all over the UK, personal finance seems to crop up in everyone’s discussions at some point nowadays. Often times, television and social media can confuse us with the amount of solutions or further problems they might provide, making it difficult to make sense of everything. With this in mind, we decided to take a quick look on Quora to see exactly what questions people have been asking in the financial advice realm and see if we could help.

What’s the best way to invest to have financial freedom in 10 years?

Investing is not a guaranteed ticket to financial freedom, as there is always a chance you may not get back as much as what you invest – especially in regard to stocks and bonds. There is no way ‘best’ or even ‘sure-fire’ way to achieve financial freedom as life in unpredictable and people’s personal finance plans change; despite this, there’s a number of things you can do to ensure you’re putting yourself in an advantageous position.

Make specific financial goals: Decide the amount of savings, assets, or passive income you need to achieve the level of financial freedom you desire. This will give us something to aim for.

Establish a thorough budget: Make a budget that enables you to save and invest a sizable amount of your income after taking stock of your current financial status. Spend less money than necessary and put more money into your investing portfolio.

Create an emergency fund: Before investing, it’s critical to create a fund that can cover 3-6 months of living expenses. This safety net will guard you from unforeseen events and let you stick to your long-term investing plan.

Become knowledgeable about investing: Learn about the various investing alternatives available, including stocks, bonds, real estate, mutual funds, and exchange-traded funds (ETFs). Recognize their risk appetites, possible rewards, and how well they fit with your objectives.

Diversify investment portfolio: Diversify your investments across several asset classes and businesses to prevent placing all your eggs in one basket. This reduces risk and may eventually result in higher returns.

Accept that an investment is not guaranteed to pay dividends and this is by no means a comprehensive guide to achieve financial freedom. Ultimately, the decisions you make with your money are yours alone and you need to be willing to be responsible for those when you invest.

What are the key principles for successful financial planning and money management?

Budgeting

Stop me if you’ve heard this one before, but the importance of having a budget cannot be overstated when it comes to money management and personal finance. Assess your incomings and outgoings financially, understand the money that will be spent on essentials and the disposable income that you are left with. Putting together a weekly budget can often break the month up and make it easier to keep track of what you’re spending. If maths isn’t your strong point, you can always use a budgeting app to help you – these can be found in your phone’s app store. Look around and see what works best for you.

Self-control

Going hand-in-hand with budgeting is the art of self-control. Are you an impulse-buyer? We all love a nice, shiny new toy but is it always necessary? Do you buy food and, within a few hours, wonder why you spent money when you had food at home? Or, do you go out and see an item of clothing you really like and can’t help but get it, even if you only wear it once? We’re all guilty of it and, by all means, you should be allowed to treat yourself every now and then. But accept that a short-term, dopamine rush is just that and the long-term, personal finance implications of impulse buying outweighs those new jeans or those bacon fries from that restaurant you love.

Saving (and investing) your money

Cultivate a habit of regular saving. It’s become a tired cliché to say ‘save that £4 that you spend on coffee!’ but the sentiment remains absolutely true. Even putting by a small amount each month will add up over the long-term – once again, painfully cliché but undeniably rooted in fact. If you are in a position where you have spare cash after to putting some into savings, or if you were saving with the goal to invest, this is by no means the worst idea in the world. Of course, there is no guarantee and investment will grow, but remember; saving creates a safety net, while investing allows your money to grow over time through compounding returns. Know the importance and difference and cut your cloth accordingly.

What is the fastest possible way to improve my credit score?

Improving your credit score is typically a gradual process. You have to remember, a credit score is essentially how much lenders can trust you to pay back money, and trust is built over time and with experience. With this in mind, there are a few strategies that you can implement to see a faster increase. Here are some steps to consider:

Firstly, review your credit reports. Obtain copies of your credit reports from trusted credit bureaus, such as Experian, and carefully review them for errors or inaccuracies. Dispute any incorrect information to have it corrected or removed, as these errors can negatively impact your credit score.

Payment history is a significant factor in determining your credit score. Make sure to pay all your bills, including credit card payments, loans, and utilities, on time. Late payments can have a detrimental effect on your credit score, so set up reminders or automatic payments to avoid missing due dates. If, for whatever reason, you cannot make a payment on time, discuss this with you lender and let them know when you will be able to complete the payment.

Your credit utilisation ratio, which compares your credit card balances to your credit limits, might be negatively impacted by high credit card balances. Try to maintain credit card balances that are no more than 30% of your available credit. Reducing debt might increase your credit usage and perhaps raise your credit score.

Try and avoid applying for new credit as much as possible. In a short period of time, applying for several new credit accounts can raise questions about your trustworthiness and could damage your credit score. Do not seek for credit frequently, and only when essential.

Having a mix of different types of credit, such as credit cards, loans, or a mortgage, can positively impact your credit score. If you have only one type of credit, consider diversifying your credit mix over time. Your credit score is determined in part by the length of your credit history. Even if you don’t use older credit card accounts frequently, keep them open. Your credit history may be shortened if you close previous accounts, eventually lowering your score.

Morrinson Wealth does not provide credit cards products.

What is the 50-30-20 rule in personal finance?

Initially thought of by United States senator Elizabeth Warren, the 50-30-20 rule is a basic principle designed to make budgeting more simple. No matter your income, this method is considered an excellent strategy effective income management.

50%

Allocate 50% of your income towards essential expenses and needs. This category typically includes housing costs (rent or mortgage payments), utilities, transportation, groceries, healthcare, and other necessary expenses that are vital for your well-being and day-to-day living.

30%

Spend 30% of your income on wants and discretionary spending. This area includes lifestyle choices and non-essential costs including eating out, entertainment, travel, hobbies, non-essential shopping, and other fun activities that improve your quality of life.

20%

Allocate 20% of your income to investments, savings, and debt repayment. This percentage of your income is used to achieve financial objectives that improve your long-term financial stability, such as saving for retirement, investing in property, paying off debt, and creating an emergency fund.

With the help of the 50-30-20 rule, you can balance your financial obligations, indulge in discretionary spending, and put money aside for the future. It’s crucial to keep in mind that everyone’s personal finance conditions are different, so you might need to modify the percentages in light of your particular objectives and circumstances. Flexibility is vital; you can adjust the rule to better meet your requirements while continuing to give priority to savings, discretionary spending, and critical costs.

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