💰My Personal Finance System
The Sunday Night Review
Hey everyone,
Just a heads up, this week I’m going to be talking about money and sharing some of my personal finance numbers, so if that’s not for you then don’t read on.
A few months ago, I listened to one of the most personally impactful podcasts I’ve ever listened to. It was personal finance expert Ramit Sethi being interviewed on the Diary of a CEO podcast. He’s got a big following online and wrote the bestselling book I Will Teach You to Be Rich. He sounds like a bit of online finance bro, but he’s actually super legit.
Historically, I’ve been a lot less organised with my finances than I thought. Each month I’d get paid and then put some into another pot, pay my rent, and then spend what I had left, but it was all messy and there wasn’t a system. I just hoped the total number would go up each month. It often didn’t.
I’m definitely not a personal finance expert, and I’ve had a lot of unfair advantages in my life, but this was a genuinely game changing convo for me. Chances are if it was helpful for me then it’ll be helpful for some of you.
He talks about a few things like investing, buying a house and compound interest. The main thing I learned that I hadn’t heard before was his 4 personal finance numbers that everyone needs to know. He said they are like the speed limits for driving a car. You can break them, but you have to know what they are.
They are related to how you break down you’re monthly income:
50-60% = Fixed Costs - e.g. rent, bills, groceries. Things that you can’t live without.
5-10% = Savings - e.g. for holidays, cars, deposits. Things you need to save for.
5-10% = Investments - e.g. putting your money in stocks and shares. This helps you build wealth in the long term.
20-35% = Guilt-Free Income - e.g. the cinema, drinks, nice dinners. This allows you to enjoy your life now.
The main idea here that Ramit talks about is helping you create your rich life.
How can you plan your finances so that you feel confident each month and have some money that you don’t always have to feel guilty about spending.
The average salary in the UK is around £30,000 which is roughly around £2,000 a month after tax, so let’s use that as an example.
(60%) £1200 on fixed income.
(10%) £200 into savings.
(10%) £200 into investments.
(20%) £400 for guilt free spending.
That’s one way of spending your monthly income, but you could obviously change the numbers a bit if you want. It’s relatively intuitive to tell what would go in each category.
For me, it looks like this. My salary is £50,000 a year, meaning I get paid £2,843 each month after tax. This is what I now do each month.
(40%) £1,137 for fixed costs. I am in the unique position of living in a friends house in London so I have a great deal for rent, which means my fixed costs are quite low for London.
(10%) £284 into savings. I put this into a Monzo savings account with around 5% interest.
(20%) £568 into investments. I put this into a Vanguard stocks and shares ISA.
(30%) £850 for guilt free stuff. I use the Monzo budget wheel for monitoring this which I really like :)
At the end of the month, my income comes in and in the next few days the payments all go out automatically, so I’m left with my money for the month.
Ramit says “always pay yourself last.”
As I said, I’m not personal finance expert, but this has been a very rewarding change personally.
I went from really not knowing how I was spending and feeling guilty about every purchase I made, to feeling confident about my money and enjoying the guilt free money I’d put aside. All without changing my salary.
I’d highly recommend doing this kind of thing if you haven’t. For some of you this is probably super basic stuff, but I know lots of people hope the overall number goes up and don’t have a system.
Even if you feel like you can’t or it’s not worth it because the numbers are so small, there’s a more profound reason why you should.
It changes your identity around money. You’ll start to identify as someone who is in control of your money, who’s smart with money, who’s on a journey of learning about money and growing your wealth.
Even if it’s £50 a month, starting small and keeping going can have a huge return in the long term. Not just because of your savings, but because of the person you’ll become as a result of doing it. I’ve dismissed this too much in the past.
Anyway, probably better that you don’t listen to me and actually listen to the personal finance expert Ramit Sethi in the interview here.
Have an epic week!
Tintin 👨💻
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