What They Don't Teach You About Money

1. Money is deeply emotional; learn to be rational.

Learning to be more rational and thinking of money as a tool can power our future financial success and, importantly, reduce the ‘fear factor’.

Emotional baggage. Our relationship with money is heavily influenced by childhood memories and powerful emotions like fear, greed, pride, guilt, or shame. These feelings manifest in our spending, saving, and risk-taking habits, often unconsciously. Recognizing these emotional undercurrents is the first step towards making rational decisions.

Financial personalities. Psychologists use 'financial personalities' like Spendy Wendy, Yolo, Goblin, Spreadsheet Slave, Jitterbug, and Ostrich to explore these emotional traits. While we are complex, identifying with these archetypes can help us objectively understand our ingrained habits and find more rational approaches to managing our finances.

Rationality is key. Separating emotions from financial decisions allows us to see money as a tool for unlocking opportunities, not just a source of anxiety or status. Understanding the emotional roots of our habits helps us unblock negative feelings and move forward with positivity, even if it means facing uncomfortable truths like checking a low bank balance.

2. Make mindful spending choices and create a plan.

Being more aware of the choices we are making is how we learn the answer to the eternal question: ‘Where has all my money gone?’

Consumer manipulation. Powerful forces like advertising, discounts, and social media envy are designed to make us spend money we don't have on things we don't need. Retailers emphasize 'savings' to trick us into spending more, like the 'spend to save' myth where a discount feels like saving money, but you've still spent cash you might not have intended to.

Mindful choices. To resist these forces, practice mindfulness with your money. Ask yourself if a purchase is a 'need', 'love', 'like', or 'want', prioritizing needs and things you truly love. Reconceptualize spending in terms of the time it took to earn the money, linking your effort directly to the cost of items.

Spending plan. Instead of restrictive budgeting, create a 'spending plan' to track income and allocate money consciously. Digital banking apps make it easy to categorize spending and identify patterns, helping you spot areas to cut back, like unused subscriptions or excessive convenience purchases (the 'Pret Tax'). This control reduces financial anxiety.

3. Separate your money and automate your savings.

Once you’ve overcome the hard part and made a financial decision to do something, make it easy on yourself by automating it!

Power of separation. Designate money for specific purposes by separating it into different accounts or digital 'pots'. This gives your money a job and ensures essentials and savings are covered before discretionary spending. It's the modern equivalent of old 'thrift tins' with labeled compartments for different expenses.

Automate everything. Make financial decisions once and automate them to ensure consistency. Set up automatic transfers from your main account to savings pots on payday ('Pay Yourself First'). Use features like 'round-ups' to automatically save digital spare change from purchases, building savings effortlessly.

Control spending. Consider having a separate 'spending account' with a set amount for daily expenses and 'nice to haves'. Link this account to online shopping sites and only carry this card, limiting spending to the allocated amount. Automating payments for bills and savings helps avoid lifestyle creep when income increases.

4. Understand the true cost of debt and tackle it strategically.

Albert Einstein allegedly said that compound interest was the ‘eighth wonder of the world’: ‘He who understands it, earns it; he who doesn’t, pays it.’

Debt is expensive. While debt can be a useful tool for large purchases like homes, borrowing money carries a cost: interest. Credit cards, often marketed positively as 'credit', are essentially 'debt cards' designed to profit from you taking a long time to repay, charging high annual percentage rates (APRs) that compound over time.

Compounding against you. Minimum payments on credit cards are deceptively small, meaning you pay interest on interest for years, drastically increasing the total cost. A £3,000 debt at 21.9% APR making minimum payments could take nearly 30 years to clear and cost over £4,750 in interest alone.

Tackle debt first. Prioritize clearing expensive short-term debts like overdrafts and credit cards before investing. Use strategies like the Avalanche method (highest interest first) or Snowball method (smallest balance first) for motivation. If overwhelmed, seek free, non-judgemental help from debt charities like StepChange or Citizens Advice, as ignoring debt only makes it worse.

5. Give your money a goal, big or small.

Having a financial goal can be hugely motivating.

Goals provide direction. Setting financial goals, whether short-term like building an emergency fund or long-term like buying a home, provides a target and motivates consistent action. Even small daily savings, like £2.70, compound over a year to significant amounts, demonstrating how small actions add up towards big dreams.

Rethink traditional goals. While homeownership is a common aspiration, acknowledge the significant barriers like high prices and the need for large deposits, often requiring help from the 'Bank of Mum and Dad'. Don't feel like a financial failure if buying isn't currently possible; focus on achievable goals that align with your values and desired lifestyle.

Plan and compromise. Break down big goals into smaller, manageable steps. Research costs thoroughly (e.g., property prices, mortgage affordability, car finance). Be prepared to compromise on location, property type, or lifestyle choices to make goals realistic. Remember, plans can be adapted as circumstances change, and effective research is a valuable, low-cost investment of your time.

6. Be curious and wary of 'get rich quick' schemes and scams.

If it feels too good to be true, it’s almost certainly a scam!

Exploiting emotions. Scammers and promoters of high-risk investments prey on emotions like greed, fear, desperation, and FOMO (fear of missing out). They promise easy riches or guaranteed returns, blinding people to the risks and making them less likely to ask questions or do research.

High-risk vs. gambling. Short-term stock trading, meme stocks, and many cryptocurrencies are often more akin to gambling than investing, driven by hype and speculation rather than underlying value. Platforms and influencers may profit from fees or commissions, while investors risk losing everything, especially with volatile assets or leveraged trading (CFDs).

Protect yourself. Cultivate curiosity and question anything that seems too good to be true. Do your own research rather than blindly following peer pressure or social media influencers. Be highly suspicious of unsolicited messages asking for money or personal details, especially those claiming to be from banks or government bodies – criminals use sophisticated tactics like number spoofing and data theft.

7. Build a financial plan: debt, emergency fund, and long-term investing.

Before rushing in, we need to make sure we have a stable financial foundation.

Prioritize stability. A solid financial plan starts with building a stable foundation. This means prioritizing clearing expensive short-term debts (like credit cards and overdrafts) and building an emergency fund of three to six months' living expenses. This 'sleep at night' money provides resilience and prevents falling back into debt during unexpected events.

Long-term goals. Once the foundation is stable, focus on medium- and long-term savings and investments. This includes saving for goals within the next 1-5 years (like holidays or a property deposit) and investing for the very long term (decades away), primarily through pensions and ISAs.

Consistency over perfection. Even small, consistent contributions to long-term investments add up significantly over time due to compounding. Don't be discouraged if you can only start small; the habit of putting something aside is crucial. Regularly review your financial plan and adjust contributions as your income or circumstances change.

8. Harness compound interest and tax breaks for slow, steady growth.

Over the years, I have been attempting to rebrand company pensions as ‘Free Money’.

Compounding magic. Compound interest is the key to 'getting richer slowly'. Like a snowball rolling downhill, your money earns returns, and then those returns also earn returns, accelerating growth over time. This effect is most powerful over long periods, making starting young incredibly advantageous.

Tax-efficient investing. Minimize the tax drag on your investments by using government-backed tax havens like pensions and ISAs. Pensions offer 'free money' through employer contributions and tax relief on contributions, plus tax-free growth. ISAs offer tax-free growth and withdrawals, providing more flexibility than pensions.

Understand tax. Be aware of income tax bands (the 'peri-peri scale') and how 'stealth taxes' like frozen thresholds can increase your tax burden as your income rises. Smart investing, particularly through pensions (like Salary Sacrifice), can legally reduce your taxable income and National Insurance contributions, effectively boosting your take-home pay or increasing your investment power.

9. Use ISAs for flexible, tax-efficient long-term investing.

ISA stands for ‘individual savings account’ but they’re not just for cash savings – their tax-saving benefits are highly prized by investors.

Tax-free growth. Stocks and Shares ISAs allow you to invest up to £20,000 per year, and any investment growth or profits from selling assets within the ISA are completely tax-free. This makes them a powerful tool for long-term wealth building, offering more flexibility than pensions as you can access the money before retirement age if needed (though ideally, you won't).

Investment options. Within an ISA, you can choose how to invest. Options range from buying shares in individual companies (higher risk) to investing in diversified funds. Index funds ('trackers') are a popular, low-cost way to invest in hundreds or thousands of companies across a stock market index, offering broad diversification and capturing average market returns over time.

Getting started. Online investment platforms make opening and managing a Stocks and Shares ISA easy, often with low minimum investment amounts. You can choose ready-made portfolios based on your risk tolerance or select your own funds. Automating regular monthly investments ('pound cost averaging') is a simple, less emotional strategy that benefits from market fluctuations over the long term.

10. Maximise your income through pay rises and side hustles.

Budgeting is a crucial part of managing our money, but there’s only so much cutting back we can do.

Grow your main income. Your primary job is your biggest money-making asset. Don't be afraid to ask for a pay rise, especially in times of high inflation. Research your market worth, track your achievements with data, and build a case to present to your manager in a rational, businesslike manner. Networking and finding mentors can also aid career progression.

Negotiate effectively. When asking for a raise or interviewing for a new job, focus on the value you bring rather than personal financial needs. Be prepared to negotiate not just salary, but also bonuses, benefits, flexible working, or even support for a side hustle. Moving companies can often result in a larger pay bump than internal promotions.

Develop multiple streams. Supplement your main income with side hustles or freelance work. Evaluate the return on investment of your time – prioritize activities that leverage your unique skills or passions and offer potential for growth, rather than low-paid tasks or addictive gambling-like schemes. Keep side hustle finances separate and understand the tax implications, utilizing allowances and tools to manage income and expenses.

11. Make time to talk about money, understanding emotions and resolving conflict.

Talking about your concerns can go a long way, and people don’t do that enough.

Break the taboo. Money is a major source of stress and conflict, yet many people find it incredibly difficult to discuss, even with partners or close friends. This silence prevents sharing knowledge, asking for help, and addressing problems before they spiral. Financial worries also significantly impact mental health.

Understand yourself and others. Recognize that arguments about money are often rooted in deeper emotional issues like security, power, or control, not just the numbers. Understanding your own financial values and emotional triggers is crucial for communicating effectively and empathetically with others.

Schedule conversations. Make time for regular money talks, whether with a partner, friend, or financial professional. Start with less threatening topics, like early money memories, or discuss anonymous financial stories to build comfort. When addressing conflict, focus on expressing your feelings using "I feel..." statements and aim to understand each other's perspectives rather than just being right.

Last updated: May 4, 2025