I remember that moment when I realised what I was currently doing was not going to allow me to reach my dreams. How depressing is that?
I’ll ask you the same question.. what is your dream? Are you doing things which will enable you to achieve them? Harsh reality for me is that my dream requires a bit of money. I would love to build my own house one day. Plus.. be able to live finically free from a conventional ‘9-5’ job. I know.. big dreams but why not dream big?
No one really teaches you about money, at least not in the same way we go to school and learn about maths or science. So it really is left to you.
Often the advice you’re given is work hard, get a job and work until one day your pension kicks in and you can retire.
Not something I look forward to. If anything that gives me a sense of anxiety. And truthfully I want more.. keep reading if that sounds like you too.
Before we get started..
I guess the art of learning is too look to people more knowledgable than you. So I looked to those who are very money smart, aka the self made millionaires. How have they achieved that? Which leads me on to the 4 pillars of money.
Let’s start by saying the 4 pillars are figurative. They are habits and areas to introduce in to your finances.
1. Spending well
Spending well revolves around your budget, which means this is going to be very personal to you.
First and foremost you have to live. It’s good to spend money, our economy relies on it. It’s important you don’t limit yourself so much you don’t enjoy life or have a good standard of living.
There are things we cannot avoid, like paying rent, utilities or groceries. These are your essentials.
Take a look at the rest of your budget and call this your ‘fun money’. This is the part we need to focus on and evaluate how well you are spending. The two questions I like to ask are:
Do you benefit from it?
Does it make you happy?
The answers to those questions will determine if it’s something you can cancel off your spending list. I guarantee there are 2 areas we could all save a few pennies on. Food and travel!
Can you make your own coffee instead of picking up a Costa? Could you lift share and save on petrol?
2. Saving well
‘Save with a purpose’
Saving with a purpose is key. You need a goal to work towards. Think about what is important to you and set yourself money specific goals to work towards.
Actually having the mindset of ‘I want to be financially independent in 5 years’ can be too overwhelming. Figure out smaller money specific goals, such as paying off a debt or a mortgage to help you achieve the bigger dream.
3. Investing well
‘Invest in the idea of what you want to become’
That is one of my favourite quotes by a YouTuber who kick started my interest in personal finance.
Usually when people hear the term ‘investing’, they think pensions, property, investment ISAs, stock market.. but investing also extends to yourself.
Something that fuels a lot of us is a dream, you shouldn’t be afraid to invest in that idea, or in yourself. Investing in yourself could mean doing a course or progressing your career.
4. Giving
Bare with me on this one. At first this was something I struggled with. It’s a misconception that in order to grow our wealth we need to keep every single penny we make.
If you look to very wealthy people they are often generous with their money. Ultimately it’s unlikely you would go from £0 to £1million without the help of someone.
If you believe in the law of attraction then you could argue the more you give, the more you will receive. Not only this but the more impactful you are being with your wealth.
How to apply these 4 pillars to your finances
Now we know our 4 pillars, the next step is to total your monthly income and split it accordingly across these 4 pillars.
It might be easier to set up 4 different bank accounts representative of these 4 pillars.
- Spending: a current account is a good option for spending money. Pay out all your essentials at the start of the month. The remaining can be spent on travel, food, day trips, shopping..
- Saving: a savings with good rewards or an ISA are both good options for saving money. Personally I like to save money for holidays or an emergency fund in an immediate access savings account. The remaining money I pay in to an ISA, knowing I’m building this money for the future.
- Investment: set up a pension or investment ISA as a tax efficient way of investing.
- Giving: another current account is helpful or paying out of your main account, again at the start of each month.
How much should you allocate per pillar?
Firstly you need to look at your current spending habits. This means looking at your last 3 bank statements and total how much you spend on essentials, food, travel, etc.. don’t just estimate!
If after you’ve totalled everything you don’t think you have much to put in savings or investing, don’t worry. It’s important to be realistic, in the future you can come back to adjust your budget.
Realistically the majority will go towards spending, which might be around 50-75% of your income. Once you’ve allocated money to your spending account then divide the money between the remaining 3 pillars.
The way you allocate money will vary depending on your goals. For example if I was saving for a holiday I might pay more in to my savings pillar. But if I wanted to work on a long term goal, in 10 years time, then I might pay more in to my investing pillar.
The amount you allocate the giving pillar might depend on how much you have left after dealing with your other 3 pillars. But I challenge you to try giving 1% or even £1.
I like to have a £0 based budget, meaning every pound is allocated across those 4 pillars.
The best part about managing your money this way is that once you’ve decided how to allocate your income it can be replicated month on month. So instead of spending hours deciding how to grow your wealth, all it takes is 10 minutes, as soon as your paid to transfer the money accordingly.
The four pillars really will transform your finances. Although it takes a little while to establish in the beginning, before you know it you’ll be a pro. Then comes the best part, watching your wealth grow.
