The key to being a little smarter with your money resides in the development of your ability to assess your money’s real value. By that I mean looking beyond all the traditional indicators which are usually cited as gauging instruments your money’s value, like inflation and what is referred to as real purchasing power. Don’t get me wrong, it can be and actually is very complex to measure, but getting that measure of your money’s true value is possible and it ultimately just comes down what each pound you spend, save, or invest is really buying you. Does it achieve your goals, whether they’re direct financial goals or otherwise and to what extent are those goals being met?
Let’s take a simple example into account; if someone asks you what your salary is, chances are you’ll repeat to them what your employer presented to you when you applied for the job. In other words you’ll probably quote the pre-deduction gross amount: pre tax-deductions, pre retirement contributions deductions, etc. That in itself already creates the perception that you earn quite a bit more than what the money you actually earn is worth. This is one of the biggest debt-traps of the middle class specifically and perhaps the main reason why we suddenly wake up to the reality that somehow we’ve conspired to build up an eyebrow-raising level of debt. Because your payslip says you earn a certain amount of money per week or month, you’re automatically deemed to fall within an income bracket which can repay a certain level of debt, so credit is issued to you at the absolute maximum level you’re perceived to be able to handle.
So how do you assign a value to your money which is closer to reality then? It’s not simple at all, but with consistent practice it can become second-nature. Every pound or dollar that you have in your hands should be analysed according to the value it can purchase. If something like a car is listed at a certain price, you just have to factor-in all the associated costs, which in this case would include interest payments if you were buying it on credit, maintenance and other running costs like fuel, and whether or not driving it daily costs you more or less than what you’ve been spending using public transport like the tube.
I have to reiterate that it isn’t a straight-forward exercise, but one which picks up momentum with constant repetition. Take the amount of money you’re contributing to your retirement fund, for example. In order to gauge the true value of the service you’re indirectly paying for, you can visit FindAnnuityRate to get an idea of factors such as how much money you’ll have in your retirement fund by the time you retire, how much value that money will hold if you take into account inflation and the like, and ultimately whether or not it’s possible to choose to contribute to a retirement fund that will give you more value for your money, or at the very least retain your money’s value.
The more factors and parameters you add to your assessment of the value of your money and what you choose to do with it, the closer you’ll get to your money’s real value.