Make the most of your money: two principles
Make the most of your money: two principles
Screenwriting guru Robert Mckee has this to say about the difference between a rule and a principle.
A rule, he says, says: you can do it this way. A principle says: this works and has through all remembered time.
Depending on who you talk to, Mckee is either a master of teaching or a charlatan simply repackaging his rules for writing the next Hollywood blockbuster for an audience that is more credulous than it would like to think.
Either way, the distinction is useful when it comes to money for the following reason. Rules are what banks have and what people in banks tell you to do: keep track of your spending, check that your account is competitive, pay back the highest rate of interest first if you can do so.
The trouble is that such rules fail to take into account the way that people actually live their lives. They describe how you should be rather than what you can do.
It's sort of like someone saying, you could make a lot of money if you looked like Cindy Crawford. No-one looks like Cindy Crawford, not even her any more, so it's a pointless thing to say: instead we have to stick on some make-up and make the most of what we've got.
That's the basis of the rules versus principles argument. Now here are the two principles themselves.
First, do as little as possible. This is counter-intuitive but it's true.
Unless you're a hedge-fund manager there is absolutely no reason for you to be on top of your investments seven days a week and twenty-four hours a day.
There's not even any need to do it every month.
If you set up automated payments to go out of your account for bills you'll avoid going into your overdraft and ending up with fees on your account.
If you keep savings in a fixed term bond not only will you earn more interest you'll be unable to dip into savings every time you need a little extra so you'll save more.
Personal finance writers often wonder why so few people compare current accounts and switch deals. It's because the current account is the engine of personal finance: income goes into it
It's much more important to compare savings accounts when the rate changes because that's an easy way to make the most of your money.
Second, be boring.
Bad rating products such as the Capital one classic credit card work because they allow users to build up a better history over a number of months.
That principle isn't restricted to bad ratings, though. We all build up better credit histories by being boring - that doesn't mean having the best accounts or moving the most money around - it just means having a few accounts and managing them well.
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