‘Buying or building assets that deliver cash flow is putting your money to work for you. High-paying jobs mean two things: you’re working for money and the taxes you pay will probably increase’– Robert Kiyosaki
Focusing on one income
Back in 2012, I got a big break work wise.
I started my HNC to get into commissioning. I won’t bore you with details of my job, but commissioning was what every contractor I knew was hoping to get into. It was very lucrative, and I was determined to get my break.
Towards the end of my HNC, I got my break. It wasn’t even due to my HNC. I got the break because of my network. Two of my friends are twins, Carl and Chris. Through the twins, I met their uncle Ste.
Anyway, Ste got me my break into commissioning. My money worries were about to disappear. But just because you come into money, doesn’t mean you can manage it. Not only was I a poor excuse of a landlord, but I was also poor at personal finance.
Unfortunately, I spent the next 6 years focusing on my job. Focusing on one income. I earned good money. But I didn’t invest that money.
My income increased. And my expenses increased. Very poor personal finance.
Much needed financial literacy
At this point, I am going to introduce Robert Kiyosaki. If you read the excellent Rich Dad, Poor Dad by Kiyosaki, it will help you to get some much-needed financial literacy. Reading Kiyosaki’s books will lead to a stronger financial IQ.
By educating yourself, you will come to realise that one source of income is risky. From my experience, you could do with at least a plan B. The ideal scenario would be to have multiple streams of income.
What if you had an income from properties? What if you had a side business? What if you managed to get income from affiliate marketing? Or even royalties from a book or series of books? There are many other sources of income you can get other than your main income from your job.
Let’s just say you have managed to secure 10 properties. You earn a conservative £200 pcm after all costs on each property. That is £2000 pcm or £24,000 pa. This means that if you get finished from your job, you have a plan B in-place.
Or you could get 2x HMOs (House of multiple occupancy). This is when you rent out each bedroom. For example, you could have a 5-bed terraced house and make £2000 pcm gross off that one HMO. After all costs, you would easily get £1000 pcm. If you do manage to secure 2x HMOs that is again £2000 pcm or £24,000 pa. Another excellent plan B.
Back in 2012, I didn’t have any idea about plan B’s or multiple streams of income. Even though I had a little plan B in my £700 pcm from my 3 BTL’s. I wasn’t thinking big picture and I wasn’t looking at options if I lost my job.
I made the common mistake of focusing on one income. I put everything into my job.
As a contractor, it is a good idea to get yourself a cash buffer. Even if you have a permanent job, I still recommend you have a cash buffer. If you have 6 months’ worth of expenses, you are in a good place.
At the time, I had 3 months of expenses. It was about £6000 that I had saved from being offshore. I had just set up a limited company as I was getting paid a day rate in my new commissioning role.
My only focus was building my business account as I wanted some security behind me. In that first year, I built my account up. I went from £6000 savings to £26,000 savings in a very short space of time. This is what I had worked hard for. The studying, overtime and working offshore away from my family was starting to really pay off.
Although I thought I had cracked it, I had no clue at all about money or investing. If someone had come and gave me a copy of Rich Dad Poor Dad it would have changed everything. The money I earned would have been invested wisely.
If I could go back to 2012, I would give myself a copy of this book to read 3 or 4 times. Just so the concepts really sunk in. I would have realised that what you get per day isn’t important when you look at the bigger picture. What is important is your net worth. What have you got in terms of assets and liabilities.
Just to be clear, your net worth is your total assets minus your total liabilities.
By relying on one income only, you are at risk. You might have savings, but they are savings for your future, not your monthly expenses. Just look at what happened in 2020 and now again in 2021. COVID has left many people on furlough or worse still without a job. Many people in the UK have been struggling during this difficult period.
I would say 95% of the people I have met at work, rely on one income. They earn good money, but they spend good money as well. And this is exactly what I had done from 2008 until 2018.
You can read about my miserable relationship with money in my New Book. This was a 10 year period that I was able to move past.
Whenever I got an increase in wages, my expenses quickly matched my income. My personal finances were all over the place. I didn’t have a clue about taxes, and I didn’t have a clue about anything financial if I am being honest.
My poor personal finances led to anxiety and stress – My 1st taste of anxiety. Many contractors I have worked with are unhappy. 9 times out of 10 it is due to money issues. Like me they earned good money and spent good money. Please take my advice and don’t fall into this trap.
Otherwise, you will end up in locations all over the world just to pay the bills. Trust me you don’t want to have to work away and spend far too much time away from family and friends.
What to do
Spend less than you earn and invest the rest. This is a mantra I have heard many times after reading 100+ self-development books about money, business and property. This is a mantra I want planted firmly in your head.
You are not going to make the same mistakes that I have made. You are going to learn from my mistakes and start thinking bigger picture.
- Relying on one income can lead to pain
- You are going to spend less than you earn and invest the rest
- Even if you get an increase in income, you will keep the same expenses
- You will read some books and gain some much-needed financial literacy
- Property is a very good plan B
Over the years, I have done far too much worrying over money and whether or not I will get on the next job. This is far too common in the UK from what I can see. I see many people stressed out over money and usually it is because they are not educated in money.
If we manage to get a plan B, or even multiple sources of income, I am confident that a lot of people in the UK would breathe a huge sigh of relief.
Book of the week: Multiple streams of property income, by Rob Moore. If property is your thing, this book will help you build more than one income. If you have more than one income, you are in a good place financially and it gives you options if the shit hits the proverbial fan.
For a hard copy visit the excellent Imagined Things Bookshop: https://imaginedthings.co.uk/