Don't worry about the pennies

Worry about the pennies and the pounds will look after themselves. This is a fairly famous expression in the UK used to encourage scrimping and saving....and it is such a load of rubbish. Building wealth isn't about savings the pennies, nor even about saving the pounds. When trying to build wealth you should be concerned with the big picture. Be concerned with the thousands.

How do I make sure that I focus on the big money?

Building wealth is about the big stuff. You don't build wealth by buying the 35p tin foil  from the supermarket as opposed to the 50p branded version. Frugality in all areas helps but it shouldn't be the focus of your efforts. Focus on the following big four areas in your financial life and the thousands should take care of themselves. Ignore the pennies and pounds.

Spending

As mentioned, don't worry about the small savings here and there. Instead, the big theme is to track your spending month to month and ensure that you are always in a net positive cash flow each month. Your cash income after tax, pension contributions and saving should always be greater than your outgoings for the month. 

Make sure you put aside money each month for bigger items so that they don't hit your cashflow in the one month that you choose to spend on them. For example, I put aside £150 per month in a separate account for all possible car costs over the coming year. This way, when the car needs servicing the money is already in place.

Saving

Regular saving is key to building wealth. You are unlikely to succeed by compound interest from investing alone. Even the great Warren Buffett regularly saves and reinvests. Make sure that you automate your savings such that the day after payday at least 10% of your income after tax and pension contributions is transferred by standing order into a savings account.

Investing

Do not leave your money in a bank account earning 0.00001% per annum. Bear in mind though that it's not about making sure that you have the best current account that will earn you £50 in interest per year. That's a nice little addition, but I want you to focus on the big items. Save £10,000 then buy a bond or buy an index tracker. Save a lot more money and get a deposit down on an investment property. These are the big picture items that you should spend your time worrying about.

Earning 

Most people will read the word "earning" and assume that I'm talking about their job. That's partly true. You need to be maximising your long term income from your career. However, and more importantly you need to be building up additional income streams. This is for two reasons: 1) you may not always be able to rely on your job - you could get fired; 2) more money with which to invest duh!

Remember, focus on the big stuff. Focus on the thousands of pounds and don't waste your time on the little things.

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