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The Essentials of the Financial Four

How the four principles of finance are relevant today

To briefly introduce, the four principles of finance are stated as income, savings, spending and investing.

Income: For the majority of the public, income is finance that is given in exchange for their labour or products.

Savings: A portion of income that is not spent on expenditures. Can be set aside and be used for future use.

Spending: The action of spending income.

Investing: The act of spending resources/ income into something to generate an income in return.

Income and today

To reiterate, income is what is earned by an individual by use of their labour, products or investments. In the UK, the current medium salary is £33,000 (as at 2022) found by the ONS, which is an increase of 5.7% from 2021. Although the increase is a positive, one recent problem that is encountered is the current cost of living crisis. Attached to the increased in cost of living, the current UK inflation rate, even though has settled from a high of 11.1% in October 2022, has settled to 10.5% as at December 2022,

The cost of living crisis is in reference to the fall of 'real disposable income', this of which is the income that is adjusted to inflation, taxes and benefits.

Now although the income has increased from the previous year, the increase in income has not been able to keep up with the increase of pricing. This means that the nominal value of your income falls and your 'real income' is lower.

Today, there are 'set standards' of what should be an acceptable amount of income in the UK based on your position. Dr Chloe Blackwell suggests that a single person should be earning £25,000 and a couple with children needs to earn £43,300 between themselves. These statements have been made with the cost of living crisis in mind.

Importance of saving

It can be argued that saving money is essential when talking about finance. Savings allows a person or entity to have a financial backing to help with the uncertainty of the future. A major reason to why you should have 'savings' is that it helps you to have independent financial backing if needed in an emergency. By having savings, it can allow you to fund an emergency without having to receive a loan from the bank, thus avoiding the additional interest that would be attached to the loan.

One recent and arguably ongoing event of crisis is Covid-19. Covid caused unemployment to rise up to 400,000 people. This caused people to increase their savings and ensured that the public could be able to fund the unpredictable future at the time. During Covid, the UK had a boost in household savings, largely due to the decrease in expenditure.


Linking back to inflation, spending money per household has significantly increased. The increase in inflation and the cost of living crisis has caused a dramatic shift in expenditure on day to day essentials.

"A survey found that 89% of the UK reported an increase in their living costs"

The increase in living costs has caused households to evaluate and change their spending habits. Instead of making impulse purchases on items that are 'wants', but more focus on the bills due to the significant rise of necessities such as food, water and rent.

Although essential spending in the UK increased by 15%, the UK still found ways to relax as holiday spending rose by 379%. This was deemed to be a contributing factor as to why spending increased at the start of 2022.

A notable trend that consumers are participating with is the consumption of second hand shopping. Due to the increase in living costs, consumers are finding alternative methods to keep costs as low as possible. In terms of spending, consumers are gravitating towards second hand clothing rather than fast fashion as the impacts of fast fashion are being brought to light, causing consumers to be more considerate of their purchases.

Getting into Investing

Today, there are so many ways to invest your money in hopes to get a financial return back from. There are often rumours that you need to have a lot of starting money or capital to start investing but the truth is you can start from as little as £100 or below. To further help you decide how much to invest, simply invest or 'put in' as much as what your financial position allows you to or how much you would like to invest. The beauty of this is there is no correct answer.

With investing there are many ways to invest. Below is just a handful of the possible investments:

Shares: Stakes in a company

Cash: Savings put into a bank

Property: Physical buildings, commercial or residential

Cryptocurrency: Digital currency, extremely volatile and unregulated

The most popular investment are stocks. Stocks is when you buy a stake/ownership in a company. How you make money from stocks is by buying the stock at a market price, hopefully when the price increases, you can sell the stock you own, thus making a profit. Of course, with investment there is always risk, the risk in stock is that the price of the stock can decrease, in this case this would cause you to lose money.

In terms of investing, it is almost impossible to not talk about cryptocurrency. Unlike other currencies, crypto is fully digital online and is run on a public ledger called the blockchain.

To make money on crypto is similar to stocks. The methodology being buying a coin at a low price then selling the crypto when the price is high. However with crypto, one key point of crypto is that its price is extremely volatile.

Although investing in crypto can be risky, like all investments, there are ways to invest safely. Doing research on any investment is critical and even more so with crypto, so brushing up with your crypto of choice can make you be more prepared with foreseeing the volatility. Knowing how to store the crypto is also key to this investment as different digital wallets carry different benefits. And one last key point is to diversify your investment. By diversifying your investment, it can allow you to lose on one coin but make high profit on another, this will be able to cover the loss you took on one coin and make profit at the same time.

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