S1E13: The basics checklist - are you on track to build wealth?

0:02Damo, what are you doing? well while we're waiting for our next podcast episode i'm sat here reading this magazine that's on the table about wallpaper very very quaint very old school you know what i never realized how much i missed those little rip-off sniffy perfume things that are in the middle but yeah i think um magazines are making a comeback mate in a world where everything feels digital and i'm just dying to put down a screen all of the time i quite enjoy sitting down with a magazine and having a read of it it's almost like you know buying a vinyl record yeah feels more real more tangible the music's more authentic it's richer yeah that's right which kind of leads us into today's sponsor one of the best finance publications in the uk is money week they're in print and online so you can get that nice magazine feeling in your hands money week sift and summarize the biggest stories in finance and then add their own journalism on top it means no more endless scrolling if you want to give money week a try you can get six issues in print and on the app absolutely free by visiting moneyweek.com forward slash money.

1:01After your trial, you'll save an extra five pound on a quarterly subscription exclusive to Making Money listeners. That's moneyweek.com forward slash money. And there's a link in the description for you. Right, Tomei. That's it. Season one, done. We started this, I think it's three months ago. Yeah. Yeah. It's been a bit of a journey, hasn't it? Rollercoaster. Yeah. I mean, actually, one sec before we start. We've got something. I got me a proper lager and I got one of you, one of them perfume beers that you like to buy. Mike, I love an IPA. It's a bit of a reflection. Oh, nice. There's a lot of beers just opened in this room then.

1:47So the whole point of this is to take people on a journey through building their wealth. And what we want to look at now is just some of those key key learnings and key teachings that we've learned i mean i've learned loads from this and we've really in this season just covered the very basics we're gonna you know cover more as we as we go on i think what we want to do though in this episode is just summarize those very basic steps that people need to take yeah and the first thing you need to do is work out your relationship with money so your book you you talk about it as a personality kind of problem not a problem but But you talk about the human element, which I think is, that's the place to start, isn't it?

2:29It's kind of like, what personality am I? What is my relationship with money? Because we all have different relationships. Can I ask you, what's your money personality? Okay, well, I feel like I should issue a small caveat. So I'm not the first person to come up with this idea of a financial personality. And I kind of hesitated a bit before putting it in the book, but I just find it such a useful way of being able to talk objectively. about maybe bad habits or faults or things that we think we could improve without kind of turning the spotlight too far on ourselves. So of the different money personalities I list in the book, I do say it's a bit of a Venn diagram.

3:10I reckon I'm probably about 70 % goblin, which is the classic kind of hoarder of money. I grew up in a situation where, despite what my voice might sound like, There wasn't much money around when I was growing up. And when money came in, it had to be eked out. It was not there to be wasted. And certainly when I started to earn my own money as a teenager, I realised quite quickly that it doesn't go very far. So I've definitely got that kind of hoarder mentality in the past that's led me to keep far too much money in cash savings. Claire Barrett, consumer editor at the FT. Yeah, actually, I found it really useful to find the different personality traits with money.

3:58Obviously, I'm not a goblin hoarding and saving my money. I'm probably more of a YOLO because you only live once, so you've got to spend it. You know how it goes. Yeah, but have you actually done anything about it? Because from the episode where we sat down and looked at your finances, it was clear that you have an issue with a certain type of spending. What's a Zipcar? Zip car, for us Londoners, is a car you rent when your car is broken. You've got a car. Yeah, I know. My car tends to have a lot of issues. The third of the first, no, the first of the third, since March, zip car, zip car, zip car, zip car, zip car extended, zip car, that's nine zip cars in one day.

4:35Had a lot of places to be that day. Where'd he been? Well, look, they charge you per hour, but actually - But both that is your close brothers. That's the finance for your car, isn't it? That's my car insurance, yeah. So how many, you've got two cars? I've got my car and then when it's broken, when the garage or needs repairs. You valeted your car on the day that you got nine zip cars. So you drove your car to the valet and then took zip cars around. Is that legit? Look, I spent too much money on my car. You spent too much money on other people's cars. Zip car, what is that? It's like a Boris bike.

5:06Like those bicycles you line bike, you rent them for like an hour, half an hour and they charge you per minute on the zip car. It does add up. Sounds financially sensible. It does. I love the fact that you paid your car finance in the morning, took the car to Westfield Shopping Centre to get it valet, bought a boost juice and then drove home in a zip car. Hold on, mate. I accept that. But you have a problem too. Damien, I've noticed a little theme in your payments here. You do a lot of random food. So there's like Subway, Greggs, Greggs, Fish and Ship, Greggs, Greggs. Yeah, I think we can both agree that I have an issue with buying pies.

5:44It was really enlightening going through my bank statements for the last three months and seeing that. But that's why that's the next thing that you need to do after you've identified what your relationship with money is. You need to sit down, go through your expenses, and you need to do a budget. it yeah i mean budgeting is a great way to get out of debt that's what you did right yeah yeah i mean i've known you for a long time and only through this podcast i found out that you had a little issue with debt but um budgeting not only helps you get out but it's also a good way to stay out of debt right exactly it got to a point where on the first of the month i would get paid and then i was in negative because all of the the payments were going out and i remember like needing to roll over payday loans so that I could try and like take out a payday loan to pay some others and things like that.

6:30For about six months, there was a period where I just had no money. Like I'm talking no money. I moved into a house share that was like 300 quid a month. All in. The one in Shalford. The girl with the rats. Oh yeah. She had like 12 rats in the kitchen. There was a rat in the kitchen. I remember the girl with the dogs. I don't remember the rats. I don't think you invited me over though, to be fair. No, I didn't invite many people over, mate. So you're right in festive flat. I was so ashamed. Yeah. These were her pets, like 12 rats in a, in a, in a, like a big hut. Yeah. They all just like in the corner, like creeping.

7:04Yeah. So I lived in there. And then what I would do essentially is walk everywhere. I lost a load of weight in that period. I need to start that again. Yeah. You found it. Yeah. I found that weight.

7:23where i worked at this debt management place we had like a cafe with a card and what you could do with the card is you could buy your food um and then they would take it off your next month's wage so i would buy a sandwich and a soup i'd eat the soup for lunch and then i'd have the sandwich for dinner and i did that every day for six months so and that allowed me to just throw everything at the debt so it's really important if you have debt that you know you tackle that issue You start with priority debts, anything like council tax and your rent, mortgage, et cetera. And then you can use interest rates to guide how you pay off the other debts.

7:56The key thing is just face up to it. Don't bury your head in the sand. There's help there if you need it. And use a budget as a tool to help you pay off the debt. Okay. So step one, we address our relationship with money. Step two, we create a budget, organize everything. Step three, we take care of any outstanding debts. What comes next? everyone needs an emergency fund. You know, if your car breaks down, your boiler breaks down, then at least you've got some emergency cash to fall back on. That should be maybe like three to six months of your annual income. The emergency fund's crucial because it'll support you when you need it.

8:31But I get that, you know, in the current times with the cost of living crisis, it can feel a bit intimidating trying to build up a pot of cash. I think the one thing I took away from this series is whatever the savings go, whether it's, you know, kids to uni, buying a house, a car, just start. Just start with a small amount and over time that will build up. You know, people hear these stats of like, you should save 10 % or 15 % and they get a bit intimidated thinking, you know, I think a quarter of all households in the UK at the minute are borrowing to just pay the bills. But I think it doesn't need to be 10 % right now, it's something you can build up to.

9:08And if you look at how people save, they kind of up it as they approach retirement or these goals in their lives anyway. So just getting started with even a little bit is better than nothing. Yeah, I think that's a hurdle to overcome. Some people might think that they're not rich enough to invest or same with going to see an IFA or a financial advisor. But it's starting small. It's just getting on there in the first place. And then once you've made that sort of decision and gone on to the investing side or putting money away, then that's almost like a mental hurdle that's kind of overcome. This is exactly why I hate saving.

9:44Because just like you said, my car rode down, I had an engine problem, two grand. And then like, I went on holiday in Miami. Two grand. Yeah, that was in the club. No, I went on holiday in Miami and then actually I was in the club. I had a bit too much fun time and I was meant to catch a plane, miss a plane, had to buy another plane ticket, 500 pounds. This is why you hate saving? This is why I hate saving because every time I'm like, oh, I saved a nice amount, something happens. and then I have to dip into my savings and then you see it just drain down and I'm like, oh. Is that because of the savings though?

10:10I don't know. They're probably quite helpful. Yeah, yeah. It just feels like you always have a figure in mind and then no matter how much I save, life just throws curveballs at you. I love that. I literally heard the penny drop when we had that discussion. It was pretty awesome, but you know what was even more mind-blowing? Go on. Andrew Craig, author of How to Own the World, teaching us about growing wealth with compounding. If somebody can put 5 ,000 pounds into an account the day a child is born, like if you're lucky enough to have a great Aunt Agatha, if that can return 10 % per annum from the day the child is born to when they're 55 years old, which in the UK is the first time you can legally retire, with no further investment, just a one-off investment of£5 ,000, they'll have 945 grand on their 55th birthday because after year one, it's 5 ,500, and after year two, it's 6 ,050, and on and on and on.

11:00So I just had a kid. What would I have to put that into? That sounds pretty good. So the next question is, come on, mate, interest rates are nothing. How's it going to get? How on earth are you going to make 10 %? And the very simple answer to that is since January the 1st, 1872, not 1972, 1872 to the end of last year, the return of equities, of shares of the US stock market was just over 9%. So, okay, I'm using 10 % as an example, which is mathematically it's easier. But broadly, if you'd invested in American shares consistently from the time your kid is born to the time your kid's 55, that's the sort of return they're going to achieve.

11:39I mean, hold your horses, mate. Before you get too excited, don't forget that he was discussing pre-inflation returns. Another thing to consider is fees. Yeah, damn. They're going to affect the end result massively. I mean, the difference between a 0.5 % fee and a 1 % fee on the total portfolio value over 30 years is huge. Potentially hundreds of thousands of pounds. But let's not beat around the bush. The returns on offer are exciting. The next thing though is we need to look at how you actually get those. And you do that using a ISA. Well done. Yeah. So an ISA is an individual savings account.

12:14And it's basically an account where all the money that you put in and anything that you earn in interest or growth in investing is completely tax free. So the taxman can't get his hands on any of the money that you make that's within these ISAs. One way that I always describe it to people on my channel is like, if you go for a run, you could run without a shoe on, but your foot wouldn't be very well protected. So the ISA is kind of the wrapper around your foot. It would never move forward by itself. It's like the shoe that protects you as you move forward, essentially. Yeah, that's how we say it as well.

12:49It's almost like a protective tax wrapper on your savings. So, you know, it's tax-free year after year. You get an annual allowance or£20 ,000 in the current tax year. Children, it's£9 ,000. So, yeah, it's a really good vehicle for saving tax-free year after year. That was Paloma Kubiak, editor of YourMoney.com, talking about ISAs. And the main thing about them is they protect you, your investments from tax. Tax-free. Not completely tax-free. You still pay stamp duty potentially on UK, but they protect you from the ugly tax, like capital gains tax and dividend tax. So that's why it makes sense to maximise those accounts before you invest outside of an ISA.

13:30So you could use a cash ISA for emergency funds. You can use a stocks and shares ISA to grow your wealth. But what do you put in your stocks and shares ISA? What's the scariest word in the English language to me? Tax. How does it make you feel, mate? stressed sweaty palms squeaky bum time don't like spaghetti mama spaghetti yeah exactly you got one shot one opportunity to not go to jail for avoiding tax like yeah i don't like tax it's scary tax can be really stressful which is why we're excited about our partnership with tax app they started in ireland and now they're in the uk and they make self-assessments way less scary what i like is how quick it is you just enter your info connect your bank and it helps you do your expenses to reduce your tax bill.

14:12You suddenly know exactly what you owe, no waiting around for an accountant to reply, and you can file in as little as 15 minutes. Yeah, and it's built for all kinds of people. Company directors, freelancers, the self-employed, side hustlers, or even people who work full-time who need to do a self-assessment. For example, anyone who needs to claim back high-rate tax relief on their pension at work. They're HMRC recognised, so they're safe to use. Plus, TaxApp flags reliefs and benefits you might miss, so you're not leaving any money on the table. And they're really reasonable too. So from just£89, you can have your self-assessment sorted.

14:41If you've got to do one this year, check out Tax App. You can get 10 % off as well using the code in the link in the description. The code is MONEY10. So that's M-O-N-E-Y-1-0. Okay, T, talk to me about your attitudes towards risk. I mean, I like a bit of risk in my investments, but I definitely would say since the podcast, I've toned it down a little bit, not quite as gung-ho and like carefree as I was in risk. So yeah. Yeah, shooting from the hip all the time, weren't you? Yeah. I think personally that you should take risks, but it should always be in areas where you have a unique skill set, an edge, expertise, like your job, things like this.

15:16One area that I wouldn't take any risks is compliance. Yeah, the risk changes you grow in business and you need to be on top of it, which is why we partner with Vanta. Vanta automates a lot of risk processes and helps you see your risks in a centralized platform, so you know what really needs your attention. Besides risk, the main thing Vanta does is automate compliance with security protocols you need to scale, like GDPR, HIPAA, ISO 27001, and SOC 2. The beauty of Vanta is they make it easy to prove you're compliant with these standards, saving you up to 90 % of the time it takes, and on average, half a million dollars.

15:51If you know what these acronyms like SOC 2 are, you probably need Vanta. You can book in a demo at vanta.com forward slash making money. There's a link in the description. these questions of footsie 100 or footsie 250 or the s &p 500 you can eliminate that by just buying a global index fund which is yeah all the businesses everywhere you know so you're you're buying thousands of businesses across the whole world i've been investing over a decade now and the longer i do it the more i just think i should probably just buy a global index yeah you haven't done it yet i know i do no what i'm saying is i thought as i became a more sophisticated investor that I would go more into individual businesses and become more competent.

16:31And actually, I've just realized over time that the beginner option of just buy everything is actually the one that served me best because the best thing that I can do is just buy it, leave it, kind of forget about it long term. Absolutely. And that's another thing you can do. And you don't necessarily have to even have one fund. You can have two or three. I would say someone don't have too many because then it becomes hard to manage and you don't know what's going on and it can get quite confusing. Or as Andrew Craig, author of How to Own the World says it, start simply. And my view is, and obviously I've written about this at length, is the way to start simply is broadly to just have the stock market.

17:06Is that owning the world? Yeah, well, that's exactly. Because it sounds almost like dictatories. Yeah, exactly. The reason it's called How to Own the World is because what is the world? Well, it just means how to own stuff from all over the world geographically and different stuff. Yeah, so how I achieve that, how to own the world is I buy a global index fund. And all I'm essentially doing there is buying one off the shelf investment that then spreads my money around thousands of companies in different countries all over the world. So I'm buying the world essentially. And that diversifies me across all of those different businesses at once.

17:39But it's not without risk. I mean, how do you feel that the stock market's kind of had a little crash recently? I mean, the key thing to understand is that's a feature, not a bug. You know, the stock market goes up and down. You don't get the potential return without the other side of it, the risk. And because I invest long term, I think it's just really all about consistency and understanding that that's just part of the process. I show up every month, I buy into my global index and over time, I believe that it will rise. Kalpana Fitzpatrick, digital editor of Money Week. I talk about my apple tree, my garden and talk about how some years it does really well.

18:18a bit like stock market and other years it doesn't but on the whole i get quite a lot of apples from that tree so i'm quite happy and it's fruitful so i i don't know if you can relate that to investing i think you can no don't think of it in some sort of way to um you know not every year is going to be perfect and not every return is going to be perfect but it's you know i water that tree i look after it and then it looks after you yeah and it looks after me over time yeah yeah the same Too many apples. Yeah. Not every day in the gym is a good one, but you just consistently show up and you see the results over time and you can't ever pin it down to like, it was that day in the gym that made me fit.

18:54It's the habit of going consistently. And I think what people need to do with investing is kind of relate it to things in their life like cooking and the gym and these habits that we have that are good for us long-term that people understand because it is just that. It's just, it's all these wrappers of jargon and barriers around it that make it seem more complicated. Yeah, it's like cut out the noise. There's just so much noise around it. All right, all right. We got it. Stock market long term. But when we were talking about budgeting, you mentioned the 50-30-20 rule. Yeah. But saving 20 % of my salary monthly seems like a lot of money.

19:25No, I get that, especially now in the current economic climate. But, you know, you just got to get started really. Actually, this is what Andrew Craig had to say about it. Our very simple shtick is if you save and invest 10 % of what you earn every month from the minute you earn it, whether you're working in a bar in your 22 or you've just been paid a huge bonus and you're 60 and a lawyer or whatever, and all points in between. If everybody just saves, learns enough about financial services and investment basics of capital markets to feel, because crucially to feel confident, like they're not scared.

19:55The reason that people don't do this is because they feel scared, they'll lose it. And there's all that. Misunderstanding of this. But once you have a certain understanding of comfort and the spectrum of financial products and how you can use, you know, if you spread your assets sensibly and you just, and also the merits of investing every month. If you do that over time, Right now is a tricky time, for sure. Anybody who's been doing that for 10 years is in a much, much better position than somebody who hasn't, right? But equally, because as I said, I don't want it to sound too trite. If you haven't, okay, so at the moment, you know, you just have to batten down, put your head down, try and find some savings where you can.

20:29Perhaps you can't save. Although I would say we always go back to the fact that a lot of the stockbroking platforms in the UK let you invest 25 quid a month. That's kind of your entry ticket, right? Now, there are online robo-advisor type outfits that are even lower numbers than that, but then they're quite expensive as a percentage of what you're investing. But basically, you know, if you can just keep the habit going of like 25 quid a month or 50 quid a month through times like this into sensible investments, just ignore it, comes off the top of whatever you're earning every month. When things get better and the economy is better, then you can do a bit better than that.

21:07And then over time through, and again, I go back to this over a lifetime of investing, sometimes, you know, the markets will be great and the economy will be great and employment prospects will be great sometimes. And the other thing is, it's all about the long term. But I think, you know, the record of at least two centuries is that if you just keep, if you kind of put your fingers in your end, shut your eyes and just try and save and invest a bit every month in a global sensible way, over a lifetime, it will work. So when we're talking about investing, we're talking about the long term. I mean, nothing more long term really than retirement.

21:43So, you know, we need to talk about something that's a little bit scary. Pensions. Everyone hears the word pensions and just goes, ah. Yeah, I mean, I thought pensions were terrifying before we had that conversation about them. I still think they're pretty scary, but I do know how important they are now. And they are possibly the biggest investment you'll make in your life. If you dig a little deeper into pensions and how much people actually need in retirement, I think many people will think, oh, my God, I need to essentially win the lottery to retire. Can we just start with a real big question of how much does a person need to retire?

22:14And so when I tell the answer to this, I think you've got to notice what your own reaction is, because some people want to run a mile and bury their head in the sand or and think that I'm not saying correctly. Or other people, I think, can sometimes be a bit frozen. but it's if you work out what you want every year and times it by 25 that's a good ballpark so if I want a 10 grand a year I'm going to need 250 grand if I want 20 grand a year I'm going to need half a million and so when we're hearing at the minute people these rich people with a lifetime allowance problem of a million quid these people actually are on incomes of around 40 grand a year so I I think there's a huge disconnect, isn't there?

22:56About with a million sounds a lot and 40 grand sounds quite normal. That was the incredible Lisa Conway Hughes talking us through pensions and the importance. And there we've covered the basics, the boring things. Take full advantage of your ISAs. Make sure you're contributing into your pensions. And once you've got that boring stuff out the way, I think it's important to say that everyone needs a little bit of space for a bit of risk in their life. Excellent. There's a British billionaire called Jim Mellon, a brilliant man. He calls them money fountains, right? But to engage with and have a crack at a money fountain, you first need to sort the nuts and bolts stuff out.

23:33And that's what's so kind of exciting about it, because if you do exactly what you've said you've done, exactly the position you're in today, at some point you will have the wherewithal, the capital to go, actually, I'm really quite excited about some of this man's crypto stuff. There you go. He's got crypto. He slags it off and he's made money and he's still holding and he's still buying. He's a punch bag. I've got 1 % allocation. But there you go, 1%. I was about to say 10%. But like, you know, and so we were just trying to launch a biotech fund, which sadly we didn't, it didn't come off in the original shape we wanted it to, but hopefully it will in another.

24:06But, you know, what should people put into that kind of stuff? Well, I would say not more than 10%. And that's my, I'm the sales guy. It's my product. Like, you know, why would, I mean, how many salespeople go, no, no, only put 10%. How many crypto people do that? Put it all in on your credit card. And borrow money on your credit cards. I mean, like, but again, this all comes back to, if you've read a book like mine or just learned that enough to learn how to drive amount about finance, you'll be able to see through all of that stuff. So yeah, a little bit of risk is fine once you've got the basics covered.