About the Author

Claer Barrett is multi-award-winning financial journalist, broadcaster and commentator. The consumer editor at the Financial Times, she presents the FT’s weekly Money Clinic podcast, helping listeners resolve their real-life financial dilemmas. She also writes a high-profile column in the FT Weekend covering issues of financial interest to financial consumers everywhere.

Claer frequently appears on TV and radio - from weekly appearances on ITV's Lorraine to LBC with Eddie Mair - answering money questions from the public. She is renowned as a trusted voice guiding people through the cost-of-living crisis with her trademark practical advice that cuts through financial jargon.

Claer has won a prestigious WIncott Award for campaigning on consumer issues and is a powerful advocate for financial literacy. She is a trustee of FLIC, the FT-backed charity (Financial Literacy and Inclusion Campaign) and frequently goes into schools running workshops about money for young people.

‘Unlike her name, Claer’s journalism is always clear. She’s a great champion of financial literacy. I suspect the book will be no different. More power to her elbow.’

Martin Lewis CBE, founder, Money Saving Expert

‘This book has everything you need to understand and take control of your finances. It is bursting with common sense and is invaluable and utterly indispensable in these tough times.’

Lorraine Kelly CBE, TV personality and journalist, Lorraine

‘The money book for people who hate money books.’

Eddie Mair, broadcaster

‘You MUST read this book. It’s funny, it’s wise, it’s kind – and we’ve never needed it more.’

Tim Harford OBE, The Undercover Economist, author, How to Make the World Add Up

‘Numbers and money can be scary topics. But armed with Claer’s combination of charm and financial expertise, this book can help everyone feel more confident. This should be compulsory reading for all! Claer is clearly the financial teacher for the nation.’

Bobby Seagull, maths teacher and TV personality

‘Claer gets right to the heart of what’s eating away at us all, quietly, about our own money blockages, in language that feels familiar, up close, and most of all kind. This is the book I want to give my son as soon as he’s old enough.’

Ranvir Singh, TV personality and journalist, Good Morning Britain

‘This is a book rich in financial goodness. Written in plain English, it’s for everyone – absorb and lick your finances into shape.’

Jeff Prestridge, group wealth and personal finance editor, Daily Mail and General Trust

Claer Barrett

WHAT THEY DON’T TEACH YOU ABOUT MONEY

Seven Habits that Unlock Financial Independence

Contents

1. Cover

2. About the Author

3. Title Page

4. Dedication

5. Introduction

6. 1: Money: It’s Emotional

7. 2: Spend, Spend, Spend

8. 3: Sorting Your Financial Sh*t Out

9. 4: The Debt Trap

10. 5: Hashtag Lifegoals

11. 6: The Dangers of Shortcuts to Wealth

12. 7: Getting Richer Slowly: Your Future Fund

13. 8: Getting Richer Slowly: Investing Using ISAs

14. 9: Maximise Your Income

15. 10: Talking About Money

16. References

17. Acknowledgements

18. Index

19. Copyright

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1. Cover

2. Frontmatter

3. Contents

4. Begin Reading

For my stepchildren, Kelly Jane, Ben and Jack – my greatest ever investment

Introduction

Are you ‘good’ with money?

If your answer to this question is ‘no’, ‘sometimes’ or ‘not sure’ – relax!

I am going to begin by telling you what could be the biggest money secret of all.

In the 20 years I have been a financial journalist, deep down, pretty much everyone I have ever met thinks they could be doing a better job of looking after their money – me included.

How do I know this? Because I am honoured to be somebody that people trust with their money problems – on TV and the radio, on my Money Clinic podcast and in everyday life.

You’re reading the first page of my book, which suggests you feel like this too. Welcome to the club! You’re in good company; we don’t admit perfectionists, and I am so glad to meet you.

But first, I want to make a confession. For years, I’ve said that I would never write a book about money. I also said that I would never get married, as my dad kindly reminded everyone when I finally tied the knot ten years ago (he got a big laugh).

The simple reason I vowed never to write a book about money is because I have never wanted to read a book about money. Murder mysteries are more my cup of tea.

But reading money manuals covered in pound signs, reeking of sensible spreadsheets, finger-wagging ‘experts’ who never put a foot wrong and boring facts and figures … quite frankly, I’d rather go down the pub.

Which begs the next question: Why should I expect you to read this book about money?

Because it is written especially for people who would never, ever buy a book about money.

If we were sitting chatting in the pub, what I’ve written down for you here is pretty much what I’d say (just with fewer f-bombs).

One of the biggest problems with money is that we all have far too much going on in our lives to get to grips with it. It’s complicated. It’s written in another language. There’s lots of scary numbers, and other things that only boffins understand.

In short, it gives us the ick.

Dealing with money issues makes us feel anxious at the best of times, but at the time of writing, the cost-of-living crisis is cranking up the fear factor. Most of us have dozens of money questions we secretly want to know the answers to, but we don’t know who to ask – and we don’t want to look stupid by admitting we don’t know. As our finances come under more pressure, getting these questions answered is now no longer optional – it’s essential!

When people are feeling brave enough to open up, here are some ways the conversation usually begins:

‘Claer, I know I should know about this stuff, but …’

‘You’ll probably think this is a really stupid question …’

‘I feel like an idiot for not understanding this …’

‘I’m scared to ask, but I can’t stop worrying about …’

‘I tried to find out more about this online, and now I’m more confused than ever …’

Sound familiar?

Often, people have wasted months or even years attempting to solve a problem as they struggle to find the facts, and wrestle with the possible decisions.

How can we unblock these feelings, and get on with our lives? As the title of this book attests, learning how to manage money is not something we are explicitly taught in schools, colleges, universities or the workplace.

Our parents have the biggest influence shaping our attitudes to money in our formative years – more on this shortly – but their levels of financial know-how vary drastically, and families are often very secretive about money.

And money is not something that people feel comfortable talking about – even to their partners, or close friends – unless they’re boasting on TikTok that they made a million trading crypto (funny how you never see them posting videos admitting that they lost a million). Social media can be a great place to learn more about money, but it comes with the inbuilt danger of making us feel inadequate.

The emotional baggage we attach to money issues is way over the standard airline limit. This makes it difficult to talk about money, but if we turn to Google to search out the answers, it can also be stressful and time consuming.

Finding trustworthy, accurate and independent information about money is hard – and there are so many different products, rules, regulations and catches you need to be aware of. However, most people can’t afford a financial adviser to help them make decisions.

The wider financial industry also seems hell-bent on boring our pants off by overcomplicating things to the point that nobody understands. This makes it hard for us to make decisions – so we put them off (perhaps forever!).

Most of us drift around in a state of financial inertia, and banks and financial companies profit from our lack of know-how. For this reason, there are lots of things in this book that I believe most people in the industry don’t want us to know. Why? They’d take less of our money if we wised up!

As well as making you feel less overwhelmed by money issues, I hope the lessons I have to pass on could change your life for the better. And if anyone asks if you’re good with money, the answer is … you’re about to get much better.

Seven key money habits

In my ongoing quest to make the most of my own money, I have identified seven key habits that come up time and time again and help keep me on track. I hope they can help you too. Just reading them might provide some inspiration!

I share these with you as an ‘entry point’ to establishing a better relationship with money – but the real power is in their practical application. As you read through the different chapters of the book, I’ll be suggesting lots of specific ways to put these habits into action.

And don’t forget – managing our money is an ongoing journey. The one certainty in life? Change! Stock markets move up and down; rules and regulations alter; our earnings could increase or decrease – and our financial plans have to adapt accordingly.

Here are seven key financial habits that will help you to ‘unblock’ your negative feelings about money, and move forward with positivity.

HABIT NUMBER ONE: Be rational, not emotional

The first thing we all must accept is that money is a highly emotive topic! Everyone has a different emotional relationship with money, and this strongly influences our attitude to earning, spending, borrowing, saving and investing it.

Now more than ever, we need to make rational and informed decisions with our cash – but it can be hard to resist these powerful emotional undercurrents. In the first chapter, I’m going to introduce some common financial personalities. Learning to be more rational and thinking of money as a tool can power our future financial success and, importantly, reduce the ‘fear factor’.

HABIT NUMBER TWO: Make mindful money choices

Being more aware of the choices we are making helps answer the eternal question: ‘Where has all of my money gone?’

In Chapters 2 and 3, I’m going to share tips, techniques and free digital tools you can use to dig into your data, keep a mindful eye on your own personal balance sheet and ultimately feel more in control (hurrah!). In Chapter 4, we’ll apply this to tackling debts.

HABIT NUMBER THREE: Separate and automate

Once you’ve overcome the hard part and made a financial decision to do something, make it easy on yourself by automating it!

As I explain in Chapter 3, digital banking means it’s never been easier to ‘Pay Yourself First’, setting up automatic payments into separate accounts to target your money towards certain areas. From round-ups to emergency funds and even stock market investments (Chapter 8), you’ll be surprised at what you can achieve.

HABIT NUMBER FOUR: Give yourself a goal

If you go to see a professional financial planner, the first question they will ask you is ‘What are your financial goals?’ This isn’t an easy question to answer – but it’s worth spending some time on, as goals are a powerful motivational tool.

Thinking about the bigger picture helps us realise how quickly small actions add up. For example, saving £2.70 a day would give you nearly £1,000 within a year.

In Chapter 5, I’ll guide you through the process of how to approach and set different goals for yourself, and how to stay motivated when things don’t go quite to plan.

HABIT NUMBER FIVE: Be curious

Being open to learning about aspects of your finances that you don’t feel confident about is key to your future success. There are no stupid questions about money – apart from never asking any! However, the way maths is taught in schools can put some people off numbers for life.

Throughout this book, I’m going to humanise those numbers by using real-life examples and case studies to give you the confidence to ask questions – and understand the answers. In Chapter 6, we’re going to look at how to protect yourself from scams and schemes, and learn how other people’s plans for our money are rarely in our best interests.

HABIT NUMBER SIX: Build your own financial plan

Setting goals focuses our minds on where we want to be – but forward planning is all about nailing the practical aspects of how we get there!

In Chapter 7, I’ll show you how to break your goals down into smaller steps, and how we can harness the power of two of the most potent forces in the financial world – tax breaks and compound interest. Don’t worry if you’ve never heard of them – I’m going to explain in simple language how you can profit from them.

HABIT NUMBER SEVEN: Make time to talk about money

Talking about money is our biggest block – many people feel deeply uncomfortable doing so. Exploring your own emotional relationship with money first will help you to find common ground to communicate with your partner, friends and family, and move forward together.

In Chapters 9 and 10, we’ll extend this to asking your boss for a pay rise – and getting one! Plus, I’ll explain how to have productive conversations with financial companies.

Pride is a costly emotion. Money problems have a nasty habit of getting worse if we choose to ignore them. But there is no shame in asking for help. I’ve suggested lots of sources of (free) help and advice throughout this book, and I will be by your side as you learn how all of these habits can help you get to a better place.

I DON’T HAVE VERY MUCH MONEY – IS THIS BOOK FOR ME?

The short answer is yes!

Here’s the slightly longer answer. While you might not be able to put some of the things I’m suggesting into practice just yet, it will be really valuable for you to find out more about them now so you can be prepared when the time comes.

This is particularly the case with investing. The rise of crypto and trading apps have spawned a new generation of investors, but a lot of people jumped in with both feet, lost money, and now don’t know what to do (I tackle this in Chapter 6).

Buying your first home is another long-term aspiration that you may feel is totally out of your reach. I’ve got lots of ideas about how to plan for this in Chapter 5 – including how to bag a 25 per cent government bonus on your deposit savings – but I also have need-to-knows for those of us who are renting.

Worrying about money is a fact of life. It doesn’t matter how much or how little money you’ve got, or what you might have to show for it. Everybody has huge insecurities – and as the cost of living rises, these feelings are intensifying.

I get frustrated with the finance industry for making money more confusing and intimidating than it has to be, but I also think our own reluctance to talk more freely about money stops us from sharing knowledge and asking for help.

In the current crisis, we really need to look out for one another. Talking about money is important, but so is noticing what other people might be too scared to say. It is now widely recognised that money problems adversely affect our mental health (and vice versa). As well as being a huge source of stress and anxiety, it literally can become a matter of life or death.

People in problem debt are three times more likely to have thought about suicide in the past year than others, according to the Money and Mental Health Institute, the charity set up by Martin Lewis CBE (someone who has done more to further the cause of financial literacy in this country than anyone else).

There is rarely one single factor that drives people to take their own life, but more than 100,000 people in England attempt suicide while in problem debt each year.

Right now, all of the debt charities I speak to say they are getting the most calls from people whose debts stem from being unable to pay their household bills. This is a huge, systemic problem that no amount of coupon-clipping or careful budgeting can resolve.

While those of us with a bit more cash can benefit from changing our money habits, we need policy change at the very top to create a fairer financial system. Martin’s campaigning work inspires me to shout loudly about the following financial issues:

- The growing number of families struggling on ‘deficit budgets’

- Record numbers of people now reliant on food banks

- Our broken energy market

- The inadequacy of our benefits system

- The crippling cost of childcare

- The housing crisis

- The gender pay gap

- The horrifying amount of financial fraud

- The lack of decent financial education for young people and adults

These problems are too big for a short, practical book about money to resolve, but I’d encourage you to join me in campaigning for them to be urgently moved up the political agenda. I will continue to shout about them while there is breath left in my body!

Over the course of the next ten chapters, let’s concentrate on the things we can change – and that starts with our own money habits.

1

Money: It’s Emotional

Learning how to deal with money is difficult on many levels. There’s the numbers, which give many people the heebie-jeebies. Then there’s the jargon that the financial world seems to have been invented merely to confuse us. And finally, there’s the emotional tripwires that can prevent us from talking about money, or asking for help if we don’t understand.

Having money makes us feel powerful; not having any makes us feel powerless. Our emotional relationship with money could be driven by fear, greed, pride, guilt or shame – powerful feelings that can manifest themselves through our spending, saving and attitude to risk in ways that we might not even realise.

This first chapter is all about coming to terms with the highly emotive nature of money and learning to take a more rational approach.

We’re going to learn how some of our ‘bad habits’ are formed, and spend some time exploring the past so we can decouple our emotions from our financial habits in the future.

I’m going to reveal the first of my ‘super seven’ habits – being rational, not emotional with money – and introduce some ‘financial personalities’ that can help us to think about things in the abstract and – very importantly – have a bit of fun in the process.

What’s your earliest money memory?

The money associations that we form in early childhood are a powerful influence for the rest of our lives – fact. A huge study by Cambridge University found that our attitudes towards money are largely set by the age of seven.1

Not seventeen – seven!

For this reason, every guest who comes on my Money Clinic podcast gets asked the question: ‘What’s your earliest money memory?’

I’d like to start the first chapter by asking you the same question.

One of my favourite responses was from Sol Campbell, the football legend. Growing up in a small house in east London as the youngest of 12 siblings, Sol said his earliest money memory was scouring the property pages of the local paper. He wanted to know how much it would cost to buy his own house so he could have the luxury of his own bedroom!2

Could this aspiration have influenced Sol to invest his earnings from his football career into building a £50m property empire?

Gina Miller, the campaigner and investment manager, remembered her mother’s extreme resourcefulness when she was growing up in Guyana.

‘She was incredibly careful with money, and her lesson to us as children was what you have today could be gone tomorrow – so you have to look after it,’ she told me.3 ‘Even as my father became more successful and we had money, we had to be careful with it.’

Could this have helped establish Gina’s strong inner confidence about money and finance, leading her to start multiple businesses and become one of the most prominent women in the City of London today? I don’t think it’s a coincidence.

Would you like to hear my earliest money memory? (I’m going to tell you anyway.)

At the age of five, I remember creeping out of bed at night, and watching my parents managing their finances together sat around the kitchen table. Money was tight when we were growing up, but I felt secure knowing that my mum and dad were working together, carefully budgeting to make sure we always had enough – plus I knew that they hid envelopes with cash for each week inside Mum’s giant cookery book! (And no, I never dared to try to swipe a fiver.)

My mum didn’t work while my brother and I were young, but the fact that she had such a big say in how Dad’s wages were divided up and spent definitely shaped my own fierce sense of financial independence in later life.

But our early money memories aren’t always warm and fuzzy.

One pathetically sad memory I have is longing to have fashionable clothes, rather than hand-me-downs and second-hand things. When my mum started working again, I have a wonderful memory of us both visiting the temple of teenage delight that was called Tammy Girl, and the outfit that she bought me. As an adult, I have always been prone to splurging on clothes, although the internet shows that my fashion choices have not always been wise!

Money – or the lack of it – is a huge source of conflict. Many friends say that hearing their parents constantly argue about money is the thing that’s stuck with them. This could sow the seeds for feeling fearful or ashamed about money, or struggling to find the words to talk about it. Maybe you would rather avoid the topic altogether (which has a cost)?

Can bad memories make for good money habits?

Negative experiences can also provide the catalyst for change. My good friend Lindsay Cook, who hosts the Mrs Mean Money Show podcast, is brilliant with money and is always the first person I call when I’m having a wobble.

Growing up in Grimsby in the 1960s, Lindsay’s father was an angry man. ‘He was dreadful with money,’ she recalls. ‘He bought new cars and fancy clothes and was a key supporter of the Cleethorpes Conservative Club, or at least its bar. There was never enough for essentials, and he had huge arguments with my mother.’

Lindsay left home as soon as she could, started her career as a financial journalist, and bought her first house when she was in her early 20s. ‘In those days, it was unusual for a single woman to do this, but more than anything, I wanted to be financially independent and not end up being trapped like my mother.’

While not as traumatic, another ‘bad memory’ that comes up time and time again is school maths lessons. On a podcast I made to celebrate National Numeracy Day, 22-year-old listener, Jade, vividly recalled the burning feeling of shame in not knowing the answer to questions in maths class.4 Years later, thoughts of all those red crosses were holding her back from dealing with numbers and money as an adult.

Jade was convinced she couldn’t ‘do numbers’. Can you relate?

Money and maths

I’ll let you into a secret. Maths was always my worst subject at school. I could do the basics OK (providing I had a pencil to chew on) but I was never as fast as the others. To this day, I still double-check even simple sums on my iPhone calculator as I don’t quite trust my brain to get it right.

As someone who writes about complex areas of finance like tax and pensions, I’ve obviously had to get over this block! While I may not be the fastest, I know I can find out the answers if I go at my own pace – and that’s the feeling I hold on to.

But as a teenager, I used to get very stroppy with my poor teacher Mrs Saggar: ‘Miss, what is the point of Pythagoras? When in our adult lives are we ever going to need to measure a triangle?’

It is nearly 30 years since I scraped through my GCSE maths exam and, lo and behold, I have never once encountered a triangle-measuring emergency (although I can still recall that A² plus B² equals C²).

This is why the Financial Times’s Financial Literacy and Inclusion Campaign (FLIC for short) wants school maths lessons to contain more ‘money maths’. Children are naturally interested in money, and there are all kinds of future life skills that we could open up their minds to. How about an exam question comparing the price of mobile phone contracts, working out whether you’ll pay more buying a £500 handset up front, or paying £30 a month for two years?

I pick mobile phones, as this is something that will be super-relevant to every 14–15-year-old. But the cost of buying hair extensions on credit forms part of lessons for Nicola Butler from Colwyn Bay in Wales, who was crowned Personal Finance Teacher of the Year in 2021.5

Her aim is to make lessons as realistic as possible. Having got everyone chatting about hair, she quickly steers the conversation around to the lure of consumer debt and the true cost of borrowing (at £400, most people will still be paying for their extensions long after they’ve grown out).

So instead of spending so many lessons teaching us about triangles, how about explaining why credit cards are the most expensive way of spending money, how ‘Buy Now, Pay Later’ influences us to spend more, how income tax will be charged on our future earnings or how paying an extra 1 per cent into our pensions from the age of 20 could give us 25 per cent more money by the time we retire?

I will of course be teaching you lessons about all of these in the coming pages – but maybe if you had known more about them as a younger person, you could have avoided some expensive mistakes – or set some valuable habits in motion.

For now, let’s return to your early money memories.

With precious little financial education, our parents, grandparents and other family members are likely to have been a huge influence and maybe a source of information – and inspiration – over the years.

Thinking about these early money memories is such an important question. It’s also a great, non-threatening question to spark a wider conversation about money with a partner or family member – for more on this, see Chapter 10.

So why do I want you to ‘go there’?

Because I find it can produce some enlightening responses – these money memories stick in our minds for a reason!

HABIT NUMBER ONE:

Be rational, not emotional

Separating our money from our emotions is easier said than done. Later on in this book, we’re going to hear from Vicky Reynal, a psychotherapist who specialises in helping people who have a problematic relationship with their finances.

All too often, their problem isn’t with money itself – it’s what money has come to symbolise in their lives. Whether you would say your own relationship with money is ‘good’, ‘bad’ or somewhere in-between, I think we can all take something from this.

At a surface level we could be spending too much, neglecting our finances, obsessively watching the pennies or taking huge risks, but Vicky says what could be driving us to do this ‘are desires and fears around security, power, confidence, masculinity, femininity, control or love’.

We need to acknowledge and accept the role that emotions play in our financial lives to be able to think more rationally and see money as a tool that can unlock different opportunities.

On its own, having more money is not going to change our emotional relationship with money or solve our financial problems. Statistics show that 70 per cent of US lottery winners end up going broke.6 No matter how much money we have, we need to make rational choices to make the most of it.

As I’ll show you, our early money experiences have a lasting influence – they’re how our habits are formed. Think of a habit as a shortcut to making a decision. We do it on auto-pilot, but we don’t necessarily remember why we’re doing it. We build up a collection of habits that hardwire our brains into doing things with money in a certain way – and this informs our ‘financial personality’ as adults.

For example, you might remember getting a buzz from saving up your pocket money in a piggy bank as a kid. As an adult, this savings habit could be second nature – you’re great at putting money aside and find it easy to control your spending.

Alternatively, some of your most vivid memories might be your parents arguing about money. Having learned to associate money with conflict, in your adult life you might find money is a topic you are at pains to avoid.

If there’s one colour of envelope that is bound to provoke an emotional response, it’s a manila brown one from HMRC. Years ago, if I came home and found a letter from the tax office on my doormat, my emotional response was terror! It could be a huge bill, so I’d hide it under the fruit bowl without opening it.

Nowadays, my rational response is to open it before I’ve even taken my coat off. I’ve learned if you have a tax issue, it’s better to deal with it swiftly. Usually, it’s just some banal missive saying two digits in my tax code have changed.

Understanding the emotional foundations that our own relationship with money has been built on can often lead to ‘aha’ moments – the penny drops when we realise how our attitudes towards money today were originally formed.

And crucially, this is the first step in the journey towards changing them for the better.

What’s your financial personality?

Psychologists commonly use the concept of a ‘financial personality’ to explore the emotional relationship we have with money, and better understand how this influences our financial decisions.

To which I say: ‘Hmm!’

On the one hand, looking at common personality traits can help us lower our guard, explore the emotional roots of our most deeply entrenched money habits and, by thinking objectively about these, find more rational ways of approaching them.

But we’re complex beings – and our money personalities are multi-faceted. Our relationship with money cannot be reduced to a single stereotype. So my first caveat is that the different personalities I describe in the next pages are extremes – and my depictions of them are deliberately tongue in cheek.

Harking back to school maths lessons, it’s quite a Venn diagram; you might feel you’re somewhere on the spectrum of more than one (I certainly do). Some days, I’m killing it with the spreadsheets, but on other days, I just want to bury my head in the sand (or rather, a nice chilled bottle of Gavi).

Yes – even money ‘experts’ have off days!

We must accept that we’re all going to make mistakes with money – it’s just part of the process. What’s important is picking ourselves up, learning from these mistakes and carrying on. There is no shame in admitting that you find money difficult or a drag to deal with – but deal with it, we must.

Finally, I do worry that giving people a ‘label’ could make them think they’re predestined to have this kind of relationship with money forever. As you’ll see from the case studies in this book, change is most definitely possible, even if it doesn’t happen in a straight line.

Yet in order to change your mindset, you must better understand it. So, see what you make of my little cast of characters overleaf, the financial personality traits you share with them, and the money habits you could benefit from.

SPENDY WENDY

Motto: When the going gets tough, the tough go shopping.

This could be you if: You know the three numbers on the back of your bank card off by heart as you do so much online shopping.

Personality traits: For Spendy Wendys, spending money is often tied up with boosting their own self-esteem. They’re convinced that buying that designer dress, those trainers or the latest gadget will bring them happiness – they thoroughly enjoy spending money, but the buzz doesn’t last for long. They may also feel guilt or shame post-shop. (By the way, this doesn’t only affect women – I just couldn’t find a man’s name that rhymed with Spendy!)

A high level of spending could also stem from what psychologists call ‘status anxiety’ – obsessively comparing yourself to others, and fearing how you will be judged (hello, Instagram). I once met a trainee teacher at a money event who had maxed out her credit cards buying lavish presents for her higher-earning university friends as she was scared they would dump her. She was such a lovely woman – but her high debts were the manifestation of her low self-esteem.

These feelings of inadequacy could stem from loneliness or a lack of self-confidence – but it’s unlikely that spending lots of money will make you any happier.

Whatever is driving their compulsion to spend, Spendys risk their future happiness by denuding their savings and building up unsustainable debts.

A money habit Spendys could really benefit from: In a word – budgeting. If you don’t have a limit to your spending, eventually it’s going to bite you in the bum. Setting a tangible savings goal could help Spendys associate saving with a specific purpose, delaying gratification rather than postponing it indefinitely (we tackle this in Chapter 2). And if you’re using spending as a ‘reward’ (perhaps for hard work?), do make a list of no- or low-cash rewards you can treat yourself with.

YOLO

Motto: You only live once.

This could be you if: You have ever uttered the words ‘To the moon’ without irony.

Personality traits: The Yolo is prepared to take huge risks to get rich quick, even though they could get broke fast. This could owe more to hopelessness than recklessness. Unaffordable property prices, huge student debts, the rising cost of living – the Yolo’s reaction to all of this could well be, ‘What’s the point of struggling to be sensible?’

It’s easy for these feelings of inadequacy to cause Yolos to associate money with power, status and prestige. If they make any, they tend to spend it on items they think visibly demonstrate their wealth and prowess.

They often take an ‘all or nothing’ approach to investment risk, making big bets on crypto, and single-stock trades (see Chapter 6). Yolos don’t have a problem talking about money, but they are vulnerable to peer pressure. While they might boast about their investment gains on social media, they rarely admit to making losses, and deep down could find these very hard to handle.

A money habit Yolos could really benefit from: Dialling down the risk. Yolos might think they’re pretty shrewd investors – but outcomes owe more to luck than judgement. Limit the risky stuff to a proportion of your portfolio, and invest some time learning more about the basics in Chapter 7. Pensions could be more exciting than you think – and anyone who rides the investment rollercoaster needs an emergency cash landing mat.

GOBLIN

Motto: My precious!

This could be you if: You get more of a kick from saving money than spending it.

Personality traits: Goblins are essentially frugal hoarders. Naturally thrifty, they are brilliant at saving money. They like counting their gold and have a tendency to be money obsessed. This is because they strongly associate money with security – maybe there wasn’t much of it around when they were growing up.

However, Goblins can find it hard to take investment risk. They may well have large amounts of cash sitting around in savings accounts that risks being gobbled up by high inflation (read more about this in the next chapter!). They find taking risks difficult – but taking no risks at all with their money could end up being a bigger risk than they realise.

Goblins can be so focused on making money, and working hard to earn more of it, that they might have little time to actually enjoy the fruits of their underground labours. If they have partnered up with a non-Goblin, this can be a huge source of conflict within relationships.

A money habit Goblins could really benefit from: Giving yourself permission to enjoy some of the money you’ve made. You might find spending and investing easier if you do some cashflow planning first to show there is enough slack in your budget (in Chapter 7, we look a building your own financial plan).

SPREADSHEET SLAVE

Motto: If you fail to plan, you plan to fail.

This could be you if: You have ever dreamed in Excel.

Personality traits: The Spreadsheet Slave is not scared of running the numbers, and sees money as a tool – a money habit we should all embrace! Careful planners, they feel comfortable using tech to project the figures going forwards, and take a meticulous approach to monitoring their financial data. Their budgeting techniques are so bang-on they probably have a section devoted to ‘unplanned spending’ to account for any unforeseen anomalies. But in some cases, they could be overcompensating for a lack of control in other areas of their lives.

The tendency to overthink things, and the quest to make a plan for every last penny, means they could struggle to cope with unexpected outcomes. Like the Goblin, spreadsheet obsessives could find their financial worth is firmly shackled to their sense of self-worth – but true wealth is about so much more than just money (we also need to invest in our health, our friendships, our relationships).

A money habit Spreadsheet Slaves could really benefit from: Not losing sight of the bigger picture. Focusing on the details too much can disconnect you from your wider goals. Plans are there to be adapted. Do you control your money, or does your money control you? Or to put it another way – is your focus on money so relentless that you are forgetting to have fun? Chapter 10 could help you find new ways of talking about money with your partner.

JITTERBUG

Motto: Yes. I mean no. I mean yes! (maybe)

This could be you if: You have a constant state of underlying anxiety about money.

Personality traits: In times like these, everyone has the jitters about money – and having to survive on a low income is a fact of life, rather than a personality trait. But even jitterbugs who have some money tucked away can really struggle to make financial decisions – maybe stemming from a lack of confidence elsewhere, or simply being blindsided by financial jargon.

Often, their fear of making the wrong decision means they end up making no decision – which can cost them in the long term.

Higher-earning Jitterbugs are prone to fiddling around with their investments, and their emotional reactions could lead them to make costly knee-jerk decisions (such as selling when their investments fall in value). Overtrading your portfolio (selling in and out) can also mean you spend much more than you need to on investment fees.

A money habit Jitterbugs could really benefit from: Trying to focus on what you can control rather than what you cannot. Talking to someone about your anxieties and giving voice to your fears could really help – and a session with a professional financial planner could be a wise investment. Read Chapters 7 and 8 to get the lowdown on how to ‘get rich slow’ and learn how to channel any nervous energy into maximising your income in Chapter 9.

OSTRICH

Motto: I bury my head in the sand.

This could be you if: You say a silent prayer every time you tap your card to pay.

Personality traits: There are many emotional triggers for Ostrich-like behaviour. They might struggle to engage with money or numbers, stemming from a bad experience in school maths lessons. They could be in denial about the state of their finances as they’re struggling to deal with other problems in their lives, or feel ashamed of financial mistakes they think they’ve made, and are too embarrassed to ask for help. Ostriches could have suffered some kind of financial trauma, such as losing money to a scammer, and lost confidence. Or they might rely on a partner or close family member to deal with all the money stuff for them, and have little idea about their true financial picture.

Deep down, many Ostriches know that not staying on top of their finances has a cost – from being hit with late-payment fees to losing out on opportunities to make money. But their fear of engaging with money is greater than their fear of being penalised.

A money habit Ostriches could really benefit from: Taking things one step at a time. Dealing with money can be overwhelming, and nobody should attempt to sort out everything at once – that would make you want to plant your head firmly back in the sandpit! Instead, pick one thing to tackle, with a deadline and a reward for completing the task. This will give you the confidence to move on to the next one. If you’re still feeling scared, maybe there’s another Ostrich in your life who could be your bird buddy? There are LOTS of tips to come about harnessing the power of automation in Chapter 3 that I know you will both love.

Now we’ve identified some of the common emotional reactions to money, hopefully giving them a label will mean we can think about them in more objective ways. This could make it easier to talk about money with your partner, or close friends.

I personally feel that I’m 50 per cent Goblin, 40 per cent Spreadsheet Slave and 10 per cent Spendy Wendy (but still have days when I feel like an Ostrich!).

Pride is a costly emotion. Money problems have a nasty habit of getting worse if we choose to ignore them. But there is no shame in asking for help. I’ve suggested lots of sources of (free) help and advice throughout this book, and I will be by your side as you learn how all of these habits can help you get to a better place.

The key thing is developing awareness of these traits, taking a more rational approach and asking the question: ‘What could happen if I did things differently?’

To learn how to start doing that, all you have to do is turn the page.

2

Spend, Spend, Spend

I’m going to start with the area of money we’re most familiar with – spending it!

Whether we realise it or not, the powerful forces of consumer capitalism are aimed at our brains like a ray gun, influencing us to spend money we don’t have on things we don’t need.

Consumer-facing companies invest heavily into ‘training’ us to be better, more profitable customers. From the billions spent on advertising and marketing campaigns to sales discounts and Instagram envy, they sure know how to ‘play’ us and manipulate our emotions.

But who teaches us how to resist?

In this chapter, I’m going to open your eyes to common cash-extraction techniques. We’ll spend some time thinking about the second of my seven habits – make mindful money choices – and techniques to retrain our brains into spending on things that have real value.

Money-saving myths

I spy a pair of trainers online for £100. I’ve got a black belt in online shopping, so I’m smart enough to open a separate window and look for a discount code … Found one!

Goody-good, it’s for 20 per cent off. Get to the checkout, copy, paste and boom! It works.

My question for you is – how much money have I saved? (Hold that figure in your head – we’ll come to the answer later.)

I will freely admit that one of my biggest spending triggers is a discount. Outlet shopping, final reductions, buying yellow sticker items in the supermarket … (not to mention those ‘25 per cent off’ deals when you buy six bottles of wine – dangerous).

Saving money feels good! I love when a friend compliments me on something I’m wearing, and I can smugly respond, ‘I got it in the sale!’ In fact, I find it very hard to buy things that aren’t in the sale (hello, inner Goblin).

Let’s say I’m in a shop looking at two jumpers – one that costs £40, and another jumper that has been reduced to £40, but originally cost more. I would definitely want to buy the reduced one more. Wouldn’t you? There’s two things to like – a nice jumper, and a nice saving! It feels like a better-value deal. But what I have forgotten is that I already own at least ten other jumpers …

So, let’s return to my original question – how much money have I saved on the £100 pair of trainers by finding that 20 per cent discount code?

It feels like I have saved £20. But the correct answer is I have just spent £80. ‘Spending to save’ is the biggest money-saving myth of all time.

We all want to save money – especially right now – and the consumer giants all know this. But they don’t want us to spend less money! So, they tempt us by emphasising the savings we can unlock with different deals, discounts and loyalty points. There’s often a time limit to get us over the line. (Hurry! Must end this weekend!)

Have you spotted any of these before?

- Get £15 off if you spend £150

- Get 500 extra reward points when you spend £50

- Three for £10 (funny how there’s only ever two things you actually want)

We’re persuaded to spend more money – yet we’re still convinced that we’re saving money and getting a great deal. It’s easier to justify this to ourselves – we might have blown the budget, but it’s OK, because we bagged a bargain.

So, what’s going on with our brains to allow us to delude ourselves that spending is saving – and how can we reframe this?

The author Tim Harford is better known as the FT’s ‘Undercover Economist’ columnist and the presenter of More or Less on Radio 4. He’s an expert in behavioural economics (the study of what influences human decision making). He explained to me how our perception of a ‘bargain’ comes down to comparison.

When we think about buying something in a shop (or while browsing a website) we look at the price and ask ourselves, ‘Is that a lot of money, or not?’ To do this, we need to compare that price to other prices.

‘A discount enables the retailer to offer a comparison that makes something seem like a really good deal,’ Tim explains.

Take those trainers. Usually, they would cost £100, but today, they’re reduced to £80 (in fact, retailers very rarely set prices ending with a zero – psychologically, prices that end in a nine feel much cheaper!). So, let’s say the label said £99; now they’re reduced to £79. We’re so excited by the £20 discount, we don’t think about how that £79 price might compare to similar trainers from another shop or website.

Tim describes this as ‘a cognitive shortcut’ – it’s easier to take the reduced price as the best indicator of value. We’re getting £99 worth of trainers for just £79! There’s just one problem …

‘A lot of discounts are total fiction,’ he says. ‘The original price is just a story they tell to make the discount more tempting.’

There are rules – retailers must have had the item on sale for the original price somewhere for a particular period of time – but in reality, they can conjure up whatever discounts they like.

Another example of this relates to the sale of gadgets like cameras or bread makers. Consumer studies in the US by Stanford University found that if you present shoppers with a choice of two items – a $149 model or a $499 model – they’re more likely to be drawn to the cheaper option. But if you introduce the ‘third choice’ of a whizz-bang gadget priced at $999, all of a sudden, that middle option feels like much better value.

Similar forces are at work with ‘Buy now, pay later’ deals, where we focus on the much smaller price of the monthly instalments, and not the much bigger total price (I explore this in more depth in Chapter 4).

Yet there is surely no better example of this phenomenon than the multibillion-dollar spend-fest that is Black Friday.

Every year, consumer group Which? does a post-match analysis of all kinds of deals and special offers and it usually finds that the Black Friday prices don’t represent much of a saving – and in some cases, they can even be more expensive.

But our desire to grab a bargain and get that buzz from ‘saving money’ (and telling others how much we’ve saved!) is a powerful trigger to spend more. If you’ve ever found yourself mindlessly scrolling through lists of Amazon Black Friday offers looking for something to buy, you will know precisely what I mean.

Psychologists refer to the concept of a ‘hedonic treadmill’ – the idea that whatever short-term measures we take to increase our happiness, most of us quickly return to our original level of contentment. We crave that short-term ‘hit’ from the pleasure of buying something or feeling like we nabbed a great deal but, while this might make us happy for a short period of time, before too long, we’re back scrolling online, looking for another hit.

TIP: IS IT REALLY A BARGAIN?

If there is something you actually need, like replacing a phone, TV or tablet, then waiting until Black Friday or Cyber Monday could be a sensible strategy. However, plan your spending wisely by using price-tracking tools like Camelcamelcamel, PriceSpy and PriceHistory to judge how good that discount really is.

In the heat of the moment when you’re eyeing up a sale bargain, ask yourself what’s more attractive – the item itself, or the fact that it’s discounted?

My dad Bob has a nifty way of thinking about this: ‘If you don’t buy it, you get 100 per cent off!’

(FYI, Bob is nearly 80, and owns at least one jumper that is older than me.)

Rising prices

Retailers know our ‘spend to save’ delusion is stronger than ever because we’re conscious that our money doesn’t stretch as far as it used to. At the time of writing, we are experiencing the highest level of inflation (translation: price rises) that the UK has seen for over 40 years, which is making everyday life a lot more expensive.

The cost of things we can’t avoid buying are shooting up, namely energy bills, food, petrol and diesel (even if you don’t drive, the increased costs of transporting goods will be reflected in the price of pretty much everything you buy).

The problem is, most people’s wages aren’t increasing at the same rate.

So, what levers could we pull to try to deal with rising inflation?

- We could try to increase our income (demand a pay rise, threaten to go on strike if employers refuse, or change jobs)

- We could try to economise (buying less stuff, switching to cheaper items e.g. supermarket own-brands)

- We could borrow more money to plug the gap – but there’s a cost to this (at the time of writing, UK credit card debt has hit record levels)

Rising inflation hits people on lower incomes much harder, as a much greater proportion of their earnings are taken up with the basics (energy costs, food and fuel being the big three).

Higher earners have more slack in their budgets – they have the luxury of choosing to spend less money on non-essentials like holidays, meals out or another pair of trainers. But if rising interest rates are going to push up the cost of your mortgage by hundreds of pounds a month, you are going to need to find that money from somewhere.

The problem is, spending less on the things we desire feels like denial. No, you can’t have it. Sorry, we can’t afford it. And in miserable times like these, when we’re working our butts off to pay the bills, we feel more than ever that we deserve a treat.

The temptation to reach for the credit card will just make paying for this treat next month’s problem – so is there any psychological way of training our brains to be happier spending less?

Readers – I refer you to the wisdom of US financial educator Tiffany Aliche, better known to her thousands of followers on social media as The Budgetnista.

Tiffany’s system is called ‘Need, Love, Like, Want’ – which she says are the four questions you should ask yourself before spending money on anything (you can watch her explaining this on her hit Netflix show Get Smart with Money).

A ‘need’ is a non-negotiable spend needed to maintain the health and safety of you and your family – such as your rent or mortgage, the bills, the food shop.

A ‘love’ is what you dream of doing – going on a special holiday, buying a house, buying a bigger house, maybe spending more time on your favourite hobby or even starting your own business.

A ‘like’ is a purchase that could bring you temporary satisfaction for six months or less (such as clothes you like, but don’t necessarily need).

A ‘want’ is something you’re buying for the sake of buying – like a cushion reduced by 70 per cent – there’s no joy there, you’re just scratching an itch.

As Tiffany says, if you focus more on your needs and loves, you’re living more of a life. But if you sink too much money into your likes and your wants, you’re living less of a life.

HABIT NUMBER TWO:

Make mindful money choices

Tiffany’s strategy is just one way that we can work on building the second of those ‘super seven’ habits that I spoke about earlier – making mindful money choices.

You might have tried to practise mindfulness before; maybe you even downloaded a mindfulness app during the pandemic (I certainly did!). The central concept of mindfulness is pausing to create some space (deep breathing is optional). In this moment, we allow ourselves to observe and notice what’s actually happening, and gain some perspective to reflect on the choices we’re making.

Why do we need to do this with money? We all make dozens of financial choices every day, from checking our bank balance to comparing the price of items in the supermarket or tapping to pay for a latte.

Remember what Tim Harford taught us about ‘cognitive shortcuts’? Our brains would be overwhelmed if we thought too deeply about making all of these choices. It’s easy to do things on auto-pilot, and simply ‘spend as we go’ without being conscious of what it’s all adding up to.

Contactless cards and tapping our phones to pay lessens the resistance (I confess I am sometimes guilty of doing this without looking at the price on the terminal – which is very bad). At a time when inflation is pushing up prices, we need to be more conscious than ever about what we’re spending.

Being more aware of the choices we are making is how we learn the answer to the eternal question: ‘Where has all my money gone?’

I don’t want you to be scared off by the word ‘budgeting’, as this can sound very restrictive. I prefer to use the term ‘spending plan’. Thinking in advance about how you’re going to spend, save and invest your money can actually be liberating. With the help of digital tools, setting some basic parameters means you won’t have to overthink those individual spending decisions – and what’s more, feeling more in control of your cash will really help to quell financial anxiety.

So how can we start to observe the day-to-day decisions we make with our money in a more mindful way?

Tiffany’s system encourages us to spend more of our money on our ‘loves’: the things that really matter. I have found this is much easier to do if you define these as specific savings goals.

If the choice is between blowing £50 on a ‘like’ or ‘want’ or getting £50 closer to saving £1,000 for something you’d really love, like your next holiday, the choice is no longer about denial – it’s become one of deferred gratification. In choosing not to spend this money today, you have decided to spend it on something more valuable in the future.

Your financial willpower grows every time you resist the urge to splurge. If you can regularly save something into your emergency fund or towards a holiday each month, the next step could be targeting savings towards your ‘future fund’ – how I like to think of saving for retirement (there’s much more about this in Chapter 7).

By doing so, you’re working towards something that’s far more rewarding than the instant buzz of consumerism – financial independence. Instead of spending too much money on stuff, you’re using money as a tool to buy yourself future opportunities – whether that’s focusing on a passion project, travelling, saving towards a major purchase or ‘making work optional’ in your 60s and 70s.

HOW MUCH TIME DID IT TAKE TO EARN THIS MONEY?

Going to work is essentially trading our time for money. One way of reconceptualising the price of things you want to buy is how long you’d have to work for in order to pay for them.

To do this, all you need is your monthly payslip.

The number in the bottom right-hand corner is your net pay (what you actually get paid after tax, student loan repayments and all that jazz has been deducted).

Simply divide this figure by 21 (the average number of working days in a month) and this sum of money is what you’re trading eight hours or so of your time for.

For someone earning £30,000 a year, this works out at around £92 per working day (or £11.50 per hour). Once you know your own number, believe me, there will be lots of things you’ll be dividing it into!

Was it really worth working all day to blow £92 on dinner and drinks with a Spendy Wendy friend? It might have been – but this comparison measure creates a powerful link between earning the money and spending it, helping us to think more mindfully about getting the most bang for our bucks.

And of course, we have to pay for essentials, as well as the fun stuff. How many days graft will it take you to pay the rent or mortgage on your home?

By starting to think of our money in more mindful ways like this, we’re moving a step closer to drawing up a budget – or spending plan – dividing up the money we earn and allocating it towards different purposes – and in the next chapter, I’m going teach you why this could be much easier than you think.

How brave are you feeling about money?

Before we move on to the practical aspects of managing your money, I want to have another look at the emotional ‘blockages’ that hold us back – and ways to get over these.

I’m sure there is something about your finances that you’ve probably wanted to sort out for ages, but you keep getting that ‘top step at the dentist’ feeling.

You might feel really nervous about checking your bank balance regularly (this might sound like a small thing, but trust me, it is massive). You might want to talk to someone about making a plan to tackle your debts (see Chapter 4). Maybe you will feel brave enough to fire off an email to your company’s HR department (check out my tip for this on page 219). Or you might pluck up the courage to ask for a pay rise at work (make sure you read Chapter 9 before you do!)

We’re scared of doing these things because we fear the negative consequences:

- If we check the balance, we might see there’s not much money left to spend.

- If we ask for help, we’d have to deal with the shame of admitting we don’t know something, or have made a mistake.

- And if we ask for a raise, our boss might tell us to do one!

Ignoring our money problems can mean they get much worse (hello, Ostriches!) but it also hampers our chances of getting a good result.

I am a complete nincompoop about visiting the dentist (I’m not sure what I fear more – the drill, or the bill). I once didn’t go for years and ended up having to spend a fortune on a root canal, which if caught in time would have only needed a very small filling.

In the same sense, I had a friend at work who had been putting off asking about the company pension scheme (she opted out when she joined the FT, as she didn’t understand how it worked). Years later, when we became friends and she asked for my help, I worked out she had missed out on nearly £50,000 by not being a member. Heartbreaking, but since she opted back in, she’s gained tens of thousands of pounds. It’s never too late!

When it comes to our finances, to get ourselves over the ‘top step’ we also need to embrace the possibility of the positive consequences:

- Checking our balance means we can keep on track – and avoid costly overdraft charges.

- Asking for help means we can receive the support we need to tackle difficult decisions – it’s a sign of strength, not weakness.

- As for the pay rise – one of my favourite rules in life is, ‘If you don’t ask, you don’t get!’

So hold on to that feeling that we all get when we’ve screwed up enough courage to tackle a problem, and feel the weight lift off your shoulders. Plus, when it comes to money, we can measure our progress in cash terms. If we don’t interrogate those numbers, ask that question or press for better pay, it could cost us. But if we’re brave enough to try to tackle these issues, it can only benefit us.

Still need a little push over the line? I’ll refer you to the greatest expert on bravery. In her posthumously released book How to Live When You Could Be Dead, the late Dame Deborah James advises that when facing our fears, we should say to ourselves: ‘I’m really scared about what might happen, but I’m going to do it anyway.’

In the next chapter, I’m going to teach you some tried and trusted techniques to get more of a handle on your finances that you can gradually build into your everyday routine.

It’s normal to feel a little outside of your comfort zone – remember, money is emotional! So be brave, take a deep breath and do the things you think you cannot do. (And while you’re doing that, I’m going to make an appointment for my next dental check-up.)

3

Sorting Your Financial Sh*t Out

We’ve looked at the ways we’re lured into spending money; we’ve considered more mindful ways of making decisions and looking at the bigger financial picture. Plus, we’ve explored some of the ways we can get over the mental blockages that can prevent us from getting up close and personal with our cash.

Now we’re ready to move to the next stage – exploring different practical steps we can take to win back control of our finances.

The rising cost of living means we’re more likely to get to the end of our money before we get to the end of the month: ‘Where has all the money gone?’

To find out the answer to this question, you need a budget – but this is quite a loaded word. Setting up some kind of system to keep better track of the money coming in and flowing out sounds like a lot of faff. But running out of money is expensive in three ways:

- The overdraft fees and credit card interest (see Chapter 4)

- The embarrassment of having to ask family and friends to lend you some cash

- The stress and cost to your mental health (read on for Liz’s story)

In my experience, people with the least money are heartbreakingly brilliant at budgeting. There’s a simple reason – they have to be! If you haven’t got a lot of money, you will be hyper-aware of any changes to your day-to-day living costs, and what will have to be scrimped and saved to keep you in the black. This is especially the case if you are a single parent.

During the cost-of-living crisis, plenty of wealthy politicians were spouting a lot of nonsense about ways people could economise (such as buying a brand-new kettle to save £10 a year on energy bills).

I am reminded of the quote by Oscar Wilde: ‘Sometimes the poor are praised for being thrifty. But to recommend thrift to the poor is both grotesque and insulting. It is like advising a man who is starving to eat less.’

In times like these, there is only so much ‘cutting back’ we can do – you cannot budget your way out of extreme poverty. This is why we need our politicians to think about better solutions than spending money on kettles!

However, it’s people who have the luxury of earning more money, with greater choice over how and what they spend their money on, who are in greater danger of blowing the budget.

‘Not budgeting is a bit like trying to keep track of time without a watch or a clock,’ says Mr MoneyJar, better known as financial educator Timi Merriman-Johnson. ‘In your day-to-day life, you’re constantly checking what time it is, and using this to inform how you plan to spend your day. Why should spending your money be any different?’

The day I started budgeting and why

For 23-year-old me, it was emotions that got in the way. Having graduated from university with a £2,000 overdraft, looking at all of those negative numbers was depressing. I was working mega hours in a mind-numbing ‘GOOD’ job (in order to Get-Out-Of-Debt) and spending every other waking moment trying to get a ‘proper job’ as a journalist – but nearly everything I was being offered involved working for free.

I felt like a failure, and didn’t need another reminder by looking at the minus figures – so I carried on spending, and just stopped checking my bank balance or opening the post (at this point, online banking apps were a distant dream!). However, this did not reduce my anxiety. I constantly feared my bank card would be declined (which, on some occasions, it was).

This was my ‘peak Ostrich’ period, if you like.

My ‘epiphany’ moment was getting a nasty letter from a debt collector (the envelope made it obvious that trouble lurked inside). In an effort to save money, I had cancelled the direct debit for my gym membership. However, the terms and conditions said I had to give the gym six weeks’ notice (sneaky, as that meant paying for two more unwanted months).

The gym had written telling me this – but I hadn’t opened the letters. So now, I had to pay for the extra two months plus a £50 charge to get the debt collector off my back. And because of the length of time that had elapsed, I couldn’t even use the bloody gym!

It was a colossal waste of money. I was really angry about it – but the person I was most angry with was me. Although I was scared of knowing my true financial picture, I realised that not knowing it was far more frightening. To get back on track, I shook the sand off my head, and had to endure a few months of harsh budgeting (eating mostly tinned soup and taking cash to the pub so I couldn’t spend more than a set limit – I could have just stayed indoors but, you know, priorities!).

Gradually, I found that spending more time looking at the numbers (and how they were improving) was giving me a much greater sense of control, and actually reduced my anxiety about money.

Meanwhile, a miracle occurred on the job front. A booker at one of the temping agencies I worked for asked me what I actually wanted to do for a career. I said, ‘Journalism – but I doubt you can help me with that.’ She got me a job as secretary to the editor on a weekly property magazine. Within a year, I’d been made a reporter – and the rest, as they say, is history.

Turn money detective

While you might have an aversion to looking at the numbers, unless the debt-collecting wolves are baying at your door, there’s some good news. The best way of starting a budget involves doing just one very simple thing.

Observe where your money is coming from, and where it’s going to.

‘Don’t alter any of your habits in the beginning, just notice where your money goes,’ is the advice of Charlotte Jessop, a teacher turned personal finance educator better known on social media as Looking After Your Pennies.

Lots of people think budgets are just about the money you spend, but you should also be mindful of tracking all the different ways money is coming in. Why? There’s a limit to how much we can cut back. Concentrating on how we could boost what’s coming in is more likely to move the needle! So think about all of your sources of income:

- Your salary (see Chapter 9 for info about asking for a raise)

- Any income from side hustles

- Government help with energy bills

- Cash gifts (for birthdays/Christmas) including vouchers

- Child benefit and child maintenance

- Tax-free childcare entitlement

- Interest on your savings

- Cashback

- Any refunds you’re due (it pays to check these have arrived in your account)

Next, take a look at your spending. Using online banking apps to take a detailed look at your transactions is easy to do – although, emotionally, it can be hard in practice. But the more you do it, the easier it gets.

‘What you’re looking for is patterns in the data,’ says Charlotte. ‘How much are you spending on groceries in the average month? Do you always have a takeaway on Friday night?’

Digital banking apps can categorise your monthly spending at the touch of a button, and some can even categorise by merchant, telling you what percentage of your pay cheque has gone on Uber, Amazon or Deliveroo, for example.

‘You don’t need to stop – just go full-on David Attenborough and feel like you’re watching your finances from a third-person perspective,’ Charlotte advises. This includes looking at what credit card interest and overdraft charges are costing you every month (I’ll tell you more about what they don’t teach you about these in the next chapter).

The next stage? Reflection.

You might identify obvious things you could cut, like streaming services and unused subscriptions (if magazines stay in plastic packaging, just cancel and accept you haven’t got time to read them). From gyms and meal boxes to coffee, cleaning products, house plants and even clothes, more and more goods and services are being sold to us ‘on subscription’. There is a very good reason for this – companies value the recurring monthly revenue it brings them. But month on month, it can be a significant drain on your bank account. The same applies to the growing number of smartphone apps that you need to subscribe to – sometimes these are a low price for a fixed time, then leap up when they auto-renew. Or if you’ve noticed your mobile phone bill is high, check to see if you’re out of contract (see box on page 73).

This could produce a ‘double saving’ if it stops you from paying to borrow money at the end of the month.

TIP: WILL CANCELLING NETFLIX REALLY MAKE A DIFFERENCE?

Not much on its own – but when you start to look at all the other streaming services you’re paying for, it might!

Netflix, Sky, Disney, BT Sport, Amazon Prime, Britbox, Spotify … categorising these together in your budget can help you see what you’re paying out in total every month (and if there’s any duplication with your partner or flatmates).

Be ruthless – which ones do you actually watch? Do an audit for a month if you’re not sure (keep a list in your phone to log what you’ve watched). For most of these services, it’s easy to cancel and renew later if you change your mind.

Having plucked the low-hanging fruit, you can move on to experimentation. ‘Start with small steps, like trying to spend £5 less on your food shop per week,’ is Charlotte’s advice (plus, if you frequently fall victim to the ‘Pret Tax’ see page 72 for my tips on meal planning). Want to keep that Friday night takeaway? No problem – but you might decide to cut back elsewhere, or make it every other Friday.

If we can control our day-to-day living costs, we can hopefully generate a surplus that can be saved or invested. Getting used to setting aside some money for emergencies is a useful skill. Even if it’s a small amount, it activates that financial muscle group – and over time, this will build into a stronger habit.

TIP: WHY YOU SHOULD NOT STOP BUYING TAKEAWAY COFFEE (OR AVOCADO TOAST)

Most personal finance experts bleat on about spending money on coffee like it was a crime – but I have a different take on this. Think about the value you’re getting from that coffee. My friend Maggie has two young sons. For her, having a coffee in the (child-free!) haven of her local café gives her the headspace to plan her day – it’s like having a meeting with herself. If you have a stressful job, it could be that leaving your desk and walking out to get coffee with a colleague could give your mental health a boost for the whole week (especially if there’s a side serving of hot gossip).

Whether it’s coffee, avocado toast or takeout, I’m not saying you shouldn’t spend money on these things – just make sure you get value and enjoyment out of them when you do.

By now, you should have reached the stage of what Charlotte terms ‘financial intimacy’ – you’re happy being up close and personal with your finances.

‘When you know your numbers, if there are changes in your bills, you will know as soon as it’s happened and can take steps to adjust,’ she says.

She compares the process to counting calories. ‘At first, you spend a long time studying every label, but after a while, you can do it on auto-pilot,’ she says. ‘It’s the same with your finances – you do have to put in some effort up front, but it will pay off in the long term.’

WHAT’S THE BEST WAY OF BUDGETING?

The short answer is, finding the way that best suits you! Everyone is different – and if you’re brave enough to ask a friend about how they budget, you’ll see what I mean.

I asked my followers on Instagram and the majority of people said they used a spreadsheet. (Don’t have Excel? Google Sheets has a free budgeting template that can easily be adapted.)

But if you wanted an automated solution (yes please!) then consider solutions that use Open Banking to pull in data from all of your bank accounts, credit cards and even mortgage accounts and pensions so you can see it all in one place.

This will help you see at a glance how controlling your day-to-day spending is helping you to build up your savings, reduce your debts or even boost your investments.

Apps and websites powered by Open Banking have to be regulated by the Financial Conduct Authority (FCA), and are bound by strict security and data protection rules. You have to renew permissions every 90 days to keep sharing your data.

Money Dashboard Neon is the most popular solution used by my followers. Individuals (and couples) can connect all their accounts on a single ‘dashboard’ to show a complete picture of their joint finances in one place.

It has a phone app and a desktop version (useful if you don’t like squinting at screens).

‘It automatically categorises your transactions, but if it doesn’t get it 100 per cent right you can correct these – and it learns,’ says Mr MoneyJar. For example, your gym membership could be tagged as ‘bills’ but you might want to tag it as ‘personal care’.

You can also use the ‘view by merchant’ function to see what you’ve spent with different retailers (hello, Amazon) and create custom categories (I have one called ‘Pret Tax’).

Remember – as with any free service, you’ll be paying for it in some other way. Apps might aggregate your spending data, and anonymously sell it on – so make sure you read the T’s and C’s.

How could rising inflation affect my finances?

Taking a closer look at what we spend our money on means we are much more aware of rising inflation – how the prices of things we buy are getting much more expensive.

SHOPPING

With prices rising, our money doesn’t buy as much stuff as it used to.

Let’s say the annual rate of inflation is 10 per cent. This means the overall prices of things we commonly buy are 10 per cent higher than they were one year ago.

So if you needed £100 to buy it a year ago, you’d now need £110.

INCOME

Many workers have an annual pay review. Your wages would need to go up by the annual rate of inflation just to keep pace with how fast prices are rising.

Sticking with the 10 per cent inflation scenario, someone who earned £30,000 last year would now need to earn £33,000 to enjoy the same amount of purchasing power they had a year ago.

And if your wages rise by less than the annual rate of inflation? It’s the equivalent of having your pay cut.

Thinking about this another way: if prices are rising at the rate of 10 per cent a year, the spending power of your £30,000 salary has effectively been reduced to about £27,000. If you just look at the numbers, the amount you’re being paid hasn’t changed, but economists would say you’re poorer in ‘real terms’ (this means after the effects of inflation have been taken into account).

CASH SAVINGS

High inflation also acts like a shrink ray on the purchasing power of our cash savings.

Let’s say you put £100 in a savings account. Again, if inflation is running at 10 per cent, a year later, you would need £110 to buy the same things. Unless the annual rate of interest you’re earning on your savings is higher than the annual rate of inflation, your money will be ‘going backwards’ in real terms – it will buy less than it did one year ago.

At the time of writing, the best rate of interest on an easy-access savings account is around 3 per cent per year. Deposit £100, and after one year, you’d get £3 in interest (so £103). The £3 interest is better than nothing – but with 10 per cent inflation, the purchasing power of your savings has still dropped by around £7.

So, inflation erodes our cash savings, which is why money-savvy people like to invest their long-term savings (money they won’t need back for a long time) in the stock market or in other assets like property, where prices are more likely to keep pace with inflation. We’ll look into this in more detail in Chapter 7.

BUT REMEMBER … YOU’LL BE CHARGED MUCH HIGHER RATES OF INTEREST ON DEBTS!

Don’t be tempted to give up on cash savings – even though interest rates are low, the amount of interest you’d pay to borrow money in an emergency is much, much higher (think 20 per cent for a credit card, or 40 per cent for an overdraft).

Build up your budgeting skills

Awareness is one of the core skills for successful budgeting. This includes regularly checking in on what your money is doing. You might like to timetable this in for a particular day of the week, or day of the month. And remember – nobody gets it bang on! Life happens. This is why you need to look at the numbers regularly to see if you need to make any adjustments.

Most people think of balancing a monthly budget, as we’re usually paid once a month, but checking in weekly could help you spot any issues more speedily. Couples or flatmates might like to set a ‘money day’ to reduce the awkwardness about talking about money matters (see Chapter 10 for more on this).

Fin-min (financial admin) is another core skill. Getting organised is the most powerful force for your finances! I am a firm believer that having nice stationery makes it easier to spend more time with your money. Lovely ring binders, notebooks, Post-its, stickers – this might require a bit of an upfront investment, but it will be worth it if it helps you to change your habits and feel less fearful about doing ‘money stuff’.

I keep a financial to-do list to note down tasks as they arise. I set aside a ‘golden hour’ on Sunday mornings to do the bulk of these (after which I usually reward myself with a healthy brunch). If it’s a really big task, I break it down into smaller ones.

If your financial affairs are fairly simple, a concertina file will be enough to keep your essential paperwork in order. But increasingly, our bills, statements and payslips are going paperless, which can be another barrier to noticing what’s going on. As part of your monthly ‘check in’, make sure you download these, take a look, note down any action points on your to-do list, then file them away online.

Finally, I have a shredder to destroy old paperwork and guard against identity theft.

Planning ahead

As well as keeping an eye on what’s actually happened, budgeting helps you to prepare for what might happen next. I like to forecast my planned spending so I can ‘save as I go’ for big events throughout the year (for example, holidays, Christmas, school trips, tax bills).

Think about your medium-term goals, like saving for a housing deposit or starting a family, and longer-term savings like pensions and investments (for more on these, see Chapter 7). They say a millionaire is built ten pounds at a time – these big milestones seem challenging but could be reached by carefully and consistently putting money aside.

Another favourite saying of my dad’s is: ‘Expenditure rises to meet income.’

WHAT IS LIFESTYLE CREEP?

Think about how easy it is to spend £27 per day.

A few coffees; lunch; some groceries; taking an Uber because you’re late, or maybe stopping for a drink on your way home (in London, that’s likely to cost £27 on its own!).

It doesn’t feel like much – but these small overspends quickly accumulate.

If you spent £27 every day, this would add up to nearly £10,000 per year.

Even I had to check this on my phone calculator when I first saw people sharing it on Instagram – it just doesn’t seem possible. But it’s true.

Now think about what you could you do with £10,000!

Let’s assume you GET that pay rise and your monthly income increases. The path of least resistance is just spending the extra money (especially in times of high inflation). You won’t need my help finding things to spend it on!

I’m going to teach you about what else you could do with that money in upcoming chapters, but separation and automation are the two techniques I use to squirrel more of my money away.

HABIT NUMBER THREE

Separate … and automate!

The ‘super seven’ money habit that I want to share with you in this chapter is the power of separation and automation.

One of the hardest things about managing money is making decisions. I’m confident that being more mindful and other habits to come will help with that – but once you’ve made a decision, make it easy on yourself by automating it!

The concept of separating your cash when it comes in and designating it for a specific purpose is as old as the hills – and it’s a budgeting tip that has stood the test of time. Why?

One of the things that I like to waste money on (according to my husband) or invest money in (according to me) is collecting financial memorabilia.

I have a 1960s thrift tin that I bought on eBay. Essentially a money box divided into sections (rent, food, holidays etc.), the front of the tin shows pictures of a beaming ‘Mrs Thrifty’ clutching her rent book. The caption reads, ‘This little box is heaven sent, I’ve saved the cash to pay the rent.’

The power of separating the money is that you’re giving it a purpose and, crucially, making sure you have enough to cover the cost of your essentials before you mindlessly spend too much on the non-essentials.

Well, the times have moved on since the 1960s. Nowadays, the modern-day digital equivalent of the thrift tin is a separate savings ‘pot’ or ‘space’ within your online banking app.

This way, you’re choosing to keep money for your future needs away from your everyday needs – think emergency fund, a holiday fund, a maternity-leave fund or ‘sinking funds’ for expenditure that’s bound to occur in the future, like home improvements, car maintenance or pets.

Essentially an account within an account, different digital banks call them different things, but you can usually name them what you like (yes, even the Anti F*ckwit Fund is allowed!).

Read on for ways to use the power of separation and automation to help you stick to your budget, and smash your savings goals.

Pay yourself first

Once you have reached a certain level of financial intimacy, you could think about setting monthly savings targets for your regular savings goals.

You may have heard of the concept of ‘Pay yourself first’. When your pay cheque goes in at the end of the month, you put money aside for all of your savings goals on day one, rather than waiting until the end of the next month, when the money will likely have been spent on something else.

‘Most people have their bills on direct debit, so what about setting aside money for the things you actually want to do?’ Charlotte suggests.

Once you’ve decided how much to set aside, you can make this much easier to stick to by automating it. Set up a regular transfer from your main account to a separate savings account or ‘space’. Some of the digital banks will (if you wish) let you automatically add ‘round-ups’ to the nearest pound from your digital spare change (e.g. spending £2.70 on a coffee would round up 30p into your savings).

All of this works a treat if you’re paid a regular monthly salary. For all of the freelancers out there who get paid more sporadically in varying amounts, this is obviously a challenge. The best I can suggest is that when money comes in, immediately split it. (Siphoning off some money for taxes is a good habit to get into – I like to put mine in Premium Bonds. It’s relatively easy to access, but harder to get at than other accounts, and there is a good chance I will win a tax-free prize while it’s resting in there.)

If your income is lumpy, then another way of doing it is having a separate ‘spending account’. After allowing for the cost of my bills, I designate a set amount of money every month that I can just spend on food shopping and ‘nice to haves’ like taxis, clothes, coffees, lunches. I have also made sure that this account is the one that’s linked to my eBay, Amazon, Deliveroo and other sources of temptation (before, one of these was linked to a credit card and it kept catching me out). The spending card is the only one I take out with me when I leave the house – and I know I can only spend the money once.

TIP: REMOVE TEMPTATION!

If you find marketing emails are triggering your spending impulses, rather than clicking ‘unsubscribe’ on every single message, use the Leave Me Alone app to unsubscribe from multiple emails in one go. This requires a one-off payment of £5, but it is secure and private. Clean Email app is a subscription service costing £36 a year, but has lots of free tips and information on its website.

A final tip from Charlotte is that it’s well worth thinking about your automated payments in percentage terms (e.g. deciding to transfer 5 per cent of your income rather than a set amount like £100). Why? Because when your pay increases, your budget automatically adjusts. So long, lifestyle creep!

TIP: FEEL THE SPENDING BUZZ

It’s very easy to tap and pay with ‘invisible money’ using our phones or contactless cards, but I like to keep a link to the physicality of cash.

Using my banking apps, I’ve set up a smartphone alert when I spend any money on my debit or credit card. There’s something about the ‘bzzz bzzz’ on your phone (or on your wrist if you have a smartwatch) and seeing the amount flash up that helps me fully process my actions. Rather than thinking, ‘I have just tapped and paid,’ I think, ‘I have just spent £7.20.’

This helps to make me more conscious of how much I’ve spent in a single day without obsessively checking my bank balance.

TIP: KNOW YOUR LIMITS

Another great service available for free on most (but not all) banking apps is setting a high- or low-balance notification.

On my debit card, I’ve set up a ‘low-balance alert’ which generates a text message if my account dips below £150. This is the signal to slam on the spending brakes or transfer some money across from savings and means I’ll avoid paying to use my overdraft.

On my credit card, I’ve set a ‘high-balance alert’ which sends me a text if I’ve spent more than £1,000. As well as being another nudge to stop spending, it also means I’ll soon notice any dodgy spending on my account.

On my savings account, I’ve set a ‘high-balance alert’ for £5,000. This is as much instant access cash as I need to hold – anything above this level can be invested into my stocks and shares ISA, or be earning me more interest in a savings bond where it’s locked up for a year or more.

My ‘sort it out on Sunday’ system

They say ‘time is money’ and one of my best financial habits is spending 30 minutes on Sunday morning thinking about the week ahead. I’ll look at what days I’m in the office or WFH, what our social plans are and what the weather’s going to be like (as this affects what exercise I’ll do – I like to plan this in advance too, otherwise I know it won’t happen!).

I’ve got a wipe-off meal planner on the side of the fridge, and I’ll start filling in ideas for different days.

I also have a drawer-by-drawer list of what’s in the freezer that I tick off and add to as I go – essential if you’re into batch cooking (I’m a massive fan of The Batch Lady on Instagram). If I know I’ve got a hectic day, defrosting a ready-made batched meal will stop me from spending money on a takeaway. And when I do have the time to cook, as she says, if you’re making one for now, you may as well make one for the freezer! (Another great Insta account is @canIfreezeit – who knew you could freeze cheese?)

Think about how leftovers could be turned into the next day’s lunch or dinner. Miguel Barclay, Instagram’s One Pound Chef, is an absolute legend for doing this on a budget.

Thinking about all of this before you do the grocery shop will help you buy less and bin less (the average family wastes food amounting to £700 every year, according to Waste and Resources Action Programme). However, this is a tiny fraction of what supermarkets and restaurants waste. The Olio app gives you access to a large (and growing) community of ‘food waste heroes’ – people who are collecting food that supermarkets can’t shift, and distributing it for free in their local area.

Avoid the ‘Pret tax’

We pay a high price for convenience. Buying lunch at work every day can easily cost £6 or more – this may be one pattern you notice in your monthly data. Bringing in something from home costs much less – but the biggest cost is the time it takes to make it.

I find it’s much easier to take in some left-over dinner rather than spend time making something else – but do invest in a leak-proof lunchbox. We always sort out our lunches for the next day when we’re making dinner the night before. Leave it until the morning, and there’s a higher risk of life taking over – and you could pay the ‘Pret Tax’ twice over if you haven’t had enough time to eat breakfast!

Planning ahead can help reduce lots of other ‘time vs convenience’ charges, such as the ‘Uber Tax’ and the ‘Deliveroo Tax’. You don’t have to eradicate them altogether – just don’t rely on them.

TIP: FOUR WAYS TO DIAL UP SAVINGS ON PHONE BILLS

Protect your investment

The minute I get a new phone, I immediately buy a rock-hard protective case and a stick-on screen protector. This might cost £20 or more, but it’s a lot cheaper than screen repairs!

Could you save hundreds by going Sim-only?

Let’s say you signed up to a £45-a-month contract for 18 months to get a new phone. Telecoms companies tie you into a contract like this to spread the cost of buying a new phone. If you can afford it, it will always be cheaper to buy a phone outright, and then buy a ‘Sim-only’ data plan to go with it. But not everyone can afford to do this.

However, everyone would be wise to check when their contract ends, as you could potentially save hundreds of pounds a year by switching to a ‘Sim-only’ deal instead.

After 18 months, the phone company has made their money back (and then some) on the handset, but if you do nothing, you’ll still be paying £45 a month.

The rules state you have to be notified that your contract is ending – but phone companies will also put pressure on you to ‘upgrade’ and take out another pricy contract for a new phone. If you have looked after your old phone (see above) you won’t need to do this!

Holiday roaming warning

Since Brexit, roaming charges for data, calls and texts used overseas have dramatically increased as the UK is no longer party to EU rules. If you’re going on holiday, look at your mobile phone company’s website before you travel – it’s usually possible to save by buying passes or add-ons or even set a data limit to guard against running up huge bills.

Social tariffs

It’s a dreadful name, but anyone on benefits like Universal Credit can get access to super-cheap broadband and phone packages costing from just £15 per month. Millions are eligible for these discounted rates, but only 3 per cent of eligible customers claim them. Call your provider and ask to be switched, or look on the Ofcom wesbite (the telecoms regulator) to see what different firms call their plans (for example, BT’s is called Home Essentials). If your provider does not offer one, they should waive exit fees so you can switch to a provider that does.

MONEY STORY:

Feel the Power of Automation

Managing your money is hard enough, but conditions like ADHD (attention deficit hyperactivity disorder) can add an extra layer of complexity.

Liz harnessed the power of automation to transform her finances in a way that she would have found impossible to believe at the start of lockdown.

‘My friends were all boasting about the amount of money they were saving while working from home, but I was on Amazon every single day, ordering anything Instagram told me to buy,’ the 35-year-old says. After her flatmates raised eyebrows about the increasing number of deliveries, Liz sought help from a counsellor – leading to her ADHD diagnosis.

Impulse spending – and its financial repercussions – is an area that many people with ADHD say they struggle with. Liz found it impossible to budget, was constantly using her overdraft and being tripped up by financial emergencies.

‘I felt a huge amount of shame and guilt about the chaotic nature of my finances, but one of the few things that would make me feel better was the pleasure of spending money,’ she says.

Liz knew she had to dial down the spending, but she didn’t want to draw up a restrictive budget. She started by tackling a small problem – being too scared to look at her bank balance.

‘I know I respond well to having a routine. So I decided that every time I did the recycling or took the bin out, I was going to look at my banking app then,’ she says. Bundling one habit with another worked – Liz felt the decision about when to check her balance had been made for her. The response was automatic.

Her next ‘penny drop’ moment was hearing about automation on an episode of my Money Clinic podcast.

‘Now, I budget for how my mind works,’ Liz says. Her first step was downloading the MoneyBox app, and automating ‘round-ups’ on her spending. Every time she taps and pays for an item costing less than £5, the digital ‘spare change’ is automatically rounded up into a savings account (an increasing number of bank accounts are now offering this feature).

‘I didn’t want to have to cut out the little things that bring me joy, like going out for my morning coffee or buying posh chocolate to snack on,’ she says. ‘Now I don’t need to feel guilty about spending small amounts of money, because every time I buy something, I’m saving something too – without having to think about it.’

The ‘buzz’ from the small purchases has helped Liz cut out the bigger ones: ‘Now, before I spend anything online, I look at my bank balance first.’

Having cleared her overdraft, Liz decided to ‘pay herself first’, setting up automated payments to different savings goals in her Monzo digital banking app (you can also do this with Starling, Chase and some high-street banking apps). On payday, set amounts of money are automatically hived off into her emergency fund and holiday fund so she can save without thinking, and just concentrate on managing the money she has left.

‘Because I’d rather have lots of little sensory spending pleasures, I know that my summer holiday is going to be two weeks in Wales, rather than two weeks in Tuscany – but the Tuscany option would require restraint,’ she says.

Liz now uses the Emma app to get a more complete overview of her finances, using Open Banking to link all of her accounts – including her company pension scheme.

‘I’m now paying in more to my work pension, which is partly a result of being able to see the amount of money that’s growing in there, and I’m saving £200 a month into a stocks and shares ISA too,’ she says.

‘I’ve found the confidence to talk about money with a network of women at my workplace, which has been a huge game changer. When I look back to how I felt under lockdown, I would never have believed that I could get my financial sh*t together – but I have.’

I hope the tips, advice and examples in this chapter will inspire you to get cracking on your own ‘system’ – but also to realise that there are as many different ways of ‘doing money’ as there are people.

Liz’s story is a real reminder of how we don’t all react to the same advice in the same way. When I talk about making ‘mindful’ money choices, this is exactly what I mean. Take time to notice what you’re doing, without judgement. Most of us leave our money to manage itself, but we need to create some space to think about the potential benefits of taking a different approach.

Separation and automation are powerful ways to ‘make a decision once’ and keep reaping the benefits as it becomes part of our routine. But I’m not done yet – there are four more habits that I’m going to introduce you to in the coming chapters.

4

The Debt Trap

Having spent the last chapter learning how to be more mindful when spending money and managing our day-to-day finances, now it’s time to tackle the things that can really cost us.

Yes – we’re ready to move on to the tricky topic of debt.

When used responsibly, debt is a phenomenally useful tool. Not many people would be able to buy cars or houses if they had to pay in cash up front. However, borrowing money carries a cost – interest payments – and these are shooting up at the time of writing.

Unfortunately, so is the need to borrow. UK credit card debt has currently hit an all-time high as more people pay on plastic to cope with the rising costs of everyday living. But this isn’t sustainable.

Why we need to balance our budgets and avoid having to borrow money was immortalised in these famous lines from the Charles Dickens novel David Copperfield:

Annual income twenty pounds, annual expenditure nineteen pounds, nineteen and six, result happiness.

Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

As the indebted Mr Micawber warns, if you can spend slightly less than you earn, your finances will be tickety-boo. But if you get into the habit of spending even slightly more than you earn, you will start to build up debts, which swell further with interest – making them even harder to repay.

Credit cards, ‘buy now, pay later’ and payday loans might not have been around in 1850 when Dickens wrote these lines – but the potential for debt to destroy your life remains unchanged.

While debt is very much part of modern life, the shame and social stigma of being unable to repay what you owe has lingered on since the 1800s. So before we go any further, let’s place any feelings of shame aside. I will not judge you if you have multiple credit cards, find it hard to resist hitting the BNPL button or regularly dip into your overdraft.

Borrowing money is scarily easy to do – and understanding how the consumer credit industry profits from pushing our emotional buttons and convincing us to take on even more debt is the main lesson I want to teach you in this chapter.

Nowadays, they’re not going to sling you in a debtor’s prison for maxing out your credit cards. But even if you pay the bills on time, living with too much short-term debt is a habit that could blight your future finances for years, even decades to come.

How? Let me explain what they don’t teach you about debt.

Credit cards

If there is one financial product I would dearly love to rename, it’s a credit card.

Credit sounds so positive. Credit is something you are given. You are creditworthy. The credit card companies calculate your credit score, and if it’s a high number, you’re allowed to borrow pots and pots of money.

Good news, they say. Your credit limit is £4,000. It could be yours to spend; if you want it, you’ll get a big green tick from us. Just imagine what you could do with that money, and treat yourself to all the things you truly deserve! This particular credit card even gives you 0 per cent interest on all of your spending for the first nine months – plus, you’ll get points on your spending. Points mean prizes – like a luxurious spa day for you and your bestie.

You can practically hear your inner Spendy Wendy cry out: ‘What are you waiting for?’

Let’s imagine for a second if credit cards were called DEBT cards.

To borrow money using a debt card, lenders must assess your debt-worthiness. When your debt card arrives, it has a maximum debt limit of £4,000.

This is a much more negative way of framing the customer relationship!

And all of a sudden, that ‘imaginary money’ of £4,000 that you felt so positive about potentially accessing and spending is transformed into something negative. Minus figures. A liability that has to be repaid.

Credit card companies are not there to give us free money; they exist to sell us debt. What’s not obvious is that the longer we take to repay those debts, the more money will be screwed out of us.

I learned this valuable lesson in the early 2000s in the unlikely classroom of a soulless Scandinavian furniture store in north London (I told the shorter version of this tale in a Financial Times article called ‘My Biggest Financial Mistake’7).

I was in my early 20s, had split up with my boyfriend, and whilst I was delighted to see the back of him, he had annoyingly taken various items of furniture when he departed, including the coffee table.

The new table I selected cost about £250, had inbuilt magazine storage and very sturdy metal legs. When I came home from the pub, I’d lie on the floor and hold on to the legs in a futile attempt to stop the room from spinning. However, I also took my eye off the ball when it came to the repayments.

When I bought the table, some eye-catching posters persuaded me to take out a store card to pay for it on credit (I also bought a selection of house plants, which didn’t survive beyond the first bill). The incentive was 10 per cent off my first purchase. So £25 off! Winning at life. The less noticeable small print said the rate of interest on the store card was over 20 per cent.

When the first bill arrived, it was automatically set up to take the minimum monthly repayment of 5 per cent of the balance – around £12 a month to begin with. Against the backdrop of a hectic social life, paying £12 a month for a table (with a £25 discount) felt like a bargain.

A few years (and several boyfriends) later, I was looking through my bank statements and thought: ‘Why on earth am I still paying for that coffee table?’ Surely all of those monthly payments would have been enough to pay it off by now? Nope.

When I looked at the store card statements more carefully, I could see the impact of the 20 per cent interest rate. It dawned on me that I was being charged 20 per cent interest per year (the clue is in the term ‘APR’ used to describe credit card interest, which stands for ‘Annual Percentage Rate’).

So, I started off with a £250 table. My 10 per cent store card discount meant it cost £225, which felt like a great deal.

But because I was only paying off a tiny chunk of the debt every month, it had taken years to clear the debt – and all the while, I was being charged 20 per cent interest on what I owed. Final price paid for the table?

A whopping £325.

I ended up paying £100 more than I should have done. A great deal for the furniture store, but not for me!

I thought back to the way the store card was advertised. If, instead of saying, ‘10 per cent off your first purchase,’ it had said, ‘End up paying £100 more for your first purchase,’ anyone could have seen it was the worst deal on earth. But that’s what I ended up getting.

All of those monthly repayments of a few pounds looked too low to be worth bothering about. I could have afforded to have repaid the debt much sooner, but this would have required making an active decision to do so.

Looking back, it felt like everything throughout the whole process was designed to get me to sleepwalk into paying much more. And why should the store card company make this more obvious on the statements, or increase the font size on the small print? If I’d woken up to this sooner and cleared the balance, that would reduce its profits!

I learned a valuable lesson from this – and to this day, I still have the same coffee table in my front room. I may have overpaid for it, but at least it has given me nearly 20 years of faithful service (although I don’t hold on to the legs as much nowadays).

THE TRUE COST OF CREDIT

If aged 21 you borrowed £3,000 on a credit card and only made the minimum repayment every month, guess how old you would be by the time you cleared the debt?

The answer is nearly 50 years old.

And you would have repaid a grand total of £7,750 – more than two and a half times the sum you originally borrowed!

How can this be possible? The short answer is ‘compound interest’ (stay with me!).

I’ve used this example from the Money Saving Expert website. The minimum repayment on your credit card debt starts at £80 a month (that’s 1 per cent of your £3k balance, plus interest). That’s only enough to reduce the total balance very gradually – and it slowly drops with time.

After one year, the minimum payment has fallen to £72, and after five years it’s £44 (just like my coffee table, these seem deceptively small amounts). All the while, the APR (interest rate) you’re being charged on the balance is 21.9 per cent per year.

The amount of time that it takes you to clear this balance is why you end up paying so much interest. You only borrowed the money once, but you are paying that 21.9 per cent interest charge again and again, year after year.

This is what we mean by ‘compound interest’ – the interest is compounded, or applied again and again to the same debt.

Albert Einstein allegedly said that compound interest was the ‘eighth wonder of the world’: ‘He who understands it, earns it; he who doesn’t, pays it.’

It’s the credit card companies who really understand this. The more debt you have, and the longer you take to repay it, the more profitable a customer you will be.

New rules have been introduced to ‘nudge’ customers who only pay the bare minimum on their credit cards. But, as the table below from Money Saving Expert shows, the faster you repay the money, the lower those interest charges will be:

The Difference the Repayment Makes

REPAYING

TIME TAKEN TO REPAY IN FULL

INTEREST COST

Minimum (1% + interest, or £5)

28 years

£4,750

£80/month

5 years

£1,740

£120/month

2 years 9 months

£910

£240/month

1 year 3 months

£390

Based on £3,000 debt at 21.9 per cent interest, assuming a fixed interest rate, with no additional spending on the card and no fees incurred. All figures rounded to nearest £10.

Source: MoneySavingExpert.com 8

In Chapter 7 I’m going to show you how to get compound interest working in your favour by investing small amounts of money into the stock market over time instead.

But before we can safely afford to invest our money and let it ‘compound away’ for a long time, we need to get a grip on our spending and debts – and that means getting wise to the ‘offers’ and points deals the credit card companies throw our way.

SHOULD I EVEN BOTHER GETTING A CREDIT CARD?

3 reasons why you should

The ubiquitous nature of interest-free ‘buy now, pay later’ services means this is a question that more and more Money Clinic podcast listeners keep asking me. Here are three reasons why it could be worth it:

1 Building up your credit score

By demonstrating that you can borrow and repay credit responsibly, you will boost your credit score (a number given by a credit reference agency – the higher the number, the better credit risk you are considered to be). Those with high credit scores can borrow money at more competitive interest rates than those with low credit scores – a big advantage when you come to apply for car finance or a mortgage.

2 Better consumer protection

If you buy goods or services costing more than £100 using a credit card, you benefit from enhanced consumer protection under Section 75 of the Consumer Credit Act. See Money Saving Expert for the full lowdown – this is another way to get your money back if your online order doesn’t arrive, the company you booked a holiday with goes bust and all kinds of other problems.

3 If you’re a frequent traveller

Credit cards can be useful when hotels and hire car companies want to ‘swipe’ a credit card in order to guarantee your booking and make sure you’re ‘good for the money’ in advance. If you don’t have a credit card, you might have to pay in full at the time of the booking.

Learning how to use credit

You have got to hand it to the marketing departments of the ‘debt card’ companies – they sure know how to tempt us.

One of the most powerful sales tools is the concept of 0 per cent interest.

It sounds like free money. As I sit here writing, the rattle of the letter box downstairs heralds the arrival of an envelope from Barclaycard. The outside is emblazoned ‘Nought, zero, zilch, nothing …’

Inside, it says: ‘However you say it, you’ve got 0% interest on transfers this month!’

The debt card gods have noticed that I haven’t spent any money on my Barclaycard for some time. They’re hoping I’ve been spending money on another debt card and can be tempted to transfer that debt (and the value of the future interest payments) to them. So they are dangling the carrot of 0 per cent interest for two whole years if I do.

Is this a good idea?

Let’s say that I do have another credit card balance of £3,000 (and that I’m being charged 20 per cent interest on this).

My credit limit with Barclaycard is £6,000, so I have enough headroom to transfer this balance to them. They will charge me a one-off fee of 2.9 per cent of the balance (that’s £87 = 2.9 per cent of the £3,000 I owe).

Unless I say otherwise, I’ll be making the minimum repayment on that debt. You can see from the table on page 86 how many years that might take to pay it off – but I’m only benefiting from zero interest on the first two years!

After that, the interest rate shoots up to more than 20 per cent. How many people will clear the balance within two years before the higher charges apply?

FOUR THINGS THAT CAN REDUCE YOUR CREDIT SCORE

Late or missed payments

Easy to do – but mistakes will stay on your file for up to six years. Automation solves the problem – set up a direct debit for the minimum payment (but aim to repay more if you can).

Having a ‘thin file’

A common problem for young people who don’t have much borrowing history, or have lived abroad then returned to the UK. Make sure you’re on the electoral register so lenders can confirm your address, and do an online pre-application check on sites like Money Saving Expert, which will guard against rejections. Being knocked back will reduce your credit score even further!

Withdrawing cash on a credit card

This is fearsomely expensive, as you’ll be charged interest from the day of the withdrawal (you don’t get 56 days interest-free like you do with purchases). As this is a bonkers way of borrowing money, it looks like you are desperate and have no other options – and will put a dent in your credit score.

Using too much of your credit limit

Your limit is the maximum amount you can borrow, but if you regularly exceed more than 30 per cent, this can make you look like a riskier bet for lenders.

The marketing geniuses working for the debt card companies have plenty of other ways to tempt us.

They might offer you a 0 per cent spending deal. Spend up to £3,000 on your new card and there’s zero interest to pay for the first nine months! Sounds like free money for nine months – but at 20 per cent interest, if you didn’t clear the balance this would cost you nearly £600 a year.

They might offer you a 0 per cent transfer card, enabling you to borrow money on your credit card and get it transferred to your bank balance. Essentially a short-term loan repayable over 18 months or so, this could be useful if you need to pay for a plumber or clear a more expensive overdraft – so long as you’re careful. You’ll be charged a one-off fee (a percentage of the balance) and interest will apply after the promotional period ends.

You might be notified that they’ve increased your credit limit. You’re such a good customer you can now borrow a maximum of £4,000. Get you! They wouldn’t offer you this money if they didn’t think you could afford it, would they? Sadly, I know many people whose debt problems have started from this basic misconception.

Or how about 20,000 reward points on your first purchase if you sign up for a new card? Spend £3,000 and you’ll have enough points to get a spa day. For free!

All of these deals incentivise you to borrow more money than you possibly need. You feel good about being ‘rewarded’ with free interest, points or extra credit. But if it takes you so long to clear the debt you end up paying hundreds or thousands of pounds in interest on top, YOU are the one who is rewarding THEM. Thinking back to that example of the interest you’d repay by the age of 50, how many spa days could you buy with £4,750?

The main lesson to take from this is: if you need to borrow money, have a plan to pay it off.

DO POINTS REALLY MEAN PRIZES?

Even if you’re a Spreadsheet Slave and avoid interest payments by clearing your credit card balance in full each month, how much is the desire to accrue points influencing your spending? Spendy Wendys and Yolos – listen up!

I have a credit card that gives me points on spending. I use it to buy things I need, although even I am still tempted to buy more, in order to get more points! As a natural limit on myself, I DO NOT have the app on my phone (just on the iPad, which doesn’t leave the house). I do not carry the card around with me, or have its details saved on websites. I may be a money expert, but I am also a human being and therefore prone to temptation.

Crucially, I have set up the direct debit to pay off the whole balance every month. Otherwise, I would get charged 22 per cent annual interest – which is far greater than the value of the points.

I also have a ‘high-balance reminder’, meaning I get a text if I owe more than £1,000 – an automatic nudge to slam on the spending brakes.

I have spoken to this particular credit card company during the course of my work for the Financial Times. I have told them that I have made hundreds of pounds over the years from them in vouchers, while paying nothing in interest. They are effectively paying me to have this card, which must be a fantastically unprofitable deal for them!

But it isn’t. For every customer like me who pays attention to the small print, there are plenty more who do not. They are lured by the points, and asleep to the true cost of the interest. If this were not the case, the credit card company would stop offering these deals as they would be losing money.

How to make 0 per cent deals work for you

If you are disciplined, 0 per cent credit card deals can be good ways to clear debt that’s built up, or used as a method to fund large essential purchases. The trick is to think about how you’re going to pay the money back before you buy anything using the card.

I used this method to spread the cost of paying for new appliances when we did up our kitchen – benefiting from added consumer protection if anything had gone wrong. Here’s how I did it:

- I paid for the goods on one credit card, and then transferred the balance – searching for a deal with the lowest balance transfer fee, and the longest number of interest-free months

- When the new card arrived, I cut it in half and sellotaped it to the first statement (so I could not spend any more money on it!)

- I divided the balance by the number of interest-free months (e.g. £3,000 ÷ 24 months = £125)

- I immediately set up a direct debit to pay this amount every month (automate!)

- By the time the interest-free period ran out, I had cleared the debt in full – and crucially, not built up any further spending

Thinking back to the halcyon days of my coffee table, let’s imagine I was less ‘on it’ with all of this finance stuff:

- I faffed around setting up the direct debit, and ended up making a late payment

- I managed to make a payment on time, but made it for less than the minimum amount

- I went on a shopping spree, and exceeded the credit limit on my new card

All of these things can give credit card companies the right to terminate your promotional agreement, meaning you will immediately lose your 0 per cent deal and revert to a much higher rate of interest.

To make the problem worse, any of the above three actions will have also reduced your credit score. This means if you wanted to try to transfer that balance to another 0 per cent deal, it will be much harder – and more expensive – to find one.

FOUR TIPS BEFORE YOU APPLY FOR A CREDIT CARD

1. Think about what you’re going to use this card for – and have a plan to pay it off. The longer debts hang around, the more expensive they become.

2. Don’t damage your credit score needlessly with a failed application – do a free pre-application eligibility check first on Money Saving Expert, Uswitch or credit scoring apps to see how likely it is that you will be accepted for different deals.

3. New borrowers or those with lower credit scores may initially only be accepted for ‘credit builder’ cards – these have a low borrowing limit (less than £1,000) and charge much higher rates of interest (around 50 per cent). To build up your score, make sure you clear the balance in full every month, and never use more than 30 per cent of your total credit limit.

4. When looking at the best credit card deals on comparison websites, be aware that you might not get the promotional rate offered. A higher rate of interest or lower number of interest-free months could be offered instead – and, annoyingly, you’ll only find out exactly what when the deal is done. By law, credit card companies only have to give 51 per cent of their customers the advertised rate – something I think is totally outrageous. Yet another thing they don’t teach you about money!

How does ‘buy now, pay later’ really work?

The textbook answer is: ‘It’s a way you can split one big payment into three or four monthly ones and pay no interest for borrowing the money.’

My answer is: ‘It’s a psychological trick retailers use to get you to spend more money on things you probably don’t need.’

Let’s say you’re thinking about buying a £45 jacket online. A big pink box on the website flashes up: ‘Pay £15 in three easy instalments!’

Instead of having to find £45, the barrier to making that jacket yours is now much lower … and so is your ability to resist hitting ‘buy’. The sensible spreadsheet voice inside your head saying ‘I can’t afford it’ or even ‘I don’t really need it’ is now drowned out by the Spendy Wendy voice saying, ‘FFS, it’s only £15, and if it doesn’t look great on me I can send it straight back.’

Here’s a question for you – if BNPL lenders don’t charge interest, how do you think they make money?

Yes, they will charge you late fees if you miss payments. But the vast bulk of their income comes from commission paid by online retailers, who pay to offer BNPL services on their websites. Effectively, the retailers are paying the interest on your borrowings for you. Why would they do this?

Because BNPL is such a powerful tool for getting us to say ‘yes’ to more spending.

A huge study in 2021 found that shoppers using BNPL were much less likely to abandon their shopping baskets (the curse of online retail). Nearly 60 per cent of retailers said BNPL increased their sales ‘conversion rate’ and 47 per cent said it increased their average order value.9 Another survey found millennial shoppers were 69 per cent more likely to buy an item if they could pay in instalments using BNPL.10

All of this adds up to some serious spending. The value of the UK’s BNPL market doubled between 2020 and 2021, and is predicted to be worth more than £40bn a year by 2026.11

With UK high-street banks and companies like Apple getting in on the action, I can totally see this happening.

So should we be worried? On the face of it, being able to buy things you need interest-free is much better than putting them on a credit card where interest payments could balloon.

But if you’ve got multiple BNPLs taking different monthly amounts from your bank balance, could this tip you into the red with overdraft charges (see page 107)? With no affordability checks, is there a risk you could be charged late-payment fees? Might you have to use a credit card to pay for other essentials or cover the cost of bills?

If you’re someone who is regularly tempted to use BNPL when shopping online, think about why retailers love it – the increased sales. That is profiting them, but how much is it costing you? You might be spending lots of money interest-free – but what’s the opportunity cost of that money? By which I mean, what else could you be spending that money on or investing it in? (Chapter 7 will give you lots of ideas!)

If you have a bulging wardrobe of clothes you’ve only worn once or, worse, bags of unworn clothes that don’t fit where you missed the returns window to send them back, then you are paying too heavy a price for your shopping habit.

A big part of BNPL’s appeal is its instantaneous nature – no hard credit checks are performed, making it quick and easy to rack up purchases. In 2023, new regulations will be coming in which could slow things down by introducing more stringent checks. Even if we pass the credit check, the added friction at the checkout might make us think twice about whether we really need another item of fast fashion or not.

What they don’t teach you about clearing your debts

Do you feel ready to enter ‘the drawer’ and dig out all of the paperwork for your own credit cards?

It’s normal to feel apprehensive. When we pick up rocks, a few spiders are going to come scuttling out. But for all of the ‘eek’ of looking at the numbers and working out the full amount you owe, be comforted by the knowledge that you’re going to save money in the long run by making a plan to pay it off.

Keep a cool head, and start by making a list of the outstanding balance you have on each card and, crucially, the amount of interest you’re being charged (the percentage rate). This will help you see at a glance which debts are costing you the most in terms of interest.

If you have a good credit score, it might be possible to transfer your most expensive balance on to a 0 per cent card, and set up a direct debit to pay it off before the interest-free period ends.

If you already have 0 per cent deals on other cards, make a note of when these end. Nimble financial footwork will avoid the ‘payment shock’ of going on to the higher rate.

The #debtfreecommunity on Instagram is a huge and powerful resource, but like everything on social media, comparing yourself to others can make you feel despondent.

Here are two debt-reducing strategies you’ll come across:

SNOWBALL METHOD

You list all your debts and pay off the smallest one first, and then the next smallest. Clearing small debts quickly is a psychological boost that gives you the motivation to carry on – but this method may not give the biggest interest savings over time.

AVALANCHE METHOD

You work out which debt has the highest interest rate and prioritise that, paying off as much as you can each month while paying the minimum on your other debts. When the first debt is paid off, you then do the same with the next most expensive and continue until all your card debts are paid off.

However, you shouldn’t feel that you have to deal with your debts on your own – free help is available.

FOUR SIGNS THAT YOU NEED TO SPEAK TO A DEBT ADVISER

You’re living in your overdraft

You’re in the red for the entire month, and don’t get back into the black when your pay cheque comes in – and you can’t see this situation changing.

You can’t pay ‘priority debts’ without using credit

These include your rent or mortgage, council tax, energy bills and car finance.

You’re thinking about taking a loan to consolidate your existing debts

Never take this step without taking free debt advice first – other options (such as a Debt Management Plan) could cost you a lot less in the long run.

You’re considering other ‘debt solutions’ you’ve seen online

A form of insolvency known as an IVA (individual voluntary agreement) can be entered into online, but the companies selling these ‘solutions’ often don’t explain the downside of these agreements. You can end up owing more than you started with – always speak to an independent debt adviser first.

Speaking to a debt adviser won’t cost you a penny and could potentially save you many thousands of pounds, says Debt Camel blogger Sara Williams. Unfortunately, most people struggle for years before they seek help, causing their debts to spiral further. Many will seek to consolidate their debts into one big debt in the belief that they can save money on interest charges.

‘People with lots of credit card debts see they can get a consolidation loan at 16 per cent interest and think, ooh, that’s less than the 20 per cent I’m paying on these cards,’ she says. ‘But that’s a really expensive rate for a personal loan [the average rate is currently 8 per cent] and it’s a lot less flexible. Unlike a credit card, you have to make the full repayment every month – and you’ll need to do that every month for several years.’

If people have trouble keeping up with the repayments, Sara says they often resort to using the credit cards they’ve cleared and end up building up even more debt. Sadly, it’s not unusual for her to work with people who have consolidated their debts two or three times. ‘Each time, they convince themselves that it’s the sensible option.’ But as their debts and interest charges mount, their credit score suffers, and fewer and fewer lenders will want to take the risk of lending – and those that do charge usurious rates of interest (between 30 and 90 per cent is not uncommon).

‘The sooner you come and talk to a debt adviser, the nicer your set of options for dealing with your debts are going to be,’ Sara explains. ‘The more you carry on borrowing, those options become fewer and fewer.’

A debt adviser can see the wood for the trees, looking at your debts dispassionately without the emotional baggage you carry. They could help you negotiate with lenders, or explain the benefits of signing up to a Debt Management Plan, which generally freezes the interest being charged on your debts.

‘Debt advisers are completely non-judgemental – we’ve heard it all before,’ Sara says. ‘We’re not going to be horrified, no matter how large your debts are, and we will have ideas about how to help you tackle them.’

To find a debt adviser, and read more about what the process involves, you can visit the websites of charities such as stepchange.org, citizensadvice.org.uk or capuk.org. If you are self-employed or run your own business and need help, the best place to turn to is businessdebtline.org.

MONEY STORY:

Why Don’t You Ask Anthony?

All kinds of emotional threads are woven tightly into our relationship with money. To deal with problems rationally, we need to find a way of untangling our feelings so we can find the courage to face our fears. This is easier said than done – but it’s especially tough for Ostriches. I’d like to introduce you to someone called Anthony, who might be able to help.

One of my oldest friends (I’ll call him William) had never felt in control of his finances. Self-employed with a small child, he’d built up quite a lot of debt over the years, but was doing a pretty good job of pretending to cope. And then, boom – his relationship ended.

Financially, things went from bad to worse, and William’s debts ballooned. Every month, he had to find £1,250 just to keep up his repayments. More than £1,000 of this was going towards paying interest and charges. He struggled on for as long as he could, but eventually broke down and confided in a friend. She convinced him to call the StepChange charity for free debt advice.

‘A lady called Sue answered, and she was absolutely wonderful,’ he recalls. ‘By this point, my creditors were chasing me; I had no money and just didn’t know what to do. But Sue didn’t judge me at all, and kept saying “That’s no problem,” explaining the steps I needed to take.’

Sue suggested setting up a Debt Management Plan, which would freeze the interest on all of William’s debts – immediately saving him £1,000 a month in charges. But to do this, he needed to find the courage to open piles of post, make a list of his creditors and complete a budget plan to show what level of repayments would be affordable.

So where does Anthony enter the frame?

William had been listening to a podcast about The Alter Ego Effect, a book by Todd Herman, which explores how top athletes envisage a better, more heroic version of themselves to gain a competitive edge and feel less vulnerable. They are not competing against their opponent – their alter ego is. By placing their emotions and self-doubt to one side, they are more likely to succeed.

This was William’s eureka moment. ‘From then on, I decided if I faced a tricky situation with money, I would send Anthony, my alter ego, to deal with it,’ he says. ‘Your alter ego has to come from you. Anthony is essentially me – but without fears, complications and emotions. He’s very results focused and, unlike me, he never procrastinates.’

William has 11 creditors who he must call once a year to check the balance of what he owes in order to update his debt plan. Guess who he outsources this job to?

‘Anthony rings all of them for me; he chats, he laughs, he’s super-confident – because he’s not me. I love him! He has no shame, because it’s not his debt. The stress of living with my debts, hiding the problem and the shame of this played such a big role in why I couldn’t deal with it, which made everything so much worse. Now, if I feel I can’t face a certain situation, I think, “What would Anthony do?”’

With the help of a supportive friend, StepChange and his efficient alter ego, William reached an agreement with his creditors to repay £350 a month, giving him enough money to live. However, he still calls on Anthony to help check over his budget every month. (‘Did I mention that Anthony loves spreadsheets?’)

After years of being an Ostrich, William has learned how to place aside his negative emotions about money – his fear and his shame – and tap into an inner strength he didn’t know he had.

If you struggle to face your financial fears, could someone like Anthony help you?

Bank overdrafts

Interest-free overdrafts are part and parcel of student life (and one of the most useful perks to look out for when you’re choosing a student bank account). However, they won’t stay interest-free forever. Eventually, your account will morph into a ‘graduate account’ and overdraft charges will be applied. This could be one year after you formally graduate – or much sooner. Find out! And get to work on repaying as much debt as possible before charges are applied.

Regulations in 2019 forced banks to be much clearer about the way they charge interest on overdraft balances. Typically, the APR (annual percentage rate) is 39 per cent – around twice as much as a credit card.

If you’re only in your overdraft for a small amount of money for a few days at the end of the month, this is only going to cost you a few pounds. Some banks will let you have an interest-free overdraft of a few hundred pounds as a buffer. But remember – all big debts started off as small debts. The more days per month your balance is in the red, and the deeper the minus figures get, the more those interest charges will really start to add up.

Having read this chapter, you can see how easy it is for us to be lured into borrowing more than we need – and how hard it can be to pay off.

Crucially, you should know the difference between the kind of overspending-related debt issues that you can tackle yourself, and the sort of debt problems where you will benefit from professional help.

I do hope that any Ostriches who have been ignoring debts building up like I did have the courage to tackle them, placing aside emotions (with or without the help of an Anthony) and lose any feelings of shame.

Building on the key habit of being mindful with your money, you might want to adjust your budget to not only take control of spending, but target repaying your most expensive debts more quickly.

As I’ve shown you, this can save you a lot of money in interest payments (but remember, student loans are different, and we’ll cover these fully in Chapter 9).

Clearing your debts faster is a great financial goal – and it has a big reward to look forward to (yes, really!). If you get into the habit of setting aside some extra cash to ramp up your repayments every month, when your debts are cleared, that money comes straight back into your budget. You’re used to doing without it – so now, you could repurpose that cash for bigger and better things – yes, I am talking about life goals. And these long-term savings aspirations are what we’re going to tackle in the next chapter.

5

Hashtag Lifegoals

Having a financial goal can be hugely motivating. Whatever target you set your sights on, the dream of achieving this should be the compass guiding all your money decisions. This is especially true of long-term goals: financial destinations which take several years to reach.

The problem is, this future gazing requires optimism, and it’s very hard to feel upbeat about our finances right now. The application of #lifegoals to social media posts has almost become ironic.

Goals we once might have aspired to (like owning a property, or building up an investment portfolio) are demotivating as they currently feel so impossible to achieve.

There’s nothing like the thought of living like a monk for decades in order to afford a very small shack with a huge mortgage attached to drive you to join the F*ck It School of Finance, and blow your remaining cash down the pub. Cheers! (I’m sure all the Yolos would agree.)

Neither of these alternatives are a good option, so this chapter is going to consider how we can move those financial goal posts as we embrace another ‘super seven’ habit – give your money a goal.

We’ll also take a look at what’s been going on in the wider economy, and how this could affect the outlook for traditional ‘life goals’ like owning a property.

Then, we’re going to dare to consider the practicalities of getting a mortgage and buying your first home – even if that day feels far away right now – plus, the challenge of rising interest rates for those who have already bought.

Finally, we’ll run the numbers on another major life purchase – buying a car.

What are your goals?

This is a surprisingly hard question to answer, but no – I am not going to ask that dreadful job interview staple of where you see yourself being in five years’ time.

Let’s come at this from a different angle. What did the pandemic make you reassess? Breaking it down further, what were the things you missed doing the most, or regretted not having done? What did you secretly enjoy doing? (For me, it was bird watching.) And what do you never want to do again? (For some people, it might be working in an office – for others, it might be working from home.)

As dreadful as lockdowns were, they did make us consider what really matters to us in a way that the ‘five years’ time’ question does not. Having time to reassess what is important to us has promoted people to make big changes, like what we spend money on, and how we earn it, rethinking career paths, not to mention relationships and who we share our money with.

The other big question to contemplate is how we want to spend our time. Greater flexibility about where and when we work is a game changer. As much as I enjoy my job, I think the pandemic has taught many professionals that what we do for a living doesn’t define us. How we want to live is also key.

So let’s bring it back to money. There are some obvious financial milestones, like landing your first proper job, buying your first car, buying your first home, marrying your first husband (ahem!) … I could go on. But you shouldn’t limit your goals to these.

Your long-term dream could be living and working overseas, setting up your own business or starting a family – or even all three. My point is – there’s more to life than buying a bloody property!

Thinking about goals gives us a target to work towards, and the milestones can be slotted into place around this to hopefully make it happen.

Once you’ve put some numbers around your goals, you can plumb them into your budget and measure your progress towards this target, such as saving a 10 per cent housing deposit. But remember – it’s not just saving money that will help you achieve this. You need to think about earning money too, and the direction your career is going in (we’ll tackle this in Chapter 9).

And while it may take some time to build up the financial momentum you need to start putting your plans into action, plans can be adjusted as you go.

Even if some of the ‘life goals’ in this chapter fall into the ‘scarily too far ahead’ category for you right now, having information about buying cars and property will help you plan in the future. So whatever you dream of, let’s take a tab out of the Spreadsheet Slave’s playbook, and consider how we might achieve it.

HABIT NUMBER FOUR:

Give yourself a goal

Harking back to Mr Micawber, to achieve financial happiness, we need to live slightly below our means. If we can increase our level of economising, this gives us more money to put aside every month toward our long-term aims.

Never mind hashtagging pictures of mountain sunrises, infinity pools and million-pound mansions – right now, there is nothing wrong with focusing on short-term goals. Learning to manage our money from pay cheque to pay cheque is a huge achievement in its own right. Building up an emergency fund and making plans to pay down expensive debt are super-important life goals, and I hope previous chapters have given you some ideas about how to tackle these.

Frankly, considering more ambitious targets might feel ridiculous – but we’re going to go there! (I won’t tell anyone if you have a drink in the pub while you’re thinking about the bigger picture.)

Big goals might feel daunting, but small actions quickly add up. Remember, saving £2.70 a day would give you nearly £1,000 in a year.

If your goal requires stretching those savings over several years, consistency wins out over perfection. Even if you start small or can only make gradual progress towards your long-term goals right now, it’s important not to give up – recessions don’t last forever, and it’s not only about money – effective research can also bring you closer to your intended path, and the only cost here is your time.

Daring to dream

Admit it – when you think about your ultimate financial goal, is it owning your own home? It’s tough to achieve, but considering the nightmare of renting in the UK, I don’t blame you for dreaming.

I am not one of those ‘judgey’ money experts who will finger-wag about wasting money on Netflix or avocados, insisting you deny yourself every small pleasure in life in order to achieve the holy grail of home ownership.

However, I am a realist. The fact is, buying a home is not something most people can afford without one vital accident of birth – having wealthy parents who already own a property.

Bomad, the so-called ‘Bank of Mum and Dad’, is said to be equivalent in size to the ninth biggest mortgage lender in the UK in terms of the cash sums they have advanced for their adult children’s property deposits.

The minimum you’ll need to stump up is 5 per cent of the property price, but 10 or 15 per cent is more likely (I’ll explain why later).

Parental generosity is key to unlocking the dream of property ownership for the majority of first-time buyers – yet the value of these contributions are rarely acknowledged or even spoken about.

My friend Lynn Beattie, the personal finance expert and founder of the Mrs MummyPenny website, is on a mission to change this. She was behind this tweet that went viral in 2022:

Can we all be ‘A BIT’ more honest about how we paid for our first homes? Yep I was 24, but I bought with my boyfriend (who was 10 years older with much more money) who paid the entire deposit.

Lynn’s tweet has been seen by over two million people, receiving over ten thousand likes, retweets and confessional replies.

‘The wave of honesty was quite overwhelming,’ she says.

Most of the responses were people admitting that they hadn’t saved up the money; they’d either been given it, or they had an inheritance, a redundancy payment, or bought before 2008 when you only needed a very small deposit (that’s me).

‘People had been hiding the truth for years,’ Lynn says. ‘It felt like a release – I still get replies to the tweet even now.’

The responses are a powerful antidote to the financial ‘shaming’ of those who cannot save enough to afford to buy. If you don’t have financial help from something or someone, your Netflix and avocado consumption will make b*gger-all difference – fact.

What has made a huge difference is quantitative easing, or QE for short (stick with me, as this has direct relevance to whether or not property prices will now crash).

After the financial crisis in 2008, central banks around the world started ‘printing money’ to stave off economic collapse (OK, they created digital money to buy up government bonds, but the effect was pretty much the same). QE artificially held down interest rates, allowing banks to lend people (and businesses) lots and lots of cheap money to increase economic growth.

This has massively boosted house prices over the past 15 years. If you owned a property, QE has been fantastic. If you didn’t, QE has been catastrophic. Burned by the financial crisis, banks now insist on much bigger deposits if you buy a property.

While property prices have soared, wages have been stagnant. At the age of 30, university graduates earn less today in real terms than they did 20 years ago. The most a mortgage lender will let you borrow is 4.5 times your salary. However, average house prices in the UK are currently 7 times the average salary, rising to 11 times in London. So even if your parents can afford to gift you a large deposit, first-time buyers will still struggle to afford a home unless they have a large salary to match.

Plenty of graduates have ‘boomeranged’ back to live with their parents after university, desperately trying to save up. And they are the lucky ones, not beholden to QE-boosted landlords charging enormous rents!

We talk about the ‘opportunity cost’ of money. But we also need to consider the ‘opportunity lost’ of saving every penny towards a home.

This might mean facing the reality that, at current pricing levels, you simply cannot afford to buy. This could be very unmotivating, but I mention it here in the hope that it could also be freeing. We should not confuse financial independence with financial privilege. If you cannot afford to buy a property, you are not a financial failure!

But the market is shifting. As QE turns into QT (quantitative tightening) banks are raising interest rates, making mortgages more expensive, and property prices are expected to fall – potentially quite sharply. In time, this could give younger generations more of a chance.

If you’re lucky enough to think that Bomad might advance you a loan, read on for some tips – but don’t bank on them saying yes. Ructions in the property and stock markets could affect the future direction of your parent’s long-term financial plans.

Here are the facts about property buying to help you work out whether it could ever be a realistic goal for you – now or in the future.

A halfway house: Be prepared to compromise

The ghastly expense of property means that even if your family can help you save for a deposit, there’s always some kind of compromise involved.

You could get more for your money if you moved further out to a cheaper location; hybrid and remote working have really opened up the possibilities here, but careful research will be required.

Flats are cheaper than houses, but owning a flat makes you a leaseholder. As well as fewer legal rights, you’ll have the added expense of monthly service charges (levied to maintain the common parts of the property). Eventually, you could need to pay to extend your lease. Freehold houses are more expensive (you own the property, and the land it occupies).

Don’t even think about buying a wreck – they are money pits. Buying a cosmetically ugly property, however, or a property with no garden or one next to a busy road, could cost less – but this will restrict what you can later sell it for.

Another compromise is spending more of your time earning money. Could you chase a promotion, a pay rise, change company or even change career? There’s also second jobs and side hustles – but these are all going to cost you your leisure time.

Your relationship status is also a huge factor in your ability to buy a home. The ‘single tax’ makes solo renting, let alone buying, even harder. A compromise for singles could be pooling resources and buying with friends or siblings, but you’d need to be very clear about how you’d structure this arrangement (and ideally have a legal agreement drawn up).

Alternatively, you could shelve the idea of buying a property for now, and move overseas. If travel features highly in your life goals, working for a UK-based company and getting an overseas posting is a fantastic way of seeing the world – and who knows, you might even get a housing allowance.

How does shared ownership work?

Shared ownership is a government-backed scheme to bridge the gap between renting and buying. Intended to be a more affordable route to owning your own home (eventually!) it is riven with compromise and could turn out to be more expensive than you think.

Would-be buyers need to meet certain criteria (including having a salary below a certain level). It’s only available on purpose-built developments, but you can also buy an existing home through a shared-ownership resale scheme.

The way it works is best described as part-rent, part-buy:

- You buy a portion of a new home (between 10 to 75 per cent) using a cash deposit and a mortgage to fund the cost.

- You pay rent on the portion you don’t own.

- Usually, there’s also a monthly service charge for the upkeep of the development.

Beware, as this means shared owners are exposed to rising costs in three different ways:

- The interest rate could rise on your mortgage; as shared ownership is quite specialist, there’s less choice, and the rates mortgage lenders charge will be higher.

- Rents on shared-ownership homes usually increase in line with inflation – making it tough if your wages don’t.

- Service charge costs vary from year to year, and are not capped.

The combined monthly cost of the rent plus the service charge can often be more than your monthly mortgage repayment, hindering your ability to ‘staircase’ (which is the scheme’s word for buying a bigger share of the property in future).

Friends and colleagues of mine who have successfully ‘staircased’ have either seen their earnings increase enough to get a bigger mortgage, come into a lump sum (an inheritance or a redundancy payment) or met a partner who moved in with them.

When you buy a bigger share, the value will be based on what the property is worth at that time – not when you originally bought.

However, the big attraction is stability – unlike a conventional rental property, you can stay for the long-term.

On balance, some of my friends were happy (‘it’s much better than renting’). A few regretted their decision (‘the costs were much higher than I thought’) but all stressed that you need to go into these arrangements with your eyes wide open.

To understand these pros and cons, I highly recommend you visit the independent website www.sharedownershipresources.org and read all of the ‘My SO home’ case studies where existing owners reveal how their purchases are working out (or not).

Could I afford to buy a house – and how much could I borrow?

Whether your goal is buying a flat, a house or a shared-ownership home, you need to know the answers to all of the questions below before you even start looking at Rightmove:

Are there any nasties in your credit report? Download one for free now (use apps like ClearScore or Experian) and clear up any issues far in advance. If you have a good credit score, lenders will see you as a safer bet, and are likely to offer you lower interest rates.

Likely deposit savings: You’ll need a bare minimum of 5–10 per cent of the property price – maybe more – but your salary must be enough to get a mortgage to cover the rest.

Proof of income: As a rough rule of thumb, the maximum you can borrow is around four and a half times your annual income, evidenced by payslips (a couple could borrow up to 4.5 times their joint income). Some lenders will include bonuses and variable pay like overtime and sales commission, others will not.

Affordability test: Mortgage lenders need to know how much of your income can go towards repaying your home loan. To calculate, they will scour your bank statements for typical living expenses and other debts (e.g. credit cards, car finance). Borrowers also have to pass a ‘stress test’ to make sure they could still afford repayments if interest rates increase.

Other savings: As well as your deposit, you’ll need to pay stamp duty (a tax on property sales). First-time buyers in England and Northern Ireland pay no tax on properties worth less than £425,000. In Scotland and Wales, the duty has a different name and different rates. Use an online stamp duty calculator to see how much it will be on your first home. Then there’s professional fees (solicitor, surveyor, mortgage broker) plus product fees on your mortgage (these can be added to your loan, with interest). And that’s before you’ve even considered buying any furniture!

Bomad and Bogag: If the Bank of Mum and Dad (or Gran and Grandad) are giving you some money, you need to be clear whether this is a gift or a loan – and that the money is transferred into your name before you start seriously searching.

HOW MUCH COULD WE BORROW?

Once you know the answers to these questions, a mortgage broker or the lending arm of a high-street bank can give an accurate indication of what properties could fall into your price bracket.

Brokers have access to all of the deals in the market (which change daily) and while most charge a fee or commission, the time and faff saved is worth it. They know what kind of deals a buyer with your profile is likely to be accepted for, and can hold your hand through the buying process.

Next, a lender gives you an ‘agreement in principle’ (a letter indicating how much they’d be prepared to lend you). Add your deposit funds to this sum, and now you face the challenge of finding a home within your budget, and beating all of the other buyers to secure it.

WHAT’S THE BEST WAY OF SAVING A DEPOSIT?

A cash savings account paying the highest amount of interest you can find (check Moneyfacts.co.uk for the best rates) but be prepared to move your money every year to keep earning a high rate.

You could risk investing your deposit money in the stock market (more on this in Chapter 8) but I’d only consider this if you have at least ten years to go before you might be in a position to buy – there’s a high risk you could lose money in the short term.

Aged between 18 and 39? You can get a 25 per cent government bonus on your property deposit savings by opening a Lifetime ISA account (check Money Saving Expert for an up-to-date list of providers). An account can be opened with £1. You can save up to £4,000 a year, which is topped up by a 25 per cent bonus worth up to £1,000 a year – hello, free money! – plus, you can keep saving until you’re 50.

There are three very important caveats:

- Unless you’re using the money to buy a home, you can’t take your money out before the age of 60 without being slapped with a 25 per cent penalty, which means you lose the government bonus, plus some of your own savings on top – ouch.

- The maximum property price is capped at £450,000 (and this hasn’t changed since 2017). This has tripped up a lot of buyers in London who’ve saved for years, but now can’t find a property worth less than £450k.

- You have to be a first-time buyer – but crucially, you can buy with another person if they’re not. If they are a first-time buyer, you can use the savings and bonus from both of your Lifetime ISAs – but the limit stays at £450k.

So how might turbo-charging your savings with the Lifetime ISA work in practice?

Let’s say a couple under 40 (who are both first-time buyers) need to save £40,000 for a property deposit – so £20,000 apiece. If they each saved £333 per month in a Lifetime ISA, they could reach this goal in four years:

- £333 per month = £4,000 per year

- That’s topped up to £5,000 with the government bonus

- Keep this up for four years, and they’ll each save £20,000

If they managed to save £333 per month between them, it would take twice as long – but they’d still net a (total) bonus of £8,000 over eight years.

Having a monthly savings target of £333 could be a budget motivator (‘Be gone, Instagram ad temptation!’) but it could also be a millstone. If you’re both saving so much you have no money left to have fun with, you might split up! Balance is needed.

If there’s a possibility Bomad (or Bogag) might be able to help, showing them a ‘business plan’ of your savings goal and what difference their money could make could give them something tangible to consider. Older relatives could be motivated to help now with an eye on saving inheritance tax in future (if they survive for seven years after making a financial gift, there’s no tax to pay). Keep records, and be very clear whether any money is intended as a gift or a loan.

And with all long-term goals, there’s a high chance your finances could change. Unexpected expenses could knock out your savings some months. On the other hand, if you get a pay rise, you might find you could save more.

John Lennon famously said: ‘Life is what happens to you when you’re busy making other plans.’ To which I say, plans can be adapted!

In fact, having a plan can really help you navigate a crisis. You’re already used to looking at your numbers, and will be better placed to know what levers can be pulled to adapt quickly, hopefully minimising the risk of getting into debt and giving you more options to regroup.

What they don’t teach you about buying a property

I must confess to being a little bit in love with the property expert Henry Pryor. Yes, he’s technically an estate agent (boo hiss!) but he’s a buying agent – he only acts for people who are buying houses, and battles to get them a better deal.

This is an incredibly important distinction. When you start to go and look at properties, it’s easy to believe that the estate agent showing you around is your estate agent.

‘This is akin to a sheep or a cow walking into an abattoir and saying, “There is my butcher”,’ Henry says. ‘Never forget – estate agents are there to financially fillet you!’

At the time of writing, the average estate agent has 24 properties on their books and 500 applicants. To decide whether you’re worth bothering with, the question the agent will be asking is, ‘Are they proceedable?’

To be considered ‘proceedable’ you need to convince the agent (and the property owner) that you are fully prepared, have got the funds, and can transact smoothly and swiftly.

To be taken seriously, you’ll need to show an agreement in principle from a mortgage lender (or an email from your broker), a screen grab of a bank deposit in your name with at least 10 per cent of the property price, and a solicitor on standby (ask family and friends who they’ve used).

‘They will then think: “Here’s an easy fee I can earn”,’ says Henry.

Estate agents are trained to ask questions to size up their quarry, so don’t blabber. ‘Do they need to know that your mother-in-law will chip in an extra £10k if needed? No!’ says Henry.

They will also exaggerate – so listen carefully to what they are saying. A common half-truth is: ‘We’ve already turned down an offer at the asking price.’ Henry suggests you reply: ‘Was the offer from a buyer who was proceedable?’

You could also ask if they’re the first agent to be instructed (if they’re not, ask why) and whether their client has found another home to move into, or needs time to find something. First-time buyers have one big advantage – they will be buying chain-free (they don’t need to sell a property before they buy). This could make you more ‘proceedable’ even if yours is not the highest offer.

MAKING AN OFFER

‘The asking price is a combination of the seller’s greed and the estate agent’s enthusiasm to get the business,’ says Henry (can you see why I love him?).

Even if the asking price is within your budget, if it’s wildly out of kilter with similar properties in the area, your mortgage lender could insist you stump up a bigger deposit (this is known as a ‘down valuation’).

To buy time, Henry suggests telling the agent: ‘We are going to make you an offer, but we’ll firm up the numbers in the car on the way home.’

In England and Wales, if you make your offer ‘subject to contract’ you can later withdraw it with no penalty. The problem is, so can the other side! Consider taking out home buyer’s insurance (costing about £60) to claw back some of the cost of solicitors, surveyors and mortgage brokers fees if your deal falls through. At present, one third of agreed deals collapse.

Even if your offer is 10 per cent over the asking price, it’s in the estate agent’s interests to push you further – usually, their fee will be a percentage of the sale.

‘The amount of people who say, ‘We increased our offer because the estate agent said it wasn’t enough”,’ Henry sighs. ‘They’re not your agent! All you are doing is bidding against yourself.’

EXCHANGE AND COMPLETION

Your first challenge is winning the bidding – your second is instructing professionals and buying the house.

If your offer is accepted, you must upgrade your agreement in principle into a firm mortgage offer. A mortgage broker will help guide you through your options, and how long to ‘fix’ for – most loans are a fixed interest rate for two or five years. You also need to instruct a solicitor.

Always get a full survey done – if nasties like damp or asbestos come up, you can at least negotiate the buying price to take into account the cost of rectifying these. Before you exchange contracts, be prepared for one final showdown – which fixtures and fittings are included with the property. Often, the seller will be prepared to accept an offer for any white goods – although built-in appliances should be included.

There are three final bits of expenditure new homeowners will need to factor in.

Firstly, buildings and contents insurance.

Secondly, putting some money aside every month for repairs and maintenance. When I first moved into my flat, I woke up one morning and the carpets were wet. It turned out the kitchen pipes leaked. I can still remember thinking, ‘Crikey, I’d better phone the landlord’ – and then realising there was no landlord. I also had no insurance (see above).

Finally, couples should consider taking out a life insurance policy that could pay off all or part of the mortgage if one of you dies. Tragically, this has happened to a few friends of friends with disastrous consequences (the surviving partner was forced to sell up). Known as mortgage protection, cover could cost as little as £5 per month.

The challenge of re-mortgaging

If you’re already on the property ladder, well done – you’ve achieved the dream! However, your biggest worry is now likely to be the mortgage attached.

All that QE stuff I was talking about earlier has been inflating the value of property prices – you’ve probably benefited from this over the years. Plus, it’s kept interest rates artificially low, so big loans have been cheap to service.

The problem is, interest rates are now rising – and fast.

As fixed-rate mortgage deals end and you have to search for another, the monthly costs are easily going to be hundreds of pounds extra – a ‘payment shock’ that you and your budget need to be prepared for.

Know the date that your fixed-rate deal expires off by heart, and work out your likely options far in advance. The latest you should start searching for a new deal is seven months before this – many lenders will let you ‘lock in’ to a new rate six months before yours expires. Being prepared will spare you from reverting on to the dreaded SVR (the standard variable rate) when your fix ends, which could cost you even more per month than a new fix.

When you reach into ‘the drawer’ to find your mortgage paperwork, the other factoid to search out is the ERC (early redemption charge). This is the penalty you’ll have to pay if you break your fix, and lock into a new deal ahead of time. These charges reduce the nearer you get to the end of the term, but it’s still a significant expense and could run into thousands of pounds. There’s a nifty calculator on the website Nous.co, which (based on current interest rate assumptions) estimates whether breaking your fix could be worth it.

As interest rates rise, home owners might be more tempted to fling any excess cash at paying down the mortgage more rapidly to generate interest savings. A mortgage overpayment calculator will let you model the impact of the likely savings, and how many years this could shave off your mortgage.

To make property prices more affordable, lenders have been stretching the length of repayment terms. The norm used to be 25 years; nowadays it’s 40 years. Crucially, this reduces the size of the monthly repayments, and enables younger buyers to pass the ‘affordability tests’ I told you about – but you’ll pay a lot more interest in the long run.

Let’s say you borrowed £300,000 at 6 per cent interest. If you stretched the debt over 40 years, you would knock nearly £300 off the monthly repayments. However, lengthening the loan means you would pay over £200,000 more in interest.

Factoring in a small overpayment from the get-go could save you a packet – but be aware you’re usually limited to overpaying no more than 10 per cent of the outstanding mortgage per year. You could up your mortgage repayment by a fixed amount or, if you like an automated solution, there are ingenious apps like Sprive which designate a variable proportion of your monthly budget to overpaying (not all lenders are covered).

If you’re on a low-interest fix with a few years to run, rather than overpaying every month, a more flexible solution could be stashing the money in the highest interest rate savings account you can find. That way, you could use it to pay off a chunk of the mortgage before your fix ends and still have access to the cash in an emergency.

Will there be a property crash?

It is inevitable that rising interest rates will cause property prices to fall. What we don’t know is to what extent.

If mortgage payments are rising, this is going to affect what people can afford to borrow. Mortgage lenders will not be prepared to lend us as much. Some people could struggle to afford repayments, and be forced to sell up – but they should investigate all the alternatives before they do so. I’m already aware of people who are downsizing – selling up and moving into a smaller, less expensive property – or renting out their spare room to make extra cash (see Chapter 9).

If there was a price crash, could this be a good thing for first-time buyers? You might think so – but the kind of gloomy economic conditions that cause house prices to fall also make it harder to borrow the money to buy one.

When prices are falling, banks are much more cautious about the amount of money they will lend. They don’t want to end up with a loan that’s worth less than the value of the property it’s secured on (known as ‘negative equity’).

As a result, first-time buyers are likely to need bigger deposits. This will also be reflected in the level of interest you’re charged: smaller deposits are a higher risk, and will be charged a higher rate of interest.

However, I don’t think you should necessarily let this put you off trying to save for a property. It’s a really long-term goal, and we simply don’t know how the market might change in future, what policies any future government might introduce to help first-time buyers, or what banks and financial regulators might do to manage future distress.

What they don’t teach you about buying a car

Aside from property, the second most expensive thing you’re ever likely to buy is a car. Just like the home you live in, the car you drive is an outward symbol of your wealth and status (hello, Yolos). However, car finance plans can put a significant dent in your future wealth.

I’ll let you into a secret. Very few people driving around in flashy motors actually own them.

In the UK, over 90 per cent of privately purchased new cars (and a growing proportion of used cars) are ‘bought’ using finance deals – the most common of which is a PCP or personal contract purchase.

These contracts enable people to borrow enough money to get a car they could never otherwise afford to own outright. The monthly payments on a finance plan might feel like a cheap way of driving an expensive car – but they can also be very costly. Hop into the passenger seat, and I’ll explain.

Most PCP deals are offered by car manufacturers via their own financing arms, and tend to have names like ‘solutions’. They are sold via car dealerships, who receive commission as part of the deal. You need to think carefully about whether this way of buying a car is a good solution for you – or for them!

The appeal is simple – a car with a sticker price of £20,000 could be yours to drive away for a few hundred pounds per month. What’s not to like? Well, the short answer is extra costs and charges, including the interest that’s charged on your repayments, and the financial hoops you’ll have to jump through at the end of the contract.

‘The car industry is utterly reliant on people buying cars they don’t need with money they don’t have,’ says Stuart Masson, a former car dealer who now runs the consumer car-buying website TheCarExpert.co.uk.

We had a look under the bonnet of a typical PCP deal. Let’s return to the car priced at £20,000. Typically, car dealers will ask you to put down an upfront deposit of 20 per cent – in this case, £4,000. Nowadays, most PCP deals run for four years. The amount of money you need to borrow is calculated using the expected value of the car at the end of the four-year period. Let’s say that’s estimated at £7,000.

To bridge the difference, you need to borrow £16,000 (that’s the £20,000 sticker price minus your £4,000 deposit). If this was structured as a hire purchase agreement, you’d make 48 monthly repayments of £333, plus interest.

However, PCP deals flatter the numbers by giving you lower monthly payments for the first 47 months, followed by one gigantic final payment at the end – known as the ‘balloon payment’.

In this case, you will make 47 monthly payments of £191.50, plus interest. Now that new car sounds much more affordable! We’ll come back to that final payment a little later …

If you’re buying a brand new car using a PCP, dealers often advertise a specific rate of interest (APR) if you’re accepted. This is typically around 4 per cent, but as interest rates rise, Stuart says average rates have been creeping up to around 7 per cent – and they will often be 10–15 per cent for PCPs on second-hand cars.

Your contract will specify exactly how much your monthly repayments with interest will be, but it goes without saying – the total amount you will end up paying to own this car will be far more than the sticker price on the car windscreen.

On top of the monthly finance charges, you’ll also need to factor in the cost of petrol, plus insurance, servicing and breakdown cover (although some PCP deals will roll these in – for a price!). Average running costs are currently around £220 per month, according to The Car Expert.

Let’s fast-forward to the end of your four-year deal. For the past four years, you’ve been charged interest to borrow this money – but to own the car outright, you still need to stump up the cash and make that final ‘balloon payment’ – in this case, of £7,000 – equivalent to the minimum guaranteed future value of the car.

‘Most customers obviously don’t have £7,000 to make the final payment needed to own the car,’ says Stuart. At this point, you could either hand the car back to the dealer and walk away, or borrow more money (with more interest) to pay it off. However, if you want to hand the car back but have exceeded the mileage limit in your PCP contract, you’ll have to pay a penalty for excess miles.

The third option is to take out another PCP deal to drive away a newer vehicle – and so, the cycle starts again. This is the reason car dealerships love PCP deals: the steady stream of repeat business.

Because of the slow-down in new car manufacturing caused by the pandemic, the value of used cars has held up much better than expected. People who are coming to the end of a PCP deal in 2023 may well find they have ‘equity’ in their vehicle – it’s worth more than the guaranteed value the dealer agreed at the outset. This could give you the confidence to sign another four-year deal and upgrade to an even flashier motor – but Stuart warns that the appreciation in used car prices is unlikely to continue.

‘Car dealers understand how PCP deals work, but I worry that many customers don’t understand the full financial implications,’ he says. ‘Whatever form of finance you choose, make sure you know what you’re getting yourself into, and that you pay it off on time.’

As older relatives have probably already told you, the problem with new cars is that as soon as you drive them off the forecourt, that ‘new car’ price premium evaporates as quickly as that new car smell. A new car costing £20k could theoretically lose 15 to 35 per cent of its value if you tried to sell it a year later, simply because it’s not ‘new’ any more.

This is why Dave Ramsey, the fearsomely curmudgeonly US money expert, says nobody should buy a new car unless they’re a millionaire. To guard against ‘lifestyle creep’ he has another famous rule: the total value of all your vehicles should never be more than half of your annual household income.

For some, ‘Bangernomics’ (a term coined to describe the savings of driving an older car) is the most cost-efficient way to get behind the wheel. Although you can use PCP deals on second-hand vehicles, Ramsay’s school of thought is that you should save up the money to buy a reliable, used car (there are lots of useful research tools on The Car Expert and Honest John websites).

There are other ways of running the numbers on this goal.

Lindsay Cook, who presents the Mrs Mean Money Show podcast, points out that if you borrow money to buy a used car, the interest on a bank loan could well be less than what’s charged on PCP repayments (have a look on comparison sites to see what rate you could get). And compromising on your choice of car could slash the monthly repayments – plus you’ll own the car when the loan is repaid with no need for a balloon payment.

‘Cars are so reliable these days, especially if they have been serviced regularly, and dealers should give you a warranty,’ she says, adding that her last family motor was on the road for more than 12 years with no problems. ‘Check the MOT for its service record and use totalcarcheck.co.uk to make sure it’s not stolen, has been written off or is owned by a finance company.’

There’s a greater risk older cars could need work, but you could divert some of the money you’re saving into your emergency fund for future car maintenance.

Like any aspect of your budget, the more you spend on one category, the less you have for another. If you’re paying a high price for your monthly PCP, think about the ‘opportunity cost’ of that money. If you weren’t spending so much on car finance, what other goals could you be putting this money towards?

On the other hand, if you spend a lot of time driving and really value having a slick pair of wheels, then maybe you’re happy to justify this.

Finally, if you use any form of finance to buy a car, don’t forget the size of those monthly repayments will be factored in by mortgage lenders when they’re calculating your affordability level.

Allowing yourself to rise above the everyday and travel into the future is an exhilarating escape. Financial planning helps us understand what we’d need to do to get there, and what could be possible.

The downside of this is accepting that we can’t have it all. If you have decided that buying a property just isn’t something you can even mentally commit to – let it go. It does not mean you are a financial failure – but nor does it mean that you should abandon other financial goals, or be tempted to take a huge gamble to achieve your dreams.

In the next chapter, we’re going to look at the temptation of ‘shortcuts to wealth’ – and why you should be wary of these.

6

The Dangers of Shortcuts to Wealth

Do you invest?

A common answer to this question is ‘Well, I did …’

Under lockdown, the combination of spare time and spare money convinced millions of people to invest in the stock market or cryptocurrencies for the first time. You may be among them!

It’s true that some people made a lot of money – I expect plenty of your friends did. How do we know this? Because they told us!

FOMO (the fear of missing out) is a very powerful emotion. Seeing others make ‘easy money’ might have persuaded you to have a go yourself – and there is absolutely no shame in that.

But comparing yourself to other ‘investors’ is a dangerous thing. Feeling envious or inadequate can cause us to snap back with a compulsive, copy-cat investment decision that’s purely based on an emotional response, not a rational evaluation, and that’s completely against our first money habit! We want some of what they’re having! The compulsion to ‘follow the herd’ stops you from thinking about whether this investment is suitable for you, or if it is too risky. Sadly, it’s all too easy for scammers to manipulate these emotional responses and sway us into making financial decisions we later regret.

But by now, you may well be sitting on a loss, and regretting your decision. Even so, there are valuable lessons to be learned from your experiences.

Your decision to invest was likely made on how much others had gained, rather than what you were actually buying, and the level of risk involved.

I don’t want you to abandon investing altogether, but I do want to introduce another of my ‘super seven’ habits – be curious – to help you to realise the dangers of high-risk investment strategies.

In this chapter, we’re going to look at the emotional pull of ‘get rich quick’ investments and why, in reality, they could be a shortcut to going broke fast. As I’ll show you, some ‘investments’ are little more than a gamble – all too often, with terrible odds of you ever winning – and many are simply scams.

Financial influencers on social media may seem trustworthy, but social media is fast becoming the gateway for scammers to part us from our life savings – and they are explicitly targeting younger investors.

HABIT NUMBER FIVE:

Be curious

Being open to learning about aspects of your finances that you don’t feel confident about is one of the keys to your future success.

By far the most important habit I can pass on to you is finding the confidence to ask questions. People often ask me, ‘How come you know so much about money?’ The answer is – I ask people! As a financial journalist, I am learning new things about money every day of the week.

There really are no ‘stupid questions’ when it comes to money, but our natural reticence to admit how little we know makes it easy for us to be swayed by peer pressure and malign influencers, or fall victim to fraudsters.

In the financial world, if something looks like a great deal, there’s usually a catch – the last few chapters should have taught you how to be curious about these. But at the scammier end of the spectrum, con artists want you to believe there is no catch – and the absence of one should ring alarm bells.

You might be promised guaranteed returns, investments that can only go up in value, the chance to make easy money or to buy something valuable for half the usual price … in short, things that look too good to be true. If it feels too good to be true, it’s almost certainly a scam! But emotionally, it can be hard to spot the warning signs as scammers are master manipulators, playing on our greed, fear and desperation.

The same applies to FOMO-driven investments. It’s tempting to follow the herd and believe that you’re getting in early on the next ‘meme stock’ or crypto coin. But buying something because everybody else thought it was a good idea is no substitute for doing your own research.

Behavioural science teaches us that frequent traders have a tendency to believe their own hype. We put down any gains we make to our skill as stock pickers, but we ascribe our losses to bad luck! So ask yourself – what kind of internal biases could be influencing you?

Having a long-term plan of what you want to get out of your investment journey is a much more effective (and less exhausting!) strategy than constantly looking for the ‘next big thing’. Being curious might go against your natural instincts, but it is a habit that could save you from making bad decisions that will cost you dearly.

Why do we fall for ‘get rich quick’ schemes?

Everyone wants to believe there’s an easy secret to getting rich. This simple fact, coupled with growing desperation as our finances are squeezed, explains how otherwise sensible people can lose huge sums of money believing they can beat the odds.

Years ago, when I worked for the Investors Chronicle magazine, I used to attend ‘property clubs’ in top London hotels where charismatic salesmen would try to convince 50-somethings to invest their life savings in all kinds of dubious schemes. This resulted in a string of exposés.

The promise of easy riches was a real wallet-opener. Punters in the room might not have known much about overseas property – but they all knew they wanted to be rich!

Posing as an investor, I would ask awkward questions about how anyone – barring the salesmen – would make any money from these schemes. I was always prepared for heavies to eject me from the hotel; what I didn’t expect was for members of the audience to turn on me. Why? Because I was destroying their dreams of ‘financial freedom’. They really wanted to believe it was possible.

Today, you don’t need to sink money into hiring a hotel suite. Social media platforms have scaled up the potential to part us from our money with terrifying ease.

Schemers and scammers know the biggest money secret that I revealed to you at the start of this book: Most people don’t know much about money (yet we like to pretend that we do). We are unlikely to be curious and ask awkward questions. We don’t want to look stupid by admitting we don’t fully understand. But proceeding regardless is far stupider.

There is a very blurry line between high-risk investments, gambling and outright scams where criminals deliberately set out to defraud us. In all cases, the promise that we could ‘get rich quick’ is what attracts us – but the level of emotional manipulation we’re subjected to blinds us to the risks.

It takes a long time to gradually build your wealth – but if you get greedy, it’s easy to lose it. The following should help you learn to tell the difference – and protect yourself from those with designs on your cash.

High-risk investments

Anyone who started investing during the pandemic has learned a valuable lesson – don’t confuse rising markets with being a stock-picking genius.

At first, your investments probably performed strongly. Remember that QE stuff I was telling you about in Chapter 5? Well, during the Covid-19 pandemic, central banks around the world pumped out lots more ‘magic money’ to help boost the global economy, causing stock markets (and property prices) to shoot up in value.

Armed with a smartphone and a few trading apps, and spurred on by internet messaging boards, millions of people tried to make a quick buck from the stock market under lockdown – and some of them succeeded.

The problem is that since those heady days, economic conditions have taken a significant turn for the worse. The ‘magic money’ has evaporated, and stock markets around the world have fallen. So much for get rich quick! What many new investors didn’t fully understand was the level of risk they were taking.

There is a big difference between investing for the long term (which we’re going to explore in the next chapter) and trading for short-term gains.

It’s tempting to believe there’s a ‘secret’ we can profit from; a tip-off from those in the know that could make us a lot of money fast.

We saw this with the GameStop phenomenon in January 2021, where hundreds of thousands of small investors coordinated online and bought shares in the struggling US computer game retailer. Professional investors who were ‘shorting’ GameStop (betting against the company) were forced to unwind their positions, which caused its share price to soar.

In the stock-buying frenzy that resulted, some of my colleagues at the FT realised (to their horror) that their own teenage children were among those buying into this craze. They had seen others make money, and thought they could too. They soon learned it was the volume of people buying into GameStop that was pushing up the price, rather than any underlying value. When the hype subsided, the price tanked.

Similar forces are at work with the ‘pumping and dumping’ of cryptocurrencies – but more on that in a minute.

Sticking with the stock market, I’ve met lots of young investors (the vast majority of them young men) who got a taste for short-term share trading under lockdown. I firmly believe that it has more in common with gambling than investing, and I’ve seen how quickly it can become addictive.

Trading is essentially placing a high-risk bet on fast-moving shares – you might be convinced that your skill as a stock picker plays a part in this, but it’s mostly luck. Online trading platforms allow you to stake money on micro-movements of different shares, stock market indices or currencies (foreign exchange, or FX for short).

I’ve interviewed students who were trading through the day and night, starting before the London market opens at 8am and carrying on through the New York day and beyond. As well as being risky, this requires a huge amount of time, effort and intensity – and often for not much financial reward.

Think back to my ‘What are you working for?’ calculation in Chapter 2. If you’re trading for eight hours and you end up making £50, that’s not winning – that’s earning below the minimum wage.

If you’re disappointed by your lack of success, never fear – a huge online industry awaits you selling tips, trading courses and even membership of trading academies – much of which is very dubious indeed. There are hundreds of bling-touting influencers on social media, and seemingly no shortage of people who will sign up to their schemes. Why do we fall for it?

In his excellent book Get Rich or Lie Trying, the journalist Symeon Brown looks at the psychology behind their success.12 Encountering someone who looks like you, rather than a middle-aged white guy in a suit, offering to help you learn and earn your way to financial freedom – even the naturally sceptical are tempted.

A big part of the appeal is the ‘rags to riches’ story, which leads others to believe they can emulate their success. So you pay to sign up for an expensive course to ‘learn the secrets’ of high-stakes trading.

They are guaranteed to make money – but you may well lose all of yours!

Plenty of influencers like this are also punting crypto investments. Both ‘business models’ often rely on affiliate marketing, where trading platforms pay the influencer commission for getting people to sign up. Many will try to get you to persuade your friends to sign up too. As Symeon reveals, the money paying for the Rolexes and fast cars is being funded by the commission payments, not trading profits.

Typically, it’s young men who are suckered in by these tactics. They are also the key target market for sports betting companies, trading apps and cryptocurrency platforms – a fact reflected in football-strip sponsorship deals.

There is definitely a strong emotional connection between a footballer’s audacious bid for glory on the pitch, and the macho allure of taking a high-risk bet and winning. Men are 7.5 times more likely than women to become problem gamblers, according to the UK Gambling Commission. But this desire to win big distracts us from the reality that we will probably lose. The huge profits made by online gambling platforms show you who the real winners are.

In the investment world, some trading sites allow punters to take out ‘contracts for difference’ (CFDs), a particularly toxic form of wager where you can ‘leverage’ your trades – i.e. borrow money to turbo-charge your bets. This amplifies your winnings, but will also magnify your losses.

The UK financial regulator requires websites offering CFDs to prominently display the odds. The warning ‘79% of investor accounts lose money when trading CFDs’ is currently not enough to discourage customers using the website of one of the most popular providers. Even with odds as poor as this, the all-powerful dream of getting rich means people are convinced they can beat them.

Is crypto all it’s cracked up to be?

As a trustee of the FT’s Financial Literacy and Inclusion Campaign (Flic for short) I regularly go into schools and talk about money. Cryptocurrency is one aspect of finance that every 14-year-old in Britain is feverishly interested in. Following the ‘crypto crash’ of 2022, now they all ask when I think the price might go back up again.

There are lots of books dedicated to ‘explaining’ crypto – this isn’t one of them. For all its technological promise and anti-establishment cred, it has no intrinsic value – you’re just buying some lines of code with a dream attached – plus it is a totally unregulated investment with no complaints department.

Does crypto have a long-term future? I certainly wouldn’t rule it out. But I wouldn’t want to bet my life savings on it either. There is a lot of confusion about whether the future value of these ‘coins’ is their ability to be spent like a currency, or hoarded as an investment. It can’t be both!

Nevertheless, plenty of people are prepared to trade on either possibility – and the scale and speed at which people have embraced crypto has been breathtaking. There are now almost as many people in the UK who hold some form of crypto as the numbers who invest in the stock market using stocks and shares ISAs.

The majority own more established currencies like Bitcoin and Ethereum, but over 10,000 different ‘coins’ are thought to exist – many of them fading into obscurity after celebrity influencers have pumped them to their followers, allowing early investors to ‘dump’ them and reap huge profits.

THE RISE OF CRYPTO SCAMS

The nature of much crypto ‘investment’ – getting in early on some weird-sounding coin, then cashing out after others pile in – makes it very susceptible to fraud. I’ve heard of many people being conned by influencers on social media who claim to have inside information and persuade them to make an ‘investment’. Sometimes, they’re persuaded to put a lot more money in after their original investment soars in value. It’s only when they try to withdraw some of the funds that the scheme collapses, and they realise the entire thing has been a scam.

According to the FCA, under-25s are six times more likely to trust an investment approach made via social media – and I’m not surprised, as it’s the place that so many now turn to for personal finance advice, new product recommendations and much more besides. But social media encourages us to compare ourselves to others in a way that is not helpful, or healthy. This desire to ‘keep up with the Joneses’ is also something that scammers and hustlers tap into.

The latest scam has seen Instagram accounts of legitimate financial influencers (including my own13) being ‘cloned’ by scammers. They copy all the photos and videos, but there will be a tiny difference in the profile name, such as @claerb1 instead of @claerb. They then message all our followers asking if they’d like to make some extra income, before requesting they transfer money to invest in crypto. Please be assured that I would never do this! Just like links in texts, if you get an investment approach via social media, start from the position that it is a scam.

Research shows that those who own crypto are highly likely to be young, male and to be ‘all in’: they don’t have any boring and sensible investments, like a pension – they’re making as big a possible bet on crypto making them rich.

Crypto’s biggest allure is that it has apparently democratised wealth. The myth persists because it has already made some people rich. The kind of people who invested and benefited from huge upward price movements could have started with nothing, been young, been black, been working class, been an immigrant – in short, all of the people the conventional financial world shuns as being too poor to make a profit from.

In other words, if you’re on the losing side of the QE trade, there’s hope – you could be on the winning side of the crypto one!

I have heard it said that it’s not just FOMO driving interest in crypto and other high-risk, potentially high-reward investments – it’s FONQEE, or ‘Fear of never quite earning enough’. Sadly, I believe this is true.

I have spoken to investors who have borrowed on credit cards to pump more money in, hoping to maximise their profits. Many are now left with worthless investments, yet still have to pay the credit card bills. Their desire to get rich quick has cost them their financial resilience. For some, it could even have cost them their lives. Suicide helplines were pinned to the top of message boards for investors who lost everything in the Luna wipeout of May 2022. A million more investors lost their shirts when the crypto trading platform FTX collapsed in November 2022, with billions of dollars of missing investor assets. They have found out the hard way that there is no consumer protection whatsoever in the crypto world.

Crypto platforms (which I believe should be subject to the same regulatory standards as mainstream investment platforms) have promoted certain high-risk ways of trading coins as a ‘safe’ investment. Even if you’re someone who believes in the future of crypto, I’d hope you would agree this is an aberration.

For now, the chips are down, and crypto prices have yet to recover the ground they lost in the wake of the Luna and FTX collapses. But investors have short memories. If hype, FOMO and FONQEE are what’s really driving prices, the desire to get rich quick will eventually override their caution.

From teenage crypto traders to those middle-aged property club investors, the powerful dream of making money is what blinds people to the reality that losing money is more likely.

Would you fall for this scam?

Scammers also prey on our emotional vulnerabilities. It’s no coincidence that online fraud exploded during the pandemic – some £1.3bn was lost in 2021. As well as living more of our lives online, the economic effects of Covid-19 made us increasingly anxious about money.

Sadly, the cost-of-living crisis has proved an even bigger opportunity for crooks to exploit. People are desperate to grab hold of whatever cash they can, and this is reflected in the sort of ‘phishing’ messages that ping up on our phones.

During lockdowns, the spike in online shopping meant people were more likely to fall for fake messages about charges on parcel deliveries, or NHS-related scams. Nowadays, false ‘Click here to claim government energy bill voucher’ or promises of £100 shopping vouchers are more common.

But scammers also try to induce fear. ‘Your Apple Pay has been suspended’ or ‘Amazon Prime renews today at £79.99’ might be more likely to prompt a panicked click. If you’ve fallen for one of these – and millions of people have – you don’t immediately lose money. Clicking through takes you to an official-looking website where you input your details. So what’s in it for the fraudsters?

The answer is, stealing our data.

We have unwittingly handed criminals our name, address, date of birth, phone number and bank details. Perhaps we’ve been asked to create a password, and used the same one we use for everything else, including our email.

This valuable data can be sold on, and later used to attempt ‘impersonation fraud’. Scammers could call and convincingly pretend they’re the fraud department of our bank.

My golden rule: If you receive a text, WhatsApp, email or social media message that contains a link, start from the position that it is a scam. Do not click on it! Be curious, and contact the organisation directly if you’re unsure.

Research shows that people under 35 are more likely to be targeted than older age groups – having grown up online, we’re sadly more trusting – and are also more likely to fall victim.

This happened to a Money Clinic listener called Jenny who lost £17,000 to criminals posing as the fraud department of HSBC. They sounded like they were ringing from a bank’s call centre; when they put her on hold, they had even copied the bank’s holding music!

Still, 31-year-old Jenny became suspicious when the helpful staff insisted she transfer her life savings to a ‘safe account’. She was urged not to delay, as her money was at risk – a common tactic of scammers. They know if we panic, we won’t think straight, and are less likely to question their commands.

When Jenny asked, ‘How do I know you’re calling from my bank?’ the criminals suggested she google the phone number they were calling from (they even had the gall to praise her for being fraud aware!). Sure enough, it matched the one on her phone screen.

But Jenny had never heard of ‘number spoofing’. Criminals are able to make it appear that they are calling (or texting) from a different number, such as your bank. Unfortunately, banks and other institutions like telecoms companies have been woefully slow to stamp this out.

WHAT IS A MONEY MULE?

When criminals steal money from victims like Jenny, they know it will be much harder for banks to stop the transfer if they split the money and transfer it through dozens of other accounts before cashing out. They offer people a cut of the proceeds if they allow their bank account to be used.

Ads on social media promising ‘make some extra money working from home’ are often used to recruit ‘transfer agents’ who receive stolen money and transfer it on – a money mule. People under the age of 24 account for around half of all money mules who get caught when banking algorithms flag suspicious transactions. As the cost of living rises, banks say older ‘mules’ are increasingly being recruited. Few realise that this is money laundering, and a criminal offence – even if you avoid jail, your bank account could be suspended and your credit record wrecked for years.

So, Jenny transferred the money. But there was no such thing as a ‘safe account’ – she had handed her life savings to fraudsters. It took a year-long battle to get her money back.

The lesson here is, it pays to be curious. If you are tricked into making an online bank transfer to someone posing as your bank, the tax office, an investment firm or an Airbnb host offering a juicy discount if you pay direct, you are not automatically entitled to get your money back.

Instead, you have to prove that you did enough to question the fraud attempt, such as taking heed of warning notices that flash up on banking apps when you try to transfer cash. After banks have investigated, they could decide that you were an ‘innocent victim’ and refund you in full. Or, they could decide that you were ‘partially responsible’ and only refund part of the cash – or none at all.

In all cases, consumers have the right to take their case (for free) to the Financial Ombudsman, an independent body that has the final ruling on consumer disputes. At the time of writing, around three quarters of cases referred to the Ombudsman are being decided in favour of the customer, and banks have to refund the victims – in my view, a clear sign that the system is not working for consumers.

You might be thinking, ‘I wouldn’t have fallen for these scams!’ But the numbers of people who do are rising every year, and the methods criminals use are getting more sophisticated.

Better fraud prevention is needed – as well as better communication with customers. For example, did you know that if you received a call on your mobile like Jenny did, you could hang up and dial 159 to be swiftly connected to your bank’s actual fraud department to double-check? Most UK banks have now signed up to this emergency number, yet few people know about it.

Online fraud is soaring, but very few victims of crime want to speak out about it. It’s also estimated a huge proportion of fraud offences go unreported. We feel ashamed and stupid for being conned. We’re more likely to blame ourselves than warn others not to fall for the same mistake. This helps nobody but the scammers!

BE CURIOUS – HOW TO PROTECT YOURSELF

A recent study found people who are ‘nice’ are more likely to be scammed (sad, but true!).

Worried about a potential fraud attempt? Eschew politeness – just hang up and dial 159 to speak to your bank’s fraud team.

The Take Five to Stop Fraud website lists common scams.

Don’t keep your bank cards with your phone. Google the case of Charlotte Morgan, a BBC journalist targeted by criminals who stole her phone, then used her Sim and bank card to hack into her online banking – a risk that I wasn’t even aware of.

Consider using an online password vault to securely store and protect your passwords (I pay for LastPass, which I consider to be a wise investment).

Keep social media accounts locked and enable ‘two-factor authentication’ to prevent hacks. Yes, it’s a faff, but think how awful you would feel if a friend was defrauded by someone pretending to be you.

If you do hold crypto, use a secure wallet (the Investopedia website has some great free online articles about why you should do this, plus reviews of the best options).

By being more curious about the various shortcuts to wealth, I hope I’ve shown you how to kick the tyres when you’re presented with a money-making idea, and how to protect yourself from scams.

Next, we’re going to reappraise investing as a long-term habit, rather than a short-term gamble. Granted, this is less high octane, but read on if you want to learn how to ‘get rich slow’.

7

Getting Richer Slowly: Your Future Fund

In the next two chapters, we’re going to rethink investing. I’ve showed you how the ‘get rich quick’ idea of gambling your way to big gains is likely to result in going broke fast. So what’s the less risky alternative?

Getting richer slowly.

Granted, it’s not as exciting, and it will take a lot longer. But that’s no reason not to love it.

The best things about the getting richer slowly method?

- You don’t need a lot of money to get started

- The younger you are, the better

- You don’t need to acquire lots of specialist knowledge

- You don’t need to spend time obsessively checking your investments – you’re going to use that wonderful habit of automation so you can invest in your sleep

- I’ll show you how investing ‘little and often’ can result in big gains over time

However, no investment is without risk. You do need to make an informed decision that investing is right for you. Plus, you must be prepared to lock up this money.

Investments are our ‘long-term money’ – money we don’t intend to spend for decades. Before rushing in, we need to make sure we have a stable financial foundation. My sixth ‘super seven’ habit – build your own financial plan – looks at how best to prioritise this.

I’m going to teach you powerful ways to boost your money even further by using tax breaks and grabbing ‘free money’ from your employer – yes, really! – plus the ‘magic potion’ of compound interest, which is arguably the most important money lesson in this entire book.

Want to know more? Well, let’s slide across to the slow lane and begin our investment journey …

HABIT NUMBER SIX:

Build your own financial plan

I know the Yolos will want to get cracking and invest – but Spreadsheet Slaves know there are some financial plans we must prioritise before we get to that stage.

Your first priority is making a plan to clear expensive, short-term debts like overdrafts and credit cards. If Spendy Wendys are being charged 20 or 40 per cent interest per year on their debts, paying these off is going to save you far more money that you’d ever make from growth on your investments or interest on cash savings.

If you have debts on 0 per cent cards or ‘buy now, pay later’ where you’re not being charged interest, this rule still applies. If you don’t pay these debts down, they will keep growing. The minimum repayments will take a bigger and bigger chunk of your budget, and the cost of refinancing your debts will grow. If your income takes a hit, carrying a lot of debt could quickly become unaffordable.

(Student loans are different from other kinds of debt, and we don’t need to prioritise paying these off – see Chapter 9 for more.)

Your second priority is saving some ‘sleep at night’ money – an emergency fund. Sounds boring, but it gives you financial resilience – the ability to bounce back from future money problems. This will drastically reduce levels of financial anxiety (Jitterbugs, rejoice).

As a rule of thumb, money experts suggest you save up three months’ worth of living expenses. Frankly, even if you can save up one month’s worth of expenses, you will be doing better than 12.9m people in the UK who have no savings at all.14 This money will give you a cushion if an emergency occurs and will stop you from falling into debt. As we know from Chapter 4, clawing your way out of debt is expensive and takes ages. Prevention is definitely better than cure!

Your third priority is saving and investing for the future, balancing your money between the following medium- and long-term priorities:

Cash savings goals for the next 1–5 years

Remember the goals we considered in Chapter 5? Think about the ‘savings spaces’ you want to automate some cash savings into every month: a holiday fund, having-a-baby money or saving up for a property deposit are all good examples of these; for homeowners, making a regular mortgage overpayment might be something that appeals. Revisit Chapter 5 for more details.

Maxing out your company pension

Don’t make the mistake of thinking that pensions are for old people – they are tax havens full of ‘free money’, as I’ll show you later in this chapter! An overlooked investment, saving a small amount of money into a company pension every month is an easy, automated way to growing your ‘future fund’ and it could cost less than you think. The only downside of pensions is that the money inside will be locked up until you’re at least 55 years old (or age 57 from 2028) – but you get a lot of perks in return.

Investing into ISAs

You might have heard of Cash ISAs, but in the next chapter we’re going to look at how to use stocks and shares ISAs, another powerful way of protecting your investments from tax – but one that’s more flexible than pensions.

A final note – even if the amounts of money you can afford to feed into your longer-term savings and investments are very small at first, don’t worry. Getting into the habit of putting something aside is what’s important. Over time, small amounts add up. As your financial situation improves, you can review your plan and look to increase your monthly savings.

Why should I invest?

I’ve given you a taster of the different routes to ‘getting richer slowly’ but before we get into the details of how to do it, I’d like you to think about why we should do it.

We need to save some of the money we’re earning today to see us through all the tomorrows when we’re no longer able to work and earn money. The problem with saving money over very long periods of time is that its purchasing power will be reduced by inflation (rising prices – see page 39 if you need a refresher).

- Let’s say I stuffed £50 under the mattress in 1980

- Over the years, inflation has eaten into the purchasing power of that money

- I’d need £191 in 2022 to buy what I could have got for 50 quid in 1980!

The lesson? We need to take some risk for our money to keep pace with inflation over time.

Historically, investing in companies listed on the stock market has been the best way. Back in 1980, if I’d invested that £50 in the US stock market, it would be worth over £500 today, and that’s in real terms, allowing for the effects of inflation.15

The past 40 years have been an incredible time to be an investor. However, there are no guarantees that the stock market will grow by this much over the next 40 years. If you’re thinking, ‘Cripes, what’s the stock market?’ then relax – I’ll explain more about how it works in the next chapter.

As the cost of living rises, it’s also getting harder for investors to beat inflation. Nevertheless, over the long term, investing in the stock market is still the best chance of growing our money. Over short periods of time, there’s a risk that the value of the money you have invested will fall. But when you keep your money invested for 10 years or more, studies show that the stock market has almost always risen.

‘If you are new to investing, these ups and downs can feel uncomfortable, a bit like feeling seasick when on a boat in choppy water,’ says Damien Fahy, founder of financial education website Money to the Masses. ‘The solution is the same: focus on the horizon, which in the case of investing is a point in time way off in the future. You’ll soon realise the ups and downs are a natural part of your investing journey, and the storm will pass.’

Choosing not to invest might feel like we are playing safe with our money, but the bigger risk is that inflation will gobble up the future purchasing power of our cash. As a self-confessed Goblin, I have learned this lesson to my cost by hoarding cash in savings accounts without really thinking about what I’ll do with that money. This is why building a financial plan is such a crucial habit. Knowing how much money we need for today helps us come to terms with the risk of investing some for tomorrow.

If you’ve had a bad experience with trading and lost money under lockdown, you may regard the stock market with a high degree of suspicion. But once you’ve built up your emergency fund, here are my six ‘Golden Rules’ for investors to reduce the risks of coming a cropper!

1. Diversify by spreading your investments across a wide range of companies and assets, rather than risk putting all of your money in a few stocks like Tesla, Apple or GameStop.

2. Keep your money invested for a long time to ride out the highs and lows, rather than try to profit from buying and selling. There are countless studies that show ‘time in the market’ is better than trying to ‘time the market’. You might get lucky with a few trades, but nobody – not even professional fund managers – can get it right every time. Constantly fiddling costs time and money!

3. Invest consistently over time – even if you’re only adding a small amount to your investments every month, this gives your money more momentum.

4. Pay as little tax on your investments as possible. I’ll show you how to make tax savings at the start when you’re paying the money in, while your investments are growing, and when you eventually withdraw the money to spend.

5. Make the most of the ‘free money’ your employer is willing to add to your pension – the easiest way of boosting how much you could make over time.

6. Keep fees and charges on your investments to a minimum.

By now, I’m hoping you can see how the ‘getting richer slowly’ investment strategy is very different from the ‘gamble and hope’ approach we looked at in the last chapter! Even so, with all of the demands on our everyday budgets, the thought of locking money up for decades is challenging.

‘People think of saving and investing as a sacrifice, but it’s not – it’s making sure you have money to spend in the future,’ says Iona Bain, the TV finance expert and founder of the Young Money blog. ‘Everything in consumer culture encourages us to spend money and make ourselves happy in the here and now. We need to reframe this. Investing will help your money grow and give you more choices and options further down the line.’

I like to think of my long-term investments as my ‘future fund’. It may be hard to imagine 60- or 70-year-old you, but the earlier you start on the path of ‘getting richer slowly’, the more time you’ll have to accumulate the funds you’ll need to support yourself when you can no longer work (either through choice, or necessity). The reason for this is compound interest. It sounds dull – but, as you’re about to find out, it’s anything but!

Compound interest – the key to ‘getting richer slowly’

Compound interest is the equivalent of a magic potion for growing your wealth over time.

In Chapter 4, we explored how compound interest can work against us when we’re being charged interest to borrow money on credit cards. Now it’s time to see how it can work in our favour!

To understand how it works, let’s start with cash savings – a concept we’re all familiar with.

Let’s say you put £100 into a savings account earning 3 per cent interest per year. After one year, you’d have £103 (your original £100, plus £3 of interest). As your savings grow, you’re not just earning interest on the original £100. You’re also earning interest on the interest.

For an easy way of thinking about this, imagine a small snowball at the top of a mountain. As the snowball rolls down the mountainside, it gradually gets bigger and bigger. By the time it gets to the bottom of the mountain, it would be big enough to wipe out a goat!

When it comes to the numbers, here’s how your £100 could grow:

After one year

£103

(you’ve earned £3 of interest)

After two years

£106.09

(you’ve earned another £3.09 of interest)

After three years

£109.27

(you’ve earned another £3.18 of interest)

Slowly but surely, the amount of interest you’re receiving is growing – and all from that initial £100.

It might not look like much, but it builds (or compounds) over time.

After 15 years, your £100 would be worth £155.80. But after 40 years, it would be worth £326.20 – more than three times as much!

Impressive – but it’s still not high enough to keep pace with inflation (rising prices).

After 15 years of bouncing along the bottom, by 2022, interest rates on cash savings were starting to tick up but were still lower than the rate of inflation. Even so, getting 3 per cent on your savings is better than getting 0 per cent – yet an incredible £260bn of cash savings sit in accounts paying a big fat zero. It’s really easy to move your money, so shop around to find the best account – websites like Moneyfacts.co.uk and Money Saving Expert list the best deals.

Next, let’s apply the concept of compound interest to investing.

When we invest money in the stock market, our money can grow in two ways. Firstly, the capital growth of our investments – the price we paid to buy shares versus the price we can hopefully sell them for in the future. Secondly, the dividend income our investments provide. Some (but not all) companies pay their investors an annual dividend, generated by company profits (it’s a bit like receiving interest on your savings). You could take those dividends and spend them, or you could reinvest them, using the money your investments are throwing off to buy more shares (this will make your snowball grow much faster!)

Investors describe this growth as the ‘total return’ on their investments.

Some years, the overall performance of the stock market falls, but over time, history shows it almost always rises. Plus, the income investors receive from dividends can help even out the bumps. Looking at the past performance of the stock market and taking today’s more challenging conditions into consideration, let’s assume a long-term annual growth rate of 7 per cent on stock market investments.

So, starting with the same figure of £100 …

After 15 years of being invested, it could be worth £275.

After 40 years of being invested, you could have a goat-killing snowball worth £1,500. Of course, when we take 40 years of inflation into account, the purchasing power of our money will still be reduced. But investing the money will almost certainly outstrip the long-term performance of cash savings. And what’s more, we haven’t added anything to that initial investment of £100.

However, most people will be able to keep adding a little bit more money as the ‘snowball’ rolls down the hill. What difference could that make? The short answer is LOTS (again, we will assume investment growth averaging out at 7 per cent per year over time).

Let’s say I invest £100 every month (so £1,200 per year).

After 15 years, my investments could have grown in value to over £31,000.

After 40 years, my investments could have grown in value to an impressive £250,000.

The total amount of cash I’ve invested is £48,000. However, after four decades, this could have generated compounded investment returns of over £200,000 – practically an avalanche of cash!

As you can see – the most powerful thing investors have is time.

Damien is a big fan of the ‘Rule of 70’, which is an even easier way to understand the magic of compounding.

‘You can calculate how long it would take to double your money by dividing the average annual rate of return into the number 70. So with 7 per cent growth, it means you would double your money every ten years,’ he says.

Of course, the biggest unknown is what future stock market growth might be. I’ve based that 7 per cent assumption on the Barclays Equity Gilt Study – one of the longest-running studies of stock market performance – and projected growth rates currently expected by a range of financial organisations.

But even if future growth averaged out at a more conservative 5 per cent, you’d double your money in 14 years and end up with a pot of £150,000.

This is why it’s so important to start investing for the future from a young age. Even if you can only afford to pay in small amounts, just like a snowball, that money can grow and compound over the decades – exactly what I mean by ‘getting richer slowly’.

At the beginning of your working life, you’re standing on the top of the mountain. Any small snowballs you can afford to invest have a long time to roll down the mountainside and gather flakes (it could be 40 or 50 years until you reach the bottom of the mountain and retire to your log cabin).

But let’s say you only start investing when you’re age 40, or halfway down the mountain. To get the same-sized snowball at the bottom, you’ll now have to invest much larger sums of money to get the same result, as your money has less time to grow before you’ll need to spend it.

How spicy is your tax rate?

One of the golden rules for getting your money to grow as much as possible over the years is to minimise the amount of tax that gets charged on it.

Investors need to understand how tax works so they can avoid paying more of it than they have to (totally legally, I might add!). Paying less tax is the government’s way of incentivising us to save more money into our ‘future fund’. Understanding this is crucial for taking advantage of the two most valuable tax breaks for investors in the UK: pensions and ISAs (more on these later).

Are you a fan of peri-peri chicken? This is one of the best ways I’ve seen of making sense of the income tax system, and full credit to Mr MoneyJar, aka Timi Merriman-Johnson, for giving me the idea for this.

Imagine you’re in your favourite peri-peri restaurant. Think of that big multi-coloured chilli pepper that shows the spice rating of your chicken. I’m going to use this to show how different rates of tax are charged on different slices of your income.

The level of peri-peri spiciness increases as you move up the scale. And so does the level of tax on your annual income!

LEMON AND HERB TAX BAND = £1–12,570

You pay no tax at all on the first £12,570 of your income – nice and mild! In tax-speak, the Lemon and Herb layer is called the personal allowance.

MEDIUM SPICY TAX BAND = £12,571–50,270

Your Lemon and Herb layer is still tax-free, but you pay 20 per cent income tax on this next slice of income, known as the basic rate. To think of this another way, in this bracket, 20p out of every pound you earn goes to the taxman.

HOT TAX BAND = £50,271–125,140

On the next slice of your income, you pay 40 per cent tax. This is known as the higher rate. You’ve guessed it – in this bracket, 40p out of every pound you earn goes to the taxman. Remember – the Hot tax rate isn’t applied to your entire salary, just the part of it above £50,270 (many people mistakenly believe it’s applied to the whole lot).

EXTRA HOT TAX BAND = £125,140+

From April 2023, anything you earn above £125,140 will be taxed at the Extra Hot rate of 45 per cent, known as the additional rate, which is equivalent to 45p in every pound. Scorchio! But just like before, it’s only earnings above £125,140 that get the extra hot treatment.

And there are two important flavour variants to be aware of:

EXTRA EXTRA HOT TAX BAND = £100,000—£125,140

When your salary hits six-figures territory, there’s a sting in the tail. Remember the Lemon and Herb layer? Years ago, politicians decided that people earning over £100k would start to lose that tasty £12,570 tax-free slice of their income.

For every £2 you earn over £100k, £1 of your Lemon and Herb ‘personal allowance’ is lost. This is the equivalent of paying 60 per cent tax on this slice of your income (a whopping 60p in the pound). When your earnings exceed £125k, all the Lemon and Herb layer has been wiped out, and your tax rate drops back to 45p in the pound.

However, I’ve got a red-hot tip for six-figure salary earners. It’s possible to avoid the Extra Extra Hot tax band if you save more money into your pension – more on this later.

THE SCOTCH BONNET

If you live in Scotland, tax rates are applied a bit differently – they’re slightly less spicy for lower earners, and slightly spicier for higher earners. I recommend the website Scotfact.com, which has a tax calculator that can show you the exact difference.16

Keep your tax flavour in mind as you read through the rest of this chapter.

What is a stealth tax?

The different bands of my peri-peri scale are known as ‘tax thresholds’ – the exact point where a milder rate of tax gives way to a spicier, more expensive one!

The problem is, higher inflation means life is going to get spicier for all of us.

How? As the cost of living rises, we pester our bosses for a pay rise (make sure you read all of my tips in Chapter 9 before you ask for yours).

Our income increases, but those tax thresholds have been frozen at the same levels since April 2021 and are set to remain there for many years to come. This means more and more people move up the spice-ometer and get ‘dragged’ into paying a higher rate of tax.

So, prices are higher, our wages are higher, but taxes are taking a bigger proportion of our income!

By the end of 2026, it’s estimated that over 1m Lemon and Herb taxpayers (who currently earn less than £12,570 and pay no tax) will see their pay increase enough to push them over the threshold, making them Medium Spicy taxpayers. They will be taxed at 20p in the pound on the next ‘slice’ of their income.

Similarly, 1.6m Medium Spicy taxpayers (earning less than £50,270) will see their pay increase enough to make them Hot taxpayers, taxed at 40p in the pound on the top slice of their earnings (but crucially, not on your entire salary as many people incorrectly assume). You will still be better off earning more, but the extra tax will reduce the potency of your pay rise.

However, frozen thresholds also mean more parents with young children will lose their entitlement to Child Benefit. Worth up to £1,885 per year if you have two children, this starts to be reduced at the rate of 1 per cent for every £100 one parent earns over £50,000 and vanishes completely when they earn over £60,000. So, if you earn £51,000 you’ll lose 10 per cent of your child benefit – equivalent to being taxed at least 55p in the pound! (Keep reading for a potential workaround.)

These Child Benefit thresholds have been frozen since 2013 and have never increased in line with inflation. If they had, a parent would be able to earn £75,000 before their entitlement to Child Benefit was lost! As the cost of childcare rockets, this means more and more parents are losing out.

Government ministers can boast that they haven’t increased the rate of tax they’re charging us. However, as more of our pay hits those spicier tax bands, they stand to rake in many billions of pounds extra per year – hence it’s a ‘stealth tax’.

Keep reading for some equally stealthy measures to make sure you pay as little tax as possible on your long-term investments!

What is national insurance?

Essentially, it’s another form of tax – it just goes towards a different purpose (chiefly, funding your State Pension contributions – see page 179). The thresholds are now the same as those for income tax; here’s how it is applied to your pay:

- Lemon and Herb layer = You don’t pay any National Insurance on this slice of your earnings

- Medium Spicy layer = You’re charged 12 per cent in National Insurance contributions on this slice

- Hot layer and beyond = You’re charged 2 per cent in National Insurance contributions on this slice

National Insurance (NI for short) is charged on top of income tax:

- A Lemon and Herb taxpayer wouldn’t pay any tax or National Insurance

- A Medium Spicy taxpayer would pay 32p in the pound (20 per cent income tax, plus 12 per cent NI)

- A Hot taxpayer would pay 42p in the pound (40 per cent income tax, plus 2 per cent NI)

- An Extra Hot taxpayer would pay 47p in the pound (45 per cent income tax, plus 2 per cent NI)

No wonder it feels like tax is taking a bigger and bigger bite from our pay packets! As I’ll go on to show you, investing smartly can reduce the amount of tax and National Insurance that we pay.

Finally, a quick lesson on the State Pension. We’re all entitled to receive this when we reach state pension age (currently 67, and rising) but what you’ll receive depends on how many years’ worth of National Insurance contributions you have made. Use the government’s Check Your State Pension online service to see how many you’ve notched up.17

You need 35 years’ worth of contributions to get the full amount, which is currently worth around £10,000 per year. Could you afford to live on just £10,000 a year? That’s why we need to save money into other sorts of pensions too – so read on for my handy guide.

Why pensions are ‘free money’

Pensions are a crucial part of the ‘getting richer slowly’ plan, but they suffer from an image problem.

We think of pensions, and we instantly think of pensioners. Nobody wants to get old! Yet all the paperwork on my pension shows a glamorous woman with grey hair doing watercolour paintings. This old-fashioned idea of ‘retirement’ feels like a lifetime away. Plus, the pensions world is the absolute worst offender for using jargon, making it harder to find out how amazing pensions are.

Right now, there are so many pressing demands on our cash. If we don’t understand the benefits, pensions feel like the sort of thing we can put off until another day. But, as I’m going to show you, they are one of the easiest and most valuable ways to grow your investments over time.

Over the years, I have been attempting to rebrand company pensions as ‘Free Money’.

Free money! Who doesn’t want that?

I thought that would get you interested. So how does it work?

First up, many of the same basic principles apply to pension savings, but you need to be aware there are a few different types of pensions.

This chapter applies to UK workers who have the most common sort of company pension, known as Defined Contribution (DC for short – you might see this on your payslip). You pay in via your monthly payslip, and the money gets invested on your behalf. The value of your pot can rise and fall – it’s not guaranteed. When you retire, you have to decide how best to eke out the money inside.

People who work in the public sector (e.g. the NHS, civil service, teachers etc.) tend to have Defined Benefit pensions (DB), which are much more generous and give you a guaranteed income when you retire.

People who are self-employed have to make their own pensions arrangements – I’ll explain more in the next chapter about setting up a SIPP (self-invested personal pension).

After you’ve read my primer, the pensions page on the government’s Money Helper website is a great source of extra details.

There are two types of ‘free money’ with pensions – the free money you get from the company you work for, and the free money you get from the government. Both will give serious ballast to your ‘snowball’ as it rolls down the mountain.

We’ll start with the first type of free money, which is usually called a much less exciting sounding ‘employer contribution’. If you save some money into the company pension scheme, your employer has to pay some money in too.

- The bit you pay in is a small percentage of your monthly pay (usually around 4 per cent)

- The bit your employer pays in is in addition to your monthly pay, hence ‘free money’

The minimum amount of ‘free money’ UK employers have to offer is around 3 per cent of your salary. However, many employers are much more generous.

Often, if you choose to pay a bit more into the pension scheme, your employer will also pay in a bit more – up to a point. This extra ‘free money’ is often described as a much duller sounding ‘matched contribution’ (see what I mean about the pensions world?).

For example, if you opted to save 6 per cent of your pay into the company pension, your employer might match this by paying in 6 per cent on top of your pay – a lot of extra ‘free money’! But you won’t get it unless you ask for it.

At a time when everybody wants a pay rise, ‘maxing out’ your pension savings could be the quickest and easiest way of squeezing some more money out of your employer.

Every company has a slightly different deal – but few people are aware of exactly what’s on offer. Make it your mission to find this out! (It’s also a superb job interview question.) The details are usually set out in your contract of employment. Your company might have an internal website with this information – or you could get in touch with HR and ask them for help. Just copy this handy phrase:

I am interested in finding out more about the staff pension scheme. Please could you tell me where I can find this information, including details of the level of matched contributions that the company offers?

If your employer only offers the bare minimum, try to find out what rival companies might offer.

You’re unlikely to hit it, but the maximum amount you can save tax-free into a pension is £40,000 per year (this is the combination of what you pay in, and what your employer pays in). And I repeat, once money is paid into your pension, you can’t access it again until you’re aged at least 55.

You might be thinking: ‘I’d like to pay in more, but I don’t know if I could afford to.’ The good news is, it could cost less than you think.

Why tax relief is ‘free money’

Another way pensions bring you joy is that you don’t pay any tax on money that you save into a pension. Think of your pension as a tax haven.

Why is this? It’s how the government incentivises us to save for the future. It doesn’t want people to get to the age of 67, stop work, have no money and have to rely on the state to look after them. So, it also offers some ‘free money’ if you save some of your salary into a pension instead of spending it.

The official name for this free money is ‘Tax Relief’ (by now, you can see what a terrible job the financial industry has done of marketing the benefits of pensions!).

So how does it work?

You have to pay income tax on the money you earn. The further up the peri-peri tax scale you are, the more tax you will have to pay (it could be 20p, 40p, 45p or even 60p of every pound you earn). But if you invest that money into your pension, the whole pound goes in, and no tax is deducted. This is what I mean by tax relief.

If your company offers ‘Salary Sacrifice’ on pensions contributions, there are greater tax savings to be had, as you won’t have to pay National Insurance either. Depending where you are on the peri-peri scale, the combination of tax and National Insurance could take 32p, 42p, 47p or 62p from every pound you earn. But if you put it in your pension, the whole pound goes in!

This is why saving more money into your pension could cost less than you think.

It’s easy to check the precise impact different percentages could make on your payslip by using the free Workplace Pensions Calculator on the government’s Money Helper website.

HOW SALARY SACRIFICE WORKS

Employees opt to ‘sacrifice’ a set percentage of their salary into the company pension scheme every month. In return, they won’t pay income tax or National Insurance on that money – and their employer won’t be charged National Insurance either. Many firms channel these savings into matching a higher rate of contributions for their staff (that’s the extra ‘free money’ I mentioned).

If you earned £100,000 but ‘sacrificed’ 20 per cent of your pay into the company pension, the value of your salary on paper would be £80,000. This could be an issue if you’re trying to get a mortgage and borrow a multiple of your salary – but it could work to your advantage if you’re about to be dragged into a spicier tax band.

If Extra Extra Hot taxpayers – those lucky people earning between £100,000 and £125,000 per year – decided to ‘sacrifice’ their earnings above £100k into the company pension scheme, the tax savings mean that investing £1 would cost them a lip-smacking 38p.

Parents with young children could also use salary sacrifice to bring their salary below £50,000 on paper, which is where Child Benefit payments start to be tapered away. Not everyone can afford to be this tax-efficient – but it is worth using the Money Helper pensions calculator to run the numbers.

Salary Sacrifice is not just for pensions – it’s used on a range of employee benefits including Cycle to Work schemes to buy bicycles and, increasingly, as a tax-efficient way of buying electric vehicles. Ask your HR department for more details of what your company might offer.

The third type of ‘free money’

Let’s have a quick recap about the benefits of saving money into your company pension:

- Your employer throws in a contribution = free money

- You don’t pay tax on any of the cash going in = free money

Once that money is inside your pension, your company’s pension provider invests this money for the long term. But wait – there’s another bonus I haven’t told you about yet!

Over the years, until you start drawing money down, you don’t pay any tax on investments inside a pension as they grow in value. Think back to that snowball of money rolling down the mountainside. This money could be compounding away inside your pension for 40 years or more, so tax-free growth is a great benefit.

If your pension fund snowballs to over £1m in value, you will have some tax to pay. But in finance-speak, this is what’s known as ‘a nice problem to have’.

I’ll remind you again – in return for getting all of this ‘free money’ you must lock it up – you can’t access your pension until you are at least 55 years old. Some people compare this to the marshmallow test.

A bunch of kids are given one marshmallow. They can choose to eat it there and then, or wait until the end of the day, at which point they will be given another marshmallow. The children who decide to defer the pleasure of eating one marshmallow straightaway get to eat two.

Can you see how the same principle applies to locking money up inside a pension?

When you retire and start to take your money out of your pension, you will pay some tax on it then – just like you pay income tax on your wages now. But as a further ‘marshmallow’, you get to take a quarter of what you’ve saved totally free of tax – the 25 per cent tax-free lump sum (yummy).

Why pensions are the easiest way to invest

If you’re aged 22 or older, work for a UK employer and earn more than £10,000 per year, you are almost certainly paying into a pension already – even though many people might not realise it.

In 2012, the government started to require all employers to automatically enrol their workers into a pension scheme. This applies to workers on short-term contracts and agency workers too.

Over the years, this has ‘nudged’ over ten million people into pensions saving without having to think twice about it, although it’s possible to opt out if you want to.

When you save into a company pension scheme, you don’t have to think about how to invest this money – this is decided automatically too. Your employer chooses a pensions provider – some of the biggest names you might recognise are Aviva, Nest, Scottish Widows and Legal & General. They will send an annual statement (which may or may not contain images of happy-looking grey-haired people) showing the value of your pension, and what it’s actually invested in.

Unless you say otherwise, your money will automatically be invested into your provider’s ‘default fund’ – a blend of investments spanning stock markets and bonds that are judged to be suitable for most people (not too risky, or too boring). Remember, you need to take some risk for your money to grow – and the younger you are, the more of your money will be funnelled into equities (shares).

You could just leave it at that, although I’d always advise people to have a look and see exactly what this default fund contains. Pension providers’ websites are slowly getting better. Being more engaged from a younger age is the best possible way of preparing for retirement – don’t leave it until you’re 57!

More confident investors can decide where the money inside their company pension is invested. The ‘default’ option is the most popular, but it’s not the only one. You can choose from a range of other funds – for example, more pension providers now offer greener funds that don’t invest in fossil fuels or increase your exposure to different stock markets around the world. However, the annual charges to invest in these funds will often be slightly higher.

Regulations state your pension provider and company HR department can’t give you any investment advice about what funds to pick – you have to be confident enough to make these decisions for yourself, or shell out for a financial adviser.

How much should I save into my ‘future fund’?

This ready reckoner from Fidelity is a rule of thumb for calculating the size of the ‘future fund’ people should aim to accumulate over their working lives to finance a similar standard of living when they stop working.

By age

30

40

50

60

67

Aim to have saved …

1x your annual salary

3x your annual salary

6x your annual salary

8x your annual salary

10x your annual salary

Source: Fidelity18

The multiples apply to the salary you’re earning at that age. So, if you’re earning £30,000 at the age of 30, ideally you will already have £30,000 set aside solely for retirement and invested for growth. I’m aware that these amounts are quite large and may feel impossible to achieve for many readers, although the ‘free money’ from pensions could substantially boost the value of your pot.

Don’t let this table put you off. Remember the mountain: anything you can invest while you’re young – even if it’s only small amounts of money – has a long time to grow and compound away.

You will also have noticed I use the term ‘future fund’ instead of ‘retirement fund’. I think we need to ‘retire’ the concept of retirement that our parents and grandparents enjoyed. Pensions are much less generous for workers today than they used to be – and younger generations won’t fully wake up to this fact until they get closer to retirement age.

As life expectancy rises, more and more of us are planning to work part-time in our 60s and 70s instead of stopping work completely. Plus, we have to strike a balance between saving for the future and making the most of life today. Even if you can’t target the level of savings suggested above, putting some money aside for the future will give you more options than saving nothing.

What happens to old company pensions?

Most of us can expect to have 8–10 different jobs over the course of our working lives, which means you could end up with a long trail of old pensions from former companies.

The good news: when you stop working for one company, the money stays invested inside their pension scheme. You can’t pay any more money in, but it’s perfectly OK to leave it where it is.

The less good news: every time you move house, you’ll need to notify your various pension providers of your new address. In practice, lots of people simply lose track of old company pensions. It’s estimated that 2.8m pensions worth a total of £26bn are technically ‘lost’.

If you’re reading this thinking, ‘Blimey, I reckon I’ve lost track of some of mine,’ there are two free government websites that will help you find them.

The Money Helper website has a very good section called ‘Find my lost pension’ where you can download a template letter to send to your old pension providers or former employers. This contains a lot of helpful phrases to find out if you will be giving up any valuable benefits if you transferred this pension elsewhere.

Rootle through your old paperwork to find these names of former employers and/or old pension providers, or track down your old workmates and ask them. Then, you can search the Pensions Tracing Service on the Gov.uk website,19 which lists phone numbers and up-to-date addresses to send your letter off to.

Having tracked down their old pensions, some people find them easier to manage if they consolidate them into one place. Knowing the total figure of what you’ve managed to save will make it much easier for you to plan for retirement, and check that you’re on track.

It’s possible to transfer old pensions into your existing company pension. I have done this myself – it took a few months, but my reward is being able to see all of my pension savings in one place.

Additionally, there are a growing number of pensions apps that will help you track down and consolidate your old pensions. PensionBee, Wealthify and Penfold are some of the biggest names. They offer a very convenient service, whizzy technology and a choice of different investments – but they’re likely to charge higher fees for this service than a company pension provider would.

One mistake I’ve seen some workers make is opting out of their company pension in favour of paying into their pensions app. Beware – if you do this, you won’t get the ‘free money’ of employer contributions.

Finally, for every pension that you have, you need to fill out an ‘Expression of Wish’ form setting out who gets the money inside in the event of your death. This is very important if you and your partner are cohabiting and not married or in a civil partnership – the money won’t automatically pass to them when you die. And do keep the forms up to date, otherwise your useless ex-partner could receive a surprise windfall one day!

Should I prioritise my pension, or saving for a property?

I get asked this question a lot by young people who are saving up to buy their first home, which usually feels like more of a pressing priority than retirement.

Although it is possible to ‘opt out’ of paying into your company pension, you must understand the value of the benefits you’d be giving up – chiefly the ‘free money’ that your employer is adding to your investments. Stop paying in, and you’ll lose this – you’re effectively taking a pay cut.

Secondly, stopping pension payments might not boost your pay packet by as much as you think, as you will also have to pay income tax and National Insurance on that money. The pension calculator I mentioned on the Money Helper website will show exactly how your payslip could change.

I freely admit – I didn’t join the company pension scheme in my first job, as I was saving up for my first property. Yet if I had realised how much money I was leaving on the table, I might have tried to balance the two priorities a bit better. I’m now having to save a lot more into my pension to make up for all the years when I was paying nothing in.

Most people start their first job at 21, but most first-time buyers are in their mid-30s – that’s a long time to be ‘opted out’ of pension savings. Using our snowball analogy, the value of getting some early pension contributions rolling when you’re ‘on top of the mountain’ could really pay off in future.

A study by WEALTH at Work found that someone in their 20s who started saving an extra 1 per cent of their annual salary (with their employer matching this) could be able to increase the total of their pension pot in retirement by 25 per cent.20

Finally, be aware that it’s not just your future retirement fund that could suffer if you stop paying in. Often, being a member of the company pension scheme entitles you to life insurance, providing benefits for your spouse or young children if you died young.

As the cost of living rises, pension saving is becoming an unaffordable luxury for more and more people. If stopping pension contributions for a while is the only lever you can pull to avoid getting into debt or being unable to pay priority bills like rent and council tax, then this is obviously the least bad of two not very nice options.

Even if you can still pay something, it’s better to have a bit of a snowball rolling down the mountain than no snowball at all. But as soon as you can afford to, vow to get those contributions higher.

We’ve covered a lot of ground in this chapter, but now you should have a really good idea about all of the different elements you might want to include in your long-term financial plan, and how you could piece them together.

The idea of ‘getting richer slowly’ is very different from the gamble of ‘get rich quick’ – but don’t beat yourself up if you’ve lost money. Investing is something we learn through doing, and everyone makes mistakes. The crucial thing is that you learn from these and move on.

In the next chapter, we’re going to look at using stocks and shares ISAs as part of your long-term financial plan – a slightly more flexible way of saving than pensions, but one that means you’ll need to learn a little bit more about the stock market. Ready to learn? Let’s go!

8

Getting Richer Slowly: Investing Using ISAs

For the second part of our ‘getting richer slowly’ plan we’re going to consider the benefits of investing using stocks and shares ISAs.

In the last chapter, we learned quite a few things about investing and planning for the long term. Hopefully, the main lesson that’s stuck in your mind is that small amounts of money, invested consistently over a long period of time, will benefit from the magic of compound interest and have the greatest chance of growing and outpacing inflation over time.

A company pension should be your first route for trying to achieve this – grabbing that ‘free money’ from employer contributions and tax relief is the reason why. But if you have more money that you’re prepared to invest and lock up for the long term, then stocks and shares ISAs are another valuable tax haven to explore.

This route offers you more investment choices, as well as greater flexibility – the money inside your ISA won’t be locked up until you’re 55.

However, I know all you Jitterbugs are going to be jangling at the prospect of more decisions!

Just as I primed you about pensions, I’m going to tell you the ‘need to knows’ about investing in the stock market, and the tax benefits of using ISAs to do so.

Like some of the other areas we’ve tackled in this book, this chapter might be more useful for ‘future you’. You might not be ready to invest right now, and that’s totally OK. But this chapter will prepare you for when the time comes – and you could get started from £25 per month or less. So, we’ll look at easy ways to get started – even if you know nothing about investing – and the choices you could make.

That’s the investment theory – now let’s consider how we can put it into practice.

What is the stock market?

Think of a market, and you’ll think of a place where buyers and sellers gather to trade. The stock market is no different – but it’s where people trade shares. Shares are small ownership stakes in large companies. They’re sometimes referred to as ‘equities’.

Rather than actual apples, think shares in Apple!

When we buy a share in a company, we’re buying a share of its future growth. The company uses the money we invest to grow and expand its operations, and if it does so successfully, the price of its shares should grow in value too.

Plus, investors might get some additional money back through dividend payments – a share of the profits that’s a bit like an interest payment on the money we’ve invested. You could spend those dividends, or you could reinvest them by using the money to buy more shares (it’s possible to tick a box to do this automatically on investment platforms).

Different countries have their own stock market indices. For example, in the UK we have the FTSE 100 – an index of our 100 biggest companies including BP, NatWest and Tesco. In the US, the S&P 500 index contains 500 of the biggest companies in America, including Apple, Amazon, Netflix and many more.

It’s possible to buy shares in individual companies, but anybody who’s used trading apps will know this is quite a high-risk way of investing – individual share prices can really bounce around. Plus, choosing which shares to buy and when to sell them is a very specialised and time-consuming activity. However, this absolutely does not mean that investing in the stock market is not for you!

Something you’re going to hear about later on in this chapter are index funds – a cheap and easy way for individual investors like you and me to spread our risk by buying a tiny slice of hundreds or thousands of different companies listed on a particular stock market index.

Don’t forget that investing into your company pension scheme will give you exposure to the growth potential of different stock markets around the world. Your pension provider can pick these investments on your behalf – so becoming an investor could be much easier than you might have thought.

The growth you’re able to generate will also depend on how much risk you’re willing to take with your investments. Investing in the stock market offers the highest potential growth, but it can be a bumpy ride – and investors need to learn to handle the emotions and decide how much risk they feel comfortable taking.

A Yolo might feel very happy taking big risks, but a Jitterbug might panic if they see the value of their investments fall and want to take their money out. A Goblin could be so fearful of losing money they keep it all in cash, where it gets eaten by inflation. (Guilty!)

It’s possible to blend investments in the stock market with other assets that tend to perform in different ways (an asset is just a fancy name for a thing we can invest in).

Bonds are promises to repay debts issued by companies (corporate bonds) or governments (called Gilts in the UK, and Treasuries in the US). Investors buy a slice of debt to be repaid over a particular period of time, and receive interest payments until the debt is repaid. Bonds offer a much more reliable stream of money than investing in shares – but the investment returns are much lower.

Specialist investment funds offer exposure to other assets, including commodities (raw materials that can be bought and sold such as oil, gas, metals and even foodstuffs like wheat), plus property and huge infrastructure projects.

Diversifying away from equities (shares) into lower-risk assets might mean you’re less likely to lose money, but it will also reduce the average growth rate you’ll be able to achieve on your investments – read over the compound interest section in Chapter 7 for a reminder.

While it’s unlikely that all of these different asset classes would fall at the same rate at the same time, it’s not impossible. Both shares and UK government bonds fell in value in September 2022, partly as a result of the disastrous ‘Mini Budget’. But this is a valuable reminder of why what goes on in Westminster affects our financial future!

To get a sense of how your investments could build over time, use a compound interest calculator – my favourite is www.thecalculatorsite.com. You can adjust the percentage growth amounts as well as seeing what happens when you slowly increase the amount of money you invest.

The Spreadsheet Slave knows that small but consistent habits with investing really pay off over the long term. To stick to your plan, remember the six golden rules I taught you in Chapter 7, and stay calm and rational.

Investing in ISAs – another tax haven for your money

ISA stands for ‘individual savings account’ but they’re not just for cash savings – their tax-saving benefits are highly prized by investors.

Unlike a pension, you will have already paid income tax and National Insurance on the money you choose to invest within an ISA. But once inside, that money can grow tax-free – and you won’t have to pay any tax when you sell investments, or withdraw any cash.

ISAs are more flexible because you can access your money in an emergency. Unlike a pension, you can take your money out whenever you like – you don’t need to reach retirement age. However, if you’re investing, you still need to take a long-term view. The value of your investments will go up and down. You don’t want to raid your ISA when the value of your investments is low, as that money won’t be able to reinflate again when markets rise.

Looking back to the habit of ‘Build your own financial plan’ that we explored in the last chapter, this is why building up an emergency fund before you start investing is so crucial – as well as learning to handle your emotions as you move towards a long-term investment mindset.

STOCKS AND SHARES ISA

Anyone over 18 can open a stocks and shares ISA and pay in up to £20,000 per year (your annual ISA allowance). It’s possible to spread this across more than one type of ISA account, including cash ISAs.

Once the money is inside your stocks and shares ISA, you can invest it in pretty much anything you want (stay tuned for a rundown of the main options). When you receive dividend payments on certain shares, there’s no tax to pay. If you sell an investment within your ISA and make a profit, there’s no tax to pay. You can keep the money within your ISA and invest it in something else, or you can withdraw it – and when you do, you won’t have to pay a penny of income tax on the money you’ve made.

Some people who opened stocks and shares ISAs when they first came into being in the 1990s now have investments worth over £1m inside, even though the maximum amount they could have invested was just over £200,000. This is down to the combination of shrewd investment choices, and compound interest over time.

However, many people don’t understand the tax haven status of ISAs, and open what’s called a General Investment Account (GIA) when they start trading shares online. If you make big profits in your GIA, those profits would be taxable. Inside your ISA, there is no capital gains tax to pay.

LIFETIME ISA (LISA)

If you’re aged between 18 and 39 you can save up to £4,000 per year into a LISA and get a 25 per cent bonus on that money from the government worth up to £1,000 per year. You can save in cash and use the money towards buying your first home (see page 124 for further details) or you can invest the money.

If you choose to invest using a LISA, it’s a bit like a pension – you cannot get the money out again until your 60th birthday unless you pay a big penalty.

Once you’ve opened a LISA, you can keep paying in up to £4,000 every year until age 50, and you will still get a 25 per cent bonus on any more money you pay in. Remember to invest your bonus once the money lands in your account – it usually takes a month to come through.

EASY WAYS TO INVEST USING ISAS

The easiest way to invest using ISAs is to open an account with an online investment platform. There is a huge range of choice, with something to suit everyone from those with a few pounds to invest to those with a few million!

I recommend consulting the online guides on consumer finance websites like Money to the Masses and Boring Money, which regularly review all the options on the market, paying close attention to the fees charged, and the options best suited to different types of investors.

Most platforms offering stocks and shares ISAs also offer SIPPs (Self-invested Personal Pensions, which I mentioned in the last chapter – this is how self-employed people can start a pension). While you won’t get an employer contribution, you’ll still benefit from the ‘free money’ of tax relief, and your investments can grow tax-free inside the pension.

Working out the best choice for you will depend on the amount of money you have to invest, and whether you want the convenience of a ‘ready-made’ solution, or if you’re confident enough to pick and choose your own investments.

Whatever route you choose, there will be fees to pay. Investment funds all charge an annual management fee (usually a small percentage of the money you invest – but this adds up!) and investment platforms also apply annual fees for holding your money. These charges vary hugely, but it’s one cost that investors have within their control.

‘Investment fees and charges act like a tax on your wealth, reducing the amount of money in your investments that can compound over time,’ warns Damien Fahy. ‘The greater the fees, the greater the drag and the further away your retirement or investment goal becomes.’

But the biggest head scratcher with investing is deciding what to invest your money in. Most people will freely admit they need some help with this – but very few of us can afford to pay a financial adviser to make these decisions on our behalf. But fear not – technology offers a solution!

The ready-made portfolio

Some online platforms like Nutmeg and Wealthify will let you choose a ready-made investment portfolio for your stocks and shares ISA or SIPP. Typically, you will complete an online questionnaire and say how much money you want to invest, the period of time you’re prepared to invest it for, and the level of risk you feel comfortable taking. Based on your answers, you’ll then be offered a choice of funds with names like cautious, balanced, global growth or even adventurous.

These funds will contain a ‘blend’ of different investments that the platform has mixed for you, spreading your risk across shares, bonds and other assets. But you make just one investment (this could be a lump sum, or you could automate a regular monthly amount to invest by setting up a direct debit from your bank account).

‘Convenience does cost a little in terms of higher investment fees, but no judgement – if you don’t want to give a moment’s thought to your investments, this is something worth paying for,’ says Iona Bain.

Just like the ‘default fund’ in a company pension, you don’t need to understand what the underlying investments are. However, I would strongly advise that you try. If you can afford to invest some money for the future, it’s worth investing some time better understanding how your money could grow. These kinds of automated investments are a great way of getting started, but as you learn more about investing, you might feel more confident making your own choices in future.

Investing using index funds

I mentioned index funds at the start of this chapter as being a way that investors can quickly, cheaply and easily diversify their exposure across hundreds if not thousands of companies in a given stock market index.

If you invest in an index fund, it will track the performance of all the companies in that index – which is why they’re also called ‘tracker funds’. You can even buy global index trackers, which are a blend of different indices from around the world, diversifying your investments even further.21

Over time, the companies listed on stock market indices change. The biggest 500 companies in the US today are very different from the 500 biggest 40 years ago! But index fund investors haven’t needed to do anything to spot these trends – the index automatically adjusts. Each year, new companies are added, and old ones removed.

While the prices of shares in individual companies can be quite volatile (suddenly moving up and down by a large amount) the overall performance of the whole index is a weighted average of these. While it still goes up and down, it’s much less dramatic.

Plus, the annual fees on index funds are very cheap compared to other types of investments (typically around 0.2 per cent of the money you invest, compared to more like 1 per cent on actively managed funds). So, if you invested £100, the difference in fees would be 20p compared to £1.

If you’re an investor with a long-term view, getting lots of years of middling to average growth might sound quite dull, but think back to our lesson about compound interest – consistency is the key when you’ve got your money invested for a very long period.

Many index investors take this a step further by automating a regular monthly investment (it’s easy to set this up with your investment provider either online or over the phone, and the minimum amount is usually around £25 to £100). They regularly invest this money month after month no matter what the stock market does. Jitterbugs who fret about making their minds up will probably like the sound of this!

The technical name for this approach is ‘pound cost averaging’. Instead of investing a bigger lump sum all in one go, investing little and often captures the average return of the market. When the price is low, you buy more units. When the price is high, you buy fewer units. Over time, these prices average out. Choosing not to try to ‘time’ your entry point has the added bonus of being a much less emotional approach.

Over the years, study after study has found that the slow-and-steady method of investing like this for long periods of time beats those who try to ‘time’ their investments, buying when the market is low and selling when the market is high. Even the sharpest investment brains struggle to predict this!

The downside for index fund investors is that they can never do better than the average – they’re not going to shoot the lights out with the type of huge one-off jumps that could be possible if they risked investing in individual stocks. But equally, they’re not going to be exposed to big drops in value – it all gets averaged out. Buying the whole index means they won’t have to spend time and effort looking for the best performers, or worry about deciding when to buy, and when to sell. All in all, a very different way of thinking about investing!

Fund groups like Vanguard offer a huge range of tracker funds. You could invest in different global indices or buy funds that offer exposure to all or a combination of these (some are pegged to a specific retirement date, and some are balanced between shares and bonds). You can buy these direct on the Vanguard platform – but you can only invest in Vanguard’s own funds.

Other investment platforms sell a range of tracker funds (including Vanguard’s, plus iShares and many others) as well as letting investors buy active funds and trade in individual shares.

Actively managed funds

Online platforms like Interactive Investor, AJ Bell and Hargreaves Lansdown offer a much bigger range of investments that you can pick for your ISA or SIPP. As well as picking shares in individual companies, you can also buy actively managed funds – the sort where an experienced fund manager picks a group of 30 to 50 stocks that he or she thinks will perform better than the wider market.

Funds tend to be organised around a particular theme or geographic region, providing an easy way to gain access to specific areas of the stock market that might interest you. These could be big overarching themes like global tech companies, or more specialist funds targeting Japanese companies, biotech investing, or small companies with high potential for future growth.

Much of the investment industry tries to profit from the belief that fund managers can ‘beat the market’ (the performance of their fund could do better than the index) by picking winners and generating much higher returns. There is a lot of slick marketing on platforms and fund company websites extolling the strategy of their star stock pickers, and why they think you should invest your money into backing their ideas.

Active funds charge higher investment fees, but there is no guarantee they will actually make you more money than the nearest comparable tracker fund. If you hold active funds in your portfolio, you need to pay more attention. The strategies that fund managers pursue might work for a while, and they could ‘beat the market’. However, it is rare for funds to outperform over the long term.fn1

Nevertheless, if you’re into investing, paying attention to what fund managers say in the press is a great way of learning more and starting to develop your own instincts. All funds have to publish a list of their top ten investments by value – even if you don’t want to invest in the fund, this can be an interesting source of future ideas.

Some of the biggest names in the investment world are Elon Musk, Warren Buffet, Cathie Wood and Terry Smith – and they all have very different ideas about what kinds of companies might be the most valuable in the future. If this chapter has sparked your interest, then doing some research into their different investment philosophies would be an enjoyable piece of homework.

How often should I check my investments?

Personally, I check my long-term investments two or three times a year. This is not because I’m an Ostrich – it’s because I try to resist the temptation to fiddle too much.

‘While it’s great to have all of this investing tech on your smartphone in your pocket all the time, it can make it too easy to engage with your investments,’ agrees Iona. She uses online trading apps, but switches off notifications. ‘If you don’t, you’ll get pinged about new investment ideas and how your portfolio is doing on a regular basis, and very easily, you can get addicted – there’s a compulsion to check it all the time. It makes investing feel too much like a game you’re playing to win,’ she adds.

Another problem for those who like to chop and change their investments more frequently are the trading fees online platforms will charge you. Make sure you know what the costs are before you hit ‘buy’ or ‘sell’.

As an investor, you can pick and choose from all of the strategies in this chapter. As Iona says: ‘I’ve got my long-term portfolio, which consists of mostly index funds and is the bulk of my stocks and shares ISA by value. But I’ve also got my short-term dabbles, where I make investments into active funds and sometimes individual shares based on ideas I’ve seen in the financial press, done some research and made my own judgement.’

Some of these ideas might work out, some might not. But if you enjoy investing and you’re only risking a relatively small proportion of your portfolio, you can balance the excitement of investing in individual stocks against the steadier but less exciting performance of passive investments.

Unless you choose the more expensive ‘ready-made’ options, ISAs and SIPPs are more suitable for investors who are prepared to do more of their own research.

Learning more about investing is a life skill that can only serve you better as you get older. The days of a job for life with a gold-plated pension are sadly long gone. In the future, individuals are going to have to take a lot more responsibility for looking after their investments and making them last throughout their retirement. The earlier you start rolling that snowball, the better!

However, one thing that could make a really big difference to the amount of money you’re safely able to tie up in these longer-term investments is increasing the amount of income you have coming in – and that’s what the next chapter is dedicated to.

9

Maximise Your Income

Budgeting is a crucial part of managing our money, but there’s only so much cutting back we can do. The bigger challenge? Growing your income.

As we battle rising inflation and the cost of living, your number one priority should be asking for a pay rise (and getting one!). Ideally, you’re not going to spend all of that pay rise – more income means more chance of generating enough surplus cash to invest and build your financial plan, as we covered in the last chapter.

And while the income from your main job is crucial, it’s not the only way you can increase your income. It’s no secret that the wealthy have multiple income streams, which gives them greater financial resilience.

This is a financial goal we can all aspire to. Side hustles and the ‘Gig Economy’ are one way of doing this, but I’m going to start by looking at how to maximise our main hustle – and I’ve thrown in some quick lessons about understanding the impact of the gender pay gap and student loans.

How to get a pay rise

Let’s face it – everyone would dearly love a pay rise right now, but in my experience, few people ever feel brave enough to ask for one.

It’s easy for ‘alpha males’ or ‘alpha females’ who have huge inner confidence in their own abilities to saunter into the boss’s office and hustle for more money. But what about the rest of us? If we don’t speak up and merely hope our hard work will be recognised, the ones who ask might be the only ones to get.

‘We need to shatter the misconception that employers don’t expect you to negotiate your pay, or that if you try to, you’ll lose your job,’ says Margot de Broglie, co-founder of the Your Juno finance app for women (pay rises are one of the hottest topics of discussion).

But actively pursuing better pay and promotion is one area of life where our emotional relationship with money can work against us. Our pay is not the only way we are recognised and rewarded for our hard work – but it is the most significant measure of our ‘worth’. Being knocked back for a raise could magnify any feelings of low self-confidence.

My colleague Isabel Berwick, the presenter of the FT’s Working It podcast, says women are more likely to suffer from ‘FOBSAG’ if they ask for more – the Fear of Being Seen As Greedy. Parents may also feel ‘too grateful’ for flexible working arrangements that help us manage childcare, even though these could probably be replicated (or bettered!) elsewhere. However, feelings of inadequacy can quickly turn to anger if we find out that a colleague is paid more than we’re getting – especially if they are crap at their job!

Pay negotiations are emotionally charged conversations at the best of times, but if you are battling financial hardship at home, the stakes are even higher. So, follow my step-by-step guide about how to approach the topic of pay in a less emotional and more rational way – and boost the chances of your employer saying ‘yes’.

FIRST – SUSS OUT THE SYSTEM

Every workplace will have different processes and protocols when it comes to pay and career progression. At the very least, you should get some kind of annual appraisal. Pay and bonuses (if you’re lucky enough to get one) are often tied to performance in these.

If you work in the public sector (e.g. the NHS, teaching, civil service, public services) there’s a formal system of pay grades and bands, with trade unions collectively lobbying for increased pay rates for these. This is a more transparent system, but it’s harder to progress quickly. As you will now know from Chapter 7, the pensions are much more generous!

In the private sector, pay structures are less formal. It might be easier to negotiate a raise – but there’s much less pay transparency, and often much more comes down to workplace politics.

In either case, finding a more experienced mentor who can advise you on how best to move towards the next level will pay dividends (it’s great if you have a trusted senior colleague at work, but someone at one remove from your day-to-day role will offer a fresh perspective – you might even consider a career coach).

Whatever the ‘system’ is in your workplace, you’ll need to get your line manager on board first. ‘Even if they don’t make decisions about pay, they will likely have to take your case to the person who does, or would be consulted by them,’ advises Mrs Mean podcast host Lindsay Cook. If you fly above your manager’s head and directly approach their superiors about your pay or career progression, this could backfire – so tread carefully.

FIND YOUR WORTH

What might your employer have to pay to replace you? Chat to recruiters, look at job adverts, websites like Glassdoor and salary surveys in trade magazines. If there is a skills shortage in your profession, you will be pushing at an open door when it comes to pay. If you were taken on in a recession, it’s likely your pay started from a much lower base and could be seriously lagging behind.

Talking about pay with colleagues can be a sensitive topic. Saying, ‘I saw a job at X or Y company advertised for this salary,’ is a less threatening way of starting a conversation than asking, ‘How much are you paid?’

However, the rising cost of living has made people much more inclined towards greater pay transparency. Sharing information more directly with individual co-workers or people doing similar roles to you in rival companies could yield valuable insights. Of course, you shouldn’t just run into the boss and say, ‘It’s not fair, others are paid more than me!’ but knowing that there is an imbalance should galvanise your plans to ask for more.

Industry networking groups are a valuable source of contacts as well as data points and information about what the competition is up to. I’m a member of some that meet IRL (in real life), and others that exist as groups on Facebook, LinkedIn or WhatsApp.

Always keep your online profiles on recruitment sites up to date and don’t forget your Twitter bio – think of it as a 140-word CV. It pays to be prepared. If people in your department are moving on or being recruited, you could be well positioned when it comes to promotion – but you need to communicate your ambition to your bosses.

GET YOURSELF A PAIR OF POM-POMS

We have to be our own cheerleaders in the workplace – bosses are often far too busy with their own career progression to notice our achievements!

Much of a boss’s day is spent dealing with problems. In my experience, they really like to receive good news. You might cringe at doing your own PR, but get into the habit of dropping a short, factual email every now and again when you (or your team) have a big win. If you get a lovely email from a customer or client, ping it on to the boss (‘I thought you might like to see this’). Be selective (no one likes a show off), but this will help build up a positive drumbeat in the run-up to appraisals or pay reviews.

‘If you wait until your worth is noticed, it never will be,’ advises Lindsay, who also suggests keeping a file open on your desktop to store good feedback, screenshots of hero-gram ‘above and beyond’ emails, tweets, comments or Google reviews. You can use these to demonstrate your success as you build your case for a raise or promotion – or even at future job interviews.

TELL A STORY WITH YOUR DATA

How else can you demonstrate your success? Bosses love numbers – can you show you’re overperforming against measurable targets, or give examples where you’ve gone the extra mile? Maybe you’ve been covering a more senior role, or have taken on project work beyond your normal territory. Be ready to say: ‘This is what I bring to the party – and I can demonstrate how good I am.’

Make a crib sheet of these points for when you meet your line manager to discuss pay so you can contain your emotion, be rational and businesslike and stick to the script.

ASK FOR A MEETING

Ask your line manager for a face-to-face meeting, but don’t explicitly say you want to talk about pay – you don’t want to get a ‘no’ before you’ve had the chance to ask properly. Say you’d like a career chat, or to discuss your career progression. The quicker you get an audience, the more likely your boss is panicking that you’re going to resign!

Be prepared to say what direction you’d like your career to go in. It helps if there is a promotion in the offing – pay rises are much easier to come by if there’s a change of role or step up, especially if you are taking on managerial responsibility for others (this was where I got the first big bump in my own career).

To take the emotion out of the situation, practise your script with a friend (or your partner).

Smile and make it clear that you’re happy at the company but want to talk about your potential next steps: ‘I’m really enjoying my role, but I’d like to talk about how I could progress to the next stage.’ Run through your crib sheet, focusing on two or three key points where you can really demonstrate you did well.

Pay attention to the feedback. It’s often surprising what managers notice and think we’re good at. If you have a new boss, this is a good opportunity to fill them in about your previous experience (if they didn’t hire you, they won’t necessarily know).

After you’ve waved your pom-poms, it’s time to steer things specifically on to pay: ‘I’m performing strongly in my role, and I’d like that to be reflected in my pay.’ You could also add: ‘I’ve done some benchmarking which indicates I’m not being paid as much as I think I’m worth.’

Bear in mind, it’s possible that your line manager doesn’t know how much you’re paid. I’ve gone into bat before for team members whose talents I felt were being undervalued. Ask your manager to shed some light about how the pay process within your company works. It’s possible they’re asked to put forward a few people for greater recognition every year; you want to be on their list.

WHAT NOT TO SAY

Although it’s likely to be the truth, don’t say you need a pay rise because of the cost-of-living crisis, rising mortgage rates or difficult financial circumstances. These issues will be affecting everyone – there’s more chance of success if you concentrate on emphasising your skills.

If you don’t want to leave your current employer, be very careful about using job offers or promises from recruiters to ‘prove’ that you’re not being paid enough. It can work, but you have to be prepared for them to say: ‘We’re sorry to lose you, but we wish you all the best.’

And finally, don’t bad-mouth other colleagues in an attempt to make yourself look better.

WHAT NEXT?

Afterwards, follow up with an email thanking your boss for their time, with a short record of what you talked about (drop in a few of those data points!), ending with the hope your pay can be reviewed, and expressing a willingness to talk further. This will make it super-easy for your boss to ping it on to their boss (or the person who actually decides).

Hopefully you will get some face-to-face time with them next – but don’t be disheartened if they decline your request at first. ‘Even if your employer can’t give you more money right now, they should be able to give you comfort that you’re doing a good job – and your request will have been lodged,’ says Lindsay.

Depending on the feedback, you could request more training in a specific area, a secondment to another department or other career development measures that will help you progress. If you can’t squeeze any more cash out of your employer, try asking for a change of job title (I’ve done this in the past, and it’s helped me to get my next job).

If your pay-rise wish is granted, consider paying a little bit more into the company pension scheme every month. As my dad Bob says, expenditure rises to meet income. If you never get used to having that extra £50 or £100 in your pay packet every month, you won’t feel like you’re giving anything up. Re-read Chapter 7 for tips on how to go about this.

TIME TO MOVE ON?

Moving to a rival employer is likely to result in a bigger pay increase than moving up the ranks within your own company, for the simple reason that they have to entice you to move. Men tend to move jobs more often than women do, which is another factor driving the gender pay gap (see page 224).

But remember, your compensation is not just about pay. Our relationship with work is changing and, for many people, the ability to work flexibly or remotely is highly prized (especially if this means you save on commuting costs and can live in a less expensive location). The desire to have freedom over your time could be more valuable than a highly paid high-pressure job where you’re expected to work all hours.

What to ask in job interviews

Some job adverts have a salary attached, but if they don’t, be prepared for a slightly awkward conversation about your salary expectations.

‘Don’t say the number first!’ says Margot. ‘What you earn now could be much lower than they’re expecting to pay. Ask what salary range they have in mind for this role. Or defer answering the question by saying, ‘I’d love to find out more about the role – we can talk about the money after that.’ This will give you more data points to judge how big a step up from your current role this would be, and if you’d have to manage a team.

If there is a bonus system, ask how those bonuses are awarded. Is it a discretionary system (based on a personal recommendation from a manager) or linked to hitting specific targets, or a combination of both?

Always ask about the pension scheme, and the level of ‘free money’ from matched contributions; if the company is listed on the stock market, ask if they have a Sharesave Scheme – a valuable perk where employees can buy discounted shares in the company they work for, and sell them (hopefully at a fat profit!) after three or five years. The same goes for parental leave policies – some employers are much more generous than others, and both men and women need to ask about this.

If you’re being recruited by a start-up, you may be offered the perk of future share options (equity) and need to understand how this works. ‘If you don’t understand what this is, you won’t understand how to negotiate,’ says Margot. The key question is ‘What’s the exit strategy?’ and how long would you need to work at the company to get those shares.

What more could a new employer offer?

If you’re offered a new position, don’t accept without a second thought – you’re now in the position of maximum leverage, as this company wants to hire you. While there could be a tug of love with your existing employer, salary is not the only thing you can negotiate, says Margot: ‘Depending on the industry you’re working in, maybe you can press for a signing-on bonus, some kind of profit share or any other sort of annual bonus.’

You could negotiate working from home a set number of days per week, or even seek formal recognition of your side hustle. (What do you mean, you haven’t got a side hustle? Well, we’re going to look at ideas for those next.)

WHAT IS THE GENDER PAY GAP?

UK companies over a certain size have to report the difference between men’s and women’s average hourly earnings. The difference is currently around 8 per cent, but this is a crude average – it does not mean men and women doing exactly the same jobs are being paid differently (that’s what the Equal Pay Act is there to guard against).

The gap tends to be fairly negligible for younger employees, but really starts to widen after the age of 35. Childcare responsibilities – including its excruciating cost – mean many women work part-time, are forced to slow down their career progression or drop out of the workforce altogether. The silver lining of the pandemic has been the widespread adoption of flexible working, which makes it much easier for couples (not just women!) to juggle work and childcare. I’ve never seen so many dads doing the school run, which gladdens my heart.

Study your company’s pay gap data and see how it compares to rival firms. If bosses are motivated to close the gap, women negotiating a raise or promotion could find it works in their favour.

Regardless of gender, I would urge anyone working four days a week to beware of the part-time penalty. The danger is, you will cram in five days’ work, but only be paid for four. Plus, the ‘always-on’ nature of technology will eat into your day off! (Read Chapter 10 for more on how childcare costs are often measured in terms of women’s pay.)

Working the fifth day will not only increase your pay by 25 per cent, but help to close the gender pensions gap (as you know from Chapter 7, pensions are a percentage of our pay). At retirement, the retirement pot of the average woman is worth just one third of the average man’s – and women live for longer.

But it’s not just pay and pensions. When you take the value of unpaid labour into account (housework, childcare, looking after older family members) men in the UK are paid two-thirds more than women, according to one academic study.22 So, addressing the gender pay gap could begin at home!

Side hustle – or hassle?

Side hustles – by which I mean, developing a separate income stream alongside your main job – have really taken off during the pandemic. The ‘income shock’ of lockdowns combined with having more time on our hands has inspired us to get creative with money-making schemes.

Even so, I am going to start this section with a massive caveat. Sacrificing your spare time to earn some extra money could be a great investment of your time – or a really terrible one!

To help you judge the difference, consider the ROI (return on investment) of your hustle. Your spare time is not a ‘free’ resource (see Chapter 2 for a reminder of how your time costs money).

When you compare the time spent to the amount of cash you’re generating, is spending hour after hour filling in online customer surveys to earn a few quid, or chasing the odds on matched-betting sites really worth it?

Matched betting has the further disadvantage of being extremely addictive (Lynn Beattie’s Mrs MummyPenny blog has a harrowing account of how she fell under the influence).

Some personal finance experts on Instagram might recommend these kinds of hustles as ways of making some extra money, but I’d put them firmly in the ‘hassle’ camp. They take up a lot of time, and you’re not learning any useful skills. I’d rather use my time doing something that I love, even if it doesn’t make me any money, or, frankly, making the most of my Netflix subscription. Burnout has a high cost!

I’m all in favour of decluttering hustles (selling your unwanted stuff online) and there are an array of apps including eBay, Vinted and Depop that simplify the process – but this can also be time consuming. Set some rules about what is worth your time trying to sell. Nowadays, I only bother with items I think I can get £10 or more for, and list them on Facebook Marketplace (currently free) for buyer collection. That way, you avoid the torture of estimating postage costs and Post Office queues. The rest goes to my local charity shop – at least my overconsumption is doing someone else some good.

Sweat your assets

Another twist on making money from things you own is renting them out. Check out apps including By Rotation and Hurr where you can rent designer outfits in your wardrobe – hiring one is a good way of saving cash if you need to find a posh outfit for a wedding.

Jasmine Birtles, founder of the MoneyMagpie website, points to the array of online platforms that exist for making more money from your property – one way of covering larger mortgage payments.

If you’ve got a parking space or garage, rent it out when you’re not using it via websites like justpark.com or parklet.co.uk. You can also rent out storage space using websites like stashbee.com and spareground.co.uk, or list your home as a filming location via sites including locationworks.com or peerspace.com.

The more obvious way of making money is renting a room out to a lodger, but it pays to know about a valuable tax break the government offers called the Rent a Room scheme.

If you are renting out a furnished room in your property, you can make up to £7,500 per year without having to pay tax, or even declare it on a tax return. The room doesn’t have to be permanently rented out either – you could use websites like Airbnb and advertise for the periods that best suit you. Jasmine adds you could profit from workers who’ve moved further away, but need somewhere in town to stay during the week. Websites like fivenights.com and mondaytofriday.com are designed for this, and would mean you have the place to yourself at the weekends.

Next-level hustles

None of the hustles (and hassles!) I’ve mentioned so far should pose a problem with your existing employer, but more formal work opportunities – including second jobs – could do.

Activities that require more of your unique skills and experience should generate a bigger return on the time you’re investing. The old-fashioned name for this is ‘freelance work’ but the ability to hire people on demand for a specific purpose is more commonly known as the ‘Gig Economy’.

However, your contract of employment might explicitly say you cannot take on a second job or freelance work, or have to obtain permission first. Why?

‘People tend to go into side hustles with skills they already have and use in their day jobs, which unfortunately means your employer could view this as a conflict of interest,’ explains Ken Okoroafor, founder of The Humble Penny website. Being a content creator started off as Ken’s side hustle – but in time, he quit his job as a chief financial officer in a venture capital business, and now it’s a full-time job for him and his wife, Mary.

Employers’ opposition to side hustles could stem from fears you will steal or personally make money from their clients, or that any side hustle will be a distraction or a drain on your time. If your hustle is in the public eye, they could also worry about reputational damage. The rapid growth of the online economy means they may not have policies that cover other ways staff might make money, such as online influencers who engage in paid partnerships with other brands.

‘Plus, I think a lot of employers don’t really like you to have other options – they want to have sole power over you,’ says Ken. ‘Being able to earn money in another way means their power is diluted. But there are no jobs for life any more. People are more likely to have two or three things they’re doing rather than rely on one income stream – the Covid experience has shown this gives us greater financial resilience.’

The first thing to check is your contract of employment, although most are quite vague. You may have to wade deeper into workplace policies, covering conflict of interest policies and the staff code of conduct (these could specify that employees need to seek permission to do freelance work, for example) to see how your own hustle could be interpreted.

‘If you don’t tell them about your hustle and they find out, there’s a risk they will think that by not communicating with them about it, you haven’t been transparent,’ Ken adds. Your employer could lose trust in you – and if you’re found to be in serious breach of workplace policies, you could lose your job.

Growing your hustle

Many side hustles start off as passion projects that cost time and money to set up, but some can eventually turn into a money-making business.

From the get-go, my number one tip is to keep your finances separate from your day-to-day money so you can better judge whether the ‘return on investment’ is worth it. This also makes it much easier to work out any tax liability (see page 232) and measure progress against the goals in your financial plan.

Most hustles are linear – swapping your time and expertise for money. A lot of freelance work is poorly paid, but could come with added benefits, such as gaining experience or networking opportunities. Be realistic about whether this could lead to higher-paid work in the future. Doing something for ‘exposure’ is a flash way of saying you are working for free.

Ken says one way of scaling up your side hustle could be using your skills, knowledge and experience to create a membership business. Think back to Chapter 3 where we discussed how valuable the recurring revenues from subscriptions are for all kinds of businesses, from Netflix to food boxes and gyms.

‘If people will pay a small amount to access your product or service, this is predictable income,’ he says. ‘You can do the work outside of office hours, but make money online throughout the day.’

Content creators with a YouTube channel, podcast, blog or Substack could monetise these in different ways if they get a big enough audience – plenty of popular things have been grown in bedrooms. If you can generate a predictable income, this could become a small business in its own right. Equally, you could realise it’s impossible to make a living from your hustle, but have fun trying. Either way, Ken and Mary’s message is that you should give it a go.

And finally, bear in mind that you can’t monetise every hobby. I love playing the saxophone, and while I’ve never made any serious money from doing gigs, I’ve had the best fun and made many lifelong friends. These things are valuable too, just in a different way.

Side hustles and tax

If you’re selling second-hand goods for less than you originally paid for them, there is no tax liability to worry about. If you’re selling things on and making a profit, there could be.

All taxpayers have what’s called a ‘trading allowance’, meaning you can make up to £1,000 a year from self-employment without having to pay any tax or National Insurance. You don’t have to declare this income on a tax return. This is in addition to the £7,500 a year you can make tax-free via the Rent a Room scheme (see page 228).

If you make more than £1,000 a year from self-employment, you need to tell HMRC and will need to complete an annual tax return (this is why it pays to keep your side hustle income separate). You will pay tax on the profits you’re making from self-employment after allowable expenses have been deducted. You can register as a ‘sole trader’ even if you have a full-time job. See www.gov.uk/working-for-yourself for a step-by-step guide.

Apps like Xero, QuickBooks and Tide make doing a tax return a doddle. You can scan in expenses receipts as you go, generate online invoices and get forecasts of your likely tax liability – but you will pay a subscription for these services (although this would be allowed as a tax-deductible expense, along with things like business travel, stock and items of equipment you’ve purchased, plus many other items – there’s more info on that government website).

Tax bills can be a nasty surprise for freelancers. When I get paid for a freelance job, I immediately set aside a proportion of the money into a separate ‘tax account’ so I can’t spend it (hive off 20 per cent if you’re a Medium Spicy taxpayer, or 40 per cent if you’re a Hot). I have opened a Premium Bonds account for this purpose (via the government’s National Savings & Investments website). You don’t receive interest on these accounts, but your bonds are entered into a monthly prize draw. It’s easy to make an online transfer and get your money in, but it takes a few days to get the money out. While it’s resting in there, it could win me a tax-free prize of up to £1m (although the most I have ever won is £50).

TIP: FRIENDS WITH BENEFITS

It’s estimated that some £50bn worth of state benefits go unclaimed each year because people don’t realise they are entitled them. If you’re not sure, it’s well worth spending 20 minutes completing the benefits calculator on the website of Turn2Us, a truly amazing charity that specialises in explaining the UK’s labyrinthine benefits system, and making it easy to find out what you’re entitled to.

The Turn2Us website also contains loads of helpful information for parents about Child Benefit and the government’s Tax-Free Childcare account, as well as a wealth of information for people who have been made redundant or are struggling financially. You can also input your postcode and search grants offered by different charities in your area.

I personally donate some money to this charity every Christmas and tick the ‘Gift Aid’ box to boost the value of my donation. I know this book is all about saving money, but if you can afford to, giving some money (or time!) to good causes is a very satisfying way of guaranteeing a positive return on your investments.

What they don’t teach you about student loans

If you’re a university graduate, student loan repayments could be taking a chunk out of your monthly payslip for decades to come. In this section, I’ll cover how graduates repay their debts, give some pointers for those who are tempted to try to clear their debts faster, and add some tips for younger readers who have yet to go to uni.

Student loans are very different from other forms of debt. The size of your monthly repayments depends on how much you earn. The money is deducted directly from your payslip, making it more like a graduate tax than a loan, but it pays to understand how the system works.

Graduates in England and Wales don’t start to repay their student loan until they earn above a certain amount (the ‘repayment threshold’). If you graduated between 2012 and 2023, the repayment threshold is £27,295 (correct at the time of writing, but as inflation soars, there is hope it could rise in the future).

If you earn less than £27,295 a year, you repay absolutely nothing.

If you never earned a salary above this level in your whole life, then you wouldn’t have to repay a penny of your student loan debts (although interest will still be applied to what you owe, increasing the size of your debts on paper).

There is a cost to a university degree – but there is also a huge financial benefit. Most graduates with degrees will be able to access higher-paying jobs. When your earnings rise above the threshold, 9 per cent is automatically deducted from your payslip – hence why student loans are compared to a graduate tax.

Remember – it’s only earnings above the £27,295 threshold that this 9 per cent charge applies to – not 9 per cent of your whole salary! Here are some examples:

Arwen earns £28,295 a year.

That’s £1,000 over the threshold.

She would repay £90 a year (9 per cent of £1,000).

That works out at £7.50 per month – pretty much the price of a pint in London!

Arthur earns £37,295.

That’s £10,000 above the threshold.

He will repay £900 a year (9 per cent of £10,000).

That works out at £75 per month.

Because student loan repayments are based on your income, if Arthur or Arwen were to lose their jobs, their monthly repayments would revert to zero – very different from other debts!

And while the interest rate on student loans is technically pegged to inflation, an increase in the interest you’re being charged will not affect the size of your monthly repayments. These remain constant at 9 per cent of your salary above the £27,295 threshold. However, interest charges will increase the total value of your debts, and mean that you’ll be paying those 9 per cent repayments for a longer period of time.

But the final thing that makes student debt very different from other forms of debt is that eventually they are written off. If you haven’t repaid what you owe within 30 years of graduation, your student debts are wiped.

If you want to see how a pay rise or a change of financial circumstances would affect your level of repayments, I recommend the student loan repayment calculator on the Money Saving Expert website.23 This can take account of different rules for different parts of the UK, and when exactly you graduated.

HOW LONG WILL IT TAKE TO REPAY MY STUDENT LOAN?

That depends on four things:

1. How much money you borrowed

2. The rate of interest you’re being charged

3. How much you’re earning

4. When you graduated

For graduates in England and Wales, the average debt upon finishing university is around £45,000 (note that Scotland has a different system). However, most students who graduated between 2012 and 2023 will never repay the full amount.

The amount of interest being added to the loan means the majority will effectively be paying an extra 9 per cent ‘graduate tax’ for between 20 and 30 years. Although your debts are wiped after 30 years, this means you could still be paying those 9 per cent charges until your early 50s.

If you think that’s bad, be grateful that you didn’t start university after September 2023, when the repayment period will be extended to 40 years! The repayment threshold will also fall to £25,000, but interest charges will be much lower to compensate.

These changes are estimated to increase the number of borrowers who repay their student loans in full from 22 per cent to over 55 per cent of graduates.

In other words, more and more young people who go to university from 2023 onwards will be stuck paying higher taxes for the majority of their working lives.

Not gonna lie – if I was 18 today, this would definitely make me think twice about going to university. But, as with everything in life, you have to weigh up the costs versus the opportunities. A university education is still a fantastically ‘good deal’ in terms of the earnings boost it could give you in the future.

Certain jobs are impossible without a degree qualification. My advice to any 18-year-old today would be to choose very carefully when it comes to university courses. Invest time researching what kind of career a degree in this field could lead to, and the kind of salary you’re likely to be able to earn.

And there are alternatives, such as apprenticeships and professional companies like firms of accountants ‘sponsoring’ students through university and paying their fees.

I wasn’t sure what I wanted to do, so I took two years out after finishing my A levels and worked full-time, which gave me lots of useful skills, the opportunity to save money and to see a bit of the world. When I did go to university, I had a much better idea of what I was good at, and was more motivated – as well as having a bit of money behind me.

SHOULD I TRY TO OVERPAY MY STUDENT LOAN TO CLEAR THE DEBT FASTER?

For most people, the answer to this question is no!

Most graduates in England and Wales will never repay their loans within the 30-year period, so if you make extra loan repayments via the Student Finance website, you’re effectively opting to pay more tax. However, I’ve come across people who are doing this because they’ve seen social media influencers from the US telling their followers it’s a good idea. Please be aware – the American student loans system is totally different from the UK!

Someone on social media with the equivalent of a PhD in the UK student loans system is the money-saving expert Martin Lewis. His excellent videos explain how the UK system favours higher earners, who will clear their debts more quickly (and the same applies to the post-2023 system).

These are the only people for whom it could make financial sense to overpay.

If you are a very high earner (earning a salary above £50,000 by the age of 30), receive inflation-linked pay rises every year, and never intend to take time off to travel or raise a family, the Institute for Fiscal Studies calculates that you’d only have a 50:50 chance of being better off by repaying your student loans early.

But the future is very hard to predict, and once you’ve repaid any extra money to the Student Loans Company, you can’t get it back.

So, if the Bank of Mum and Dad can afford to give you a lump sum, I would personally direct this to more pressing financial priorities, like buying your first home. The amount that you’d save by paying a mortgage rather than paying rent is likely to be more valuable to you over the long-term – plus, you’ll end up with an asset.

One final word of warning – soon after you graduate, the Student Loans Company will write to you asking if you’ve found a job, and how much you’re earning. If you do not respond to this letter, they will charge you the maximum amount of interest – even if you are earning next to nothing.

Finding ways to grow your income pays a double benefit over time, as providing you can keep ‘lifestyle creep’ in check, this directly increases the amount of money you can save and invest for the future.

Never forget – your biggest money-making asset is you!

For this reason, it’s worth thinking about self-development as a budget category. Investing in a course, some coaching or other forms of learning and education that could help get you to where you want to be could be money well spent.

But likewise, self-care is also important. Chasing money for money’s sake is never a good strategy. We all need some downtime to function properly, and I hope the ideas in this chapter will help you work out the right balance for you.

Whether you’re fired up to go in and ask for a pay rise, or start that side hustle, one thing is for sure – you’re ready to talk about money.

Which is perfect timing for our final chapter, and my last ‘super seven’ habit – finding powerful ways to talk about money together.

10

Talking About Money

Talking about money is something everyone finds hard to do – but British people are famously awkward about it. However, this urgently needs to change.

Throughout this book, I’ve been showing you how deeply our emotions are woven into our relationship with money and how this can influence our behaviour in ways we might not have realised. This also means that talking about money can make us feel awkward, maybe even a bit vulnerable.

We’re not just talking about numbers – we’re talking about how money issues make us feel. And right now, money could be making us feel pretty miserable indeed.

The cost-of-living crisis has made talking about money a much bigger priority, which is why I’ve devoted a whole chapter to the last of my ‘super seven’ habits – finding ways to talk about money.

As you may have found, conversations about money are so emotionally charged they can quickly descend into arguments! In this chapter, I’ll show you how understanding our own relationship with money is vital if we want to communicate effectively with others – be they partners, friends or family members. Being able to talk about money openly is even more vital if you’re thinking of moving in with a partner or starting a family, as the financial ramifications are huge.

With help from a psychotherapist, I’ll give you lots of tips about resolving conflict, but also how to communicate effectively with financial providers and resolve problems that life throws our way.

Financial worries place a heavy burden on our mental health. Being able to share our fears can alleviate the feeling of overwhelm, helping us to pluck up the courage to seek the help we require.

So, I hope this final chapter helps you to harness your inner power to make changes, and take a final, important step closer to financial independence.

Feeling more comfortable talking about money

We’ve covered some meaty money topics in this book. By now, I’m sure you’ve got a much better sense of your own relationship with money and the areas that could require some closer attention.

Once you understand where you’re coming from, it’s much easier to talk to your partner, your family and your friends, says Vicky Reynal, the psychotherapist with a focus on money we met briefly in Chapter 1. Often, people who seek her help have already sought advice from financial professionals. They know what they need to do with their money but find that something emotional is getting in the way.

As Vicky puts it, ‘I help people to understand what emotions could be driving them to overspend, to self-sabotage their finances or even to hold on to their money too tightly instead of enjoying it. The ability to change our money behaviours, to understand and reach compromise with a partner, can only happen if we have a good understanding of what money means to us, what it represents in our mind.’

So how can we change the way we’re financially hardwired?

Vicky has a whole book dedicated to this topic coming out in 2024, but she was happy to share some pointers with me.

In many of the money narratives she hears, the conflict appears to be about money on the surface, but what is really being expressed ‘are desires and fears around security, power, confidence, masculinity, femininity, control or love’.

For example, as a self-confessed Goblin, I predominantly see money as something that provides me with security. I tend to get more comfort from looking at my bank balance than investing the money I’ve worked so hard to earn.

On the therapist’s couch, Vicky says people can get in touch with what’s underpinning this inner conflict, identifying the anxieties, hopes, fears and fantasies that get linked to money but potentially belong elsewhere. Once people can make this distinction, ‘they are then in a position to choose which of these they will continue to hold on to, and which they want to change or “unsubscribe” from,’ she adds.

In my case, my cash hoarding desires are hardwired into my psyche because there was not much money around when I was growing up. I still feel anxious that the money will run out, although I know this is an irrational fear as, above all else, I link money with security.

Over the years, I’ve learned to recognise this tendency. I have a very healthy cash emergency fund, but I am now happy to invest more of my money for the long term.

Talking about money with your partner

Judging a prospective partner’s attitude towards money starts before you’ve even been on your first date. Coffee or dinner? Swanky restaurant or street food? And then you have the vexed question of how to split the bill.

Martin Lewis, the Money Saving Expert, famously said in an interview with the Sunday Times that if someone whipped out a discount voucher to pay for dinner on a first date, they were clearly someone worth marrying.24

I am minded to agree! Being eager to wring the most out of their money and having the ability to forward-plan are skills I would value in a life partner – but you might have other ideas. The thought of using a discount voucher could instead be a huge turnoff – it might make you feel undervalued, or fear that your date is a cheapskate.

Whatever your response, it all comes down to our individual money values. How well your values might interact with those belonging to a potential partner is sometimes described as ‘financial compatibility’. If you’re broadly in alignment, this is a strong foundation for your future relationship – but if there’s a mismatch, it could result in lots of arguments.

When is it too early to be thinking about this? Financial compatibility might be low down the list at the start of a relationship, but it soon moves up the scale. Ideally, you should have the measure of your partner before making any shared financial commitments, like moving in together or starting a family. But if you find you keep arguing about money, what can you do to resolve it?

A lot of Vicky’s clients reach out to her because money has become a source of conflict within their relationship. On the surface, it might feel like you’re having an argument about how money should be spent or divided between you, how to manage a debt or whether something is a risky investment or not.

Vicky stresses this is totally normal – everyone has differing financial values and views about money, so understanding and compromises need to be found.

‘But money is also a powerful symbol, and one that people often use unconsciously to act out emotional issues,’ she tells me. ‘In my experience, a lot of the arguments about money that take place are not about money at all. They’re actually about what money represents in the individuals’ minds; it often becomes just an instrument we use to express something we are feeling in the relationship.’

For example, one partner complaining that the other does not spend enough money on them could really mean they feel they are not receiving enough love, affection or feelings of security. A hug costs nothing. Feel loved, and you could value this more than a gift.

In other cases, spending too much money could be the problem. I have a friend who ended a relationship with a minted, high-flying exec after he continually broke off their dates, only to send extravagant presents along with promises of new meet-ups. He reacted very badly to being dumped because he struggled to understand that what she really valued was his time and attention. In both cases, money is the manifestation of the problem – deeper emotional issues lurk beneath the surface.

Common areas of financial conflict

I asked Vicky what aspects of their finances couples tended to argue about the most – and her answers may well reflect some conflicts going on within your own relationship! Don’t worry if they do, as she also has suggestions about how to resolve them.

HOW TO MERGE YOUR FINANCES AS A COUPLE – AND WHETHER YOU SHOULD

Do you keep your finances entirely separate, have a joint account that you each pay a set amount into, or merge everything into one? This won’t usually become an issue until you start living under the same roof, but that doesn’t stop it being a huge source of conflict when the time comes! There’s no right or wrong way to do it but, as Vicky says, ‘This captures a wide range of insecurities related not just to money but trust, intimacy and control.’

ONE PERSON EARNING MORE THAN THE OTHER

If you have shared how much you both earn, this can cause problems when deciding how to divide costs. Should it be 50:50, or a ratio that accords with your different income levels? Vicky says the fairness versus equality argument often brings people’s different experiences of justice and power balance into play.

As the higher earner in my own relationship, it really gets my goat in restaurants when the bill is automatically placed in front of my husband! (He finds this hilarious.) However, one of the many reasons I married him was because he has a vastly different attitude towards money than any of my previous partners. In the past, I have had relationships end very suddenly when guys found out I earned more than they did. By contrast, I’ve always found it easy to talk money with my husband, and for us to make joint financial decisions we’re both happy with.

Intriguingly, Vicky says that people are more likely to be uncomfortable if the models within their relationship are different to the ones they grew up with. My husband grew up in a single-parent household where his mum made all the financial decisions – I don’t think that’s a coincidence.

YOUR INTERNAL FINANCIAL COMPASS

When it comes to spending, saving, investing and paying off debt, Vicky says every person will have their own sense of what is excessive and what is frugal; what is generous and what is greedy; and what is risky and what is conservative. ‘Everyday life involves countless choices which we make by tapping into these internal compasses,’ Vicky says.

Take going on holiday, for example. Maybe you quite fancy two weeks in the Maldives, but your partner has their heart set on going bird-watching in Norfolk. Or maybe they would feel comfortable taking out a huge mortgage to buy the house of their dreams, but you would prefer to play it safe with a humbler abode. If your compasses are pointing in different directions, the final destination is bound to be a slanging match!

HOW FINANCIAL DECISIONS ARE MADE

Who makes the decisions is often the problem here, says Vicky: ‘Is one partner avoidant of the topic, delegating all responsibility to the other? Does one partner feel entitled to make decisions, or are they impulsive, and don’t consult with the other?’

I will confess, I often get frustrated with my husband when I sound him out about some big financial decision I’m mulling, and he replies, ‘You know best, dear.’ It’s important to me that he understands what’s going on financially, and that we make big decisions together – but what’s more important to him is watching the football! When I started writing this book, he boasted he could write it in nine words: ‘Just marry a personal finance expert like I did.’

HABIT NUMBER SEVEN:

Make time to talk about money

Practically, there’s never a good time to talk about money – so we need to make time.

We set time aside to go to the gym, have beauty treatments, take the car to be serviced – so why not schedule in some time to talk money? Even if you start off by talking to yourself, journalling about your feelings or thinking more deeply about the issues I’ve raised in this chapter, this will be a worthwhile investment.

If you are in a relationship, you may want to build up to sharing these conversations with a partner. If going straight in with ‘I would love for us to talk more about money and make some plans together’ sounds a bit too much, then start small. In an idle moment, ask your partner about their earliest money memory (see Chapter 1) and tell them about yours.

Talking about other people’s money problems is a squillion times easier than talking about our own. My favourite Instagram account is @GoFundYourself where writer Alice Tapper relays anonymous ‘Financial Confessions’ from her community which are fascinating, often heart-breaking, but always a learning experience. Recent posts include ‘I use my £250k salary as a test when dating’, ‘I quit my well-paid but stressful job in search of a happier life’ and ‘I have a £10,000 anti-f***wit fund’. Pick one and discuss it with your partner!

Many money experts advise couples to schedule in a regular ‘money date’ where you can focus on finance for a few hours. Quarterly, monthly or even weekly – it’s up to you (you could run through your budget, then progress towards your goals and how to tackle things on the financial to-do list). I like to do some forward planning with my husband and stepchildren at ‘Twixtmas’ (those wonderful, aimless days between Christmas and New Year). We start off with the fun stuff – where we’d like to go on holiday, and when – then look at things we need to get done around the house and start to build our budget around these.

Being able to share our financial ups and downs is crucial for our own wellbeing. If you’re single, I highly recommend teaming up with a like-minded friend. I was single for much of my 20s and really valued having conversations about money with my best friend (she is still my best friend today). We were on the same page financially – single women, trying to move up in our careers and buy flats on our own.

Whatever your financial tribe, you will be able to find strength in numbers online via social media groups, messaging boards and discussion forums. From learning more about investing to setting up your own business, starting a family or becoming a ‘digital nomad’, others will have lessons and experiences to share – but obviously, keep your wits about you.

With financial anxiety levels running high, it’s easy to feel overwhelmed about money – but talking it over with someone you trust will help you acknowledge these feelings and concentrate on the things you can do to help your financial situation.

‘Talking about your concerns can go a long way, and people don’t do that enough,’ Vicky says. ‘Managing money stress is hard enough; having to feel isolated on top of it isn’t helpful. You will often find that others share your worries, and that you will get a sense of relief and release by talking about them.’

Finding a resolution

So, you’re ready to talk through some money issues with your partner; you’ve found some time to have a conversation – but how can you stop it from descending into a row?

‘Keep in mind that what you are hoping for here is to be heard and understood, not to “get it done”, so you need to set the stage for this to have the maximum chance of it happening,’ Vicky advises.

Watch your tone of voice. Acknowledging feelings of anger or frustration without raising your voice will be much more effective than putting your partner on the defensive from the get-go. ‘I often tell my clients, how you say something matters just as much as what you say,’ she says.

This extends to pronoun choice. ‘Offering a first-person point of view is much more likely to get a good response than starting your sentence with a second-person accusation, she says. In practice, saying ‘I feel angry when …’ or ‘I don’t like it when …’ allows your partner to focus on how you are feeling, and why.

By contrast, saying ‘You are an irresponsible human being because …’ risks riling them into a shouting match in which neither of your viewpoints will be heard.

Vicky suggests the second part of your sentence should state a fact, rather than an opinion or a judgement. For example, ‘I feel angry when you spend £250 on a night out with your friends’ is better than ‘I feel angry when you act like a spoiled brat and recklessly blow £250 with those cretinous blokes from the rugby club.’

‘Again, your partner will get a clear idea of what they did and how it made you feel, rather than feeling threatened or confused,’ Vicky says.

Above all, she urges couples to approach conversations about money with a desire to understand each other.

‘This is not just about you getting something off your chest and complaining,’ she says. ‘It’s an opportunity for you to understand yourself and your partner better, but it’s also an opportunity to help your partner understand themselves better too. If you are just trying to convince the other that you are right and they are wrong, you will end up in a stalemate.’

What they don’t teach you about having a baby

Having children is by far the biggest financial (and emotional!) strain you can put on your relationship. There are two things you both need to talk about upfront – the high cost of childcare, and the likely cost to each parent’s earnings potential.

A Reddit thread went viral in 2022 after a man in his early 30s complained that his partner was ‘essentially asking me to pay her to have our child’.

The high-earning couple had been successfully applying a 50:50 split to all of their financial outgoings, including their mortgage. The woman worked out that taking six months’ maternity leave would cost her $50,000 in forgone salary and expected her partner to compensate her for this. Her argument was, why should she be expected to take a financial hit for having a baby while he did not?

I’ll leave you to discuss this among yourselves! But what I really loved about this post was how it highlighted the ‘opportunity cost’ of having a baby, which is something that couples of any age, gender or salary level need to carefully consider, but few openly discuss.

Years before you even think of trying for a baby, you both need to be asking ‘What is the paternity policy?’ at job interviews. In the UK, what’s on offer varies hugely between different employers.

Typically, financial support from your employer tails off and may drop to nothing at all in the months before you return to work – that’s right, zero pay coming in just as you need to sort out the expensive nightmare of childcare!

The author Tobi Asare started her blog My Bump Pay after finding out about this the hard way.

‘You need to discuss how much you may have coming in from your employer to cover any period of parental leave; how long one person can afford to be out of work; what childcare options you would like to consider and the cost of doing so,’ she says.

The earlier you start having this conversation, the better!

‘This conversation is incredibly beneficial in advance of a baby arriving,’ she adds. ‘It means you can set your expectations and goals way ahead of time, and work towards them to avoid any last-minute panic. If you find the chat difficult, try talking to close friends or family about their journey with money and starting a family. Listening to the experiences of others can also be incredibly powerful.’

Tobi is a big advocate for shared parental leave, where both parents take time off (at the same time, or individually) to bring up baby. More UK firms are offering this, although take-up is still very low. The admin can be a hassle, but in her book The Blend, she stresses it’s well worth the effort.25

‘Shared parental leave evens the load for both parents and means that the hefty load of child rearing isn’t left disproportionately to the mother, which means women have more options about when she goes back to work and starts earning again,’ she says. ‘Men often report that they are much more confident parents and have a closer bond with their child after shared parental leave.’

Flexible working is helping to balance things out, but our inflexible, expensive and broken childcare system is not. Explaining this should frankly be a part of sex education in schools!

For the first three years of your child’s life, you will get very little help from the government with childcare costs unless you’re on an extremely low income – something that comes as a huge shock to many new parents.

Working parents can use the Tax-free Childcare scheme – worth a maximum of £2,000 per child, per year – and more help with nursery costs is available when your child turns three. All too often, the cost of childcare is judged against the metric of the lower-earning partner.

If a full-time nursery place costs £100 a day (not uncommon in London), the £2,000 monthly cost would swallow the entire take-home pay of someone earning £30,000 a year.

If such a large proportion of their salary must be spent on childcare so they can work and earn money, many parents cut their losses and opt to work part-time – but this comes with its own penalties.

As well as earning less and paying less into your pension, the career progression of part-time workers slows down. The ability to job-hop (which is how many people bump up their wages) is also reduced, as few part-time positions are advertised. So, you also need to talk about the long-term financial impact.

Personally, I think childcare and even fertility treatment should be structured as a shared cost between both parents, with the higher earner paying proportionally more.

To have a properly informed conversation and find out about extra help you could qualify for when your child turns three, check out the childcare guides for parents on the Coram Family and Childcare website: https://www.familyandchildcaretrust.org/.

TIP: TALKING ABOUT MONEY WITH FINANCIAL COMPANIES

Whether you’re cutting back and want to cancel a subscription or can’t afford to pay a bill and need to ask for financial assistance, approaching a company for help can be daunting.

These conversations can be difficult, but lose the shame, swallow your pride and make contact. Millions are in the same position as you; call centre workers will not be shocked. Keeping the lines of communication open is always the best way of protecting your financial position and working through the options available rather than having one forced upon you.

Before you even pick up the phone, gather all your data together, such as your customer number, recent bills and other pieces of paperwork. Make a list of bullet points mapping out what the problem is and, importantly, how you would like the company to resolve it. Having a structure will reduce your nerves and help you get the most out of your call.

NEGOTIATING WITH LANDLORDS

Having conversations with landlords about money is a nerve-wracking prospect – but as promised, I have plenty of tips.

The financial impossibility of buying a home means more and more of us will be renting for longer – but the costs of doing so have been rising at an alarming rate.

Millions are reliant on private buy-to-let landlords, and demand for rental housing is outstripping supply. Flats advertised online can vanish in minutes. Rising interest rates and higher mortgage costs mean many landlords will try to pass on these costs as rent increases when tenancies come up for renewal.

However, it is still possible to challenge these and negotiate firmly but politely with your landlord before agreeing a new tenancy. There are rules that they have to follow – and it pays to know your rights. I have some tips that could help you negotiate your way to a better deal, but do also review Shelter and Generation Rent, which are two further great sources of free advice.

A landlord’s biggest fear is ‘problem tenants’ who stop paying the rent, damage their property or both, and a Covid-19-induced court backlog means evictions are taking much longer to enforce.

You can appeal to your landlord directly by arguing that you are a good tenant, pay the rent on time, have looked after their property responsibly and, what’s more, would like to stay put for several years. This is another thing landlords value. They’re spared the hassle, costs and risk of finding new tenants, plus they’ll have fewer rental ‘voids’ when there’s no income coming in.

If they’re renting to you, a reliable and trustworthy tenant, could they consider adjusting their rental expectations downwards? You could even suggest a compromise (maybe half of the proposed increase) that you would be prepared to accept.

Approach your landlord directly if you can, or write an email or letter delivered care of the letting agent with explicit instructions that you want it to be passed on to them.

If your landlord is in a strong financial position and values you as a tenant, they might be persuaded to compromise – but remember, if you don’t ask, you won’t get.

In a recession, landlords will be even more worried about tenants losing their jobs or suffering financial problems that could leave them unable to pay the rent. It could be worth reminding them what you do for a living – for example, if you’re a doctor, nurse or teacher, they will know your job prospects are rock solid. And while rents have been rising at inflation-busting levels, it’s a matter of public record that wages have not been keeping pace.

If they’re not prepared to negotiate, you could play hardball with your landlord or letting agent. Any rental increases won’t apply until you have agreed to them, and there are some very useful template letters on Shelter’s website. But try not to depart on bad terms. New landlords now commonly insist on a reference from your former landlord as part of their pre-tenancy checks – a position of power that could clearly be abused.

The ‘peak’ period for renting property runs from mid-August to mid-November (largely coinciding with the student cycle), so if you can time a move outside of this period, the competition could be slightly less. But with so much demand, landlords can afford to be picky about who they choose to let their property to.

Talking about money with a financial adviser

Having got to the end of this book you might feel you would benefit from talking to a financial adviser. There is one very simple problem with financial advice – because it is so heavily regulated, it’s also very expensive.

Many independent financial advisers will only take on clients if they can manage their investments for them, and charge an annual percentage fee based on the value of their portfolio, which most would expect to be over six figures. Sheesh!

I stress – not all advisers charge in this way. However, if you don’t need an adviser to tell you what to invest in, then I would recommend that you seek a Chartered Financial Planner. They look at your overall financial position, help you set financial goals and work out the most tax-efficient route to prioritise them. They can advise you on products such as mortgages and insurance policies and point you towards different ways of investing – as well as being a friendly human voice to chat things through with.

Most planners charge hourly fees, and many offer free introductory sessions (increasingly, over video call) during which costs should be fully disclosed. In the UK, the average hourly fee is £150.

Ask friends and family for word-of-mouth recommendations, and supplement these with your own research on websites like the Personal Finance Society (https://www.thepfs.org/yourmoney/find-an-adviser), Unbiased.co.uk and VouchedFor.co.uk. Don’t feel bad about seeing three or four different firms and going with the one that feels right for you.

Many investment platforms offer customers the ‘bolt on’ service of fully regulated financial planning advice for a one-off fee of a few hundred pounds. Some also offer ‘restricted’ investment advice. This means they can advise you, based on your financial circumstances, on what investments offered on their own platform may be best suited to your needs.

Before you speak to a professional, it will be really helpful to have a clear idea of your own financial position, your goals and the big money questions you want to ask. Reading this book will have got you most of the way there, as well as being a future source of reference as your financial plans start to take shape.

What does financial independence really mean?

I’ve shared hundreds of tips about money, and seven powerful habits that I hope will help you unlock financial independence and achieve greater autonomy over your finances. But before we say goodbye, I wanted to spend a final moment with you considering what ‘financial independence’ really means.

When I was younger, I would have defined it as leaving home and supporting myself financially without any help from my parents (even if a credit card was occasionally involved).

Others might say it’s having enough money to be happy. Defining how much is ‘enough’ is a money conversation that could end up being a very heated debate – although it’s probably easier than trying to define what ‘happy’ means!

Some might view financial independence as having the ‘freedom’ of not having to worry about money, or at least for money worries to be a less pressing daily concern.

Now I’m in my 40s, I increasingly hear people using this term as a byword for retirement – the point at which they have accumulated enough money to stop working, and live off their savings and investments. In the US, the FIRE movement (Financial Independence, Retire Early) has gained a lot of traction with people who want to live a simpler life.

Your own interpretation of what financial independence feels like could draw on all of these, or none of these.

Ultimately, it’s about finding a balance between these three things:

1. Time spent earning money (and finding meaningful work that engages you – although this may not be the highest-paid option)

2. Spending your money on things and with people that you love

3. Being able to put something aside for tomorrow

All three are important – but it’s up to you to decide the balance attributed to each.

Above all, financial independence is a state of mind – your money mindset. It’s an acceptance that while there will be challenges and choices to make you’ve got the inner strength to overcome these and explore the options available to you.

It’s deciding what’s best for you independently of what our consumer-driven society is telling you; ignoring peer pressure, social media or the fear of missing out.

Even if times are challenging, have faith that you can keep learning and educating yourself, smash the emotional blocks, find habits that work for you and find a way of balancing your financial needs.

If you need more inspiration, follow me on social media @ClaerB for my one-minute video reports on big financial news stories and top practical tips, and please do tag me in your own posts if this book has helped you move closer to achieving your money goals.

So, the next time someone asks: ‘Are you good with money?’

You can answer: ‘I’m a lot better than I used to be.’

References

Introduction

1. The Money Advice Service, ‘New Study Confirms Adult Money Habits Are Set by the Age of Seven Years Old’, 23 May 2013, https://mascdn.azureedge.net/cms/habits-set-by-age-seven-pr-220513-final.pdf

2. Money Clinic podcast, ‘The Financial Secrets of Footballers (Part One)’, November 2021, www.podcasts.apple.com/us/podcast/the-financial-secrets-of-footballers-part-one/id287031335?i=1000540471618

3. Money Clinic podcast, ‘Money Clinic Meets Gina Miller’, March 2021, www.podcasts.apple.com/dk/podcast/money-clinic-meets-gina-miller/id287031335?i=1000511227820

4. Money Clinic podcast, ‘I hate maths: Is that why I’m bad with money?’, May 2022, www.podcasts.apple.com/us/podcast/i-hate-maths-is-that-why-im-bad-with-money/id287031335?i=1000561717761

5. FT Financial Literacy and Inclusion Campaign: Teaching personal finance with hair extensions, James Pickford, Financial Times, 10 December 2021, www.ft.com/content/45f7c4e0-88eb-4d43-8874-3e242eb9eb47

6. ‘Lottery winners who won millions but ended up with nothing’, Love Money, 30 November 2021, www.lovemoney.com/galleries/64958/lottery-winners-who-won-millions-but-ended-up-with-nothing?page=1

Chapter 4 – The Debt Trap

7. ‘Best of FT Money 2021: My biggest financial mistake — FT writers confess’, Financial Times, 17 September 2021, https://www.ft.com/content/f8342b36-26ed-47d0-990a-c5ffc3bea7b1

8. ‘Credit Card Minimum Repayment Calculator’, Money Saving Expert, https://www.moneysavingexpert.com/credit-cards/minimum-repayments-credit-card/

9. https://modernretail.co.uk/buy-now-pay-later-qa-with-klarna/

10. ‘UK banks pile into buy now, pay later in battle with fintechs’, Financial Times, https://www.ft.com/content/69917e3e-311e-48c4-b806-01e8e537ef27

11. Rupert Jones and Kalyeena Makortoff, ‘The surge in “buy now pay later” – and why we should be worried’, Guardian, 18 September 2021, https://www.theguardian.com/business/2021/sep/18/the-surge-in-buy-now-pay-later-and-why-we-should-be-worried

Chapter 6 – The Dangers of Shortcuts to Wealth

12. Brown, Symeon (2022) Get Rich or Lie Trying: Ambition and Deceit in the New Influencer Economy, Atlantic Books, London

13. I first wrote about the problem in this FT column: ‘Instagram must stop the scammers targeting Gen Z’, Claer Barrett, Financial Times, 5 May 2022, https://www.ft.com/content/b2702828-a094-4edd-a440-154c4dbbd6c4

Chapter 7 – Getting Richer Slowly

14. ‘Financial Lives 2022 survey: insights on vulnerability and financial resilience relevant to the rising cost of living’, updated 21 October 2022, www.fca.org.uk/data/financial-lives-2022-early-survey-insights-vulnerability-financial-resilience

15. www.financial-calculators.com/historical-investment-calculator

16. www.scotfact.com/scottish-tax-calculator-2022-23

17. www.gov.uk/check-state-pension

18. www.retirement.fidelity.co.uk/retirement-savings-guidelines/fidelitys-retirement-maths-guidelines-overview/

19. Pensions Tracing Service, www.gov.uk/find-pension-contact-details

20. WEALTH at Work, ‘Saving an Extra 1% of Salary into Pension Can Increase Your Pension Pot by 25%’, 12 April 2021, https://www.wealthatwork.co.uk/mywealth/2021/04/12/saving-an-extra-1-of-salary-into-pension-can-increase-your-pension-pot-by-25/

Chapter 8 – Getting Richer Slowly: Investing Using ISAs

21. As a guide, the Monevator blog keeps an up-to-date list of the cheapest tracker funds: https://monevator.com/low-cost-index-trackers/

Chapter 9 – Maximise Your Income

22. Henrik Kleven and Camille Landais, ‘Gender Inequality and Economic Development: Fertility, Education and Norms’, Economica, 14 March 2017, www.onlinelibrary.wiley.com/doi/abs/10.1111/ecca.12230

23. Student Loan Calculator, Money Saving Expert, www.moneysavingexpert.com/students/student-finance-calculator/

Chapter 10 – Talking about Money

24. Sunday Times interview with Martin Lewis, 20 September 2020, https://www.thetimes.co.uk/article/martin-lewis-interview-people-would-tell-me-youre-like-a-god-i-struggled-to-cope-gg0d27whk

25. Asare, T. (2023) The Blend, Headline Home, London

Acknowledgements

There are some special people I need to thank for making this book possible, including those who have taught me the most about money, and held my hand during the writing process.

Firstly, thanks to my magnificent editor at Ebury Edge, Géraldine Collard. I ignored the first message she sent to me about writing this book, as I wrongly assumed it was a scam (whoops!). Good thing she followed up … and huge thanks to the wider team at Ebury, my literary agent Robert Caskie and our mutual friend Eddie Mair – this wouldn’t have happened without you.

Secondly, to everyone at the Financial Times and our charity the Financial Literacy and Inclusion Campaign (Flic for short), who have been fantastically supportive. Special mentions to my bosses, Patrick Jenkins and Alec Russell, for letting me take time off to write this book; the big boss, Roula Khalaf, who has always pushed me to do the things I think I cannot do; Gillian Tett, who generously provided many pep talks, and our managing editors, Tobias Buck and Abbie Scott, who kindly agreed to the reproduction of material first used in my FT Weekend columns and Money Clinic podcast.

Extra special thanks are due to the FT podcast team and my wingwoman Persis Love (the person I talk to the most about money every week!) and Chris Giles, the FT’s brilliant economics editor. He has taught me pretty much everything I know about economics since I joined the FT many years ago, and has provided valuable input on the content of this book.

My great friend and mentor Lindsay Cook, a former boss, and Fleet Street veteran, has been a constant source of help and advice throughout my career. She generously provided many hours of feedback and encouragement during the writing stage.

I have been ably assisted by many financial educators and experts who have generously shared money-saving ideas which are quoted throughout the pages of this book. I highly recommend that you follow all of them on social media to learn even more about money:

Alice Tapper (@GoFundYourself), Sara Williams (@DebtCamel), Iona Bain (@IonaJBain), Timi Merriman-Johnson (@MrMoneyJar), Charlotte Jessop (@LookingAfterYourPennies), Tiffany Aliche (@TheBudgetnista), Lynn Beattie (@MrsMummyPennyUK), Damian Fahy (@MoneytotheMasses), Margot de Broglie (@YourJuno), Ken Okororafor (@TheHumblePenny), Henry Pryor (@HenryPryor), Tim Harford (@TimHarford), Lindsay Cook (@LindsayMoneyM), Moira O’Neill (@MoiraOnMoney), Jason Butler (@JBTheWealthman) and FT Flic @FT_FLIC.

Huge thanks to the teams at Money Saving Expert, Money to the Masses, Jonathan Hollow, co-author of How to Fund the Life You Want, and Bruce Dalton, a devoted FT reader and retired financial professional who provided technical help for the debt and investment sections.

I owe a huge debt to my family and friends, who have had to put up with me squawking, ‘I can’t do that; I’ve got to write a bloody book!’ for the last umpteen months. Starting with my mum and dad, Bob and Sheila – thank you for all of the wonderful lessons you have taught me about money (and indeed everything else) throughout my life.

Doug, my husband, has been a saint (we became grandparents while this book was in production, so he really has had his work cut out). My three stepchildren – Kelly Jane, Ben and Jack (plus son-in-law Sam and soon-to-be daughter-in-law Sarah) – have been my formidable team of Millennial money muses long before this book was ever conceived. My desire to teach people about money springs directly from learning from them. Kelly was reading chapters on email in between night feeds with her baby twins, which is above and beyond. They will be delighted to know that I am now released for more weekend babysitting and bird watching.

My dearest friends Eleanor, Patrick, Maggie, Paul and Gali (Mama One) have poured lots of wine – I will pour more for you all in return – and my brother Steve, sister-in-law Louise and the three smallest Barretts have provided endless love and hugs.

Finally, sincerest thanks to all my readers, podcast listeners and social media followers for sharing your questions, ideas, frustrations and successes with money. I feel very privileged indeed to be your conduit for change in the financial world, and I hope that the lessons in this book will help you all to build a better relationship with money.

Keep the conversation flowing – you can find me @ClaerB on Instagram, Twitter and TikTok and find out about upcoming book events and more on my website www.claerbarrett.com.

Index

The page references in this index correspond to the print edition from which this ebook was created, and clicking on them will take you to the location in the ebook where the equivalent print page would begin. To find a specific word or phrase from the index, please use the search feature of your ebook reader.

actively managed funds 209–10

affordability tests 121–2, 131

AJ Bell 209

Aliche, Tiffany ‘The Budgetnista’ 40, 43

alter ego 105–6

The Alter Ego Effect (Herman) 105

APR (Annual Percentage Rate) 83, 85, 107, 135

Asare, Tobi 256, 257

asking questions 8, 142–3, 157, 158–9

assets

business 199, 200

personal, renting out 228–9

automated payments 7, 65–6, 67, 69, 75–8

avalanche method 101

awareness 62

Bain, Iona 167–8, 205, 211–12

balloon payments 135, 136, 138

Bangernomics 138

banking apps 51, 54–5, 69, 70

Barclay, Miguel 71

Barclays Equity Gilt Study 172

bargains 34–6, 38

‘beat the market’ 209–10

Beattie, Lynn 114–15, 227

behavioural economics 36

Berwick, Isabel 214

Birtles, Jasmine 228

Black Friday 37

Bogag 122, 125

Bomad 114, 116–17, 122, 125

bonds 199, 200

bonuses (pay) 223

borrowing 122–3

bravery 45–8

Broglie, Margot de 214, 223, 224

Brown, Symeon 147–8

budgeting 25, 49–50, 51–8, 213

experimentation 56

failure to budget 51

observation 53

planning ahead 63–5

reflection 55

separation and automation 65–8, 75–8

skills 62–3

sources of income 53–4

tools for 58–9

tracking spending 54–5

Buffett, Warren 210

business expenses 233

Butler, Nicola 18–19

‘buy now, pay later’ (BNPL) 97–9

Campbell, Sol 14–15

capital growth 170

car ownership 133–9

affordability 137–8

finance deals 134

maintenance 138

new cars 137

PCPs 134–7

used cars 136–7

cash savings 61–2, 163, 168–9, 169–70

cash withdrawals 90

changing jobs 222–3

Chartered Financial Planners 262–3

Child Benefit 177–8

childcare costs 225, 258

cognitive shortcuts 36, 42

company pensions 163, 167, 181

automatic enrolment 187–8

automatic investments 188, 199

default fund 188, 189

employer contribution 181–2

‘Expression of Wish’ form 193

former companies 191–3

as free money 163, 167, 180–7, 193

locating lost pensions 191–2

matched contribution 182, 183

opting out of 192–3

prioritising 193–5

retirement pot for women 226

Salary Sacrifice 184, 185–6

transferring 192

compound interest 85, 86, 168–73

Rule of 70 172

consumer capitalism 33

Consumer Credit Act (1974) 88

consumer protection 88

contactless cards 42, 69

contracts for difference (CFDs) 149

contracts of employment 230

Cook, Lindsay 16–17, 138, 216, 218, 221

cost-of-living crisis 10, 49, 50, 154, 220, 243

see also inflation

Covid-19 pandemic 110–11, 145, 153–4

credit

cost of 81–2, 83–6

learning how to use 88–92

credit builder cards 96

credit cards (‘debt cards’) 80–4, 87–8, 88–92, 95–6

credit limit 91

credit reports 121

credit scores 87, 90–1, 95, 96

crypto scams 150–1

cryptocurrency 149–53

curious, being 8, 142–3, 157, 158–9

Cycle to Work schemes 186

data theft 154

David Copperfield (Dickens) 79–80

deals 34–8

debt 10–12, 79–108

borrowing money 79, 80

‘buy now, pay later’ (BNPL) 97–9

clearing 99–104, 108

cost of credit 81–2, 83–6

credit cards 80–4, 87–8, 88–92, 95–6

learning how to use credit 88–92

overdrafts 101, 107–8

0 per cent interest 89–90, 91, 94–5

debt advisers 101–4

debt cards see credit cards (‘debt cards’)

debt collectors 52

debt consolidation 102–3

Debt Management Plans 102, 103, 105

debt solutions 102

deferred gratification 43

Defined Benefit pensions (DB) 181

Defined Contribution pensions (DC) 181

‘Deliveroo tax’ 72

deposits 119, 121, 123–6, 133

digital banking apps 54–5

discounts 34–8

diversifying investments 166

dividends 170, 198, 202

down valuation 128

downsizing 133

earnings, daily 44–5

Einstein, Albert 85

electric vehicles 186

emergency funds 7, 43, 57, 162–3, 201

Emma app 77

emotional blockages 45–6

emotional money decisions 6, 13–14, 20–2

see also financial personality

equities (shares) 188, 197–8, 200, 207

ERC (early redemption charge) 130–1

estate agents 126–7

extra extra hot tax band 175

extra hot tax band 174–5, 179

Facebook Marketplace 227

Fahy, Damien 165–6, 204

fin-min (financial admin) 62–3

financial advisers 262–3

financial compatibility 247

financial crisis (2008) 115

financial freedom 144

financial goals 7, 108, 109

financial independence 264–6

financial intimacy 58

Financial Literacy and Inclusion Campaign (FLIC) 18

Financial Ombudsman 157

financial personality 22–3

Goblins 26–7

Jitterbugs 29–30

Ostriches 30–1, 104–6, 108

Spendy Wendys 24–5

Spreadsheet Slaves 28–9

Yolos 25–6

financial plans 8, 161–4, 166

saving and investing 163–4

short-term debts 161–2

‘sleep at night’ money 162–3

financial to-do lists 63

financial willpower 43

FIRE movement 264

first-time buyers 114, 116, 122, 127

flexible working 225, 257

FOBSAG (fear of being seen as greedy) 214

FOMO (fear of missing out) 140–1, 143, 152, 153

FONQEE (fear of never quite earning enough) 152, 153

food waste 71–2

fraud prevention 157–8

free money

company pensions 163, 167, 180–7, 193

credit card companies 82, 89, 91

deposit savings 123

employer contribution 181–2

matched contribution 182, 183

pensions 180–3, 190

tax free pension investments 186–7

Tax Relief 183–4

freeholds 117

freelance work 229, 231

tax bills 233–4

FTSE 100 198

FTX 153

fund managers 209–10

future fund 43–4, 163, 168, 173, 189–91

future share options 223

gambling 148–9

GameStop 146

gender pay gap 222, 224–6

gender pensions gap 225–6

General Investment Accounts (GIAs) 202

‘get rich quick’ schemes 143–5, 152, 153

gig economy 229

goals 7, 8, 109, 110–13

assessment of 110–11

financial 7, 108

lifegoals 109–39

long-term 109, 111, 113, 125

medium-term 64

savings 25, 43, 67

short-term 112

Goblins 26–7

Harford, Tim ‘Undercover Economist’ 36, 42

Hargreaves Lansdown 209

hedonic treadmill 38

Herman, Todd 105

high-balance alerts 70

high-risk investments 145–9

HMRC 21–2, 233

home buyer’s insurance 128

home ownership 10, 113–17

affordability 121–2, 131

borrowing 122–3

compromise 117–18

deposits 119, 121, 123–6, 133

estate agents 126–7

exchange and completion 128–9

expenditure 129

making an offer 127–8

prioritising 193, 194

proceedable buyers 126–7

property crashes 132–3

re-mortgaging 130–2

shared ownership 118–20

hot tax band 174, 177, 178, 179

hustles see side hustles

impersonation fraud 154

impulse spending 75

income 213

changing jobs 222–3

inflation and 60–1

pay rises 214–22

predictable 232

side hustles 226–33

sources of 53–4

income tax 173–8

index funds 198, 206–9

industry networking groups 217

inflation 39–44, 164–5, 166, 169–70

higher earners 40

impact on finances 60–2

levers against 39

low incomes 40

influencers 141, 147–8, 150–1

Interactive Investor 209

interest charges 62

student loans 236, 237, 238, 241

interest rates 40, 62, 115, 116, 130

investment funds 204

investments 10, 140–1

benefits of 164–8

compound interest 168–73

crypto 148, 149–53

fees and charges 204

financial plans 161–4, 166

FOMO-driven 140–1, 143, 152, 153

future fund 43–4, 163, 168, 173, 189–91

‘get rich quick’ schemes 143–5, 152, 153

getting richer slowly 160–1, 167–8, 195

Golden Rules 166–7

high-risk 145–9

index funds 198, 206–9

ISAs see stocks and shares ISAs

long-term plans 143, 166–7, 167–8

online fraud 153–9

paying less tax 173

regular checking of 211–12

risk 146, 161, 165, 199

scammers 141, 142, 154–9

suicide helplines 152

total return on 170

invisible money 69

ISAs (individual savings accounts) 163–4, 201, 212

benefits of 201

opening accounts 203–4

see also Lifetime ISA accounts; stocks and shares ISAs

IVAs (individual voluntary agreements) 102

Jade (listener) 17

James, Dame Deborah 48

Jessop, Charlotte 53, 54–5, 56, 58, 67, 69

Jitterbugs 29–30

job interviews 222–3

job offers 224–6

landlords 260–2

late/missed payments 90

leaseholds 117

lemon and herb tax band 174, 177, 178, 179

Lennon, John 125

Lewis, Martin CBE 11, 240, 246

life insurance 129

lifegoals 109–39

lifestyle creep 64, 69, 241

Lifetime ISA accounts (LISAs) 123–5, 203

likes, in Aliche’s system 41

lockdowns 111, 140, 145, 146, 154, 166, 226

loves, in Aliche’s system 41, 43

low-balance alerts 70

Luna 152, 153

magic money 145

marshmallow test 187

Masson, Stuart 134, 136

matched betting 227

maths 17

money and 17–20

medium spicy tax band 174, 177, 178, 179

mentors 216

Merriman-Johnson, Timi ‘Mr Moneyjar’ 51, 59, 173

Miller, Gina 15

mindful money choices 6, 41–3, 45, 78

mindfulness 41–2

mistakes 23

money associations 14

Money Clinic podcast 1, 14, 76

Money Dashboard Neon 59

money habits 5, 21, 76

asking questions 8, 142–3, 157, 158–9

automated payments 7, 65–6, 67, 69, 75–8

bad memories 16–17

financial plans 8, 161–4, 166

goals see goals

mindful money choices 6, 41–3, 45, 78

rational vs. emotional decisions 6, 13–14, 20–2

talking about money see talking about money

Money Helper website 191–2

money issues 2–5

money memories 19–20

bad memories 16–17

early experiences 14–16, 21

money mules 156

money problems 1, 9, 10, 16

ignoring 45–6, 52

negative consequences 46

positive consequences 47

money questions 2–3

money, running out of 49–50

Money Saving Expert 85, 86

money-saving myths 34–8

‘buy now, pay later’ (BNPL) 37

‘spending to save’ 34, 35, 39

money values 247

MoneyBox app 76

Morgan, Charlotte 158–9

mortgage protection insurance 129

mortgages 130–2

Mrs Mean Money Show 16, 138

Mrs MummyPenny website 114, 227

Musk, Elon 210

national insurance (NI) 178–9

needs, in Aliche’s system 40–1

negative equity 133

next-level hustles 229–31

number spoofing 156

Nutmeg 205

Okoroafor, Ken 229, 230, 231, 232

Olio app 72

online fraud 153–9

Open Banking 58–9, 77

Ostriches 30–1, 104–6, 108

overdrafts 101, 107–8

parental leave 257

policies 223

password managers 159

paternity policies 256–7

pay rises 214–22

assessing self-worth 216–17

demonstrating success 218–19

errors to avoid 220–1

follow-up to meeting 221–2

justifying 217

line managers 216

negotiating 214–15

private sector pay structures 215

public sector pay structures 215

requesting a meeting 219–20

self-promotion 217–18, 219–20

women and 214–15

workplace processes and protocols 215–16

‘pay yourself first’ concept 67, 76–7

pensions 180–3

tax free investments 186–7

Tax Relief 183–4

see also company pensions

pensions apps 192

Pensions Tracing Service 192

personal contract purchases (PCPs) 134–7

personal tax allowance 174

phishing messages 154

phone bills 73–4

roaming charges 74

social tariffs 74

planned spending 63–5

planning/plans 71–2, 125–6

pound cost averaging 207–8

Premium Bonds 233–4

‘Pret tax’ 72

pride 9, 13, 32

problem gamblers 148

proof of income 121

property see home ownership

Pryor, Henry 126–7, 128

quantitative easing (QE) 115, 145

quantitative tightening (QT) 116

Ramsey, Dave 137, 138

rational money decisions 6, 13–14, 20–2

re-mortgaging 130–2

ready-made portfolios 205–6

Rent a Room scheme 228, 233

renting 118–20

retirement 190–1

reward points 92–3

Reynal, Vicky 20, 245, 246, 247–8, 249, 250, 251, 252, 254–5

rising prices see inflation

risk 146, 161, 165, 199

S&P 500 198

Salary Sacrifice 184, 185–6

sales 34–8

saving money 34–8

savings goals 25, 43, 65–6

targets 67

savings pots 66

scammers 141, 142, 154–9

Scotch bonnet tax band 176

secure wallets 159

self-care 242

self-development 241

self-employment 232–3

separating money 65–6, 67–8, 77

Share Save Scheme 223

shared ownership 118–20

shares 188, 197–8, 200, 207

shopping 60

side hustles 226–7

employers’ opposition to 229–30

next-level hustles 229–31

renting out assets 228–9

scaling up 231–2

taxation and 232–4

single tax 118

SIPPs (self-invested personal pensions) 181, 204, 212

smartphone apps 55

Smith, Terry 210

snowball effect

company pensions 181, 186–7, 194, 195

compound interest 169, 170, 171, 172

snowball method 100

social media 4, 151

social tariffs 74

spare time 226

spending accounts 68

spending buzz 69

spending money 24–5, 33–48

keeping track 54–5

value from 57

see also budgeting

spending plans 42–3

Spendy Wendys 24–5

Spreadsheet Slaves 28–9

Sprive 132

staircasing 120

stamp duty 122

state benefits 234–5

State Pension 179

status anxiety 24

stealth tax 176–8

StepChange 105, 106

stock market 146–8, 165–6, 166, 197–200

investing money 170

long-term growth 170–2

stocks and shares ISAs 150, 196–7, 202

ready-made portfolios 205–6

tax free 202

tax haven status 202

student loans 235–42

interest charges 236, 237, 238, 241

overpayment of 240–2

repayment duration 238–9

repayment threshold 235–6, 238

repayments 236–7

US system 240

written off 237, 238

Student Loans Company 241

subscriptions 55–6

suicide 11

SVR (standard variable rate) 130

Take Five to Stop Fraud (website) 158–9

talking about money 9–10, 243–66

areas of financial conflict 248–53

awkwardness 243

communication with partners 246–8

emotions 243–4, 245

feeling comfortable 244–6

financial advisers 262–3

financial companies 259

financial decision-making 251

finding a resolution 253–5

having children 255–8

internal financial compass 250

making time for 251–3

merging finances 249

negotiating with landlords 260–2

unequal earnings 249–50

Tammy Girl 16

Tapper, Alice 252

Tax-free Childcare scheme 258

Tax Relief 183–4

taxation 173–6

freelance work 233–4

on investments 167

side hustles and 232–4

tax thresholds 174–6

temptation, removing 68

thin files 90

tracker funds 206, 208, 210

trading allowances 232–3

trading apps 211

trading fees 211

trading stocks 146–8

Turn2Us website 234–5

two-factor authentication 159

‘Uber tax’ 72

university degrees

careful course selection 239

financial benefits 236, 239

see also student loans

university graduates 116

post-graduate earnings 236, 239

student debt 235, 238

unpaid labour 226

Vanguard 208

wages 116

wants, in Aliche’s system 41

WEALTH at Work 194

Wealthify 205

Which? 37

Wilde, Oscar 50

Williams, Sara 102–3, 103–4

women

gender pay gap 222, 224–6

gender pensions gap 225–6

pay negotiations 214

unpaid labour 226

Wood, Cathie 210

Yolos 25–6

0 per cent interest 88–9, 91, 94–5

0 per cent spending deal 91

0 per cent transfer card 91

THIS IS JUST THE BEGINNING

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Ebury is part of the Penguin Random House group of companies whose addresses can be found at global.penguinrandomhouse.com.

First published by Ebury Edge in 2023

Copyright © Claer Barrett, 2023

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ISBN: 978-1-529-90625-7

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Footnote

8: Getting Richer Slowly: Investing Using ISAs

fn1 There’s a huge body of research on whether paying for actively managed funds is ‘value for money’ compared to cheaper passives. This is expertly dissected in the book How to Fund the Life You Want by Jonathan Hollow and Robin Powell, and I quizzed them all about it on my Money Clinic podcast (‘Investment Masterclass: The Cheapest Way to Invest’).