This is against a backdrop of a fairly weak UK economy but the returns are still positive. Having tracked my finances closely since university, it’s been a similar story – much the same as the examples in the investment chapter showing that generally economies grow over the long term. This is despite some very challenging economic periods in terms of recession, wars, international terrorism, changes of government and, not least, Covid-19.

You don’t need to go into as much detail as I do but, as part of my research, I started tracking our investments against three main indices – the S&P 500, the FTSE UK All-Share and the MCSI World Index. On the first of every month, I take their closing price and plot it alongside the spot valuation of our investments. In Figure 14, you can see that not only do the indices (bars) go up and down every month but they don’t always move in tandem! Our personal investments are shown by the solid and dotted lines. We don’t plan to beat the market – in fact, I don’t think it’s possible – but I’m comfortable that we’re not massively losing against it on a regular basis. Think about it like this: if your investments have gone down 5% in a month but the main markets have lost 8%, you’ve done well. If your investments have gone up by 10%, how have they done against the main markets? I don’t worry if I’ve not beaten all of them but I’m happy if I’ve done better (or ‘lost less’) than at least one of them on a regular basis.

Given the variable data in the graph, there’s a note of caution when reviewing your portfolio or researching a particular investment. It comes back to marketing and noting that any investment fund will try to position their performance in the best possible light. While one might say they’ve performed better than a benchmark of their peers, another might show they’ve beaten a particular index or that their five-year returns are better than average. In other words, it’s difficult to compare funds as their baseline is not a level playing field.

As detailed in Chapter 6, I like to look at fees, yield and the consistency of returns over five years, as well as the cumulative five-year performance. As a benchmark I then compare this with either the S&P 500 or World Index.

If you do talk to an advisor or someone proposing a particular investment, I suggest using the following two questions (loosely based on Warren Buffett’s mindset) to help determine whether it’s something to invest in:

How has the fund performed against the S&P 500 over the past five and ten years?

Do you believe the fund will outperform the S&P 500 over the next five years?

There’s another common issue that stems from this regular volatility and arises when you transfer to a new provider. If you invest £50 a month over a number of years, you don’t notice this volatility as much, partly due to the effects of pound cost averaging but also because you’re actively increasing the amount invested. However, when you transfer a larger sum from one provider to another, if you hit one of those market falls, you see a quick loss in value. I often read posts on forums saying ‘I’ve just transferred my pension over to ABC and it’s dropped 12% in two months – should I ditch them?’ My hunch would be no, as hopefully the market risk would have been explained before the transfer but mainly because I believe you really should give this sort of investment at least a year before making any rash decisions. It also depends on the fee structure of that transfer, and how (when) it is applied, but ultimately comes back to time in the market rather than trying to time the market. It underlines that selecting a platform or provider is important and you get the balance of fees and advice you’re comfortable with.

Once you have an investment of a reasonable size, those fluctuations matter less. In other words, the bigger the investment pot, the less the impact. I look at our net worth figure daily (in part because it’s on the front dashboard of Moneyhub) and it can go up or down by as much as £10,000 in a week but it doesn’t worry me, as we’re only withdrawing a tiny fraction of it every month and there are years of investment growth still to come. So provided it stays within a fairly broad range, there’s no need to panic.

Therefore, building a larger investment pot protects you from market volatility. You don’t need to be a maths wizard to do this – what you need is a basic understanding of finance and to follow the principles of regular investing in low-cost investments. The gist of this chapter is to show you how to manage your plan and feel comfortable with how it’s progressing. There are no hard and fast rules for doing this other than finding a process that works for you and you can follow frequently and simply. When I was at Amazon, every team or project had weekly, monthly and quarterly business reviews (formally known as WBR, MBR and QBR) supported by a report or data, a discussion of the prior period and plans for the next. You don’t have to be quite this structured other than scheduling a regular time to review your plan. Based on our eureka moment, Lou and I jokingly refer to our monthly chat as an MBR – our Monthly Bath Review.

Key takeaways

Choose what you want to monitor – either a single metric, a pure value or a selection.

Set yourself some targets and a timeline, together with a mechanism to track them that you’re comfortable with.

Find time to review your progress regularly. It doesn’t have to be weekly, possibly not monthly when you start, but I’d suggest a minimum of quarterly.

Don’t worry if your metric goes the wrong way or your investments fall in value in a single month. What you’re looking for is a long-term trend and being mindful of what the wider market is doing. The time to be concerned is when you’re consistently trending against the major indices.

"In a nutshell, what are you saying?"

Chapter 9

Conclusions

I wrote this book in response to the many friends and colleagues who were intrigued as to how we were able to give up work at an age most would consider early for traditional retirement and how we were confident that our finances would support us. Working through how we’d actually achieved this, a close friend nailed it with the phrase ‘spend less than you earn and invest the rest wisely’.

We then started looking at each of those three elements to understand how our approach might have been different from our peers’. Any references to products are purely based on our experiences and how they support the ethos of our financial lifestyle. We haven’t been paid for any insertion in this book and you should be aware that there are often several alternative products available.

Spending less

In terms of spending, there were three parts. The first was the true cost of borrowing money and the principle of not being in debt, or clearing it as a number one priority. The second was that we didn’t buy into the idea that many premium brands were great value for money; instead we made buying decisions on functionality rather than image. Third, we made things last, either through fixing them rather than replacing them, or simply not replacing them until they’d worn out.

If you have one, a mortgage will likely be your biggest loan and it’s not just the headline interest rate you need to understand. How the balance is repaid is critical to ensure you minimise the amount of interest you pay. We believed in the idea of paying off your biggest debt as early as possible and this was our focus. We’ve had other loans and credit card debts and these were equally prioritised over any other spending after food and utilities.

Historically, some brands were, or felt like, a premium option and this was primarily driven by their low volume and therefore exclusivity, not to mention higher prices than mass-market options. Advances in technology, manufacturing and global supply chains have allowed many regular brands to now be of equal quality. The original Czechoslovakian Škoda was the butt of many jokes in my childhood due to cheap materials, inconsistent manufacture and poor quality, yet now it’s a respected, high-quality brand. Indeed, when I chose mine as a company car, it was midway on this journey; I took a lot of flak but it was a very good, economical and reliable car. Similarly, the South Korean Kia currently offers the longest warranty of seven years and 100,000 miles, yet it’s not yet thought of as a quality choice despite offering a better warranty than premium, more expensive brands.

The technical specification and features of products are often underused and therefore a waste of money when compared to the functionality you actually use. Take the compact digital camera; many have settings for different exposures, shutter speeds, filters, macro or night shooting, yet the default is the ‘auto’ mode, which most people stick to. We’re living in an ever more commercialised world, driven in part by technological development. Marketing fuels this, enticing us to upgrade to a new version as soon as possible, or immediately our finance deal ends. If you can break out of this cycle, even by a few years, you can save money. It’s also better environmentally.

Earning more

Again, this can be broken down into three parts: your career, your pension and what you can do alongside to earn something on top. Taking a proactive approach to your career will help you increase your earnings, with your skills, experience and attitude all areas open for consideration on how you might improve them. Whether you’re employed full time, self-employed, contracting or part time, making yourself ‘employable’ will help you earn more or, more simplistically, offer something that someone else wants and is willing to pay you to provide.

Alongside employment, pensions deserve a special mention due to tax breaks and essentially ‘free money’. Regular investments in your pension, however small, are your number two priority after paying down your debts.

There are several options to earn additional income, from selling unwanted items or leveraging cashback and loyalty programmes. Be wary of oversimplified media posts that claim to be a ‘quick win’, as I don’t buy the idea of a shortcut for a reliable and guaranteed return. Property can be a profitable option for rental income but it’s not open to all as there are high costs in buying property and the added risk from servicing the mortgage debt.

Investing

Financial investments can be complex and carry high risk, as you can’t guarantee returns. This doesn’t deter financial institutions from offering products or building funds that they believe will perform better than a competitor’s. Some of these investments will generate returns but they come at a cost and there isn’t a commercially created consistent performer.

What has proven to be consistent is the long-term reliable growth of equities. As such, a simple index tracker provides, in my view, the safest option for a low cost, diversified, lower-risk investment over ten, twenty or more years.

A final comment on investing and one tied to the primary objective of paying off your debts: however good an investment looks, never borrow to invest. There’s always a risk, however small, that an investment fails, or more likely, doesn’t perform well. There’s too much at stake to take that risk.

What can you do?

Having read our story, you might be feeling a little overwhelmed and wondering how on earth you’re going to do all of this. Fortunately, all of the elements are independent of each other, so you don’t have to do everything, or do them all at once. You might already be driving a second-hand Škoda or be a great cook who enjoys preparing meals from scratch. Equally, some of the insights into investing or branding may be new to you and take some time to buy into. You can do as little or as much as you want or feel able to. Just by having a better insight how finance works may be sufficient for you, or that you start thinking about having a personal plan rather than drifting along and living life as it happens.

There’s another element and that is personal choice, having the courage not to be influenced by peer pressure and being confident in your decisions. I chose to drive a five-year-old diesel Vauxhall Insignia and Lou a ten-year-old Ford Fiesta when colleagues were leasing a new Audis and Mercedes. Lou chose to wear a new pair of Dune boots from Vinted at half price when a friend bought a similar pair at full retail price. It was my choice to buy the previous model Android mobile when a close mate always has the latest iPhone on contract.

We have, of course, had some good fortune along the way – one being our marriage and finding a soulmate with the same ideals and mindset about money. Buying our house with some land was a bit of a gamble, not to mention a stretch on the mortgage, but securing planning permission was a step-change in being able to build a cottage to rent and cheaper than buying a second property. Some of our jobs have opened up opportunities for training and working abroad and allowed us to progress our careers. While we’re not what you’d ever call athletic or particularly sporty, we have enjoyed good health. You may have different opportunities; you don’t have to replicate ours.

Equally, it’s not all been plain sailing and we’ve faced lots of financial challenges. Being made redundant and out of work for nearly a year; the gearbox failing on Lou’s car and costing nearly £3,000 to fix just before we were planning to sell it; the oil tank splitting last year and needing replacement which, together with refilling with oil, cost £6,000 that year on top of the electricity bill.

I was chatting recently with a good friend who’s spent her life in the nursing profession, with a particular interest in nutrition. While we discussed whether you really could oversimplify topics like these, we agreed that there were some analogies with the approach we’ve taken to that of dieting and weight loss. ‘Spend less than you earn’ is a similar concept to ‘eat less and exercise more’. Of course, it’s easy to say and harder to do; I’m still a little overweight and eat and drink a bit more than I should but it’s the same approach to making it work. Understand the basics, set yourself a plan, monitor the results and find an approach that works for you. Just as you might hate the idea of going to the gym, you may find cycling a better alternative. The more you ride, the easier it becomes and you start to see the improvement in your stamina and distance.

It’s the same with our finances. As we’ve progressed along our journey, we’ve been able to build in a buffer and have that ‘rainy day’ money that covered the unexpected expenses. The focus on spending on functionality, not brand, has also helped us to be avoid struggling to put food on the table or pay the bills. I know that we’re fortunate to be in this position but it’s the result of the way we’ve approached our spending and saving over many years. We also believe it’s not rocket science and you could benefit too.

To summarise, below are my ten key points to help you gain money confidence for a more secure financial future:

Know what you’re spending. Look at your bank statements and understand where all your money is going. Challenge yourself – do you really need to spend that much? It’s not necessarily about cutting things out – it’s about whether or not you’re getting value for money and how much you’ll use what you’ve bought.

Think about your job: what can you do to move up in your current company or gain skills that will get you a higher paid role elsewhere?

What can you do to generate some extra income or savings? Think about tax breaks, loyalty schemes or selling off things you don’t need.

Don’t ignore your pension. Enrol in your company scheme and find out where your old pensions are. Consider consolidating old ones into a SIPP in a simple tracker or packaged pension fund with low costs.

If you have a mortgage, understand the true cost and how much you’re paying in interest. Focus on the rate at which the capital balance is repaid and aim to overpay.

Talk to friends or family. Try to overcome any awkwardness about financial conversations and never feel ashamed that you don’t know as much as you think you should. You’re likely to find that others are in the same boat.

Think about your retirement now. What would you like to do in later life? Understand what a plan to achieve this might look like.

Set aside some time on a regular basis (monthly is a good start) to check how your plan is doing. If you’re confident with Excel, track it on a simple graph to better visualise your progress. Schedule a couple of annual tasks such as checking your State Pension forecast and your credit rating.