When is the second best time to plant a tree? Today.
Talking of time frames, I grew up in the 1970s and 1980s when life was very different. When I was at school, we had one phone and it was attached to the wall with a curly cable. Our information was sourced from books in the library and we only had four TV channels (and they stopped broadcasting at midnight). Only cameras took photographs and you had to wait until you’d taken 24 or 36 before sending the film away for a week to be printed. Since then, I’ve seen the birth of home computers, laptops, digital cameras, mobiles, smartphones, email and the internet, and the rise and fall of video, then CDs. Set against these technological advances is the way finance has developed. First, the general principles of economics have stayed the same: companies make things, buy and sell or provide a service and create a profit by increasing their customer base or margin. As they grow, so a company’s value increases. Although what they make or sell or how they deliver that service has changed dramatically with technology, the way those companies are valued is the same, and that provides a stable base for a long-term financial plan. Where technology, in my view, has destabilised personal finance is in the range and availability of credit (of the ‘buy now, pay later’ variety), the complexity of financial products (such as cryptocurrencies or the way debt can be packaged, restructured and sold to another institution, several times over) and the ability to create duplicate (or copycat) products that look and feel like a well-known item but are cheaper and lower quality. These all contribute to a society where many things are proportionally cheaper and more readily available, leading to a risk of spending your money more freely than we did 10 or 20 years ago.
The reason for mentioning this bit of history is that it has influenced much of the way I think and formed the basis of my approach to finance. There was no online marketplace, next-day delivery or instant download of the latest film; if you couldn’t afford it, you had to save up for it, and if it wasn’t available in your local shop, you had to wait 28 days for delivery, if you could get it delivered at all. Don’t get me wrong; I love the current world we live in, with all the benefits technology and progress have brought, but the mindset of waiting and thinking about a purchase and valuing that purchase is, to my mind, quite different to that of many today. This understanding of how we think about spending the money we have is half of the plan, the other half being how to earn more in the first place.
In this book, I’ll be covering the key principles of financial planning, together with an overview of the different types of finance and investment. I promise this won’t be too technical but it will show you how to evaluate the true benefit (to you) of a financial decision and how to differentiate between several competing options. Then I’ll dive into linked concepts of spending less and earning more. This is where you’ll be challenged to put in some effort, as failing to grasp these two things can seriously damage your plan. The next section will be on marketing, value and debunking some ‘get rich quick’ schemes, as it’s important to understand that very few businesses are ‘on your side’ – they exist to make money out of you. But there are also several eye openers that can help reduce your spending. I’ll also talk about relationships – many of you will be in them but unfortunately they don’t all end ‘happily ever after’. However, now’s the time to stand up and take ownership of how you’re going to manage yourself and your finances, whether it’s on your own, as a couple or as a family. Don’t worry too much about your starting point – the plan is adaptable. As long as you understand the basics, you can build one that works for you.
And finally, I’m sorry to tell you but, at some point, you’re going to die. It’s an often overlooked aspect of financial planning and one that people only start thinking about in their sixties or seventies – and that’s too late. So let’s put it on the table and build it into your plan from the start. To finish, I’ll cover how to monitor your plan and ensure that you keep tabs on whether or not you’re on track. Again, this won’t be too complicated – it involves a bit of spreadsheet work and some examples of some of the technology that makes this bit even easier. If you do want more detail, turn to the Resources section at the back of the book. So grab yourself a cup of tea and start learning how to unravel the mysteries of personal finance, taking those first steps towards creating a plan that will increase your money confidence and give you financial freedom.
"Where did you learn all this?"
Chapter 1
My background and worldview
My wife and I fund our lifestyle through our savings, property and pension investments, which we’ve built up over the long term but consolidated into an early retirement plan over the past ten years. It’s not strictly true that we’ve given up work altogether; it’s more accurate to say that we’ve given up paid work as we volunteer with a number of local charitable organisations. This was always part of the plan – to give something back to society while having the freedom to do what we want the rest of the time. Yes, we have been and still are frugal but we’ll also spend money on having fun. For example, last year we bought a BMW Z4 convertible and have booked first-class flights to Barbados in the spring. But the car is a ten-year-old model bought at auction and 80% of the cost of the flights was covered by points built up on a credit card over the past four years. It’s really about the mindset you have about money and financial decision making, how you value what you buy and how you think about long-term saving. That’s been a key part of what we’ve done. It’s the confidence we have in making those decisions that allows us to be stress free about the way we live now.
We haven’t won the lottery, neither have we inherited a fortune. Although my parents have died and left me a small inheritance, that was never part of the plan. We always intended to fund our lifestyle ourselves. We haven’t enjoyed huge salaries or bonuses and, although we’ve both been in near continual employment, many of our friends have been (and some still are) earning more than we ever did. However, we have enjoyed good health and had a few lucky breaks along the way, some of which were of our making, some of which were just the way the cards were dealt. Similarly, it’s not all been plain sailing – I’ve been made redundant and we’ve had periods out of work, I’ve had credit card debts, and we’ve suffered crippling mortgage payments. If anything, these strengthened our resolve to be financially secure and prove that even when times are tough you can survive.
My story so far
I’ve had a stable family background and a good education. I’m forever grateful to my parents for making the sacrifices necessary for me to go to private school and, while I wasn’t a particularly brilliant pupil, it did instil in me a work ethic and acceptance of discipline and structure that have helped me throughout my life. It was also what prompted me to go to university, mainly because everyone else did. I have an enquiring mind, I’m practical and believe I have a lot of common sense. I’ve got where I am by working hard and the fact that I twigged early in life that I needed some form of financial game plan, first to get me out of debt and second to secure my financial future. It’s become integral to my mindset in thinking about finances, which has developed into a tenacity to be able to stick to that plan.
I left university with a degree in Production Engineering and Manufacturing Management but probably the most important life skill I came away with was learning how to cook on a budget! However, this didn’t help me find a job – I graduated just as the country was coming out of a recession in the early 1990s. My dad had taken on a small printing franchise, so I worked for him for a few years. As much as I loved the creativity and wanted to take on the business, he was insistent that I forged my own way in life, so I continued applying for graduate jobs and finally landed a role with a partnership between Warwick University and a wheel manufacturing company.
I started out as an engineer working on a novel project to get computer screens onto the shop floor (effectively an early version of an intranet). I stayed on after the project ended and took over management of the IT system. During my time there I was mentored by the technical director, who taught me about Japanese production efficiency through the likes of Dr W Edwards Deming and his 14 principles, and Japanese industrial engineer Shigeo Shingo. What I saw was that the application of common sense and a simple approach to problem solving could translate outside the world of the production line, and I’ve used these principles throughout my career. It was also here that I met Lou, and we married in 2003. She ran the tyre distribution operation in the North and I was based in the Midlands, so it prompted us to move jobs and relocate a little further south, working for a European distribution company. I worked there as the IT manager, expanding into quality, and through merger and acquisition ended up closing the site in the south and commuting to Scotland as operations manager for a number of years. Again, the UK was in recession (2008/9) and we felt it was better to have a job than not, so we had a couple of years of remote living before I took redundancy. After about a year, I secured a project manager role with a parcel company before I was enticed to join Amazon as part of their fledgling logistics team. I stayed there for just under eight years before finally deciding we could achieve our plan of early retirement.
It hasn’t been a particularly structured career in terms of a long-term plan but at each change of job, there was a progression or step up, leading to a wide variety of roles and locations. I had some excellent mentors along the way, who were instrumental in shaping the way I think about business and, by extension, finance. For the most part, I’ve enjoyed all my jobs but, like many, I’ve had my share of working for and with people I didn’t particularly gel with. The positive from this was to spur me on to move teams and widen my experience or move company. Throughout my career, there have been a number of times when something has happened to me or I’ve remembered a conversation that has stuck with me; looking back, these form some pivotal moments in my financial learning.
Pivotal moments
In the sixth form, I remember two general studies classes. One was delivered by an actuary from Norwich Union (now Aviva) who was so boring it made me think I never wanted a career in finance, which is a little ironic, given where I’ve ended up. The second was delivered by our geography teacher and basically enlightened us about money and budgeting at university. Up to that point, I literally had no idea about student finance, other than the fact that there was a grant. It was my first time living away from home and I hadn’t thought about rent, electricity, laundry or food, let alone how there might be any money left over for beer and running a car!
Later, as part of the Warwick University scheme, I was enrolled in the university pension for two years. I knew I wasn’t likely to work in the public sector long term so tried to transfer it into a private pension but at every turn I was told by the scheme’s administrators (one of the UK’s big four accounting companies) that I couldn’t because it made no financial sense to give up the guaranteed benefits I’d receive on retiring. My dad’s accountant stepped in to explain that the fund was so small that by the time I retired it wouldn’t cover the cost of a daily newspaper and a loaf of bread per week, so it was a shallow argument. It resonated with me that not everyone giving advice is either on your side or has any common sense. It was also around this time that I contracted out of part of the State Pension (through the State Earnings Related Pension Scheme or SERPS – see Green 2023) on the basis that I preferred to be in control of my own pension, rather than relying totally on the government. This early experience of pensions led me to become a pension trustee in a later role, which allowed me to get some first-hand training in how pensions actually work and how large pension funds manage investments. It was an invaluable experience.
Thinking back to my first mentor, he also introduced me to metrics and, more importantly, key metrics. By this I mean a single measure that shows how you’re doing, rather than a myriad of tables, graphs and statistics which can be used to ‘spin’ performance in a better light. He asked me every month to track the number of wheels made and the total labour hours in the factory. Over three years we showed that the ‘wheels per labour hour’ more than doubled, meaning that our output produced twice as many wheels for the same labour input. Irrespective of which department was contributing to this, overall the factory was ‘more efficient’. Again, I’ve used this approach throughout my life and adapted it to our finances as well, to look for a single, simple measure of how well we’re doing.
Long before Chris Tarrant uttered the immortal question ‘Who wants to be a millionaire?’, the welding shop manager of the wheel company asked me something very similar. When I joined, the company had been through a chequered period, with the previous owners having absconded with the pension fund. There was a new pension scheme in place but understandably the company was overcommunicating at every opportunity to ensure employees felt their investments were safe. In one discussion about how challenging it was for older employees starting from scratch again, this wise old sage commented, ‘Don’t worry about us, you’ve got bigger problems – you’ll need a pension pot of about a million to have any sort of retirement.’ At the time, I was earning £12,000 a year and the thought of building a pension that size was overwhelming and seemed impossible. It was certainly a challenge and while I’ve not achieved that figure, I’m very close. Because I’ve chosen to stop working earlier than most, I can’t contribute much more but I’m confident I’d have achieved it had I stayed working for longer. However, it does illustrate that what seem like huge goals can be achieved over a long period of time – but you need to actively work towards them. One million probably needs adjusting for inflation but the exact figure is largely irrelevant; it’s the fact that it’s a big number and when you start it seems an impossibility but it gives you a big, clear target to aim for.
As I’ve already mentioned, I was lucky enough to have had some excellent mentors early in my career – senior employees who took the time to talk to, encourage and offer advice to younger staff like me. One, who was also my boss, turned down my proposals to upgrade some low-specification computers. I protested, to which he said, ‘You might be right and I don’t know enough about this new technology but you have to accept that I’m the decision maker and you have to live with it.’ I was frustrated with the decision, as I felt it was ‘obvious’ that we should upgrade. However, it taught me to accept the decision and move on; you spend a lot of time at work, and it’s just not healthy to harbour a grudge when a decision doesn’t go your way. At the same company, I learned much from the purchasing manager, who was a master of negotiation. One of his favourite challenges to any of my project spend was ‘Why buy a Rolls-Royce when a Mondeo will do the job?’ Having had such a positive experience of mentoring throughout my career, I’ve always tried to ‘pay it forward’ and encourage others who are just starting out in their career. This book forms part of that ethos.
Deeper reasons
There’s one more significant reason why we put together a plan to retire early and have the chance to enjoy life a little more before old age kicked in. On my 17th birthday, I visited my dad in hospital after he had undergone the first of two heart bypasses. Similarly, my father-in-law had a stroke at 52, which left him disabled in his movement and speech. Both were workaholics and weren’t able to enjoy a traditional retirement. On many occasions in my later years at Amazon, when I was working late into the night (as many did, and still do) I’d say to Lou ‘I’ll just be another 30 minutes’, and she would retort ‘I’ll write that on your gravestone – “I gave my final half hour to Jeff Bezos!”’
There’s also a sense of morality and ownership, even though some might think of it as more political. In my mind it’s not; it’s about how you contribute to society. At heart, I’d be called a capitalist over a socialist, on the basis that I believe you need wealth creators to build businesses, pay tax and grow an economy that has sufficient funding to support the less well off. I also believe we’re free to choose what we spend our money on; however, that includes ownership of how we fund our lifestyles. For that reason, I choose to pay for private dental cover and chose to pay additional contributions into my pension. In the same way that my parents supported me through school and university, ultimately it gave me good career choices and I’ve contributed back through my taxes.
We had a lodger a few years back who was a genuinely nice guy but quite vocal in his opinions and on one occasion (while watching the evening news) we discussed pension contributions and he said it had nothing to do with him: ‘Once I’ve paid the bills and put food on the table, what’s left is for me to spend on myself.’ I asked him how he might fund his retirement and he said (again), ‘Not my problem; it’s the state’s responsibility to look after me in my old age.’
We all have different views and I try not to be too judgemental when they differ from mine, particularly when related to finances, but I feel strongly that personal ownership is important, not just with money but also in relation to your role in society. Being judgemental goes both ways, though, and I feel equally frustrated when people say ‘It’s OK for you, you’re rich’, as though it’s just fallen into our lap. Although I’ll admit I’ve been guilty of this too. At university, the parents of a housemate went on a round-the-world cruise for their 25th wedding anniversary. His dad ran a successful family business so my girlfriend and I both commented that it was easy for them ‘because they were rich’. My mate explained that his dad had started a 25-year savings plan after his wedding in order to fund it. I recall it was £20 a month, which was a reasonable amount at the time and showed long-term commitment plus a shrewd financial mind. That same university housemate has just been on a similar holiday for his own 25th anniversary and I smiled inwardly when friends said it’s all right for them ‘because they’re rich’. Yes, they could afford this extravagant holiday but the fact is that their approach to money, the financial decisions they’ve made and the prioritisation of their spending has resulted in their wealth.
We all make choices every day – some short term, others longer term. Through this book I’m aiming to give you the tools to make some more informed choices for a stronger financial future, whatever your beliefs. I hope this has given you a flavour of my background and a few of the things that have influenced my thinking. I’d like to do some good with this book and if I can help a handful of people think again about their finances, make a few changes and have a more secure, confident future, then that will do for me.
Key takeaways
Take ownership of your plan – don’t rely on others to do it for you.
Learn from others – even small things can make a difference if they resonate with you.
The plan is long term and the ‘big picture’ goal is a more confident financial future.
"Where do I start?"
Chapter 2
The basics
In Charles Dickens’ book David Copperfield, first published in 1850, Mr Micawber states:
‘Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds [n]ought and six, result misery.’
This concept is simple. As I’ve hinted at, this book isn’t just about better financial management; it’s also about your overall health and wellbeing and society in general. The Dickens example is analogous to dieting, which you could argue simply means to eat less and exercise more (or consume fewer calories). To quote a more recent fictional character, Jennifer Saunders’ Edina Monsoon in Absolutely Fabulous, ‘Well, if it was that simple, sweetie, everyone would be doing it.’ But if you don’t stick to the basics and have a sneaky chocolate biscuit here, a new pair of shoes there, before long you’re slightly overweight, out of breath… or, in money terms, starting to feel stressed about your finances getting out of control.
So how do you go about fixing this mindset? The challenge is twofold. First, there’s a lot of conflicting advice out there; and second, this stuff isn’t really taught in schools and no one (at least in the UK) receives any structured education about money management. This second point is exacerbated by fears of litigation after giving the wrong advice. If you talk to any finance professional, they’ll often cage your options with so many safety nets you might feel as if you’d be better off sticking your money under the mattress! I’m being slightly tongue in cheek here, as there are good advisors out there, including many independent ones, but the fact is that investments go up and down and no one can predict the future, nor which investment will do better than another. It’s broadly similar to dieting (again) – if there was a single diet book that worked for everyone, there would be no need for any new diet books, yet they keep on coming.
