In terms of what to invest in, you have two choices: make the decision yourself or ask a financial advisor. Financial advisors can be independent or tied to a specific range of funds and investments, and all vary in the way they charge. Unfortunately there’s little in the way of free advice. Although I have managed my own finances for a long time, I’m not against getting professional advice and have done so several times. However, my two golden rules would be to:

use a recognised independent financial advisor who is regulated by the Financial Conduct Authority

really understand what it is you’re asking for and challenge the answer.

This second point is important as there’s no blanket advice; it should all be tailored to the financial outcome you want to achieve. It’s analogous to asking a personal trainer to devise a plan for you; it will be different whether you want to increase your stamina, build muscle or train for a marathon. Similarly, there will be different advice for pensions or reducing your inheritance tax liability. Equally, when I say ‘Challenge the answer’, I want you to be bold enough to ask ‘But what does that really mean for me in cold, hard cash?’ There have been many times when I’ve not understood the jargon of a financial answer and I always ask for clarification in simple English. ‘What could this realistically be worth in x years, or what is the genuine risk of me losing money?’

So this is how it all started for me. Back in the mid-1990s, when I was IT manager at the wheel manufacturer, we had a raft of apprentices who would be rotated around the different departments to gain experience. I’d normally start the first conversation with something like ‘Hi, tell me what you’d like to do with your life – what are you interested in doing?’ The response, typical of a 16- or 17-year-old was ‘Dunno’, and the cockier ones often threw it back at me, asking ‘What do you want to do with your life?’ So I told them I wanted a career that allowed me to drive a nice car that I could afford to replace every five or six years (at this point, I was just starting out and had a 12-year-old Vauxhall Nova), a biggish house so I could have people round (I was renting a two-up, two-down terrace at the time) and a garden in which I could relax. I also wanted to eat out at a nice restaurant with friends every few weeks, have one or two foreign holidays a year and be able to afford nice presents for friends and family. Oh, and I also wanted to get married. Every single one of the apprentices replied ‘I want the same thing.’ My response was ‘Great, now you have a plan; you just have to figure out what that lifestyle will cost and how you’re going to earn the money to fund it.’ So this is how you do it.

Step 1: Work out what you want (and what your partner wants)

The key point here is that everyone is different, so there’s no simple template. You may hate gardening and want a city centre flat close to pubs and clubs. You might want a large family and a house in the country. You might have no interest in cars and be happy with a ten-year-old diesel Golf or, alternatively, hanker after an Aston Martin. Your idea of relaxing might be reading, running or playing football. For a holiday, it could be skiing in Switzerland, lying on a beach in the Mediterranean or fell walking in the Brecon Beacons. The list is endless.

Of course, your 17-year-old self is going to have fairly optimistic aspirations but as you get older, into your twenties and thirties, you’ll begin to hone these plans into a more solid idea of what you want out of life. It doesn’t matter if this changes over time; it probably will, but the fundamental theme will likely remain the same. It’s what makes you happy and ultimately what you’d ideally like to spend your non-working time doing.

There’s also a big fork in the road that you’ll hit at least once and likely several times: when you’re in a relationship. I’ll cover this in more detail in Chapter 7 but suffice it to say it’s fundamental that you have a conversation with your partner about what they want out of life. I’m not saying don’t have fun while you’re young, free and single – but when you get to the point where you’re in a serious relationship, you really need to make sure you’re both on similar pages. You don’t have to have exactly the same ideas but they should broadly align, otherwise you’re pretty much guaranteed to start falling out further down the road. Two of the common reasons for relationship breakdowns are a lack of communication and a difference in priorities. Most big financial decisions or goals are long term; therefore they need to be prioritised and agreed upon – so talk about them.

Later on, when you reach your forties or fifties, you’ll hopefully be approaching paying off your mortgage, your kids may be out of your hair and you’ll start thinking about retirement. It’s still the same concept but the plan flips from one where you’ve been acquiring assets (paying the mortgage, earning a salary, investing in your pension) and you start consuming (spending). This is the ‘twilight’ phase of your plan and there’s a lot of varied data available on typical spending levels in this phase; an example is shown in Figure 2. For either a single person or a couple it suggests the annual cost of living for three different levels of lifestyle, together with a London weighting.

Budget cost of living (2022)

Single Person

Couple

MINIMUM:

Covers all your needs, with some left over for fun

£12,800

LONDON £14,300

£19,900

LONDON £22,400

MODERATE:

More financial security and flexibility

£23,300

LONDON £28,300

£34,000

LONDON £41,400

COMFORTABLE:

More financial freedom and some luxuries

£37,300

LONDON £40,900

£54,500

LONDON £56,500

Figure 2: Budgeting your cost of living in retirement (Pensions and Lifetime Savings Association 2023)

These are quite generic numbers and won’t be applicable to everyone, but it’s a good guideline to start from. Approximately five years ago, Lou and I did a deep financial review and some lifestyle profiling with a big-name investment company and the feedback was that whichever way you cut it, holidays, socialising, cars or whatever, most couples come out at an estimated £36,000 per year of expenditure, so I believe you can take this as a fair benchmark.

It’s helpful to pause for breath here and acknowledge that this isn’t all about money. Yes, it’s a fundamental part of it but while it’s commonly said that ‘money can’t buy you happiness’, it certainly unlocks many more options and choices. For this reason, it forms a large part of my approach to life and not just to increase the balance in our bank account. I came across a better quote the other day: ‘Being rich is having money, but being wealthy is having time.’ Later in the book I’ll discuss value, which is generally about the value of the brands or products we buy but it’s also about valuing your time. At this stage, I’d ask you to commit to spending the time to look through your finances and work on making a plan as it will pay you dividends (no pun intended) later down the line. We all have the same 24 hours in the day but you have a large say in how you spend that time, so make it count.

Step 2: Set some targets

These don’t necessarily have to be direct numerical ones; they might, for example, be paying off the mortgage or clearing a credit card debt. Again, a target can and will change over time but at least you have something to track to. If you know what you’re aiming for, you can monitor progress and you’ll know when you’ve achieved it. Having a meaningful target is better than a more vague goal such as ‘I want to manage my money better’.

I was recently chatting to a good friend (a farmer turned accountant) who has also retired early about whether this approach was anything new, and he summed it up in a very Micawber-ish way: ‘Spend less than you earn and invest the rest wisely.’ So to achieve the core elements of your financial goals, you’ll need to:

spend less

earn more

understand investments.

I’ll deal with these in more detail in later chapters – but how to start? You’ll need to know (roughly) where you want to be and then understand the three core mechanisms (or levers) that affect how to get there. So how do you start? Primarily, you need to work out your baseline or financial starting point.

Step 3: Know your financial position

This is where you have to sit down with a pen and paper or a spreadsheet and document everything you know in relation to your finances. Some are straightforward: bank account, mortgage balance, credit cards and so on, but you need to capture everything – car loans, pensions, premium bonds, ISAs, savings accounts, etc. Plus, you need to document any big assets that you own or are on your way to owning. Primarily this will be your flat or house (which you’re paying towards with your mortgage, unless you’re renting, in which case ignore the property figure). It could also include your car but only if you own it outright or have a loan that’s paying towards it and you’ll own the car at the end of the loan. If it’s leased or on a similar personal contract purchase (PCP) agreement, don’t include the value of the car because you won’t own it at the end of the contract.

You should arrange this in two columns (see Figure 3): what you own that’s of value and what you owe to others. Column 1 minus column 2 is your net worth. Don’t be tempted to ignore or hide anything and don’t worry too much at this stage about the net worth figure; think of it as the starting point, not your end state.

What you own of value

What you owe

House

250,000

Mortgage balance

175,000