Similarly, you need to do the same with income and in most cases this is much simpler, particularly if you’re in full-time or regular employment. If you’re contracting or have variable income (for example, through overtime or commissions-based sales, or are self-employed) take an honest view over a reasonable period of time. Typically, categories might look like this:

income from main employment

savings interest (or cashback)

benefits (eg child benefit, child tax credits)

other income (such as part-time work, second jobs or ‘side hustles’)

gifts

There are several budget tools and templates available online to help you with this, although the categories above should be sufficient for now. Don’t worry about setting a ‘budget’ at this point; what’s important is to know what you spend now before you can tackle how and where you can reduce your spending.

Spend less, earn more, invest wisely

Over the next few chapters, I’ll tackle the three core elements of spending less, earning more and investing wisely. The fundamental part of spending less (after knowing what you spend) is realising what you’re overspending on. There are the essentials: food, a roof over your head, electricity, etc. But we live in a highly commercialised society and the pressure to make additional or discretionary spending is ever present. This spending isn’t really necessary and there are many tricks (or marketing strategies) that companies use to encourage us to spend more. What’s more, whatever ‘it’ is, they also manage to convince you that you do actually need it, it’s great value and you should congratulate yourself for buying it! Needless to say, I disagree with a lot of this and will walk you through some of these marketing concepts to help you rethink what you spend your money on, with the ultimate goal of helping you to spend less.

The flip side of the coin is how to earn more. I’ll explore how to build a career plan, or at least to manage your career path with the objective of earning a better base salary, with methods of achieving regular, incremental increases. Unfortunately, the last time most of us were given any career advice was at school but this wasn’t really the best time for it, not least because we probably didn’t really know what we wanted to do and were more interested in getting our first girlfriend or boyfriend or passing our driving test. Think of the ‘Earning more’ chapter as revisiting your careers advisor but at a time when you’re more likely to understand the impact of your choices and decisions and you’re in more of a position to act on them. And don’t worry if you don’t have A-levels or a degree – experience, attitude and approach will advance your career more than qualifications on a piece of paper.

Having started to explain how to better manage your money and increase your confidence in making sound financial decisions, it’s worth pausing to talk a little about motivation. I’m not a motivational coach, but I can share with you learnings from my own experience – however, you’ll have to figure a bit of this out for yourself. You need to think about what motivates you because if you’re going to follow a long-term plan, it’s more likely to succeed if you tailor your approach to match what motivates you. This isn’t exactly scientific but it’s about knowing what holds your interest; it might be as simple as a straightforward goal such as paying off your mortgage by the time you’re 50, or clearing your credit card debt by the end of the year. Or it could be a little broader, such as trying not to buy any new clothes for the next year, using your car less and walking more often, or throwing away less food. Think about it and talk to your family or partner about it, as it’s not only enlightening but can also help elsewhere in your life. For example (and unsurprisingly), I hate wasting money or spending when I don’t really need to, and it’s a key motivator for me in any decision.

When I was little, I was involved in a car crash with my mum. This was long before the days of compulsory seatbelts and I was thrown forward and hit the dashboard, breaking my front teeth, which had only just come through. About 15 years later, I was in a fight at school and broke a front tooth after my head was smashed into a desk. Unfortunately, as this was already my second set of front teeth it meant having to have them capped. Everything was fine, with the cap holding firm through my teens, early adulthood and through to midlife. About five years ago, I tripped over in B&Q and landed on my face, breaking a tooth again. Over the next few years, I had to have it refitted several times, each time bonding the new tooth on less and less of the old one and each time the dentist assured me it would ‘last for years’. Since I now pay for my dentistry, I’m paranoid that it will fail again and I’ll get another large bill to fix it. This has resulted in me finally stopping chewing my nails or ‘cutting’ Sellotape off the roll with my teeth. Trying to avoid another unnecessary dental bill has definitely changed my behaviour.

One bit of homework for you to do is to work out what motivates you so that you can build this into your plan. I’ll come back to this in the section about managing and tracking your progress, in order to find and use metrics that resonate with you so that you’re more engaged and have a better chance of success. The last thing I want to do is tell you how you should do it and for you to then lose interest because it’s not aligned with what makes you tick.

On FIRE

At this stage, some of you might be thinking that all of this sounds similar to a fairly well-known movement called Financial Independence and Retire Early, or FIRE as it’s commonly called. The exact origins of the term are unclear, although many attribute it to the concepts outlined in the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominguez. I’d argue that my approach is slightly different; it’s a mindset change to your way of life, how you approach financial decisions, understanding true value for money, maximising your earning potential and understanding the budget you need to live a life that’s fulfilling for you. Moreover, I don’t want to just focus on the final outcome. I’m more interested in mechanisms that get you there, the confidence you have in understanding and making good financial decisions and therefore having more control over your financial future, whatever that may be.

But let’s look at some definitions and you can make up your own mind. To many, FIRE in its pure form is about ‘ultra saving’ (maybe up to 70% of your income), living frugally and investing your savings with a view to stopping work as soon as possible, in some cases in your forties. In theory and practice, many people have done this and good luck to them. I’m conscious that we’re only on this planet once and therefore, while not being too extravagant, I believe we should always schedule some time (and funds) to enjoy ourselves. A pure FIRE evangelist might want to live on bread and water and not take any holidays but it’s a little too drastic for me and maybe for you too.

As ever, there are also variations on pure FIRE. There’s FatFIRE and LeanFIRE. FatFIRE is when you retire early and live a lavish lifestyle ever after. LeanFIRE means to retire early but with an amount that allows you to lead a lean and simple lifestyle. FatFIRE does follow some similar principles to my approach but doesn’t help you understand how finances work; instead, it focuses on some key numbers and rules. To ‘achieve FatFIRE’, received wisdom says you need to have 25 times your yearly spending in your investment portfolio. So if you wanted a ‘retirement’ or lifestyle of £36,000 a year, you’d need £900,000 in your pension/ISA/savings pot. This is a similar figure to the £1 million suggested to me many years ago, so perhaps it wasn’t that far off the mark. The assumption of FatFIRE is that you’ll enjoy a ‘lavish lifestyle’ once you’ve stopped working, whereas LeanFIRE is a more frugal version whereby you continue with a less extravagant but still comfortable lifestyle. The real difference is how quickly you can get there and since you need a larger pot of money for FatFIRE, it’s easier to achieve LeanFIRE more quickly. But in my view, it sounds like a rather dull existence. It might be right for some, and arguably reducing consumption is a good thing for the planet, but I’m still in the camp of enjoying yourself once in a while.

As you can imagine, I’m on many online forums and groups that actively discuss FIRE, but for me it’s far too technical. For example, these forums often discuss withdrawal strategies, relative investment returns from one type of fund structure over another, gilt yields in the long term and many more deeply financial topics.

This is a genuine example I came across on one UK site:

Question: If you fund your retirement from share investments (pensions and ISA), do you set up a regular sell order irrespective of what the share market is doing? If you also have three years of spending saved up in cash, do you stop your sell order when the market drops and don’t resume until your cash buffer drops to a predetermined level or when the market recovers?

One of the responses: Deciding on the split between using up your cash buffer and liquidating investments is tricky. My modelling suggests that you should use up most of your cash immediately, leaving the investments in the market but keep a smaller buffer (three to six months?) for emergencies. I tried modelling various splits between assets and cash, including adjusting the split based on market values but couldn’t improve upon using up the cash buffer initially. The spreadsheets for this were admittedly a bit messy. If you do the opposite and ignore the cash buffer to liquidate assets from the outset, the portion of your portfolio in cash immediately starts losing money in real terms and (except in a few very specific historical cases, from memory) the overall portfolio value never recovers compared to using the cash and leaving the assets to grow. It does depend on your withdrawal rate to some extent – if this is higher, then you’re more exposed to a recession as you’re taking out more assets while they’re lower in value. But in nearly all cases, recessions did not last long enough to make it better to hang on to any cash above the emergency fund.

It is a valid question and I don’t doubt the answer is a sensible one, but I lost the will to live halfway through the post. It’s way too complicated for me and as I’ve said before, I’m no maths wizard. I’d much rather have a more simple approach to finance and not spend too much time with my head buried in a spreadsheet.

So that’s a rapid overview of FIRE. While I’ve done the ‘retire early’ bit, I don’t believe the ethos of my approach is the same; I prefer to think of it as having a better mindset about money rather than just focusing on an end goal. I’m also not convinced that you can step-change your lifestyle from ultra saving to extravagant spending without it all going horribly wrong. Imagine you don’t go out to restaurants, don’t eat takeaways, don’t have holidays, rarely socialise, buy your clothes from a charity shop, go to bed at 8.00 pm to save energy and make a bar of soap last two months. In parallel, you’re throwing every spare penny into your pension, ISA or other investments. You’re now 48, you’ve got your calculator out and find you’ve hit the magic 25x multiple so you hand in your notice. What now? Go out and buy a Lamborghini, kit yourself out in designer clothes, get on first name terms with the maître d’ of your local Michelin-starred restaurant and book a world cruise? You might do some or all of these but the challenge is that your spending will be uncontrolled as your new lifestyle is alien to you. It’s like someone winning millions on the lottery and a few years later you read they’ve blown it all in a few short years on a lavish lifestyle that they’re just not used to.

Sense-checking that last thought, I’ll admit I’m not claiming to be perfect either; having worked on our plan for 20 years and more seriously for the past 10, it’s difficult to stop saving (although you’re somewhat limited, for example, in what you can save into your pension if you’re no longer working) and start spending. However, we’re learning and definitely enjoying trying! But we still use the same principles of understanding value in what we’ll spend our money on – I go back to the example of buying our BMW; we could have bought a brand new 2.0 litre convertible and spent twice as much as we did but we didn’t. We bought second hand and still intend to keep the car for five to ten years. We’re having no less fun and we still do the same monthly review as we’ve always done, so we’re comfortable we’re not overshooting ourselves. So those are the basics of how to get a grip on your finances; now let’s move on to putting it into practice.

Key takeaways

Work out your ‘ideal lifestyle’ (and what your partner wants too). This is your end goal but think about smaller, interim targets along the way.

Understand your financial position, your income and outgoings.

By all means seek financial advice but be clear on what you’re asking for and how much it will cost. As a preference, use an independent financial advisor (see Resources).

"How much was that?"

Chapter 3

How to spend less

Now that you’ve reviewed your spending, you should have a broad idea of where your money is going, so you can start to look at ways of reducing it if you need to. Again, since everyone is different, so are your spending profiles, but there are some themes you can apply to most categories and start getting your spending under control. And to reiterate, this is only one side of the coin; to be financially better off, you can either spend less or earn more – and ideally both. Some of you may already be practising some of the approaches outlined below, so don’t beat yourself up if you can’t come up with a plan to trim thousands off your spending. Remember, this is about understanding what you spend your money on and controlling it better, not just as a one-time cut but changing the way you spend forever.

I’ll cover the basic concepts here and add more detail about marketing and assessing value in the next chapter – but this is your starting point. This chapter is broken down into three sections: I’ll start with some key themes and then tackle regular and discretionary spending. If you google ‘money-saving tips’ you’ll find plenty of ideas, which are great but a little overwhelming and not relevant to everyone. They may also go into micro-saving such as cutting off the end of the toothpaste tube to eke out every last bit. Rather than include a huge list, I’ll focus on bigger areas of spending that will drive the biggest impact or a behavioural change.

I like to view savings as an annual impact to help determine if it’s worth my effort and I have a figure of £100 as a guide. If it’s going to save me more than £100 over the year, then it’s worthwhile doing it. If it’s much less than this, I’m less inclined and likely to focus on something else.

There are several useful mantras about spending, with a couple of popular ones from Martin Lewis (from MoneySavingExpert), such as: ‘Do I need it? Can I afford it? Will I use it? Is it worth it?’ These are great but don’t help you get under the skin of how to answer them and that’s key to being able to change your spending habits. I prefer a much older quote from the 19th-century textile designer, writer and artist, William Morris: ‘Have nothing in your houses that you do not know to be useful or believe to be beautiful.’ This focuses on function but gives you a little latitude to have some things purely for pleasure.

Key themes

In addition to deciding what to buy, there’s also how you buy. I don’t know where it originated but I learned this expression from my father-in-law and it’s often referred to as the ‘iron triangle’: ‘You can have it fast, have it good, or have it cheap: pick two.’ This reflects that whatever two you want (for example, speed and quality), you’re going to have to compromise on the third (cost).

Thinking about general household goods (which take up a large portion of your necessary spend), typically you’ll be shopping at supermarkets and convenience stores (or corner shops), with the supermarket being larger and offering lower prices due to economies of scale. Obviously, you’re paying for the convenience of the more local corner shop and you’re not incurring time and money travelling to an out of town supermarket, but you will pay higher prices and have less choice. How much higher varies dramatically but as a rule of thumb, think in terms of a 10% premium, with some things as much as 25% more expensive. These convenience stores have their place but if it’s where you find yourself doing your regular shopping, I’d suggest rethinking where you shop.

Technology (and Covid-19) has created a third dimension in the form of the delivery app. A widely reported study by consumer watchdog Which? (2023) found that a basket of groceries was 38% more expensive when delivered by a rapid delivery service than the same items bought from the same store in person. Prices for a basket of ASDA groceries were 9% higher (Deliveroo and Just Eat) than the in-store price of £45.60, while Uber Eats were 19% more expensive at £54.39. This is a rapidly evolving marketplace and I predict more changes to come before they mature and find their place in our lifestyles – but be aware they’re currently a hugely expensive habit to get into. If you find out where your local corner shop is, you might find it’s not only cheaper but also quicker to walk or cycle there! In a similar vein, while the likes of Amazon have introduced the expectation of ‘free delivery’, never forget it’s anything but free. The cost of getting an order to you (from any online retailer) is factored into the price you pay and, in Amazon’s case, you’re paying for a Prime subscription to fund this (noted, this covers more than just shipping but the point remains, it’s not truly ‘free’).

Don’t buy into brands

It’s time for some more self-reflection and, as a precursor to the later chapter on marketing, don’t discount the influence of peer pressure and buying into brands. In numerous cases, in taste testing (or where the brand is hidden), it’s never a foregone conclusion that the most expensive or branded item is the most preferred. I’ll admit I’ll always have Heinz tomato ketchup with my fish and chips, so it’s OK to allow yourself a small indiscretion every so often. And if you chased around looking for the ‘best buy’ for every different product, you’d spend your life in supermarkets and be constantly stressed trying to remember whether it was Aldi or Lidl that had had the best salad cream, so cut yourself a little slack. The gist of my argument is that branded goods are not always the best. I’m also up for a little subterfuge; if you have kids, buy your local supermarket ketchup and decant it into a Heinz bottle when they’re in bed. You never know, it might just work! Try it with adults too; we have some friends who regularly shop at Waitrose (‘because it’s better’), so whenever they come round for dinner, we always buy everything from Lidl and have never had any complaints.

Knowing when to buy cheap and when to buy quality (and knowing the difference) is a subtle art and there are no hard and fast rules. But if you analyse your spending and give more thought to what you’re buying, you’ll subconsciously start to recognise what works for you. It’s summed up brilliantly by Terry Pratchett in Men at Arms: The Play (1997), in which he argues that the rich remain rich because they spend less money, which sounds obvious but he explains it differently than you might expect. Buying a well-made pair of boots for £100 that would last more than 20 years is cheaper than buying an inferior pair for £25 that only lasts two years before you need to buy another pair. The point is, you have to have £100 to spend in the first place; in other words, you needed to be rich. If you can only afford £25 for an inferior pair, you could well end up spending £250 for boots over the course of 20 years. He called this the ‘boots theory of socioeconomic unfairness’.

The first trick is not always assuming a well-known brand equals quality. It’s sometimes genuinely better quality (such as being made from higher specification raw materials) but not necessarily, with components often being exactly the same as a less premium brand. The second trick is to recognise frequency – how often are you going to use something? Longevity is disappearing in this ever more rapid world of fast fashion and technological advances but buying something once and keeping it for a long time is not only good for your wallet, it’s better for the environment too.

Check your credit rating

Before we hit some big-spending topics, a quick comment on your credit rating: it can have a huge impact on your ability to secure better finance. In short, know what your credit score is, know how to influence it and check it regularly. Again, thanks to the internet, this has become easier to do and there are several free options, notably Clearscore and Experian. They all work on the same principles and I don’t believe one is any better than the other. The mere fact that you’re checking your score is key. The average UK score is currently around 585/1,000, so while it’s obviously nice to know if you’re ‘above average’ it’s more important to actively manage your score, either improving it if it’s a little low or maintaining it if it’s good. Many factors impact your score, such as whether you miss a credit card payment, dip into any overdrafts, have county court judgements against you, opened a new account or bought something on finance that’s triggered a credit search. I was actually a little surprised when ours came out at a perfect 1,000 earlier in the year, but even then it still dipped to below 900 for a few months as we’d paid for some holidays and a new bike, which maxed out our credit card. Despite our strong financial position, it was still deemed to be a ‘red flag’. Take time to register and look through all the data. Most companies will go back and generate a historical profile, so you quickly get a good picture of your score profile and you have the ability to request corrections that might be negatively impacting your score (such as a bad debt against a previous owner of your property).

What’s in a percentage rate?

Many of your larger purchases are likely to be financed at one time or another and the headline figure is normally the percentage rate. As ever, there are a variety of ways this can be expressed, most commonly an annual percentage rate or APR. There’s also a variant used with mortgages, the annual percentage rate of charge or ARPC. It follows that an APR of 2% is better than 4% for a loan if all other conditions are equal, such as admin fees. A further variation is the annual equivalent rate or AER (sometimes also called the annual percentage yield or APY, as it’s more commonly quoted in relation to savings and investments rather than loans).

Low percentage rates can be very seductive; however, they’re a little tricky to unpick, particularly when the rate changes over a period of time – typically if an introductory rate is quoted. It’s normally the headline-grabbing number of any finance deal but the length of term also plays a significant part and, for this reason, my preferred approach to any finance deal is to ask the simple question ‘How much am I paying in total over the full term?’ For example, a loan or purchase of £5,000 in value at 7.3% APR over 36 months would give you a monthly payment of £154.54 and a total repayment figure of £5,563.36. Or, in other words, it will cost you £536.36 to borrow the money. If you took the loan out over five years (same APR), the monthly repayments would be £99.16 (less per month) but the total repaid would increase by £386.43 to £5,949.79.

Therefore, there are two decision points to consider in any big purchase via finance. First, what are the monthly payments and can you afford them as part of your regular budget? And second, what’s the total cost and does it represent value for money for what you’re buying? Sometimes you just have to accept that in order to afford something, you end up paying a little more. This is fine, providing you know that you’re making a conscious decision and that it’s a worthwhile trade-off. I find it’s a good way to evaluate if I really need or want something. Am I prepared to pay the ‘financed’ price for it?