So if someone's listening to this right now and they resonate with this idea of they're slightly avoidant, they don't really have a plan.
They're kind of just they get paid, they answer their bills and then they wait till the next payday.
They're not being intentional with their money.
Is there a step one in taking back control?
The very first thing, number one, that I would say to do is build a peace of mind fund.
A peace of mind fund.
This is not about maths.
It's not the mathematically optimal thing to do.
But it is the psychological.
Because as we've discussed, money is as much about emotions as it is about numbers.
So what I'll say is go through the last 30 days of your bank statements and calculate exactly how much it costs for one month of your living.
So mortgage, rent utilities bills, minimum debt payments, car payments, whatever that total is, that's the amount that you want to save up for your peace of mind fund.
Okay, so I go through my last 30 days of my bills.
I find out that it's cost me, let's say, $1,000.
Okay, that's one month of your core living expenses.
Yeah, so I need to save $1,000.
You don't need to...
Invest it.
You don't need to save it.
You don't need to.
It's not for a holiday.
The reason why you want to save this is because, when life does what it does best, which is throw curveballs, you want to make sure that you have it handled.
If a boiler breaks, your car dies on a Monday morning, the last thing you want, on top of the stress of dealing with that thing, is the financial stress of how you're going to pay for it.
That's what this thing covers.
It tells you, I've got peace of mind.
Whatever life throws at me, I can handle it.
And saving that one month of living costs puts you ahead of 59 of Americans and 30 of people living in the UK.
59% of Americans, unfortunately, can't pay for a $1,000 expense.
And 30% of people in the UK can't cover one month of their living expenses if something happened.
What is step two in that regard?
Step two, this is where we do move into the mathematical optimal thing.
This is you cut the financial bleeding.
Okay.
And what I mean by that is I get so many times people ask me Nisha, I have 4000, 5000 sitting in my bank account.
What should I do with it?
And my first question back to them is, do you have any high interest rate debt?
Because if you have savings of 2000, earning 4, but you also have credit card debt at 20, you're leaking money more than you're making it.
It's like pouring water into a bucket with holes in it and wondering why it's not going to fill up.
So what you want to do is you want to take all of your debt that you have, rank it from highest to lowest.
In terms of interest.
In terms of interest rate.
And then everything above 8%.
You want to make minimum payments across everything first.
And everything above 8.
You want to throw your extra savings into the highest interest rate, first the debt with the highest interest rate, and then move down in that order.
And interest rate, is that paid monthly or yearly?
It's paid monthly.
It's paid monthly.
So if I have a £1,000 loan on a credit card and the interest rate is 10%, I'm paying £100 monthly.
Paid monthly.
Over the year, they're going to pay 100.
But that's split out into monthly payments, assuming that they're not drawing down more on that credit card.
Are you against credit cards?
Credit cards are good if you're using them the right way.
Really good if you're using them in the right way.
And that means the points that you're using, the rewards that you get for it, the bonuses that you get from it all really helpful only if you're paying them off in full, every single month.
If you're not using that or if you're not doing it in that way, which is kind of what they want you to do, because they want you to miss these payments, because that's how credit card companies make money by your missed payments.
If you're not doing that, then the benefits just don't weigh up.
It doesn't make sense.
Use credit cards, but use it in a way that stacks up in your favor, not in the credit card company's favor.
It's almost paradoxical that you'd use a credit card, but only if you can afford to use a credit card.
Yeah, you've got to think about it.
Can I pay for this thing outright in cash?
If I can, then I can ship it on my credit card.
And the anomaly is property if you're using it to make money healthcare, education but for anything else, unless it's making you money yeah, you can't.
That's the way you want to think about it because it does encourage extra spending otherwise.
Okay, so I'm going to pay off my high interest debts first with any spare cash that I have.
Yeah.
What's number three?
Number three is build your emergency buffer.
Okay.
So this is your core living expenses that we've already calculated in step one.
And you want to times that by three.
If you are single, you have predictable income.
Or you want to timesize six.
If you are head of household, you have a mortgage, you have unpredictable income.
That's your emergency cushion.
And it protects you from the bigger life things.
It's the third thing you want to do.
It protects you if you lose your job, if you have a health scare, if there are dependents that you need to care for.
This kind of buys you that time.
But there's really interesting research from Vanguard that actually showed saving three to six months of your living expenses does more for your emotional well-being than earning over 200k.
So just the peace of mind again.
It's that breathing room.
Yeah, three to six months of breathing room in your bank account.
It just moves the needle.
It's the peace of mind.
It's the security.
It's the stability.
One of the core human needs.
And it's interesting because we're kind of looking at making more money and earning more and we're chasing the next number.
And actually the thing that's going to have the biggest impact or move the needle on our financial well-being is, at this stage, having that three to six months of living expenses saved up.
It's all relative, right, at the end of the day.
And it's incredibly stressful.
And I've been there when you don't know if you can pay this month's rent, if you don't know if you can feed yourself.
But also the sort of back of the mind knowledge that if something were to happen, you'd be screwed.
It's an incredibly stressful way to live.
And you might not even realize the stress consciously, but you might just feel it.
It might just be an angst in your life.
Yeah.
And this applies at any income level, even people earning six figures, who are living paycheck to paycheck, who don't have that emergency buffer in place.
They have that anxiety.
And also that same report showed that having that three to six months with the people that they surveyed their productivity at work was better, just from knowing that they didn't have that financial stress.
I know millionaires, people that have a lot of money, that are in a similar position, in the sense of they are stressed and anxious because their overheads are also in the millions every month.
And there's a lot of money coming in, but there's a lot of money going out.
So they're still sometimes just one or two months away from being at zero.
It's a different type of stress because their subjective experience and lifestyle is better on a day to day.
But it's interesting that it's really relative to your outgoings.
Exactly.
What's the fourth point then?
So far I've got have a peace of mind fund, which is one month's expenses.
Number two is pay off high interest rate debt.
Number three is build an emergency fund which is three times your monthly expenses if you're single and six times if you're in a relationship and there's people depending on you.
Yeah.
Most people actually stay here.
A lot of people just save, save, save, save, save.
And I just want to.
Before we move on to step four, I want to say that if you're saving, you only want to save for one of two things.
The emergency fund and the peace of mind fund that we spoke about.
And the second thing is for any goals that you have in the next five years, whether that's a house deposit, car deposit,
Other than that, you don't want to be saving that money.
It's going to be.
The value is going to be eaten away quicker with inflation if you're just keeping it saved in a bank account.
So that's when you want to move on to step four and that is investing.
OK, so you don't want to save.
You don't want to over save.
You don't want to over save.
Know when to stop saving and start investing.
And when does one start investing and stop saving after they've saved the three to six months of the living expenses?
That's the third step.
At that point, once they've done step one, two, three, this is the point.
And the reason why I say this Stephen, is because if you start investing before you've got from steps one to three and you don't have your savings set aside and the market goes down and you have an emergency, you're going to have to pull that money out at a loss.
Or you're going to have to go into debt, which is why that was step two, cut the financial bleeding.
So it's really important to have steps one, two, three done before you even think about investing.
Okay.
Those three to six months is your core living expenses.
So it's Forget all your spending on the things that you love or the things that might make life good.
It's just the things that you need to absolutely survive.
Because if you do lose your job, you're not going to be out partying and spending loads of money.
You're going to think, okay, how do I pay my bills for the next three months?
How do I survive for the next month?
That's the thing that's going to cover that off.
Okay, right.
So it's not like the season ticket at Manchester United or the Louis Vuitton jackets.
No, no.
It's just you're heating your bills, your food, survival.
Yeah.
So number four is investing.
Number four is investing.
For a while, we've heard of the phrase save for retirement.
Yeah.
Saving for retirement.
You cannot save your way to retirement.
With the way cost of living is going, with the way inflation is going, with the price retirement is going to cost by the time you get there, saving is just not enough.
You have to be investing your money.
And there are two main ways that you can invest.
But before I even say that, most people know that they should be investing, but they don't do it.
They say, I'll do it tomorrow or next week or next year.
Or when I'm rich.
Or when I'm rich.
And then, by the time they do start, they've missed out on the most powerful lever that they had going for them, which is time.
That is one of the most important things when it comes to investing.
Because of the way when you start investing with small recurring amounts, it just compounds over time.
So early, often when it comes to investing, there's two avenues to invest through.
The first is through your employer sponsored retirement account.
And the second is through your own individual tax advantaged account.
What are those two things?
The first is done through your employer.
So what they do is they invest on behalf of you.
In the UK, you're automatically enrolled into it.
In the US, you'll have to check with your HR and get yourself enrolled into it.
And what this does is your company.
Before it pays you or puts money into your bank account, it takes a small percentage you could decide how much and it puts it towards investments.
For you, on behalf of you.
Pre-tax.
So you're not paying tax on that amount.
You're putting it into an investment account and then that money is compounding for you pre-tax.
Do all employers do this?
Most employers do it.
Not all employers do it.
And some employers have a match, which means if you put some money in, they will also match that amount that you're putting in.
So how do I know if my employer does this?
Check with your HR.
And is there a cap?
There is a cap to how much they will match.
So say if they match up to 3%, then you want to put in the 3%.
But then you could keep going.
But at this stage, you don't even need to go over the match at this point of the steps.
You just want to put in enough to meet that match because you're getting the tax benefit.
And then you're also getting free money from your sponsored plan on top of that.
You don't want to leave that on the table.
And when can I pull that money out?
When you retire, at retirement?
So this is for your retirement.
You're looking after your future self.
It's today's you planting seeds for future you.
That's what this is about.
What about people that say listen, retirement's a long way away.
Yeah, you know, i'm gonna be what 65 75, it's just a long way away.
I want to live a good.
I want to live it up now.
Yeah, i don't want to be putting money in a box i can't open for 50 years.
And you want to spend the money now.
Just live the good life.
Yeah, I.
The most important thing when it comes to money is understanding what you want and then making sure your money backs those decisions.
And I say this because when I was in the graduate scheme there were two very different people who worked in my team.
And the first person who sat opposite me on the bank of seats in front of me.
He used to come in in his Ferrari.
And he on Monday morning, when we're talking about what we did over our weekend, what we did on the weekend, he'll talk about the Michelin star restaurants.
He tried the last minute trip to Italy and his computer screen was the next car that he wanted.
And on my left was Phil, who later become my mentor.
And he came in with his packed lunch.
He wore the same shirt tie combo that I could probably remember and sketch it from memory.
And he had his holidays.
He had his vacations.
But he was a lot more selective about them.
And I didn't see it at the time.
But now it's so clear to me that they were chasing very different things.
The person opposite me, he was chasing this good life, the stories, the status, the memories.
And that was important to him.
And he went for it.
Phil and I visited him just before I came to LA him, his wife, his two kids, dogs in their countryside home and he was enjoying the retired life.
He was loving life.
He bought what he wanted, which was early retirement, freedom, time, choice.
Neither path is wrong, but both paths, both people required taking a series of trade-offs.
Both had to make some sacrifices.
And I think that's the thing that people miss.
Sometimes it's so easy to say yes to the thing right in front of you because the benefit is there.
The benefit is immediate.
You don't realize what you're going to miss out on later on in life.
So the guy that was sat opposite you with the Ferrari, what was the trade-offs he was making?
He was probably going to end up working until he had retirement money to spend.
He was going to spend his life at banking, but he was going to live it big.
But he wouldn't have the freedom, the choice, the time, because his spending and his income matched each other.
And so what I want to just say is for anyone saying, oh, I just want to live it big.
I want to enjoy the money.
Find out what is the thing that's most important to you and make sure your money choices stack that decision, because the wrong choice isn't choosing the wrong path.
It's just not knowing that you even had a choice in this whole thing.
Do you think the guy that sat opposite you with the Ferrari was in any way insecure?
Was there an element of seeking validation?
There might have been.
Yeah, there might have been.
That might have been what made him happy.
But I think it's also not having the self-awareness to, if that made him happy, then by all means.
But if it didn't make him happy and a lot of people do this, me included.
I've gone through this, I've done it.
When you don't know what makes you happy, you end up just doing things that gets you that external validation.
And for some people, it might mean, okay, you know what?
I actually do enjoy this new car.
It does bring me happiness.
But for others, it might just be a facade.
And later on in life, they just realize that actually no one really cared.
The only person who cared was me.
And although I did it for other people, now I realize that all the trade-offs I had to make as a result of it, because happiness and external validation, they're like cousins yeah, but they're not the same guy.
Do you know what i mean?
They're like, they look, they're kind of like of the same family, but one of them's the like dysfunctional sibling, but they kind of look the same.
You know, you look at that guy in his, in his ferrari.
You go on, must be happy, and he comes in and he's probably got a smile in his face because he's talking about his ferrari.
Yeah yeah, that's what he's built himself on, i guess, But I don't know if that's happiness.
You know, the guy without the Ferrari might be.
I think, universally most people what they want is freedom and the choice and the time.
I think more people are after that and that can make more people happier than any status symbol.
Because when you do end up going down the route of buying something to make your make you happy, you're on a hedonic treadmill.
You're then buying the next thing and the next thing and the next thing.
You get those spikes of happiness.
There never is really long lasting fulfilling happiness.
So investing strategy number one is asking your employer about their investment scheme.
Finding out if your employer has yeah, a retirement plan and making sure that you're invested into it enough to cover the match that they offer.
What's strategy number two?
The strategy number two is your own individual tax-advantaged investment account.
This is ISA in the UK.
And this is where you put your own money after tax into an investment account.
And then the money grows over time tax-free.
So when you pull out at the end you could with the UK.
You could pull out in five years and 10 years or in retirement.
Then you could withdraw that money tax-free.
So both of them have tax advantages.
One is when you put the money in, you're getting the tax advantages.
The other one's when you draw the money out, but they both have tax advantages.
And so you're putting the money in and it's growing tax-free.
That's really a big deal.
That's huge.
That's money that's compounding for you and you're not paying tax on that.
But there's a limit.
There's a limit.
Annually, it's $20,000.
In the UK and the US?
It changes year on year.
At the moment, I believe at $7,000.
But with a quick Google search you can stay on top of whatever the current limit is for the account or the taxable advantage account that you're investing in.
So I get paid.
I put it into my, in the UK, it's called an ISA.
And the limit is $20,000.
So if I put 20000 in, let's say if it goes to 100000 because the investments go really well, Is the whole 100K tax free?
Yeah.
You're not paying capital gains tax.
You're not paying interest.
I mean, sorry, dividends tax.
So pretty much that's the first place everyone should really be investing if they want an alternative to investing in their pension.
Yeah.
That's the first thing you want to cap out because of the taxable benefits that come with it.
Is it called a Roth IRA in the US?
Yeah, that's right.
It says max contribution is $7,000 to $8,000 a year if you're 50 or older.
Yeah, the specific amounts depending on... Who you are and stuff.
Where you are, yeah.
Standard employee contribution limit of $23,000.
Interesting.
Whereas in the UK it's just a flat.
20000 is the current And with my ISA, this tax-free ISA that everyone is eligible to invest in.
Do I then have to pick the things it invests in?
Yes.
Okay.
This is the next... Oh, we could talk about this now, actually.
Yeah, so when you are deciding... what to invest in.
This is with the employer-sponsored account, the employer-sponsored retirement account.
You actually just choose what risk profile you have and it will do that investing for you.
So you'll say, I feel really risky or I'm not very risky at all.
Yeah.
And it does it for you.
And it does, it will invest on behalf of you.
So most people don't even realise that they're investing, but they are investing through their company if they have that employer-sponsored plan.
Then the individual account is you doing the investing yourself.
You're picking what to invest in.
And what should I invest in?
My principle with investing is very, very simple.
And it's just keep it simple and do it for the long term.
So I say index funds and target date retirement funds is what you want to invest in.
What's that?
An index fund is now an index.
Think of it as a list of companies.
So the S&P 500 is a list of the largest, the top 500 companies, to keep this really simple.
FTSE 100 is the top 100 companies on the London Stock Exchange.
The fund is a pot of money that invests in the companies on that list.
So by investing in an S&P 500, you've invested in a small piece of the top 500 companies in the US.
That's what an index fund is.
And so even if one company goes down, you're diversified.
And so there'll be another company that will, and the other companies will bring it back up again.
And what kind of performance can I expect from investing in the S&P 500?
Historically speaking, the long-term average has been 8 to 10 per year, depending on the years and the timeframe that you're looking at.
That is different to a one-year holding period.
It could go up, it could go down, you just don't know.
So the longer you invest for, the chances of you getting that 8% to 10% on average increase.
Is 8% to 10% going to make me rich though, Nisha?
How long are you doing it for?
You tell me.
If you have a lump sum amount that you're like, okay, you know what?
I have 2,000 that I want to invest.
What should I do with that?
I was taking me five years to invest this.
I would say 1,900 of that, don't invest it.
100 of it, invest.
I'll say why I'm saying this.
100, I want you to invest it for anyone listening.
I want you to listen.
I want you to invest that because I want you to see and feel the emotions when you see your money go up over time.
Sure, it's going to be small.
It's not going to make you rich investing that.
But you're going to instill that good habit early on.
And you're going to remember that.
Because the remaining amount, you're going to put that towards increasing your income.
That's the first thing you're going to do.
Think of your income as a river and your specific milestones life milestones as buckets across the river.
So you have retirement, you have your house deposit, you have your car payment that you're all saving up for.
Those buckets will fill up faster the quicker and wider that river is.
That is your income that's coming through.
If you don't have much of an income coming through, those buckets are going to take ages to fill up.
That's why I say if it's taken you a long time to save that amount, I actually would recommend you putting that money towards increasing your income first, before investing it.
If however, you have disposable income, you have a reoccurring amount that you can invest monthly.
Use that to your advantage.
Harness the power of long-term compounding growth, because that is the thing that is going to make you rich.
Sure, it will take 25, 30 years, but that is leverage that you don't get through your day job.
It's your money working for you without you having to be there.
So you would suggest, if you're really at that early level, to focus on increasing your income, investing in increasing your income.
Yeah, that's the first thing.
If you're figuring out.
Okay, I need to increase my income.
It's taking me a while to earn this amount and I only have a lump sum of 2000 5000.
Focus on increasing your income.
Yeah, that's what I would say.
And how does one focus on increasing their income?
There are a couple of ways to do this.
So the easiest way to increase your income is asking for a pay rise, increasing your responsibility, the work that you do, your contributions, and saying to your boss or your manager this is the value that I've bought.
This is the responsibility that I've taken on.
This is what the market is paying for a similar role.
And this is why a pay rise is fair.
The other option... Did you ever ask for a pay rise?
Multiple times.
Multiple, multiple times.
When you're in investment banking?
Yeah.
It's one of those things where If you don't ask, you don't get.
Of course you'll get, but you sitting there and thinking the hard work is going to show without you asking for it.
It's unlikely.
You're going to have to build a case and say, okay, these are the things I've done.
This is the things that we said we were going to do, or I wanted to work on, in my performance review, which is what I had.
Get to the end of the performance review, and these are the things I actually did, and this is where I went above and beyond.
So if I'm your boss Nisha, if we just replay one of those conversations you had, you were sat in a performance review.
And what did you say to me?
I would say, hey, Stephen.
Hey.
Three months ago or six months ago, we spoke about the things that I needed to do to get promoted or to get a pay rise.
And we mentioned X, Y, Z. And I've done all of those things here.
And here is the feedback that I've got.
Here is where I've gone above and beyond.
And this is some extra things that other people or the 360 feedback that I've done, and that this is what it says.
Yeah.
And that's when I'll say, do you think that this is the bracket that we discussed?
Do you think that's fair?
Research shows that women are much less likely to ask for a pay rise.
And when they do, they are less likely to get one compared to men.
Is that kind of what you found?
Yeah, I've seen those facts.
And I think it's really such a shame that when a woman asks for a pay rise, it may not be seen in the same way as when a male counterpart asks for the pay rise.
And The factors that we can control are the being prepared, having the book of all the things that you've done.
But I recommend and this is things that I've done when I was in an organization and when I felt like even I was being paid less than my male counterpart is speaking.
Firstly, if there's a HR team in your department speaking to them and asking am I online or am I aligned to the average for my department and for what my role is,
They could give you a really good guideline as to whether you are underpaid or whether you deserve a bump to be more aligned to the general pay in that role.
And the second thing is have an ally or have someone in your workplace that you'd always speak to, whether it's a mentor or whether it's a colleague, and it's worth always speaking to other people about money.
It's such a taboo topic.
Yeah, we hate it.
We hate talking to someone else about their salary, what they're making, but the more financial transparency that we encourage, the more we can learn from each other.
Yeah, openly ask the person next to you.
Hey, This is what you get paid.
As hard as that is, open up that conversation.
But the other way to increase your income is actually through switching jobs, switching companies.
Because there's so much research that's been done.
And the most popular one is actually one cited by Forbes that says...
People who stay at the same company for two years or more on average earn 50 less over their lifetime.
And I've made a video on my salary year by year over the nine years I spent in banking.
And the biggest pay jumps that I saw were from switching companies.
So those are the two ways that I would actually say yeah, increase your income by asking for more, by switching.
What you just listened to was a most replayed moment from a previous episode.
If you want to listen to that full episode, I've linked it down below.
Check the description.
Thank you.
