143- 8 Money Laws To Live By

Benjamin shares the wisdom from Morgan Housel's new book, "The Art of Spending Money". 

There are eight laws to live by when it comes to looking after your wealth and  yourself. 

See how many resonate with you; how many you are living by and how many you are you failing to practise? 

Join Benjamin Mitchell (themoneyscot), serial hater of financial jargon, as he helps make your finances clearer and ensures you never make another financial mistake.

Getting on top of your personal finances doesn't need to be complicated or scary. Arm yourself with the only knowledge you need to transform yourself from money novice to money nerd! 

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Disclaimer - please note that nothing in this podcast can be relied upon as financial advice and the content is provided purely for information and guidance purposes. Please seek independent, regulated financial advice relevant to your situation.

Transcript

SPEAKER_00 0:12

Welcome to Friday once again, Money Nerds. Thank you as always for joining me on the podcast. I hope you've all had a great week. I hope you look forward to the weekend. And in this week's episode of Heads Up on Money, it's going to be a bit of a shorter one, a few lengthier ones of late with a bit more technicalities, particularly around a legal standpoint. But I'm going to revert to some of the more important money concepts in this week's episode, some of the important money lessons. And I just had to share this with you because I've recently read a fantastic book which I would highly recommend on money, which is The Art of Spending Money by Morgan Housell. I've chatted about Morgan in previous episodes of the podcast. I think I had another episode on some of his wisdom and musings because I think he really hits the nail on the head when it comes to the very fine line between money and life. I think it's a hugely, hugely beneficial book for everyone, regardless of where you're at in your wealth management journey. But particularly for those who are in retirement and may have more money than they could ever conceivably need for their own life goals, it really brings a new lens to the importance of spending down your money with confidence and doing wider important things with your money that will deliver you happiness in retirement. So it's a a great book. And there's a conclusion in the latter stages of the book where Morgan shares some of the key money money mantras, money principles that he has encountered in his career. And I just had to share them with you, Money Nerds, because I found them very sobering and really uh great at just cementing the important stuff during all of this. And in every episode of Heads Up on Money, some episodes we get down into the weeds, the minutiae, and it can become a little bit too detailed, and it's important to give you the information you need so you can make informed decisions on the back of that. But sometimes we just need to take a step back and listen to episodes like this: the important money lessons and the important money reminders that we all should live by. So I'm going to share those with you in this week's episode. It's again not going to be that long an episode, but I purposely don't want it to be very long because I want these points to really hit home and to percolate over the course of the next week until next week's Personal Finance Friday rolls around. So without further ado, let's get into it. These are the main money laws that you should live by. Number one, spend less than you make. It's simple, right? So often this is the key determinant to good financial plans, but it's often the hardest advice to follow. People who live out with their means will never achieve the point of financial independence unless they are very fortunate and will always have an endless source of capital or income at their disposal. But arguably, for those people, most of us that do not have this luxury, you have to take ownership of this. You have to spend less than you make. Because spending less than you earn is the cornerstone of all good financial planning. I liken it with clients to planting a tree. You can't enjoy the shade of that tree in the future if you don't actually plant some seeds now. And the only way in which you can plant some seeds now is to not be spending every pay slip every month. Ring fencing an element of your pay slip, some of that going to shorter term cash needs, but a majority going to longer-term future planning needs, investing in real asset classes that outperform the terminator of wealth that is inflation. And it's not just about cutting out the small luxuries, it's about creating a whole new mindset of mindful financial planning and mindful spending. Think of it as every pound you save is essentially a seed for that tree analogy that I'm going into here for the future. And whether that is to you retiring at an earlier age, sending the kids to a private school, whether that's just having the flexibility to perhaps taper down retirement when you're 50, whether it's just financial freedom, peace of mind, autonomy, it's whatever matters most to you, it will be your own financial plan. I always say that. But the key thing is you have to spend less than you make. Because if you don't, then lifestyle creep will just continue to exacerbate throughout life. And all of a sudden, when it comes to that retirement or transitioning to a different stage of your life, you are not going to have the capital behind you to sustain the level of living that you've become accustomed to. So you have to spend less than you make. And the reason for that is partially to build up a pot of capital to rely upon in the future, but also just to rein in your expenses and recognize that you do not have to spend every pound that comes in. You can live a good standard of life below that. So, point number one, law number one, spend less than you make. Number two, quietly compound. So we've said about this in the podcast before. But the premise, this snowball metaphor, is so, so important. So compounding, it's for life. Quietly compounding now means letting your savings, your investments, and even your habits grow over time without chasing those quick wins, without showing off, without dipping into these pots unnecessarily. Trust that compounding will do its thing and small amounts will grow into big amounts far quicker than you envisage. And this will aid you massively in the later years of your wealth building journey when it comes to retirement because compound interest will really be doing lots of the heavy lifting at that stage. But in the earlier years, as I've talked about in previous episodes, your investing rate is what will matter is how diligent you are about saving and investing a good amount of your take-home pay every month. And this links very nicely into the point number one: spend less than you make. If you're spending less than you make and you're letting compounding do its thing, then even modest amounts will grow to amounts that can be tangible and can make a real difference to your life. See the episode I did on Ronald Reed, the millionaire janitor. He had a very frugal standard of life, but he did the right things from a right age, and that was hugely beneficial for him. So law number three: money serves you, not the other way around. So many people think the goal is just to work for more money. And I really try and get this into my client's financial plans that money is just the tool, money is the means to the end. You do not want it to control your life. Pursuing more, more, more rarely gives you the answers you hope for. Again, I work with a lot of people who have got, you know, more money than they could conceivably need in their lifetime, and they still have financial problems. New problems present in different ways, they manifest in different ways, whether that's stress around passing on wealth to future generations, whether it's inheritance tax planning, the problems don't go away entirely. Pursuing more is not the solution. It's what you use the money for. When money serves you, you gain freedom. And instead you can focus on what matters to you, who matters to you, you can transition to a retirement that means spending time doing what you do with the loved ones in your life, pursuing projects that interest you, traveling. Again, financial independence, it's not just about wealth, it's about control over your life. And someone can be financially independent with a far lower level of wealth than someone who is pursuing an unattainable financial independence target with a vastly greater sum of wealth. It's all bespoke to you, and often you need less than you think, money nerds. And this is one of my biggest bugbears in personal finances. We we scaremonger people into thinking they do not have enough to enjoy life, to retire earlier. And there's a trade-off here because many people are apathetic and are not saving enough for their futures, they're not doing enough for the long-term financial plan. But many people, the diligent money nerd out there who have done enough but still just don't have the confidence to pull the trigger, to book that holiday, to quit the job, to travel, whatever it might be in your own financial wealth plan. We do not have the confidence, and I think that's been drilled into us, that we've got anxiety around money. But the reality is financial independence is very achievable, particularly if you follow the other two laws that I've outlined, spending less than you make and quietly compounding your wealth. Number four, this is perhaps my favourite one, and it really has resonated with me, and I've thought about it a number of times since reading Morgan's book. No one is thinking about you as much as you are. And that I just think is fantastic because yes, it sounds harsh, but it's also incredibly liberating. With financial planning, we're often paralyzed by what others might think or expectations placed upon us by others. The job we take, the the car we drive, the house we buy. We're so focused on our own lives and what other people might be thinking about our own lives, but the reality is no one else gives a damn. No one cares about you as much as you do, and no one is thinking about you as much as you are. It's harsh, but it's true. Your own financial plan should be completely bespoke to you. Are you just doing it for the sake of it? Have you got a notional retirement date of 65 because you think that's when everybody should retire? Are you targeting half a million pounds in your investment portfolio because you read once in a Sunday Times article that for nine out of ten retirees that's enough money to retire comfortably? Your financial plan is as unique as you are, and that sounds corny, I know money nerds, but it really is, and I really want this to come through to you in this week's episode is that the only thing that matters is your own financial plan. Stop caring about what other people might be thinking or what their perceptions are about what your financial plan may or may not be. You just need to nail down what makes you happy in life, what you're targeting, what you need, because it's ultimately only you that's thinking about this stuff. It's not anybody else. It's your retirement, it's not anybody else. So this is not for the imagined judgment of others. You should spend, you should save, you should live according to your own values and not that of even your friends or your family. Law number five, independence is wealth. Building on the concepts I've talked about already, money serves you, not the other way around. Wealth it's more than just the number in your bank account, it's financial freedom. I have this concept I say to clients, we work towards a financial freedom number. That amount of money that they are needed to do everything they conceivably need in life. And if that figure is reached, then what are you working for? What if you're not enjoying work, why are you working? Perhaps you do enjoy work and that's fine, but working towards this financial freedom number, this point of financial independence, and that is a measure of true wealth, not how much you've got in your eyesight, in your pension, in your bank account. It's not being about being rich or wealthy enough to buy everything, it's about being secure enough to make meaningful choices. For example, leaving a job that drains you, travelling when and where you want, supporting causes you care about, being able to spend more time with your grandchildren or children. These are the true measures of independence, and these are the true measures of wealth. Law number six, health is wealth. Very simple, but so often forgotten. You can have all the money in the world, but without your health, it's irrelevant. So good financial planning, yes, it goes hand in hand with all the good things in life, looking after your nutrition, your exercise, your sleep, your mental well-being. You build these things in a pragmatic way, but the reality is you never know what's around the corner. Your health is the most important thing to you, which is why you can't live in the never ever. Finding the balance between doing just enough for tomorrow, but not at severe detriment of enjoying today, that is the sweet spot. And that's where many people make mistakes with their financial planning, is they're either tilting it too much towards the latter and aggressively saving for a future date that may never come, let's be honest, or they're being too irrational and spending too much now at the potential detriment of the future. So good financial planning should give you that peace of mind to know that tomorrow is looked after for and that you can still enjoy today. So, number six, health is wealth. Number seven, aim to be a good ancestor, and that's again very hard-hitting. Thinking way beyond your own lifetime, the choices you make now, they're going to ripple into the future, and that's so true with your financial planning. Very often I see with people's financial plans, particularly in the later years of their life, that they may be doing this investment strategy or this tax planning route, not for them, but to extend way beyond their lifetime, but perhaps their children, their grandchildren, and wealth will pass down the line, and this links in very nicely with the recent episodes I've done on legal matters and ensuring your wealth goes to the right people at the right time. You need to be thinking about the long term and aim to be a good ancestor. Number eight, love your family. Finally, and I think Morgan summarises this one really well in the book. Let's not forget why we're often striving for more wealth in the first place. It comes down to the people that we love in our life. And money, it absolutely can provide us with comfort, it can provide us with security, opportunities, but it's ultimately the people in your life that matter and the love you have for them. So, yes, invest in your AISA, invest in your pension, but invest in your relationships, money nerds. Nurture these relationships, show up for them, give people your time. It's the best and most precious asset you have. So remember what you're doing all this for. And this is a concept I always relay to clients and new clients alike is that wealth has to be for something, for someone. You've got a tangible objective at the end of it, you will stick to your financial plan much better than just loosely planning for the future, because that is not going to motivate and inspire anyone. So there we go. Those are the eight money laws that you should live by. A quick recap. Number one, spend less than you make. Number two, quietly compound. Number three, money serves you, not the other way around. Number four, no one is thinking about you as much as you are. Number five, independence is wealth. Number six, health is wealth. Number seven, be a good ancestor, and number eight, love your family. It often is as simple as that, money nerds. So there you have it, folks, eight laws to guide not just your financial planning, but your life. I really found these resonated with me when I read this in Morgan's book, and I appreciate that many of you may not read Morgan Housel's book, appreciate for some people it's just not your bag. I recognise that I am chief money nerd here and probably find this stuff more interesting than most people, but I wanted to get this across to you in the podcast in the event that you don't read the book, although I would highly recommend it, it's a sensational book. In the event you don't, these are the distilled wisdom that Morgan relays in the book, and I I want them to percolate, as I said, over the next week, for you to be thinking about this stuff. Ask what really matters in your financial plan, and that should guide everything you do thereafter. Start with the end in mind. So I'm going to wrap it up there, folks. I hope you have enjoyed that episode. Please do let me know if it is of an interest to you, and I can do similar episodes on this in the future. A quick call-out and a reminder that if you haven't already done so, there's a retirement assessment questionnaire which I've included in the show notes. You can complete that and it gives you bespoke results straight away to tell you where you should direct your limited time and attention with your financial plan. Basically, you answer a few questions and I will send you a summary of some of the headlines and things you should be thinking about, whether that's tax planning, cash planning, investment planning, or just general financial gaps in your financial roadmap. I've had lots of good feedback on this, and if you haven't already, the link is in the show notes. It really doesn't take too long, and you should hopefully get some meaningful results. I'll wrap it up there, Money Nerds. I've been Benjamin Mitchell. You've been the Money Nerds. This has been Personal Finance Friday episode 143 of Heads Up on Money, the laws to live by when it comes to your financial planning. I'll see you next Friday. In the meantime, have a wonderful weekend. Hope the sun is shining where you are. We're getting close to the summer. Roll on, roll on the brighter days. Looking forward to them. I'm sure you are also. Happy days. Anyway, I'll see you next Friday. Take care in the meantime. Bye for now.