Most Replayed Moment: Stressed About Money? Nischa's Step-by-Step Guide To Financial Security

Transcript from https://podmenti.com/t/d002876d9d19b810

Uh
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 they they answer their bills and then they wait 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'll say to do is build a peace of mind fund.
A peace of mind find.
This is not about maths. It's not the mathematically optimal thing to do.
But it is a psychological.
Because as we've discussed, money is as much about emotions.
As a as it as it is about numbers.
So I'll say.
Es
Go through the last thirty 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 saved up for your peace of mind fund.
Okay, so I go through my last
Uh, thirty days of my bills, I find out that it's cost me
Let's say a thousand dollars.
Okay.
That's one month of your core living.
Expenses. Yeah. So I need to save one thousand dollars.
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 wanna save this is because when life does what it does best, which is throw curveballs.
You wanna make sure that you have it handled. If a boiler broke
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 gonna pay for it.
Mm-hmm.
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.
Cause.
Puts you ahead.
Or fifty nine percent of Americans.
And thirty percent of people living in the UK.
Fifty nine percent of Americans.
Unfortunately can't
pay for a one thousand dollar expense.
And thirty percent of people in the UK
Can't
cover one month of the living expenses if something happened.
What is 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 mu so many times people ask me
Nisha, I have
four thousand, five thousand 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
Two thousand dollars.
earning four percent.
But you also have credit card debt.
Uh twenty percent.
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 gonna 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, right?
And then everything above eight percent.
You w you want to make minimum payments across everything first and everything above eight percent you wanna
Throw your extra savings.
into the highest interest rate first.
to the debt with the highest interest rate and then move down in that order.
An interest rate, is that paid monthly or yearly? It's paid monthly. It's paid monthly. So if I have
A thousand pound loan.
On a credit card.
And the interest rate is ten percent. I'm paying
A hundred pounds.
paid monthly, over the year they're gonna pay a hundred.
But that 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 favour, not in the credit card company's favor.
Yeah.
Yeah.
That's exact yeah, you gotta you gotta think about it. Can I can I pay for this thing outright in cash?
If I can, then I can ship it out on my credit card.
And that's the the normally is property, if you're using it to make money, healthcare, education, but if anything else.
Unless it's making you money. Yeah.
That's the way you want to think about it.
'Cause it does encourage
Extra spending otherwise.
Okay, so I'm gonna 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 the
This is your core living expenses that we've already calculated in step one.
And you wanna times that by three.
If you are
Single.
You have um predictable income.
Yeah.
Or you want to time size 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 a very it's the third thing you want to do. It's 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 two hundred K.
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 cool human needs.
And it's interesting because we 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 gonna 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, so if and
It's 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
Um
But also the sort of un
back of the mind knowledge that if something were to happen.
You'd be screwed.
uh it's incredibly stressful way to live. And you might not even realise the stress consciously, but you might just feel it. It might just be an angst in your life. Yeah, and I I 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
the people that they survey, 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. Yeah.
um it's a different type of stress because their sort of subjective experience and lifestyle is better.
on a day to day, but
It's interesting that it's it's really relative to uh your your outgoings. Exactly.
What's the what's the fourth point then? So I've got so far I've got
Have a peace of mind fund.
Um 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 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 wanna before we move on to step four, I wanna say that if you're saving you and you wanna save four
One of two things.
The emergency fund and the PISA fund, marge 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 pa car deposit.
Other than that, you don't want to be saving that money.
It's gonna 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.
Okay, so you don't want to save you don't want to oversave. 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. Okay. That's a 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 gonna have to pull that money out at a loss.
Yeah.
Or you're gonna 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 to three.
Dun.
Before you s even think about investing.
Okay.
Those three to six months it's your core living expenses.
So
Forget all your spending on the things that you love or the things that make might make life good. It's just the things that you need to absolutely survive. Because if you do do job lose your job.
You're not gonna be out partying and spending loads of money. You're gonna
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 gonna cover that off.
Okay.
Right.
Yeah. So it's not like the season ticket at Manchester United or the Lou Vuitton jackets. No, no. It's just you're you're 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. Well the way cost of living is going
Well the way inflation is going.
With
The price of retirement is gonna 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 messing.
But
They don't do it.
They say I'll do it tomorrow, or next week, or next year.
Or when I'm rich.
When I'm rich.
And then by the time they do start
They missed out on the most powerful lever that they had going for them.
Which is time.
Guys
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
uh 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 a
In the US, you'll have to check w check with your HR and get yourself enrolled into it. And what this does is you're
company before you 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-taxed.
Do all employees do this.
Most employees do it, not all employees 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 employee does this? Check with your HR.
And is there a cap? There is a cap to how much they will match. Yeah.
Um, so say if they match up to three percent, then you want to put in the three percent. 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
The steps.
put in enough to meet that match because you're getting the tax benefit and then you're also getting free money from
Your sponsor 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 retirement. So this is for your retirement.
You're looking after your future self as
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 I'm g I'm gonna be what, sixty five, seventy five.
It's just a long way away. I wanna live a good I wanna live it up now.
Yeah.
I don't wanna be putting money in a box that I can't open for fifty years.
And you want to spend the money now to 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 back those decisions. And I say this because
When I was in the graduates game.
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 a mentor?
And he came in with his pack lunch.
He wore the same shirt tie combo that I could probably remember it 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, um
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 parts.
Both people required taking a series of trade offs.
Mm-hmm.
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 realise 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 be end up working for
the until he had retirement money to spend.
he was gonna spend his life at banking, but he was gonna live it big, but he wouldn't have the freedom, the choice, the time.
causes spending and his income.
matched each other.
Mm-hmm.
And so
What I want to just say is for anyone saying, Oh, I just want to live it big
I wanna 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, there'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.
They might have been.
Yeah, there might have been. That's m that 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 that do this, me included. I've 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 the 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.
Later on they
and later on in life they just realise that actually no one really cared.
The only person who cared was me, and although I did it for
Other people.
It's uh now I realise that all the trade offs I had to make.
As a result of it.
'Cause happiness and external validation
They're like cousins.
Yeah.
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 kinda look the same.
You know? You look at that guy in his in his Ferrara, you go, Oh, must be happy.
And he comes in and he's probably got a smile on his face because
He's talking about his Ferrari. Yeah, yeah, yeah. And that's what he's built himself on, I guess. But I don't know if that's happiness.
Yeah.
The guy without a Ferrari might be.
I think universally most people
What they want is
The freedom and the choice and the time.
I think more people are after that.
And that can make more people happier.
Then any state is simple.
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. But then buying the next thing and the next thing and the next thing.
And you get those spikes.
Of happiness.
There never is really long lasting fulfilling happiness.
So investing strategy number one is asking your employer
About the investment scheme. 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 at ISA in the UK. And this is where you put your own money
Aftertacks.
into an investment account.
And then the money grows.
Over time.
Tax spray.
So when you
Pull it out.
At the end you could
With um
the UK you could pull out in five years and ten years.
Or in retirement.
then you could withdraw that money tax free.
So both of them have taxable 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 m 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, uh annually it's twenty thousand.
But
In the UK or you. It changes um year on year at the moment, I believe, at seven thousand dollars, 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 Icer. Yeah.
And
the the limit is twenty K. So if I put twenty K in, let's say. If it goes to a a hundred K because the investments go really well.
is the whole hundred K 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 a 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? That's right.
Says max contribution is seven thousand to
eight thousand dollars a year.
If you're fifty or older.
Yeah, the specific amounts depending on
Who you are and the standard employee contribution limit of twenty three thousand dollars interesting. Whereas in UK it's just a flat.
twenty thousand is the current
I'm with my
Isa.
This tax free I say 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 at.
account, the employee 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'm 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.
And so most people don't even realise that they're investing, but they are investing through their company.
If they have that employer sponsor plan.
Then the individual account is you.
doing the investing yourself, you're picking.
What to invest in.
Yeah.
And what shall I invest in?
My
principle with investing is very, very simple and it's just keep it
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 bond is proud. An index.
Think of it as
A list of companies.
So the S P five hundred is a list of the largest the top five hundred companies to keep this really simple.
Fitsi One Hundred is the top one hundred companies in the lock on the London Stock Exchange.
The fundamental.
Is a pot of money.
That invests.
in the companies on that list.
So by investing in a S P five hundred
you've invested in a small piece of the top five hundred 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
Well and the other companies will bring it back up again.
And what kind of performance can I expect from investing in the S P five hundred?
Historically speaking
Um the long term average has been eight to ten percent
per year depending on the years and the time frame 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 four
the chances of you getting that eight to ten percent on average.
Increase.
Is it to ten percent gonna make me rich, though, Nisha?
How long are you doing it for?
You tell me.
If you have a lump summary, you're like, Okay, you know what, I have two thousand
That I want to invest, what should I do with that?
I'm it's taking me five years to invest this.
I would say
One thousand nine hundred of that.
Don't invest it.
One hundred of it invest.
So I'll say why I'm saying this a hundred.
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 gonna be small. It's not gonna
Make you rich investing that.
But you're gonna
Instill that good habit early on.
And you're gonna remember that.
Because the remaining amount
You're gonna put that towards
increasing your income.
That's the first thing you're gonna 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 own.
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, th those buckets are gonna 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 an a recurring 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 twenty five, thirty 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 and increasing your income. Yeah, that's the first thing.
If you're figuring out, Okay, I need to increase my income, it's taken me a while to
Earn this amount.
And I only have a lump sum of two thousand, five thousand, 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

Easiest way.
To increase your income?
His
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 I've that I've taken on.
This is what the market is paying for a similar role.
And this is why
A pay wise it's 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 gonna show.
Without you asking for it. It's
Unlikely.
We're gonna have to build a case and
Say, okay, these are the things that I've done.
This is the things that we said we were gonna 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 that I actually did and this is where I went above and beyond.
So if I'm your Bosnia, yeah. If we just re
We're play one of those conversations you had. Yeah.
You assign a performance review.
And w what did you say to me?
I would say hey, Steven. Hey.
Three months ago.
Well, six months ago we spoke about
Um
The things that I needed to do.
To
Get promoted, or to get a pay rise.
And we mentioned XYZ.
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 the three sixty 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 women ask for a pay rise, it may not be seen.
In the same way as when a male counterpart asked for the pay rise.
And
The fact is 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 an organization or when I felt like
even I was being paid less than my male counterpart is speaking
Firstly, if there's a H R 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 can give you a really good guideline as to whether you are underpaid or whether you
deserve a bump to be more aligned.
Two
The general pay.
And
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,
Whether it's a colleague
And
It's worth always
speaking to other people about money is 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 do you get paid? As much 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 fifty percent less over their lifetime.
And I've made a video.
On
My salary year by year.
Over the last.
over the nine years that I spent in banking.
And the biggest pay jumps that I saw.
Or from switching.
Companies.
So
Those are the the two ways that I would actually say, Yeah, increase your income by asking for more or 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.
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