S1E13: How to build wealth - the basics checklist
We’re bringing together the basics in one episode because we’ve covered a lot in our first season and want to make sure you’re absolutely clear about the fundamentals of building wealth.
What you should remember from this episode
If you want to get better with money and build wealth you need to start by figuring out your relationship with money. What’s your financial personality? Check out our first episode with Claer Barrett if you want to go deeper.
Then do a budget to truly understand your financial position - what are you actually spending? How much is going on your needs versus you wants? This shouldn’t be a guess or estimates. You basically need to understand what you can afford to spend, save or invest. A budget is one of your key tools for moving from wherever you are now with your finances to wherever you want to be. Check out our Budgeting episode if you want to go deeper
But, before you can do a lot of wealth building activities like investing, you first need to clear bad debts. If this applies to you, please check out our Debt episode.
If you don’t have bad debts, the next step is to build an emergency fund of 3 - 6 months of income. This will protect you from the surprise costs that inevitably life throws up over a long enough period of time, like losing your job or your boiler breaking. An emergency fund gives you the security to go about your life without it throwing you off course.
If you’re worried that you can’t save enough, the key is to just start saving. Whatever you can save will help.
Once you’ve built an emergency fund, consider starting to invest because it’s a key wealth building tool. It’s how most rich people became rich. It’s generally better to invest rather than keep too much money in cash because inflation erodes the value of your cash - so not taking enough risk can be a risk in itself. The simplest approach to investing also happens to generally be the best which is investing in index funds (e.g. a global one) consistently, over a long period of time. Check out our episode with Andrew Craig (Can anyone get rich?) and our introduction to Investing episode if you want to go deeper.
The best vehicle to invest through in the UK is normally an ISA because anything you earn is tax free. Check out our ISA episode if you want to dive deeper.
It’s tricky, and frankly impossible at times, but if you can save and invest 10% of what you earn, whenever you earn it - and learn a bit about this stuff like investing - you’ll put yourself in a strong position long term. If you can save and invest over a lifetime it will make a huge difference to your life.
You should think about maximising your pension (and other assets like ISAs) so you can retire well. To work out what you’ll need in retirement, a good rule of thumb is taking what you think you’ll want to live off per year and multiplying it by 25. For example, if you want an income of £40k/year then you’ll need £1m. It’s more complicated than that because of stuff like inflation, but to go deeper, and to learn how to maximise your retirement pot, check out our Pensions episode.
It’s best to sort the ‘nuts and bolts’ of your finances out, like your ISA and Pension, before taking on riskier investments like crypto. But If you do get the basics done, and have some discretionary money left over, you can probably afford to take on more risk. But Andrew Craig says you shouldn’t have more than 10% of your investments in risky assets.
Remember, we all make mistakes. Sometimes we make the same mistake over and over again, but you can change your financial future. You just need to forgive yourself, decide to be better and start learning about this stuff. We’re here to help (we were all bad with money ourselves) and hope you enjoyed our first season
Next up: we’re answering your questions in some mini episodes
What’s your biggest money question? Let us know by emailing makingmoney@kindling.media. We’ll return with Season 2 (full length episodes) on September 4, kicking off with Deborah Meaden.
