January 8, 2025 • 17 mins
The new year is here and while we often focus on resolutions like fitness or dry January, what about setting yourself up for a brighter financial future? In this episode, our host Kia Commodore welcomes Sean Philip from Legal & General, who shares some great tips to improve your personal finances for the longer term.
From rethinking financial sacrifices as ‘badges of honour’, the ‘Couch to £5k’ savings challenge, building an emergency fund and when to increase your pension contributions. This episode is packed with insights to help you save smarter and plan better.
Whether you're navigating the challenge of balancing short-term needs with long-term goals or looking for motivation to get started, Sean’s thoughts will inspire you to take steps to help make you a little bit richer!
Make 2025 the year future you will thank you for!
You can play the podcast and find other useful content on Legal & General’s website:
https://www.legalandgeneral.com/podcasts/a-little-bit-richer
Kia and her guests share their own personal thoughts and opinions in this podcast. These might be different from Legal & General’s take on things They give financial guidance for a UK audience that’s relevant at the time of recording. It’s general best practice, not the kind of personalised advice you’d get from a financial adviser.
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Kia (00:02):
Hey, this is Kia. New year, new you? From Dry
January to New Year's resolutions, this is a time of
year where many of us decide to cut down or
cut back on something. But, what about a plan to
have more money in the future? Make 2025 the year
that you take a look at getting your long- term
finances in a good place. Savings, investments, money, your pension,
et cetera. Welcome to another episode of A Little Bit
(00:25):
Richer, brought to you by my friends at Legal & General.
In this episode, we're going to help you make some
positive steps that future you will really thank you for.
Today we're welcoming Sean who works at Legal & General. He
leads a team who focus on supporting people to understand
the value of longer- term financial planning, offering web tools
and content, and working with telephone advisors. So he's here
(00:46):
to give some suggestions and actions, help you get your longer-
term finances in better shape. Welcome, Sean.
Sean (00:52):
So good to be here.
Kia (00:53):
Happy to have you here. And I'm really excited to
get into this episode. So Sean, we all know that
we should rein in our spending, more so once the
new year arrives. But, what do you need to do
if you're thinking longer term?
Sean (01:06):
So I think if you're thinking longer term, you've really
got to be thinking about the goals that you want
to set for yourself. And we think about them a
lot when it comes to our health and our fitness
and we make all these great new resolutions. We also
think about what our goals might be from a career
perspective. We might be thinking about what we're going to do
from a family perspective as well. But, I think outside
of really, really big things like saving for a house
(01:28):
deposit, we don't tend to think so much about money
and talking about financial goals. And I think one of the
reasons for that is that ultimately finances are a means
to an end, and sometimes people don't really think about
the end itself and what that means for them. So
I think what I'd probably encourage people to do is
think a little bit more holistically about what it is
that you're really focused on and what you want to achieve.
(01:49):
If you're somebody who is really family orientated, then money
might be a means to provide for your family, provide
security and stability. And if you're focusing on that as
the end goal and creating this secure environment for your
family, then having something like an emergency savings fund might
be an important goal for the year. But equally, one
of the things is not to feel that you are
(02:12):
failing if you make some decisions that don't immediately progress
to that savings fund goal, because you've also got to
think about your own health and your own emotional wellbeing.
So sometimes the right decision might be to actually spend
a bit of money and time on yourself as well.
Kia (02:27):
No. I agree. I think it is important to have
that balance and to almost keep you on track. And
you mentioned one of my favorite words there, " goals," because
I love having goals. I was talking to a friend
recently about their goals for 2025, because we're here, we're
trying to plan for the future. And one word that
stuck out to me was her talking about her sacrifice.
So the things that she'd have to go without in
(02:47):
order to achieve her financial goals. And when you're talking
about sacrificing to achieve something longer term, it can really
be hard to stay motivated, because it can feel so
long and so far away. And like you mentioned, it
can almost feel like it's not really making a dent
or an impact. So do you have some suggestions for
us on how we can maintain that focus on this journey?
Sean (03:07):
So " sacrifices" is a really interesting word, and I think
actually I'd encourage people to think of them less about
sacrifices and more of badges of honor. I'm not going
to sit here and start talking about how everyone needs
to cut back on the amount of lattes that they
buy, or stop eating so many avocados. But, I do
think there's certain things that we probably spend money on
that would benefit from a bit of a rethink. So
lots of people get stuck into this habitual cycle of
(03:30):
continuing to pay for the newest mobile phones. Or they're
paying for cars that maybe are higher specs than they
maybe need. Or they've got their satellite TV packages. I'm
not saying you have to give them up, but I
would suggest that one of the things that you could
look at is, particularly around a mobile phone, is do
you need to continually be paying for the absolute top- of- the-
(03:51):
range model? A lot of people, they've finished paying off
one version of the phone. Oh. Lo and behold, there's
a brand new one just coming out around the corner. "
Oh, I'll get that one as well." So you end
up in this cycle of continuing to pay for the
phone, when actually if you just didn't do that, rather
than upgrading every 18 months, you're upgrading it every three
years or so, every time you look at that phone ... Okay.
(04:13):
It might be a little bit battered now, it might
be a little bit bruised, but it's still going to
be good. It's still going to be a perfectly fine
phone. Every time you look at it, it's not about
seeing a sacrifice, it's about seeing it as a badge
of honor. " Yeah. I have made the positive decision to
not invest in this because I want to put that
money into something else."
Kia (04:28):
Sean, I feel seen. My phone is battered and bruised,
but I'm going to tell everyone that those scratches and
dents are just badges of honor. Thank you.
Sean (04:36):
Absolutely.
Kia (04:36):
You've helped me reframe my thinking and everyone else around
me is coming for me in my phone. Thank you. Because I've got
a four, five- year- old phone and I'm proud of it.
Sean (04:44):
There's some really interesting work that's been done by this
fantastic economist called Richard Thaler on the whole concept of
how pensions work. And we know that pensions are really
important and that we should be saving everything that we
can into them to secure our long- term future. But,
I think one of the things that he's observed is
that from a human psychology perspective, actually a lot of the way that
they're currently set up, it really reinforces this feeling that
(05:05):
you're having to give up something now, or sacrifice something
now, for something later on. And that is something that
we are not really actually set up to do particularly
well as humans. And most people would actually much rather
have £ 100 right now, than potentially 200, 300, £400 in 30 or 40 years'
time. And if you could ask someone to give up
that £ 100 now for something that might happen in the
(05:26):
future, they don't like that. And it's called loss aversion. It's
one of the key psychological biases. So what Richard Thaler
was really looking at in the work that he's been
doing is, how can you reverse that? Because that is
one of the real reasons at the moment that people
probably don't contribute as much as they should do into
their pensions, is this whole concept of loss aversion. But,
what he is suggesting is that actually you can turn
(05:48):
that on its head a little bit and make that
psychological bias work for you through the concept of saying, "
Well, don't give up something now, because you don't want
to feel a little bit poorer in the short term.
Actually, the opportunity that you've really, got is the next
time that you have a pay rise or your salary
increases ..." And I appreciate that isn't going to be for
everyone. Very great if that's happened for you, and it's
(06:09):
lucky that you're in that circumstance. But, that's probably the
opportunity where you increase your contributions for your pension. And
the thinking behind it is really interesting, is that you
might look at your finances and you might look at
what you're contributing to your pensions and say, " I know
I need to add more to this, but I really
can't afford to lose that right now in my pay
packet." But if you wait until you get a pay
(06:30):
rise, then you are going to get more money into
your pay packet on a monthly basis anyway. Brilliant! So
you're going to feel that. But, if you also use
that as the opportunity to increase your contributions by maybe
a percentage or two, if you can afford it, then
you're getting the best of both worlds, because you're getting
more into your pay packet now. Nice big reward for
the work that you've done. And you've got your salary
increase. Fantastic! But also it is working twice as hard,
(06:53):
because you're now putting a bit more into your pension.
Kia (06:55):
I think that's a great way to look at it,
because quite often if you are able to get a pay rise,
like you said, you get some sort of bonus from work ...
Especially when I speak to people, there's always that want to maybe
increase their lifestyle costs. So you might say, " Oh. I've got
a bit more. I can afford more now. I can
take up more subscriptions, or I can just spend more
on my everyday life." But, what you just described there
(07:17):
is a great way to actually maybe implement that increase.
So instead of increasing your lifestyle, because you can probably
afford it at the point that you're at. Right? You're probably somewhat comfortable.
So instead of increasing and spending more, you can put that
extra payment, or put a chunk of it into your
pension, or maybe another way to plan for longer time.
So I love that. That's a good way to change
your thinking. We've spoken about on the show before, the
(07:40):
importance of having emergency funding. You mentioned it in the
first question today. So I want to come back to
that topic and say, do you have some thoughts on
what you need, or how we can build up this emergency fund?
Sean (07:52):
Yeah. Yeah. Absolutely. The first question that people often ask is, " Well,
how much should an emergency fund be?" And I think
the general rule of thumb is that you're probably looking
at about three months' salary or three months' income after
tax, just to give you that buffer and that protection
in the event that something unexpected happens and you need
to dip into it. Now, interestingly, for some people, that's
(08:13):
probably going to equate to not far off about £ 5,
000. And I say that's interesting, because actually, if you
think about where we are in the new year, and
a lot of people thinking about their fitness and diet
and health and getting into maybe a sport or something,
the Couch to 5K program to get people fit has
been phenomenally successful and something that a lot of people
(08:34):
are really massively benefiting from, getting healthy and getting physically
fit. Well, that 5K actually translates to probably how much you
could do with having in an emergency savings fund. So
there's almost a bit of a call to arms to say, "
Well, okay. You've got Couch to 5K from a health
perspective. We should also be looking at a couch to
5K in savings from a financially fit perspective." So I'd
say that's probably where you want to start, is that taking
(08:55):
a lot of the learnings from what really works from
that program and starting applying it to your own savings habits.
Kia (09:02):
Absolutely. And I think the good thing about the Couch
to 5K ... I've never personally done it, but I commend
everyone who does do it. But, the great thing about
that is that it breaks it down into small chunks.
So instead of telling someone to save £ 5, 000 is
whoa! Overwhelming. But, if you know that it's incremental over
a number of days, weeks, months, and then you can
get to that final goal, it feels more achievable, which
(09:23):
I think that's a great way to implement that into
your savings. And that's definitely how I approach savings and whenever
I talk to people. Just to do it bit by
bit. If you have a bigger goal of, I don't
know, like I said 5, 000, £10,000 pounds, what is that on
a weekly basis, monthly? And then it feels like, " Oh, actually,
I can save that and I can reach that goal."
Sean (09:39):
Yeah. Absolutely. It's really motivating. And I think that's really important as
part of that whole program, and that's why that actually
does work so well, is that you are constantly reflecting on your
progress and how well you've done. And that in itself
is something that gives you the happy endorphins, that means, " Yeah.
I am doing the right thing. I'm getting there. I'm
reaching my goal." If you go down a slightly different
path and you spend your money on something different one
(10:00):
week, or one month, and you haven't put quite as
much into your savings, that's okay. These things happen. But,
the important thing is that you've got this plan that
you're constantly working towards and you're continuing to see progress.
Kia (10:10):
Absolutely, Sean. You've done it. Now everyone listening, we're going
to do the Couch to 5K financial edition. I love
that. And when we're talking about emergency funds, where can
we keep our emergency fund?
Sean (10:20):
Unlike a pension, we want to be able to actually
access this when we really need it. So I think
there's lots of different places that you can put your
money when you're thinking about a savings fund. ISAs are
really good, so they're a good wrapper for you to
be able to invest in. And I think you've got
multiple different or almost flavors of ISAs. You can put
things into a cash ISA and actually the interest rates
on cash ISAs have improved in recent years. Or if
(10:43):
you want to take a little bit more risk, maybe
you want to invest for a slightly longer time period, you've
got stocks and shares ISAs as well, where you can
invest in them. But, the value of them may go
down as well as up. So there is a little
bit more risk involved in that. But, you've got these
options. I think definitely encourage people to shop around, but
also to do their research and educate themselves on how
they differ and what it means to try and withdraw the
money at different points. And I think if you're in
(11:06):
any doubt about what to do, definitely speak to a
financial advisor, because they'll be able to give you the
specific recommendations for your circumstances.
Kia (11:13):
Absolutely. Completely agree. I love, and it's no secret on
this podcast, I love talking about pensions. I love talking
about retirement. I've spoken to Kim Brown three times on
Little Bit Richer, all about pensions. Whenever we talk about this
topic and we talk to 20 and 30- year- olds, (inaudible)
such a long time away, that to be fair, I
can't really envision myself at 60. I know I'll be
(11:34):
glamorous on a beach somewhere, but it's a long time
away. So for anyone in that age bracket who knows
that they need to be saving for their pension, but
just doesn't really see the point right now, because it's
so far away, what would you suggest that they can
do to actually help them to put more money in?
Because it can be hard sometimes.
Sean (11:52):
Yeah. It can be. And I think it's no secret that in
your twenties and your thirties, that is really the optimum
time to be building your pension part. But, at the
same time, it's when you also have all these different conflicting
priorities to be spending your money on. It can be
really difficult to make the right call there. I think
there's probably three things to look at here actually. Firstly,
if you are employed and it's not your first job
(12:12):
that you're currently working, the chances are you've actually probably
amassed some pension savings in other environments with other employers.
You've got other workplace pensions out there that you may
be really aware of, but you also might not. So
I think one of the things that you could do
is ... And it's super easy to do this, is try and
consolidate all of those different previous pensions into one pot, if you
do have them. You might find that actually there's a
couple of thousand pounds out there that you maybe weren't
(12:34):
really aware of or you weren't tracking. Putting that together
in your current workplace pension is going to be a really
important step to feeling in control. Secondly, reviewing your contributions
to your pension is really important. And I think there's
a lot of tools and calculators out there that help
you work back from, " Okay. This is the type of
lifestyle that I want to have when I'm retired," whatever
(12:54):
age that might be. " And therefore, what should I be
saving into my pension pot on a monthly basis right
now?" So you can understand what the gap is. And I think
if you put that and you coincide that with the
concept that we talked about earlier, where actually you only
increase your contributions when you can afford to with a salary
increase, for example, actually, you might find that you can
close that gap relatively quickly. And I think thirdly, the
(13:14):
other thing is also just not to forget that most
pension providers will happily enable ad hoc payments as well.
So if you're looking at that gap maybe, and you think, " I
should be contributing more on a monthly basis, but I
just can't really afford to make that commitment right now."
Well, that's okay. Just contribute a little bit more on
an ad hoc basis when you can. So I'm 37
years old, but my nan still sends me money for
(13:36):
my birthday, which is lovely-
Kia (13:38):
Love that.
Sean (13:38):
... obviously, right? But, it is things like that. It's
like maybe that isn't something you desperately need right now,
so you could put that into it.
Kia (13:45):
Yeah. Every little helps.
Sean (13:45):
It's all good.
Kia (13:45):
Thanks, Gran. Love that. Love that. And off the back of the points
that you've made, should people also be thinking about protecting
their income if they get ill and perhaps couldn't work,
or maybe have lost their job?
Sean (13:56):
Yeah. We talked about that emergency fund, the concept of
that being a savings fund. Well, actually there's lots of
different ways that you can protect for your family or
for yourself, if there was something unexpected to happen. I
know we've talked about that before on this podcast, but
just to reinforce previous points. I think looking at critical
illness cover, income protection, there's lots of different products that
(14:17):
there are out there, that you can also use to
create that same feeling of stability and security. One of
the things to look at, is if you are employed,
most employers have taken steps towards giving you some of
this protection as part of your benefits package as well.
So it's definitely worth reviewing that and trying to understand,
do I have what I need there? Or do I
need to supplement it with something else externally? If you're
(14:39):
not sure, there's always financial advisors that you can speak
to get really clear before you commit to anything.
Kia (14:44):
I've spoken to Koren about this already twice on the
podcast. So if you haven't checked out already, go back
and listen, because Koren's story is really inspiring and can
really teach us a lot about protecting your income. Definitely
well worth looking at if you are like me and
you work for yourself.
Sean (14:57):
Yeah. Absolutely.
Kia (14:57):
Very, very important because you don't have any protection, unfortunately. So definitely something
to have a look at. I think that's the general
consensus we're on. Sean, this has been an incredible episode
and you have enlightened us and made us feel like
we can tackle the new year head on. But before
you go, I want to ask you, what are your
top three tips to help all of us improve our long-
term financial fitness?
Sean (15:17):
So I think tip number one would be to stay motivated
and stay focused. And I think one of the ways
that you can do this is not see financial planning
as something that is this big, once- a- year scary
thing that you need to do and you've got to
endure through your gritted teeth. I think it's about changing
your relationship with that and building up really positive habits,
where actually like exercise, if you're doing a little bit
(15:40):
often, that is going to be much better than trying
to tackle something in a really, really big, horrible way.
I think the second one is around sharing things with
friends and family and trying to have a bit more
of a discussion and talking a bit more about what
it is that you're trying to achieve. So again, to
use that fitness analogy, if you can find a buddy,
whether that's a close friend, family member, maybe a work
(16:02):
colleague who's on a similar path to you, actually, let's
just talk a bit more about what we're trying to
achieve together, because it's going to help you continue being
focused and motivated. And then, I think finally is really,
don't beat yourself up if you do have an expensive
month, and if you go off track. That's totally fine.
It's less about throwing the baby out of the bath
water and saying, " All right. That's it. I'm done. I
(16:22):
can't save. I'm rubbish at this." And just saying, " Oh,
okay. Yeah. I've learned something there, but I'm just going
to get back on track for future months."
Kia (16:29):
Absolutely. I love those tips, especially the last one, not
beat yourself up. We've just come off the back of
a very expensive month with Christmas. So yeah. It's just
being kind to yourself. And sometimes there's months where there's
loads of birthdays, weddings, and that just happens, but it
is just staying on track and being kind to yourself.
So Sean, thank you so much. We are 100% ready.
2025 doesn't know what's coming when it comes to our
finances. Thank you, Sean. Lots of great ways to get
(16:54):
us financially fit for the year ahead. Next time we're
talking about all the things that you need to think
about before moving in with someone with Family Lawyer, Yasmin Khan-
Gunns. I'd love it if you could review the podcast,
spread the word, and help others get a little bit
richer too. Keep up with the show on TikTok and Instagram at
Legal & General. Thank you for listening. See you soon.
Hey, this is Kia. New year, new you? From Dry
January to New Year's resolutions, this is a time of
year where many of us decide to cut down or
cut back on something. But, what about a plan to
have more money in the future? Make 2025 the year
that you take a look at getting your long- term
finances in a good place. Savings, investments, money, your pension,
et cetera. Welcome to another episode of A Little Bit
(00:25):
Richer, brought to you by my friends at Legal & General.
In this episode, we're going to help you make some
positive steps that future you will really thank you for.
Today we're welcoming Sean who works at Legal & General. He
leads a team who focus on supporting people to understand
the value of longer- term financial planning, offering web tools
and content, and working with telephone advisors. So he's here
(00:46):
to give some suggestions and actions, help you get your longer-
term finances in better shape. Welcome, Sean.
Sean (00:52):
So good to be here.
Kia (00:53):
Happy to have you here. And I'm really excited to
get into this episode. So Sean, we all know that
we should rein in our spending, more so once the
new year arrives. But, what do you need to do
if you're thinking longer term?
Sean (01:06):
So I think if you're thinking longer term, you've really
got to be thinking about the goals that you want
to set for yourself. And we think about them a
lot when it comes to our health and our fitness
and we make all these great new resolutions. We also
think about what our goals might be from a career
perspective. We might be thinking about what we're going to do
from a family perspective as well. But, I think outside
of really, really big things like saving for a house
(01:28):
deposit, we don't tend to think so much about money
and talking about financial goals. And I think one of the
reasons for that is that ultimately finances are a means
to an end, and sometimes people don't really think about
the end itself and what that means for them. So
I think what I'd probably encourage people to do is
think a little bit more holistically about what it is
that you're really focused on and what you want to achieve.
(01:49):
If you're somebody who is really family orientated, then money
might be a means to provide for your family, provide
security and stability. And if you're focusing on that as
the end goal and creating this secure environment for your
family, then having something like an emergency savings fund might
be an important goal for the year. But equally, one
of the things is not to feel that you are
(02:12):
failing if you make some decisions that don't immediately progress
to that savings fund goal, because you've also got to
think about your own health and your own emotional wellbeing.
So sometimes the right decision might be to actually spend
a bit of money and time on yourself as well.
Kia (02:27):
No. I agree. I think it is important to have
that balance and to almost keep you on track. And
you mentioned one of my favorite words there, " goals," because
I love having goals. I was talking to a friend
recently about their goals for 2025, because we're here, we're
trying to plan for the future. And one word that
stuck out to me was her talking about her sacrifice.
So the things that she'd have to go without in
(02:47):
order to achieve her financial goals. And when you're talking
about sacrificing to achieve something longer term, it can really
be hard to stay motivated, because it can feel so
long and so far away. And like you mentioned, it
can almost feel like it's not really making a dent
or an impact. So do you have some suggestions for
us on how we can maintain that focus on this journey?
Sean (03:07):
So " sacrifices" is a really interesting word, and I think
actually I'd encourage people to think of them less about
sacrifices and more of badges of honor. I'm not going
to sit here and start talking about how everyone needs
to cut back on the amount of lattes that they
buy, or stop eating so many avocados. But, I do
think there's certain things that we probably spend money on
that would benefit from a bit of a rethink. So
lots of people get stuck into this habitual cycle of
(03:30):
continuing to pay for the newest mobile phones. Or they're
paying for cars that maybe are higher specs than they
maybe need. Or they've got their satellite TV packages. I'm
not saying you have to give them up, but I
would suggest that one of the things that you could
look at is, particularly around a mobile phone, is do
you need to continually be paying for the absolute top- of- the-
(03:51):
range model? A lot of people, they've finished paying off
one version of the phone. Oh. Lo and behold, there's
a brand new one just coming out around the corner. "
Oh, I'll get that one as well." So you end
up in this cycle of continuing to pay for the
phone, when actually if you just didn't do that, rather
than upgrading every 18 months, you're upgrading it every three
years or so, every time you look at that phone ... Okay.
(04:13):
It might be a little bit battered now, it might
be a little bit bruised, but it's still going to
be good. It's still going to be a perfectly fine
phone. Every time you look at it, it's not about
seeing a sacrifice, it's about seeing it as a badge
of honor. " Yeah. I have made the positive decision to
not invest in this because I want to put that
money into something else."
Kia (04:28):
Sean, I feel seen. My phone is battered and bruised,
but I'm going to tell everyone that those scratches and
dents are just badges of honor. Thank you.
Sean (04:36):
Absolutely.
Kia (04:36):
You've helped me reframe my thinking and everyone else around
me is coming for me in my phone. Thank you. Because I've got
a four, five- year- old phone and I'm proud of it.
Sean (04:44):
There's some really interesting work that's been done by this
fantastic economist called Richard Thaler on the whole concept of
how pensions work. And we know that pensions are really
important and that we should be saving everything that we
can into them to secure our long- term future. But,
I think one of the things that he's observed is
that from a human psychology perspective, actually a lot of the way that
they're currently set up, it really reinforces this feeling that
(05:05):
you're having to give up something now, or sacrifice something
now, for something later on. And that is something that
we are not really actually set up to do particularly
well as humans. And most people would actually much rather
have £ 100 right now, than potentially 200, 300, £400 in 30 or 40 years'
time. And if you could ask someone to give up
that £ 100 now for something that might happen in the
(05:26):
future, they don't like that. And it's called loss aversion. It's
one of the key psychological biases. So what Richard Thaler
was really looking at in the work that he's been
doing is, how can you reverse that? Because that is
one of the real reasons at the moment that people
probably don't contribute as much as they should do into
their pensions, is this whole concept of loss aversion. But,
what he is suggesting is that actually you can turn
(05:48):
that on its head a little bit and make that
psychological bias work for you through the concept of saying, "
Well, don't give up something now, because you don't want
to feel a little bit poorer in the short term.
Actually, the opportunity that you've really, got is the next
time that you have a pay rise or your salary
increases ..." And I appreciate that isn't going to be for
everyone. Very great if that's happened for you, and it's
(06:09):
lucky that you're in that circumstance. But, that's probably the
opportunity where you increase your contributions for your pension. And
the thinking behind it is really interesting, is that you
might look at your finances and you might look at
what you're contributing to your pensions and say, " I know
I need to add more to this, but I really
can't afford to lose that right now in my pay
packet." But if you wait until you get a pay
(06:30):
rise, then you are going to get more money into
your pay packet on a monthly basis anyway. Brilliant! So
you're going to feel that. But, if you also use
that as the opportunity to increase your contributions by maybe
a percentage or two, if you can afford it, then
you're getting the best of both worlds, because you're getting
more into your pay packet now. Nice big reward for
the work that you've done. And you've got your salary
increase. Fantastic! But also it is working twice as hard,
(06:53):
because you're now putting a bit more into your pension.
Kia (06:55):
I think that's a great way to look at it,
because quite often if you are able to get a pay rise,
like you said, you get some sort of bonus from work ...
Especially when I speak to people, there's always that want to maybe
increase their lifestyle costs. So you might say, " Oh. I've got
a bit more. I can afford more now. I can
take up more subscriptions, or I can just spend more
on my everyday life." But, what you just described there
(07:17):
is a great way to actually maybe implement that increase.
So instead of increasing your lifestyle, because you can probably
afford it at the point that you're at. Right? You're probably somewhat comfortable.
So instead of increasing and spending more, you can put that
extra payment, or put a chunk of it into your
pension, or maybe another way to plan for longer time.
So I love that. That's a good way to change
your thinking. We've spoken about on the show before, the
(07:40):
importance of having emergency funding. You mentioned it in the
first question today. So I want to come back to
that topic and say, do you have some thoughts on
what you need, or how we can build up this emergency fund?
Sean (07:52):
Yeah. Yeah. Absolutely. The first question that people often ask is, " Well,
how much should an emergency fund be?" And I think
the general rule of thumb is that you're probably looking
at about three months' salary or three months' income after
tax, just to give you that buffer and that protection
in the event that something unexpected happens and you need
to dip into it. Now, interestingly, for some people, that's
(08:13):
probably going to equate to not far off about £ 5,
000. And I say that's interesting, because actually, if you
think about where we are in the new year, and
a lot of people thinking about their fitness and diet
and health and getting into maybe a sport or something,
the Couch to 5K program to get people fit has
been phenomenally successful and something that a lot of people
(08:34):
are really massively benefiting from, getting healthy and getting physically
fit. Well, that 5K actually translates to probably how much you
could do with having in an emergency savings fund. So
there's almost a bit of a call to arms to say, "
Well, okay. You've got Couch to 5K from a health
perspective. We should also be looking at a couch to
5K in savings from a financially fit perspective." So I'd
say that's probably where you want to start, is that taking
(08:55):
a lot of the learnings from what really works from
that program and starting applying it to your own savings habits.
Kia (09:02):
Absolutely. And I think the good thing about the Couch
to 5K ... I've never personally done it, but I commend
everyone who does do it. But, the great thing about
that is that it breaks it down into small chunks.
So instead of telling someone to save £ 5, 000 is
whoa! Overwhelming. But, if you know that it's incremental over
a number of days, weeks, months, and then you can
get to that final goal, it feels more achievable, which
(09:23):
I think that's a great way to implement that into
your savings. And that's definitely how I approach savings and whenever
I talk to people. Just to do it bit by
bit. If you have a bigger goal of, I don't
know, like I said 5, 000, £10,000 pounds, what is that on
a weekly basis, monthly? And then it feels like, " Oh, actually,
I can save that and I can reach that goal."
Sean (09:39):
Yeah. Absolutely. It's really motivating. And I think that's really important as
part of that whole program, and that's why that actually
does work so well, is that you are constantly reflecting on your
progress and how well you've done. And that in itself
is something that gives you the happy endorphins, that means, " Yeah.
I am doing the right thing. I'm getting there. I'm
reaching my goal." If you go down a slightly different
path and you spend your money on something different one
(10:00):
week, or one month, and you haven't put quite as
much into your savings, that's okay. These things happen. But,
the important thing is that you've got this plan that
you're constantly working towards and you're continuing to see progress.
Kia (10:10):
Absolutely, Sean. You've done it. Now everyone listening, we're going
to do the Couch to 5K financial edition. I love
that. And when we're talking about emergency funds, where can
we keep our emergency fund?
Sean (10:20):
Unlike a pension, we want to be able to actually
access this when we really need it. So I think
there's lots of different places that you can put your
money when you're thinking about a savings fund. ISAs are
really good, so they're a good wrapper for you to
be able to invest in. And I think you've got
multiple different or almost flavors of ISAs. You can put
things into a cash ISA and actually the interest rates
on cash ISAs have improved in recent years. Or if
(10:43):
you want to take a little bit more risk, maybe
you want to invest for a slightly longer time period, you've
got stocks and shares ISAs as well, where you can
invest in them. But, the value of them may go
down as well as up. So there is a little
bit more risk involved in that. But, you've got these
options. I think definitely encourage people to shop around, but
also to do their research and educate themselves on how
they differ and what it means to try and withdraw the
money at different points. And I think if you're in
(11:06):
any doubt about what to do, definitely speak to a
financial advisor, because they'll be able to give you the
specific recommendations for your circumstances.
Kia (11:13):
Absolutely. Completely agree. I love, and it's no secret on
this podcast, I love talking about pensions. I love talking
about retirement. I've spoken to Kim Brown three times on
Little Bit Richer, all about pensions. Whenever we talk about this
topic and we talk to 20 and 30- year- olds, (inaudible)
such a long time away, that to be fair, I
can't really envision myself at 60. I know I'll be
(11:34):
glamorous on a beach somewhere, but it's a long time
away. So for anyone in that age bracket who knows
that they need to be saving for their pension, but
just doesn't really see the point right now, because it's
so far away, what would you suggest that they can
do to actually help them to put more money in?
Because it can be hard sometimes.
Sean (11:52):
Yeah. It can be. And I think it's no secret that in
your twenties and your thirties, that is really the optimum
time to be building your pension part. But, at the
same time, it's when you also have all these different conflicting
priorities to be spending your money on. It can be
really difficult to make the right call there. I think
there's probably three things to look at here actually. Firstly,
if you are employed and it's not your first job
(12:12):
that you're currently working, the chances are you've actually probably
amassed some pension savings in other environments with other employers.
You've got other workplace pensions out there that you may
be really aware of, but you also might not. So
I think one of the things that you could do
is ... And it's super easy to do this, is try and
consolidate all of those different previous pensions into one pot, if you
do have them. You might find that actually there's a
couple of thousand pounds out there that you maybe weren't
(12:34):
really aware of or you weren't tracking. Putting that together
in your current workplace pension is going to be a really
important step to feeling in control. Secondly, reviewing your contributions
to your pension is really important. And I think there's
a lot of tools and calculators out there that help
you work back from, " Okay. This is the type of
lifestyle that I want to have when I'm retired," whatever
(12:54):
age that might be. " And therefore, what should I be
saving into my pension pot on a monthly basis right
now?" So you can understand what the gap is. And I think
if you put that and you coincide that with the
concept that we talked about earlier, where actually you only
increase your contributions when you can afford to with a salary
increase, for example, actually, you might find that you can
close that gap relatively quickly. And I think thirdly, the
(13:14):
other thing is also just not to forget that most
pension providers will happily enable ad hoc payments as well.
So if you're looking at that gap maybe, and you think, " I
should be contributing more on a monthly basis, but I
just can't really afford to make that commitment right now."
Well, that's okay. Just contribute a little bit more on
an ad hoc basis when you can. So I'm 37
years old, but my nan still sends me money for
(13:36):
my birthday, which is lovely-
Kia (13:38):
Love that.
Sean (13:38):
... obviously, right? But, it is things like that. It's
like maybe that isn't something you desperately need right now,
so you could put that into it.
Kia (13:45):
Yeah. Every little helps.
Sean (13:45):
It's all good.
Kia (13:45):
Thanks, Gran. Love that. Love that. And off the back of the points
that you've made, should people also be thinking about protecting
their income if they get ill and perhaps couldn't work,
or maybe have lost their job?
Sean (13:56):
Yeah. We talked about that emergency fund, the concept of
that being a savings fund. Well, actually there's lots of
different ways that you can protect for your family or
for yourself, if there was something unexpected to happen. I
know we've talked about that before on this podcast, but
just to reinforce previous points. I think looking at critical
illness cover, income protection, there's lots of different products that
(14:17):
there are out there, that you can also use to
create that same feeling of stability and security. One of
the things to look at, is if you are employed,
most employers have taken steps towards giving you some of
this protection as part of your benefits package as well.
So it's definitely worth reviewing that and trying to understand,
do I have what I need there? Or do I
need to supplement it with something else externally? If you're
(14:39):
not sure, there's always financial advisors that you can speak
to get really clear before you commit to anything.
Kia (14:44):
I've spoken to Koren about this already twice on the
podcast. So if you haven't checked out already, go back
and listen, because Koren's story is really inspiring and can
really teach us a lot about protecting your income. Definitely
well worth looking at if you are like me and
you work for yourself.
Sean (14:57):
Yeah. Absolutely.
Kia (14:57):
Very, very important because you don't have any protection, unfortunately. So definitely something
to have a look at. I think that's the general
consensus we're on. Sean, this has been an incredible episode
and you have enlightened us and made us feel like
we can tackle the new year head on. But before
you go, I want to ask you, what are your
top three tips to help all of us improve our long-
term financial fitness?
Sean (15:17):
So I think tip number one would be to stay motivated
and stay focused. And I think one of the ways
that you can do this is not see financial planning
as something that is this big, once- a- year scary
thing that you need to do and you've got to
endure through your gritted teeth. I think it's about changing
your relationship with that and building up really positive habits,
where actually like exercise, if you're doing a little bit
(15:40):
often, that is going to be much better than trying
to tackle something in a really, really big, horrible way.
I think the second one is around sharing things with
friends and family and trying to have a bit more
of a discussion and talking a bit more about what
it is that you're trying to achieve. So again, to
use that fitness analogy, if you can find a buddy,
whether that's a close friend, family member, maybe a work
(16:02):
colleague who's on a similar path to you, actually, let's
just talk a bit more about what we're trying to
achieve together, because it's going to help you continue being
focused and motivated. And then, I think finally is really,
don't beat yourself up if you do have an expensive
month, and if you go off track. That's totally fine.
It's less about throwing the baby out of the bath
water and saying, " All right. That's it. I'm done. I
(16:22):
can't save. I'm rubbish at this." And just saying, " Oh,
okay. Yeah. I've learned something there, but I'm just going
to get back on track for future months."
Kia (16:29):
Absolutely. I love those tips, especially the last one, not
beat yourself up. We've just come off the back of
a very expensive month with Christmas. So yeah. It's just
being kind to yourself. And sometimes there's months where there's
loads of birthdays, weddings, and that just happens, but it
is just staying on track and being kind to yourself.
So Sean, thank you so much. We are 100% ready.
2025 doesn't know what's coming when it comes to our
finances. Thank you, Sean. Lots of great ways to get
(16:54):
us financially fit for the year ahead. Next time we're
talking about all the things that you need to think
about before moving in with someone with Family Lawyer, Yasmin Khan-
Gunns. I'd love it if you could review the podcast,
spread the word, and help others get a little bit
richer too. Keep up with the show on TikTok and Instagram at
Legal & General. Thank you for listening. See you soon.
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