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Financial Fitness for 2025 · A Little Bit Richer

0:02
Kia: Hey, this is Kia. New year, new you? From Dry
0:06
Kia: January to New Year's resolutions, this is a time of
0:08
Kia: year where many of us decide to cut down or
0:11
Kia: cut back on something. But, what about a plan to
0:13
Kia: have more money in the future? Make 2025 the year
0:16
Kia: that you take a look at getting your long- term
0:18
Kia: finances in a good place. Savings, investments, money, your pension,
0:22
Kia: et cetera. Welcome to another episode of A Little Bit
0:25
Kia: Richer, brought to you by my friends at Legal & General.
0:28
Kia: In this episode, we're going to help you make some
0:30
Kia: positive steps that future you will really thank you for.
0:33
Kia: Today we're welcoming Sean who works at Legal & General. He
0:37
Kia: leads a team who focus on supporting people to understand
0:40
Kia: the value of longer- term financial planning, offering web tools
0:43
Kia: and content, and working with telephone advisors. So he's here
0:46
Kia: to give some suggestions and actions, help you get your longer-
0:48
Kia: term finances in better shape. Welcome, Sean.
0:52
Sean: So good to be here.
0:53
Kia: Happy to have you here. And I'm really excited to
0:55
Kia: get into this episode. So Sean, we all know that
0:59
Kia: we should rein in our spending, more so once the
1:02
Kia: new year arrives. But, what do you need to do
1:04
Kia: if you're thinking longer term?
1:06
Sean: So I think if you're thinking longer term, you've really
1:08
Sean: got to be thinking about the goals that you want
1:10
Sean: to set for yourself. And we think about them a
1:12
Sean: lot when it comes to our health and our fitness
1:15
Sean: and we make all these great new resolutions. We also
1:18
Sean: think about what our goals might be from a career
1:20
Sean: perspective. We might be thinking about what we're going to do
1:22
Sean: from a family perspective as well. But, I think outside
1:25
Sean: of really, really big things like saving for a house
1:28
Sean: deposit, we don't tend to think so much about money
1:31
Sean: and talking about financial goals. And I think one of the
1:33
Sean: reasons for that is that ultimately finances are a means
1:36
Sean: to an end, and sometimes people don't really think about
1:40
Sean: the end itself and what that means for them. So
1:42
Sean: I think what I'd probably encourage people to do is
1:44
Sean: think a little bit more holistically about what it is
1:47
Sean: that you're really focused on and what you want to achieve.
1:49
Sean: If you're somebody who is really family orientated, then money
1:53
Sean: might be a means to provide for your family, provide
1:56
Sean: security and stability. And if you're focusing on that as
1:59
Sean: the end goal and creating this secure environment for your
2:02
Sean: family, then having something like an emergency savings fund might
2:06
Sean: be an important goal for the year. But equally, one
2:09
Sean: of the things is not to feel that you are
2:12
Sean: failing if you make some decisions that don't immediately progress
2:16
Sean: to that savings fund goal, because you've also got to
2:19
Sean: think about your own health and your own emotional wellbeing.
2:22
Sean: So sometimes the right decision might be to actually spend
2:24
Sean: a bit of money and time on yourself as well.
2:27
Kia: No. I agree. I think it is important to have
2:29
Kia: that balance and to almost keep you on track. And
2:33
Kia: you mentioned one of my favorite words there, " goals," because
2:35
Kia: I love having goals. I was talking to a friend
2:37
Kia: recently about their goals for 2025, because we're here, we're
2:40
Kia: trying to plan for the future. And one word that
2:42
Kia: stuck out to me was her talking about her sacrifice.
2:45
Kia: So the things that she'd have to go without in
2:47
Kia: order to achieve her financial goals. And when you're talking
2:51
Kia: about sacrificing to achieve something longer term, it can really
2:54
Kia: be hard to stay motivated, because it can feel so
2:57
Kia: long and so far away. And like you mentioned, it
2:59
Kia: can almost feel like it's not really making a dent
3:01
Kia: or an impact. So do you have some suggestions for
3:04
Kia: us on how we can maintain that focus on this journey?
3:07
Sean: So " sacrifices" is a really interesting word, and I think
3:10
Sean: actually I'd encourage people to think of them less about
3:12
Sean: sacrifices and more of badges of honor. I'm not going
3:15
Sean: to sit here and start talking about how everyone needs
3:18
Sean: to cut back on the amount of lattes that they
3:19
Sean: buy, or stop eating so many avocados. But, I do
3:22
Sean: think there's certain things that we probably spend money on
3:24
Sean: that would benefit from a bit of a rethink. So
3:26
Sean: lots of people get stuck into this habitual cycle of
3:30
Sean: continuing to pay for the newest mobile phones. Or they're
3:33
Sean: paying for cars that maybe are higher specs than they
3:37
Sean: maybe need. Or they've got their satellite TV packages. I'm
3:40
Sean: not saying you have to give them up, but I
3:42
Sean: would suggest that one of the things that you could
3:44
Sean: look at is, particularly around a mobile phone, is do
3:46
Sean: you need to continually be paying for the absolute top- of- the-
3:51
Sean: range model? A lot of people, they've finished paying off
3:54
Sean: one version of the phone. Oh. Lo and behold, there's
3:56
Sean: a brand new one just coming out around the corner. "
3:59
Sean: Oh, I'll get that one as well." So you end
4:00
Sean: up in this cycle of continuing to pay for the
4:03
Sean: phone, when actually if you just didn't do that, rather
4:07
Sean: than upgrading every 18 months, you're upgrading it every three
4:09
Sean: years or so, every time you look at that phone ... Okay.
4:13
Sean: It might be a little bit battered now, it might
4:14
Sean: be a little bit bruised, but it's still going to
4:16
Sean: be good. It's still going to be a perfectly fine
4:18
Sean: phone. Every time you look at it, it's not about
4:21
Sean: seeing a sacrifice, it's about seeing it as a badge
4:23
Sean: of honor. " Yeah. I have made the positive decision to
4:25
Sean: not invest in this because I want to put that
4:27
Sean: money into something else."
4:28
Kia: Sean, I feel seen. My phone is battered and bruised,
4:31
Kia: but I'm going to tell everyone that those scratches and
4:34
Kia: dents are just badges of honor. Thank you.
4:36
Sean: Absolutely.
4:36
Kia: You've helped me reframe my thinking and everyone else around
4:38
Kia: me is coming for me in my phone. Thank you. Because I've got
4:41
Kia: a four, five- year- old phone and I'm proud of it.
4:44
Sean: There's some really interesting work that's been done by this
4:46
Sean: fantastic economist called Richard Thaler on the whole concept of
4:49
Sean: how pensions work. And we know that pensions are really
4:52
Sean: important and that we should be saving everything that we
4:54
Sean: can into them to secure our long- term future. But,
4:57
Sean: I think one of the things that he's observed is
4:59
Sean: that from a human psychology perspective, actually a lot of the way that
5:03
Sean: they're currently set up, it really reinforces this feeling that
5:05
Sean: you're having to give up something now, or sacrifice something
5:07
Sean: now, for something later on. And that is something that
5:10
Sean: we are not really actually set up to do particularly
5:12
Sean: well as humans. And most people would actually much rather
5:16
Sean: have £ 100 right now, than potentially 200, 300, £400 in 30 or 40 years'
5:22
Sean: time. And if you could ask someone to give up
5:24
Sean: that £ 100 now for something that might happen in the
5:26
Sean: future, they don't like that. And it's called loss aversion. It's
5:30
Sean: one of the key psychological biases. So what Richard Thaler
5:33
Sean: was really looking at in the work that he's been
5:35
Sean: doing is, how can you reverse that? Because that is
5:38
Sean: one of the real reasons at the moment that people
5:39
Sean: probably don't contribute as much as they should do into
5:42
Sean: their pensions, is this whole concept of loss aversion. But,
5:45
Sean: what he is suggesting is that actually you can turn
5:48
Sean: that on its head a little bit and make that
5:50
Sean: psychological bias work for you through the concept of saying, "
5:53
Sean: Well, don't give up something now, because you don't want
5:57
Sean: to feel a little bit poorer in the short term.
5:59
Sean: Actually, the opportunity that you've really, got is the next
6:02
Sean: time that you have a pay rise or your salary
6:04
Sean: increases ..." And I appreciate that isn't going to be for
6:06
Sean: everyone. Very great if that's happened for you, and it's
6:09
Sean: lucky that you're in that circumstance. But, that's probably the
6:12
Sean: opportunity where you increase your contributions for your pension. And
6:16
Sean: the thinking behind it is really interesting, is that you
6:19
Sean: might look at your finances and you might look at
6:21
Sean: what you're contributing to your pensions and say, " I know
6:23
Sean: I need to add more to this, but I really
6:25
Sean: can't afford to lose that right now in my pay
6:27
Sean: packet." But if you wait until you get a pay
6:30
Sean: rise, then you are going to get more money into
6:33
Sean: your pay packet on a monthly basis anyway. Brilliant! So
6:35
Sean: you're going to feel that. But, if you also use
6:37
Sean: that as the opportunity to increase your contributions by maybe
6:40
Sean: a percentage or two, if you can afford it, then
6:42
Sean: you're getting the best of both worlds, because you're getting
6:44
Sean: more into your pay packet now. Nice big reward for
6:47
Sean: the work that you've done. And you've got your salary
6:49
Sean: increase. Fantastic! But also it is working twice as hard,
6:53
Sean: because you're now putting a bit more into your pension.
6:55
Kia: I think that's a great way to look at it,
6:58
Kia: because quite often if you are able to get a pay rise,
7:02
Kia: like you said, you get some sort of bonus from work ...
7:04
Kia: Especially when I speak to people, there's always that want to maybe
7:08
Kia: increase their lifestyle costs. So you might say, " Oh. I've got
7:11
Kia: a bit more. I can afford more now. I can
7:12
Kia: take up more subscriptions, or I can just spend more
7:14
Kia: on my everyday life." But, what you just described there
7:17
Kia: is a great way to actually maybe implement that increase.
7:20
Kia: So instead of increasing your lifestyle, because you can probably
7:22
Kia: afford it at the point that you're at. Right? You're probably somewhat comfortable.
7:25
Kia: So instead of increasing and spending more, you can put that
7:28
Kia: extra payment, or put a chunk of it into your
7:32
Kia: pension, or maybe another way to plan for longer time.
7:34
Kia: So I love that. That's a good way to change
7:36
Kia: your thinking. We've spoken about on the show before, the
7:40
Kia: importance of having emergency funding. You mentioned it in the
7:42
Kia: first question today. So I want to come back to
7:45
Kia: that topic and say, do you have some thoughts on
7:49
Kia: what you need, or how we can build up this emergency fund?
7:52
Sean: Yeah. Yeah. Absolutely. The first question that people often ask is, " Well,
7:55
Sean: how much should an emergency fund be?" And I think
7:58
Sean: the general rule of thumb is that you're probably looking
8:00
Sean: at about three months' salary or three months' income after
8:03
Sean: tax, just to give you that buffer and that protection
8:07
Sean: in the event that something unexpected happens and you need
8:09
Sean: to dip into it. Now, interestingly, for some people, that's
8:13
Sean: probably going to equate to not far off about £ 5,
8:15
Sean: 000. And I say that's interesting, because actually, if you
8:19
Sean: think about where we are in the new year, and
8:21
Sean: a lot of people thinking about their fitness and diet
8:24
Sean: and health and getting into maybe a sport or something,
8:28
Sean: the Couch to 5K program to get people fit has
8:31
Sean: been phenomenally successful and something that a lot of people
8:34
Sean: are really massively benefiting from, getting healthy and getting physically
8:36
Sean: fit. Well, that 5K actually translates to probably how much you
8:40
Sean: could do with having in an emergency savings fund. So
8:42
Sean: there's almost a bit of a call to arms to say, "
8:44
Sean: Well, okay. You've got Couch to 5K from a health
8:47
Sean: perspective. We should also be looking at a couch to
8:49
Sean: 5K in savings from a financially fit perspective." So I'd
8:53
Sean: say that's probably where you want to start, is that taking
8:55
Sean: a lot of the learnings from what really works from
8:58
Sean: that program and starting applying it to your own savings habits.
9:02
Kia: Absolutely. And I think the good thing about the Couch
9:05
Kia: to 5K ... I've never personally done it, but I commend
9:07
Kia: everyone who does do it. But, the great thing about
9:09
Kia: that is that it breaks it down into small chunks.
9:12
Kia: So instead of telling someone to save £ 5, 000 is
9:15
Kia: whoa! Overwhelming. But, if you know that it's incremental over
9:18
Kia: a number of days, weeks, months, and then you can
9:21
Kia: get to that final goal, it feels more achievable, which
9:23
Kia: I think that's a great way to implement that into
9:26
Kia: your savings. And that's definitely how I approach savings and whenever
9:29
Kia: I talk to people. Just to do it bit by
9:31
Kia: bit. If you have a bigger goal of, I don't
9:32
Kia: know, like I said 5, 000, £10,000 pounds, what is that on
9:35
Kia: a weekly basis, monthly? And then it feels like, " Oh, actually,
9:38
Kia: I can save that and I can reach that goal."
9:39
Sean: Yeah. Absolutely. It's really motivating. And I think that's really important as
9:44
Sean: part of that whole program, and that's why that actually
9:46
Sean: does work so well, is that you are constantly reflecting on your
9:48
Sean: progress and how well you've done. And that in itself
9:51
Sean: is something that gives you the happy endorphins, that means, " Yeah.
9:54
Sean: I am doing the right thing. I'm getting there. I'm
9:55
Sean: reaching my goal." If you go down a slightly different
9:58
Sean: path and you spend your money on something different one
10:00
Sean: week, or one month, and you haven't put quite as
10:02
Sean: much into your savings, that's okay. These things happen. But,
10:05
Sean: the important thing is that you've got this plan that
10:07
Sean: you're constantly working towards and you're continuing to see progress.
10:10
Kia: Absolutely, Sean. You've done it. Now everyone listening, we're going
10:13
Kia: to do the Couch to 5K financial edition. I love
10:15
Kia: that. And when we're talking about emergency funds, where can
10:19
Kia: we keep our emergency fund?
10:20
Sean: Unlike a pension, we want to be able to actually
10:22
Sean: access this when we really need it. So I think
10:25
Sean: there's lots of different places that you can put your
10:27
Sean: money when you're thinking about a savings fund. ISAs are
10:30
Sean: really good, so they're a good wrapper for you to
10:33
Sean: be able to invest in. And I think you've got
10:34
Sean: multiple different or almost flavors of ISAs. You can put
10:37
Sean: things into a cash ISA and actually the interest rates
10:40
Sean: on cash ISAs have improved in recent years. Or if
10:43
Sean: you want to take a little bit more risk, maybe
10:45
Sean: you want to invest for a slightly longer time period, you've
10:46
Sean: got stocks and shares ISAs as well, where you can
10:49
Sean: invest in them. But, the value of them may go
10:51
Sean: down as well as up. So there is a little
10:52
Sean: bit more risk involved in that. But, you've got these
10:54
Sean: options. I think definitely encourage people to shop around, but
10:58
Sean: also to do their research and educate themselves on how
11:00
Sean: they differ and what it means to try and withdraw the
11:03
Sean: money at different points. And I think if you're in
11:06
Sean: any doubt about what to do, definitely speak to a
11:09
Sean: financial advisor, because they'll be able to give you the
11:11
Sean: specific recommendations for your circumstances.
11:13
Kia: Absolutely. Completely agree. I love, and it's no secret on
11:17
Kia: this podcast, I love talking about pensions. I love talking
11:19
Kia: about retirement. I've spoken to Kim Brown three times on
11:23
Kia: Little Bit Richer, all about pensions. Whenever we talk about this
11:26
Kia: topic and we talk to 20 and 30- year- olds, (inaudible)
11:29
Kia: such a long time away, that to be fair, I
11:32
Kia: can't really envision myself at 60. I know I'll be
11:34
Kia: glamorous on a beach somewhere, but it's a long time
11:36
Kia: away. So for anyone in that age bracket who knows
11:40
Kia: that they need to be saving for their pension, but
11:43
Kia: just doesn't really see the point right now, because it's
11:45
Kia: so far away, what would you suggest that they can
11:48
Kia: do to actually help them to put more money in?
11:50
Kia: Because it can be hard sometimes.
11:52
Sean: Yeah. It can be. And I think it's no secret that in
11:54
Sean: your twenties and your thirties, that is really the optimum
11:57
Sean: time to be building your pension part. But, at the
11:59
Sean: same time, it's when you also have all these different conflicting
12:02
Sean: priorities to be spending your money on. It can be
12:04
Sean: really difficult to make the right call there. I think
12:07
Sean: there's probably three things to look at here actually. Firstly,
12:10
Sean: if you are employed and it's not your first job
12:12
Sean: that you're currently working, the chances are you've actually probably
12:15
Sean: amassed some pension savings in other environments with other employers.
12:18
Sean: You've got other workplace pensions out there that you may
12:21
Sean: be really aware of, but you also might not. So
12:23
Sean: I think one of the things that you could do
12:25
Sean: is ... And it's super easy to do this, is try and
12:27
Sean: consolidate all of those different previous pensions into one pot, if you
12:30
Sean: do have them. You might find that actually there's a
12:32
Sean: couple of thousand pounds out there that you maybe weren't
12:34
Sean: really aware of or you weren't tracking. Putting that together
12:36
Sean: in your current workplace pension is going to be a really
12:38
Sean: important step to feeling in control. Secondly, reviewing your contributions
12:43
Sean: to your pension is really important. And I think there's
12:47
Sean: a lot of tools and calculators out there that help
12:49
Sean: you work back from, " Okay. This is the type of
12:52
Sean: lifestyle that I want to have when I'm retired," whatever
12:54
Sean: age that might be. " And therefore, what should I be
12:57
Sean: saving into my pension pot on a monthly basis right
13:00
Sean: now?" So you can understand what the gap is. And I think
13:03
Sean: if you put that and you coincide that with the
13:05
Sean: concept that we talked about earlier, where actually you only
13:07
Sean: increase your contributions when you can afford to with a salary
13:09
Sean: increase, for example, actually, you might find that you can
13:11
Sean: close that gap relatively quickly. And I think thirdly, the
13:14
Sean: other thing is also just not to forget that most
13:18
Sean: pension providers will happily enable ad hoc payments as well.
13:21
Sean: So if you're looking at that gap maybe, and you think, " I
13:24
Sean: should be contributing more on a monthly basis, but I
13:25
Sean: just can't really afford to make that commitment right now."
13:28
Sean: Well, that's okay. Just contribute a little bit more on
13:31
Sean: an ad hoc basis when you can. So I'm 37
13:34
Sean: years old, but my nan still sends me money for
13:36
Sean: my birthday, which is lovely-
13:38
Kia: Love that.
13:38
Sean: ... obviously, right? But, it is things like that. It's
13:40
Sean: like maybe that isn't something you desperately need right now,
13:43
Sean: so you could put that into it.
13:45
Kia: Yeah. Every little helps.
13:45
Sean: It's all good.
13:45
Kia: Thanks, Gran. Love that. Love that. And off the back of the points
13:49
Kia: that you've made, should people also be thinking about protecting
13:52
Kia: their income if they get ill and perhaps couldn't work,
13:55
Kia: or maybe have lost their job?
13:56
Sean: Yeah. We talked about that emergency fund, the concept of
14:00
Sean: that being a savings fund. Well, actually there's lots of
14:02
Sean: different ways that you can protect for your family or
14:05
Sean: for yourself, if there was something unexpected to happen. I
14:08
Sean: know we've talked about that before on this podcast, but
14:10
Sean: just to reinforce previous points. I think looking at critical
14:14
Sean: illness cover, income protection, there's lots of different products that
14:17
Sean: there are out there, that you can also use to
14:21
Sean: create that same feeling of stability and security. One of
14:24
Sean: the things to look at, is if you are employed,
14:26
Sean: most employers have taken steps towards giving you some of
14:30
Sean: this protection as part of your benefits package as well.
14:32
Sean: So it's definitely worth reviewing that and trying to understand,
14:34
Sean: do I have what I need there? Or do I
14:36
Sean: need to supplement it with something else externally? If you're
14:39
Sean: not sure, there's always financial advisors that you can speak
14:42
Sean: to get really clear before you commit to anything.
14:44
Kia: I've spoken to Koren about this already twice on the
14:46
Kia: podcast. So if you haven't checked out already, go back
14:49
Kia: and listen, because Koren's story is really inspiring and can
14:51
Kia: really teach us a lot about protecting your income. Definitely
14:54
Kia: well worth looking at if you are like me and
14:56
Kia: you work for yourself.
14:57
Sean: Yeah. Absolutely.
14:57
Kia: Very, very important because you don't have any protection, unfortunately. So definitely something
15:01
Kia: to have a look at. I think that's the general
15:03
Kia: consensus we're on. Sean, this has been an incredible episode
15:06
Kia: and you have enlightened us and made us feel like
15:09
Kia: we can tackle the new year head on. But before
15:12
Kia: you go, I want to ask you, what are your
15:13
Kia: top three tips to help all of us improve our long-
15:16
Kia: term financial fitness?
15:17
Sean: So I think tip number one would be to stay motivated
15:21
Sean: and stay focused. And I think one of the ways
15:23
Sean: that you can do this is not see financial planning
15:25
Sean: as something that is this big, once- a- year scary
15:28
Sean: thing that you need to do and you've got to
15:30
Sean: endure through your gritted teeth. I think it's about changing
15:32
Sean: your relationship with that and building up really positive habits,
15:36
Sean: where actually like exercise, if you're doing a little bit
15:40
Sean: often, that is going to be much better than trying
15:42
Sean: to tackle something in a really, really big, horrible way.
15:45
Sean: I think the second one is around sharing things with
15:49
Sean: friends and family and trying to have a bit more
15:51
Sean: of a discussion and talking a bit more about what
15:53
Sean: it is that you're trying to achieve. So again, to
15:56
Sean: use that fitness analogy, if you can find a buddy,
15:58
Sean: whether that's a close friend, family member, maybe a work
16:02
Sean: colleague who's on a similar path to you, actually, let's
16:04
Sean: just talk a bit more about what we're trying to
16:06
Sean: achieve together, because it's going to help you continue being
16:09
Sean: focused and motivated. And then, I think finally is really,
16:12
Sean: don't beat yourself up if you do have an expensive
16:14
Sean: month, and if you go off track. That's totally fine.
16:17
Sean: It's less about throwing the baby out of the bath
16:19
Sean: water and saying, " All right. That's it. I'm done. I
16:22
Sean: can't save. I'm rubbish at this." And just saying, " Oh,
16:24
Sean: okay. Yeah. I've learned something there, but I'm just going
16:26
Sean: to get back on track for future months."
16:29
Kia: Absolutely. I love those tips, especially the last one, not
16:31
Kia: beat yourself up. We've just come off the back of
16:33
Kia: a very expensive month with Christmas. So yeah. It's just
16:36
Kia: being kind to yourself. And sometimes there's months where there's
16:38
Kia: loads of birthdays, weddings, and that just happens, but it
16:41
Kia: is just staying on track and being kind to yourself.
16:43
Kia: So Sean, thank you so much. We are 100% ready.
16:46
Kia: 2025 doesn't know what's coming when it comes to our
16:49
Kia: finances. Thank you, Sean. Lots of great ways to get
16:54
Kia: us financially fit for the year ahead. Next time we're
16:56
Kia: talking about all the things that you need to think
16:58
Kia: about before moving in with someone with Family Lawyer, Yasmin Khan-
17:01
Kia: Gunns. I'd love it if you could review the podcast,
17:04
Kia: spread the word, and help others get a little bit
17:06
Kia: richer too. Keep up with the show on TikTok and Instagram at
17:09
Kia: Legal & General. Thank you for listening. See you soon.