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An Extra £1,000 Just Landed - What Should You Do With It? · Fun Money, Smart Wealth

• 0:01
  SPEAKER_00: Remember how exciting money felt before it became a list of things that you should be doing?
• 0:08
  SPEAKER_00: When I was about eight years old, I'd spent the morning washing my uncle's car, helping my granny around the house, and just as we left to go on holiday, she handed me this five pound note.
• 0:19
  SPEAKER_00: Now I looked at this paper money and my eyes opened.
• 0:25
  SPEAKER_00: It was not something I'd ever thought about before.
• 0:27
  SPEAKER_00: I had some pocket money, but back in those days you got a handful of coins and you went to the sweet shop and you've got a few bits and pieces, but this was more money than I had ever seen in my entire life, and suddenly I felt like the world was my oyster.
• 0:41
  SPEAKER_00: I put it in my pocket with that little smile and we headed off on holiday.
• 0:46
  SPEAKER_00: Now, I did spend the fibre at the airport and I'll tell you more about that another day.
• 0:51
  SPEAKER_00: But the thing is, when you first have that level of excitement around money, it just means that you feel like anything is possible.
• 0:59
  SPEAKER_00: And that's the feeling that I want to bring back.
• 1:01
  SPEAKER_00: Because money can make life more fun now and give you choices later.
• 1:06
  SPEAKER_00: I'm Claire Sweet and this is Fun Money Serious Wealth.
• 1:10
  SPEAKER_00: Each week we'll take one money question, make sense of the numbers, and find something useful that you can actually do to bring the fun feeling back whilst building wealth.
• 1:20
  SPEAKER_00: Hi everyone and welcome to this week's episode of Fun Money Smart Wealth.
• 1:25
  SPEAKER_00: I saw a post on Facebook the other week that said, if£5,000 dropped into your account today, would you know what to do with it?
• 1:33
  SPEAKER_00: And there's variation to this post, isn't there?
• 1:35
  SPEAKER_00: We see it pop up all over the place.
• 1:36
  SPEAKER_00: It doesn't matter if it's£5,000,£100,000, a million pounds.
• 1:40
  SPEAKER_00: It's like, what would you do with it?
• 1:41
  SPEAKER_00: What would you do with it?
• 1:43
  SPEAKER_00: And I think my response to it was, you know, half a million pounds could drop into my bank account today, and I would have it all spent, allocated, and working for me by lunchtime.
• 1:53
  SPEAKER_00: Because I've got a plan and I know what I'm going to do, and I know where each pound fits into the thing that I want to do.
• 1:59
  SPEAKER_00: And that's something that I do with each of my clients.
• 2:02
  SPEAKER_00: Because it's all well and good making money, but what's the point?
• 2:05
  SPEAKER_00: Why have we got this money in the first place?
• 2:07
  SPEAKER_00: What do we want to do and what do we want to achieve with it?
• 2:10
  SPEAKER_00: And the first step that I take with any of my clients is to find this surplus money.
• 2:14
  SPEAKER_00: Now, I know things have gone up in price, cost of living and all that, and yeah, things are more expensive now than they were years ago.
• 2:21
  SPEAKER_00: I mean, my daughter told me yesterday that she bought a Freddo frog in a corner shop and it cost us 75p.
• 2:26
  SPEAKER_00: I mean, what on earth is that about?
• 2:28
  SPEAKER_00: But the thing is that we know that costs have gone up and we need to earn more money over time to allow for this to make sure that you know we can still afford to live a decent quality of life.
• 2:40
  SPEAKER_00: But at the end of each month, we're going to have some surplus money, and what we decide to use that money for is going to affect what our life feels like and what we do as a result of it.
• 2:52
  SPEAKER_00: So when I'm working with my clients, one of the things that I get them to do, and it doesn't matter if this is a client that is new to my world, someone I've spoken to for years and years, it doesn't even matter whether they're at an early stage of their business or they've got millions and millions of pounds coming in, is I get them to do a budget planner.
• 3:09
  SPEAKER_00: Now I'll drop a link in the resources for you so that you can pick up a copy of the one that I use.
• 3:14
  SPEAKER_00: It's great because it's an editable PDF, you can put the numbers in and it adds it all up for you because, yeah, it's another one of those barriers, if you like, where people say, Oh, I would work it out, but I'm not really really good with numbers, I'm not very good with maths or da-de-da-yeah, okay.
• 3:29
  SPEAKER_00: I'm gonna make it as easy for you as I can.
• 3:32
  SPEAKER_00: But if you put everything that you spend on an average month into this budget planner, and then you also put in how much money you get paid each month, it will give you a surplus figure.
• 3:43
  SPEAKER_00: It's gonna tell you how much money is over each month.
• 3:45
  SPEAKER_00: Now, it doesn't matter really whether that is a few pounds, a few hundred pounds, or a few thousand pounds, whatever that number is, we've got a surplus.
• 3:52
  SPEAKER_00: And then we're gonna decide how to allocate that money.
• 3:56
  SPEAKER_00: The way we do it is gonna depend on what your current financial position looks like because everybody is unique when it comes to finances.
• 4:03
  SPEAKER_00: There's no one size fits all, you know.
• 4:06
  SPEAKER_00: That's why when people turn around to me and say, Oh, I've got some extra income, what am I meant to be doing with that?
• 4:11
  SPEAKER_00: My answer is always gonna be it depends.
• 4:14
  SPEAKER_00: It depends on what you're working towards, and it depends on where you are now.
• 4:18
  SPEAKER_00: So I would say that there are three different things that you can use your excess income for, and I look at them as a past, present, and future when I'm breaking it down into pots.
• 4:29
  SPEAKER_00: Now, past is to do with money owed.
• 4:33
  SPEAKER_00: So that's gonna be debt.
• 4:34
  SPEAKER_00: So that might be credit cards and loans, it might be your overdraft, might just be your mortgage, that might be the only finance you've got.
• 4:43
  SPEAKER_00: The middle bit, the present, that's about your emergency fund.
• 4:47
  SPEAKER_00: So the money that you're gonna use if your boiler blows up, or you've got to take the dog to the vet, or you need some money for something quickly that you haven't planned for, is also the place where you're gonna make sure you've got money for the fun stuff, for going on holiday for weekends away, lunches out with the girls, all the other things that you find make life fun.
• 5:09
  SPEAKER_00: That's all money that needs to be safe in a today pot, a now pot.
• 5:14
  SPEAKER_00: And then the money for the future, that's about security and wealth and investment, and it might look like retirement and pensions, it might look like things for your children or grandchildren, it might just look like saving for a round-the-world cruise for your 60th birthday.
• 5:31
  SPEAKER_00: It's about things in the future, okay?
• 5:33
  SPEAKER_00: And everybody's pot of money, that surplus they've got each month, they're going to split it different ways depending on what that looks like.
• 5:40
  SPEAKER_00: Now, if you've got a whole load of stuff on debt, you might want to prioritise more of your surplus towards that than somebody who hasn't.
• 5:48
  SPEAKER_00: If you've already got a fully funded emergency fund and you've got five grand or twenty grand or whatever tucked away in the in the savings ready for that, you might want to put a big chunk of your money into paying down your mortgage and some into saving for the future.
• 6:02
  SPEAKER_00: It's going to depend on what it is that you want to do and what you're aiming towards.
• 6:06
  SPEAKER_00: So we've always got to have a look at a look at that.
• 6:08
  SPEAKER_00: And this is where I think it's really important that we strike some element of balance because there was this sort of trend going back a few years now.
• 6:18
  SPEAKER_00: I mean, when I first went into finance, which was around 19 years ago, I used to help a lot of clients with remortgages.
• 6:24
  SPEAKER_00: And I'd go and speak to them, and they would tell me they've got 16 years left on their mortgage or some other weird and wonderful number, and they were adamant that they wanted to keep the term the same.
• 6:33
  SPEAKER_00: They didn't want to extend it, they wanted to get their mortgage paid off as soon as they could.
• 6:38
  SPEAKER_00: They squirreled away every extra penny.
• 6:41
  SPEAKER_00: But the problem with this is then we ended up with a whole load of people who sort of got to their early 50s and their mortgage was paid off, which was an amazing achievement.
• 6:48
  SPEAKER_00: But along the way, they'd had very few holidays, they'd not really done any days out, they've not had any life experiences.
• 6:56
  SPEAKER_00: And, you know, this is like when we grew up as kids, where you know, you might just about talk your parents into a day at Thought Park or Auton Towers or somewhere, but you were going to be eating a pack of lunch when you got there.
• 7:06
  SPEAKER_00: There was no way you were going to be allowed to have any food when you got there or an ice cream or anything like that because it was just too expensive.
• 7:11
  SPEAKER_00: That was the bit that pushed the spending out of range.
• 7:16
  SPEAKER_00: And, you know, I think what's changed that I've found when I've been dealing with clients with their mortgages over that period of time is that more and more people now are happy to take a longer term and have a mortgage that on paper looks like it's going to run until they're 70, which, you know, don't get too bothered by that because people very rarely now keep their mortgage for the whole original term.
• 7:37
  SPEAKER_00: They tend to change it every five years or so anyway.
• 7:40
  SPEAKER_00: But they keep the payment lower because that then means that they've got more disposable income.
• 7:45
  SPEAKER_00: And the disposable income allows them to have a better quality of life with their family.
• 7:48
  SPEAKER_00: So they do get to have the holidays and take their kids on the day outs.
• 7:52
  SPEAKER_00: It allows them maybe to work part-time, spend more time with their children growing up, rather than getting to that stage where you're early 50s and you know your kids are leaving home, you've not really had any days out, you've now got mortgage paid off, money in the bank, you're not feeding hungry teenagers anymore, and you're sitting there looking at all this money around you, thinking, what am I meant to do with it now?
• 8:11
  SPEAKER_00: They'd rather have a better journey along the way.
• 8:15
  SPEAKER_00: And I know that sounds like a real cliche, and people are like, oh, it's not about the target, it's about the journey.
• 8:21
  SPEAKER_00: But honestly, you've got to bear this in mind.
• 8:24
  SPEAKER_00: You know, nobody wants to spend all their money now and end up poor in retirement.
• 8:28
  SPEAKER_00: You know, that eating baked beans by candlelight because you've run out of money thing, it that doesn't appear to anyone.
• 8:34
  SPEAKER_00: It really doesn't.
• 8:35
  SPEAKER_00: But the flip side of that is you can't spend it all now.
• 8:38
  SPEAKER_00: You've got to have some element of balance.
• 8:40
  SPEAKER_00: So that's where effectively looking at the past, present, and future when you're looking at your surplus money is the thing that makes so much sense.
• 8:48
  SPEAKER_00: Now, at some point, somebody at this, you know, type of stage of the conversation will normally say to me, Oh, yeah, but I'm a business owner, I don't earn the same amount of money each month, so I haven't got the same amount of surplus.
• 9:00
  SPEAKER_00: And I sit there and I smile.
• 9:03
  SPEAKER_00: Because there's no reason why, as a business owner, you can't earn the same amount of money each month.
• 9:08
  SPEAKER_00: Okay, now hear me out on this.
• 9:11
  SPEAKER_00: If you worked doing your job for a big company, you'd get paid a salary.
• 9:16
  SPEAKER_00: You get paid the same amount of money every single month.
• 9:19
  SPEAKER_00: Wouldn't really matter how many hours you put in, it wouldn't matter if you took any annual leave, if you went off sick, you still get paid the same amount of money.
• 9:27
  SPEAKER_00: Because your business money and your money are two separate things.
• 9:32
  SPEAKER_00: Now, this is pretty much the first thing that I do with my clients.
• 9:36
  SPEAKER_00: Well, second after you've done the budget planner, I suppose, is to get them thinking about their business money separate from their own personal money.
• 9:45
  SPEAKER_00: You know, the example that I usually give is the guy that runs Marks and Spencer's, you know, does not spend his weekends working on a checkout.
• 9:52
  SPEAKER_00: He gets paid the same amount of money each month.
• 9:54
  SPEAKER_00: It doesn't matter how much money goes through the till.
• 9:56
  SPEAKER_00: Now, that is what needs to happen for you and your business.
• 9:59
  SPEAKER_00: You need to break the link between earnings and sales.
• 10:03
  SPEAKER_00: And once you've done that, everything else will drop into place.
• 10:07
  SPEAKER_00: So what this means is paying yourself the same amount of money each month from your business and leaving the rest of the money sat there.
• 10:15
  SPEAKER_00: So in a good month, that might mean, for example, you have profit of£8,000 and you pay yourself£2,000 a month.
• 10:24
  SPEAKER_00: You leave the other bits sat there.
• 10:25
  SPEAKER_00: Now, these are just round numbers.
• 10:27
  SPEAKER_00: My clients know I like to use round numbers, it's much easier to illustrate a point, but it doesn't really matter whether we're talking about£8,000 or£800, the principle is the same thing.
• 10:35
  SPEAKER_00: Okay.
• 10:36
  SPEAKER_00: So if you've decided that paying yourself£2,000 a month means that that plus the other income into your household is enough to cover all those things on the budget planner and have a bit of a surplus.
• 10:47
  SPEAKER_00: If on that particular month your business profit is more than£2,000, you don't pay yourself anymore, you leave that money behind.
• 10:55
  SPEAKER_00: Because then it means in a few months' time, if you take a couple of weeks' holiday, you still get paid.
• 11:00
  SPEAKER_00: If you go off sick, you still get paid.
• 11:02
  SPEAKER_00: If you have a client that for some reason decides they're not going to pay their invoice, which has happened to everybody, I think, at some point, and often it's not their fault, it's a bit of a knock-on effect.
• 11:12
  SPEAKER_00: Someone down the line hasn't paid a bill, and that then means that someone can't afford to pay someone, can't afford to pay someone, and the buck stops with you.
• 11:20
  SPEAKER_00: It means that then you still get paid the amount of money that you need to get paid.
• 11:25
  SPEAKER_00: Now it does take an element of willpower.
• 11:27
  SPEAKER_00: I will give you that.
• 11:28
  SPEAKER_00: You know, it's very, very hard when you have that incredible client, especially if you're somebody who's got something that is um quite a high-level or high-ticket type service, where a big chunk of money hits your bank account and you're like, woohoo, it's payday.
• 11:44
  SPEAKER_00: To actually think, no, actually, I'm not going to take all of this.
• 11:47
  SPEAKER_00: And there'll be another episode where I talk to you a little bit about organizing your finances within your business to make sure that your tax and your VAT get paid and that you get paid a reasonable amount and your staff get paid and you reinvest back into your business.
• 11:59
  SPEAKER_00: We'll cover that on another session.
• 12:01
  SPEAKER_00: But for now, all I would say is you need to pay yourself the same amount of money each day.
• 12:05
  SPEAKER_00: So pick a payday, whether that's 28th of the month or whatever day works for you, set up a standing order, a regular automated payment from your business into your personal account, and then leave it alone.
• 12:16
  SPEAKER_00: Okay.
• 12:17
  SPEAKER_00: Every two or three months, you know, you have a look at those business bank accounts you've got.
• 12:22
  SPEAKER_00: And if you realize you're building up more in savings within your business than you need, maybe you can think about giving yourself a bit of a pay rise.
• 12:31
  SPEAKER_00: Maybe put it up a couple of hundred pounds a month, leave it for another three to six months, see what that looks like.
• 12:35
  SPEAKER_00: But ultimately, you need to pay yourself the same amount of money each month because that will then allow you to have that surplus at home that you can budget for.
• 12:44
  SPEAKER_00: And by doing the budget planner first, you can work backwards to work out what do I need to be paying myself.
• 12:49
  SPEAKER_00: Now, I've done this exercise with all sorts of clients, um, and some of them have had really eye-opening, really eye-opening moments.
• 12:58
  SPEAKER_00: And it tends to be for those big things that we pay for once a year that they haven't allowed for when they've been looking at their budget monthly spending and their budget planners.
• 13:08
  SPEAKER_00: So, for example, Christmas presents, holidays, school bus passes, and school uniforms.
• 13:13
  SPEAKER_00: I don't know about you, but where we are, a school bus pass is about four or five hundred pounds a year, and it tends to come out in a big chunk.
• 13:19
  SPEAKER_00: You've got things like car insurance, home insurance, and all of those other bits and pieces.
• 13:24
  SPEAKER_00: And what you need to be thinking about when you're doing your budget planner is taking those, and if there's something you pay annually, dividing it by 12, popping it onto the budget planner so that then you're allowing for that when you're working out how much money you're spending.
• 13:39
  SPEAKER_00: Um, and I did this with a client and she was really quite surprised because we got to the end and we looked at it, and she was actually£400 a month short, and this look on her face was like, oh my god, that makes so much sense.
• 13:52
  SPEAKER_00: This is why I always feel like I'm skin.
• 13:54
  SPEAKER_00: So this was somebody who, you know, social media would say is running a six-figure business, really successful, got a good amount of um money flowing through the account, lots of lovely clients, does what she loves and all the rest of it.
• 14:09
  SPEAKER_00: But she always just felt like she was a bit skin at home.
• 14:13
  SPEAKER_00: And let's face it, no one wants to live that glamorous online life to then be sat at home on their phone and in the evening your phone is pinging because your bank says, Oh, you're gonna go overdrawn and you're gonna have to move some money from your savings.
• 14:24
  SPEAKER_00: And you don't want that.
• 14:25
  SPEAKER_00: You want it to feel relaxed and just work for you.
• 14:28
  SPEAKER_00: And what we realized was she was about£400 a month short.
• 14:31
  SPEAKER_00: So we made a decision at that point that she was either gonna have to pay herself£400 a month from her savings to top up the gap, or she was gonna need to go and get some sort of part-time work as a job, you know, working for other people to fill the gap.
• 14:47
  SPEAKER_00: And there's no shame in that, you know.
• 14:49
  SPEAKER_00: But by not being aware of the gap, if actually what was happening was that there were some months where she paid for things and others she didn't.
• 14:56
  SPEAKER_00: So her car insurance might have come out in March and her home insurance came out in July, and then school bus passes were paid in September, and then Christmas presents.
• 15:04
  SPEAKER_00: Well, most of that went on the credit card and she paid that in January.
• 15:07
  SPEAKER_00: So she didn't quite realize that she was short because there always seemed to be just about enough money in the account to pay it, pretty much.
• 15:15
  SPEAKER_00: But it just always felt really uncomfortable, and then we worked out why.
• 15:19
  SPEAKER_00: Um, everything changed, and now she feels so much better about her money.
• 15:24
  SPEAKER_00: And she only ended up taking that part-time job for about six months because during that time, once she wasn't worrying about money anymore because all the bills were getting paid, she was a lot more relaxed.
• 15:33
  SPEAKER_00: And actually, within her business, that meant that her business improved.
• 15:36
  SPEAKER_00: She started taking more sales.
• 15:39
  SPEAKER_00: The rest of the work that we did within the business allowed her to build a bit more profit, and before long, she was paying herself that extra five or six hundred pounds a month and she didn't need the part-time work anymore.
• 15:50
  SPEAKER_00: So, my challenge for you today is to have a think about if you had some extra money drop in your bank account today, let's say a thousand pounds, what would you do with it?
• 16:01
  SPEAKER_00: Would you use some of it to buy yourself, to treat yourself?
• 16:04
  SPEAKER_00: Is that your first instinct if you've got extra money is to treat yourself?
• 16:07
  SPEAKER_00: Or is squirrelling it away for a rainy day the thing that you think you want to do with it?
• 16:13
  SPEAKER_00: Or you sit and think, oh well, maybe I should be putting this towards my retirement, or maybe I should be paying down my mortgage.
• 16:21
  SPEAKER_00: And then did you want to wind back on that a little bit and think about where that should come from?
• 16:27
  SPEAKER_00: And why can't you do both?
• 16:30
  SPEAKER_00: Split your money between building security and having fun.
• 16:36
  SPEAKER_00: That's what we mean by fun money, smart wealth.
• 16:41
  SPEAKER_00: It doesn't need to be a huge decision.
• 16:43
  SPEAKER_00: Just take a few minutes and get curious about what your money is doing for you.
• 16:48
  SPEAKER_00: If this episode made you think, subscribe to Fun Money Serious Wealth and check out the show notes on where to follow me so you don't miss the next one.
• 16:55
  SPEAKER_00: And if you know someone who's earning good money, who's wondering what to do with it, send this their way.
• 17:01
  SPEAKER_00: Enjoy the fun of it, build the wealth from it.