Turning income into wealth for a beginner

[Brett748]

Hi all,

So, nearing 32 I have decided it is time to start building wealth to sustain myself and my family (misses and one son, presently) for the future.

I have no other than my mortgage. I own my car and bike outright, credit card balances zero, no loans etc so in that regard I'm in a decent place. I also have at least six months outgoings saved up providing liquidity for a rainy day, albeit inflation is eroding this sum.

I've recently moved jobs and I'm earning approximately £20-30k more a year than my last (final sum subject to levels of performance led bonus which is essentially a commission/profit share).

I could live a perfectly comfortable life on my previous salary so I have this extra money floating around that I want to build wealth with not just fritter away on PCP payments for a new M3 or two annual trips to the Maldives.

I'm not looking for independent financial advice but I would really appreciate a steer on where I can go to educate/onboard myself with an outline knowledge of personal finance, prior to me engaging a financial advisor. Books, podcasts, YouTube links etc would be appreciated.

My initial thoughts are to sacrifice a lot more of my salary and save the tax and NI but I'm also interested in portfolio investments etc.

Any help greatly appreciated.

[22s]

The r/UKPersonalFinance sub on Reddit might be a good starting point for you. Good luck!

[guyvert1]

Ask the question here : https://www.pistonheads.com/gassing/topic.asp?h=0&...

[Wombat3]

Brett748 said:

Hi all,

So, nearing 32 I have decided it is time to start building wealth to sustain myself and my family (misses and one son, presently) for the future.

I have no other than my mortgage. I own my car and bike outright, credit card balances zero, no loans etc so in that regard I'm in a decent place. I also have at least six months outgoings saved up providing liquidity for a rainy day, albeit inflation is eroding this sum.

I've recently moved jobs and I'm earning approximately £20-30k more a year than my last (final sum subject to levels of performance led bonus which is essentially a commission/profit share).

I could live a perfectly comfortable life on my previous salary so I have this extra money floating around that I want to build wealth with not just fritter away on PCP payments for a new M3 or two annual trips to the Maldives.

I'm not looking for independent financial advice but I would really appreciate a steer on where I can go to educate/onboard myself with an outline knowledge of personal finance, prior to me engaging a financial advisor. Books, podcasts, YouTube links etc would be appreciated.

My initial thoughts are to sacrifice a lot more of my salary and save the tax and NI but I'm also interested in portfolio investments etc.

Any help greatly appreciated.

You may know this stuff:

A lot of this comes down to setting up a basic strategy & then keeping at it and working the principle of "compound interest"

Whatever you decide to invest in you have the option of two really good tax free wrappers in Pensions and ISAs to hold (most of) your investments in.

Pensions give you tax relief on what you put in - but its locked up and you can't get it back or get access to it till you are in your 50s. 25% of the output is tax free. However, if you are starting now you also need to understand the Lifertime allowance tax issue which may seem like a lot and a long way off but will catch more & more people over time.

ISAs give you more limited (and not tax free) contributions but limitless tax free growth and you can get to it at any point. Withdrawals are tax free.

Pensions are outside your estate for IHT purposes.

So there are pros & cons to each. Best therefore to have some of each!

As to what you then invest in within each then that is governed by your appetite for risk and also whether you want to be actively involved in managing things. One of the best rules of investing generally is that if you don't really understand what it is or how it works then avoid!

Similarly, if you look at individual companies to invest in, if you don't understand how to evaluate them properly yourself then often better to look at buying managed funds i.e. bundles of investments which are managed by people with more time and more access to more information than Joe public can easily get to.

There is an element of how much of your own time do you want to spend on it. Some people spend lots of time doing it & manage everything themselves. Others of us take a view that we'd rather someone else with more time and much better levels of knowledge and access to information did it!

One of the worst things you can do IMO is manage it yourself but then not really spend enough time doing the research. Its asking for trouble. If you are just going to guess, you might as well go down the bookies.

In all cases, fees, fees fees, ALWAYS look at the fees!

Where you have kids & you are looking at including them in the equation, look at setting up SIPPS directly for them & also Junior ISAs

Obviously you can run some side bets into things like Crypto etc if you have an appetite for it. You could look at BTL property but its getting more & more difficult to make that work & can require more effort. More difficult to get your money out quickly if you need to as well.

Its all a trade off between access to funds, appetite for risk and the effort & time you want to put into it. When you decide where you want to be with each of those then you'll figure out what's the best way for you to go about it.

Overall, no doubt though that if you can start building investments in your 30s you are already on track to be able to stop working much sooner.

[Taita]

JLCollins Simple Path to Wealth for a 'Finance 101' type read.

https://www.amazon.co.uk/gp/product/B01H97OQY2/ref...

[Brett748]

Thanks all, especially Wombat3 for that very useful summary.

I'm going to focus some time in the coming months doing research so, should/when I seek professional advice I have an element of knowledge to reduce the chance of me getting bad advice (I know a number of blokes from the local pub who are IFAs and they are unscrupulous at best).

Any other ideas welcomed.

[TCX]

How risk averse are you?
How much time do you have to invest,before you invest/ gamble cash?
Compounding,steady investment etc will work well at your age,but if you want to make real money,it requires risk and a focus on one particular investment/ gamble that goes beyond a balanced portfolio

[Wombat3]

Brett748 said:

Thanks all, especially Wombat3 for that very useful summary.

I'm going to focus some time in the coming months doing research so, should/when I seek professional advice I have an element of knowledge to reduce the chance of me getting bad advice (I know a number of blokes from the local pub who are IFAs and they are unscrupulous at best).

Any other ideas welcomed.

You're welcome. The other thing to consider is that "life gets in the way", but when it doesn't you need to take the opportunity to invest when you can

There were many years where I simply did not have the money to put into Pensions etc because it was all getting swallowed up by "life". However, there were a couple of years in my 30s where I got big bonuses and bit the bullet & chucked 5 figure sums into a pension. Those contributions form the backbone of what's in my pension now & 20 years later are worth many times what I invested. Most of that time was spent with a fairly conservative fund but also one with very low fees & frankly I didn't pay nearly enough attention to it. I moved it to something a bit more aggressive a few years ago and that has paid off.

Aside from choosing the investment manager and where I might make further contributions, I literally have zero input into what my money is invested in now because I gave it to an investment house to look after. On the other hand I also have some Capital losses registered with HMRC mostly arising from around the year 2000 when I did take a more active (but plainly not well enough researched) role in the equation!

Some people recoil in horror at the idea of using investment houses but they made me 25% in 2020 & 24% in 2021 (after fees) & I didn't have to lift a finger.

As with most of these people, they stayed invested through the crash in 2020 and came bouncing out the other side. Meanwhile. lots of private investors got spooked & sold in the dip in April 2020 & subsequently got badly burned. One of the things I learned over the years is that overall you will make more money by staying in the market, whatever its doing. Reacting to the market all the time is hard work and seldom wins.

You don't necessarily need a lot of professional advice on this. Just find the balance you are happy with between contributions to pensions & ISAs to start with & then look at what you might put in them. Find a platform/company that you are comfortable using (could just be your bank) & once you are happy that the fees are OK, set up the necessary wrappers. You don't need an IFA to do that.

Then start with investing in some simple funds like Vanguard etc as the backbone of your portfolio. You can get that done fairly quickly & you won't go too far wrong with them. After that spend time researching what you think you might want to put the next tranche of available cash into if you want to increase the risk a bit - or just buy more funds and keep going!

I disagree with the idea that you only make "real money" by taking risks. For all those that try it, far fewer succeed than will succeed with a more balanced approach. Capital is not easy to accumulate so never "stick it all on red" IMO.

Should have added that overall, its a long game and as long as you have the cash to invest and you aren't daft with it then your chances of winning are extremely high! The key thing you have on your side is time. What you can invest in the next 5-7 years will be worth a great deal more than if you wait till after you are forty to start.

Besides that, with inflation at 5%, the last place your money wants to be is in a bank!

Edited by Wombat3 on Friday 18th February 16:41

[bitchstewie]

Brett748 said:

Thanks all, especially Wombat3 for that very useful summary.

I'm going to focus some time in the coming months doing research so, should/when I seek professional advice I have an element of knowledge to reduce the chance of me getting bad advice (I know a number of blokes from the local pub who are IFAs and they are unscrupulous at best).

Any other ideas welcomed.

For what it's worth it might seem a bit daunting right now but it very quickly gets manageable with a bit of effort.

You could open an ISA today and be investing on Monday with a small sum the principles are the same and the main thing is getting into good habits and knowing your appetite for volatility IMO.

Too many people pile into the popular funds based off how they've performed and then st bricks when all of a sudden they shed 30% so best try to not be that guy and to know how much money you can really stomach seeing wiped off your investments even if it's money you don't intend to touch for 20 years.

[hyphen]

Understand what Cumulative Interest is and the power of it.
Understand Dividends and pro's and cons of re-investing them.
Understand Diversification of investments
Understand drip feeding/buying on the dip.
Understand how investment manager fee's hit the returns.
Understand that Political will overrides Economic theory.
etc

Just read a lot from reputable sources.

Edited by hyphen on Friday 18th February 16:47

[Somebody]

hyphen said:

Just read a lot from reputable sources.

Or listen to/watch Pete Matthew's Meaningful Money podcasts/ youtube channel.

[jeff m]

I could quote Wombat3 's last post and put a tick after each paragraph....too much work.
I'll just add, it's a long process, the first 200k is difficult, once you get past that the gains multiply as your annual gains become larger than your contributions,
The invested assets graph suddenly turns North.

[deggles]

In terms of equity investing, Investing Demystified was an eye-opener for me. The key takeaway being it's hugely unlikely that, as an individual, you can 'beat the market', so your best bet is to accept that and optimise your strategy according to your appetite for risk.

Author has a Youtube series as well I believe.

[LooneyTunes]

Brett748 said:

I've recently moved jobs and I'm earning approximately £20-30k more a year than my last (final sum subject to levels of performance led bonus which is essentially a commission/profit share).

<snip>

My initial thoughts are to sacrifice a lot more of my salary and save the tax and NI but I'm also interested in portfolio investments etc.

Nice salary jump. You’ve not said what you do, but is there a way you can invest some of it to position yourself for another big increase in income?

I understand why people tend to focus on the savings/financial element, but securing another big increase in earnings in your 30s might really set you up nicely (and of course it’s easier to save more if you’re bringing more in!).

[Brett748]

LooneyTunes said:

Nice salary jump. You’ve not said what you do, but is there a way you can invest some of it to position yourself for another big increase in income?

I understand why people tend to focus on the savings/financial element, but securing another big increase in earnings in your 30s might really set you up nicely (and of course it’s easier to save more if you’re bringing more in!).

I am a chartered building surveyor at director level, so major increases in income realistically from where I am would come from becoming self employed which is a medium to long term goal.

I’d like to put money into commercial property to reap the rewards I achieve for my clients but don’t yet have the capital so for now I’m looking at the slow and steady route. If I get a big income increase then commercial property would be my next move.

I really appreciate everybody’s time replying to this thread.

[mikeiow]

deggles said:

In terms of equity investing, Investing Demystified was an eye-opener for me. The key takeaway being it's hugely unlikely that, as an individual, you can 'beat the market', so your best bet is to accept that and optimise your strategy according to your appetite for risk.

Author has a Youtube series as well I believe.

Indeed. https://kroijer.com - take time to listen to those, I feel they make a lot of sense.

For turning income into wealth - aside from putting it all on red and getting lucky - slow and steady is sure to be the most reliable way. You are doing well and into a good career, so keep focussed on enjoying that and progressing.
Does work have a matched pension scheme? That is free money to be had: max it out!
Do they have an company share scheme (I’m guessing not, but worth asking)? They are often worth maxing out as well.
If you have no ISAs, I would personally get started on that double quick - you can stick up to £20k in before the end of the tax year, then drip feed more in monthly thereafter.

IM (see sticky threads) & Vanguard are the easiest lowest cost options for trackers. I firmly agree with hopping onto the IM thread and having a chat with them. A lot of experienced guidance (not advice ) available there for free…that was very helpful to me pre-Covid.

Use the benefits of pensions first, but balance with S&S ISAs to build a chunk you can live on if/when you might want to retire early.
& stick £100 into PBs for the gamble

[ClaphamGT3]

hyphen said:

Understand what Cumulative Interest is and the power of it.
Understand Dividends and pro's and cons of re-investing them.
Understand Diversification of investments
Understand drip feeding/buying on the dip.
Understand how investment manager fee's hit the returns.
Understand that Political will overrides Economic theory.
etc

Just read a lot from reputable sources.

Edited by hyphen on Friday 18th February 16:47

Some good advice here. I'd add two points;

Be very clear that your life goals and your investment goals align. No point living like a monk until you're 60+ if you're missing out on things you want to do now. Classic example is some friends of ours who have invested since their mid 20s in such a way that their capital is tied up and they can't send their boys to the school they want to because they 'cant afford it'

Second is layer your investments. Decide how much you're prepared to invest in low/medium/higher risk investments and what your criteria are for each

[98elise]

Brett748 said:

LooneyTunes said:

Nice salary jump. You’ve not said what you do, but is there a way you can invest some of it to position yourself for another big increase in income?

I understand why people tend to focus on the savings/financial element, but securing another big increase in earnings in your 30s might really set you up nicely (and of course it’s easier to save more if you’re bringing more in!).

I am a chartered building surveyor at director level, so major increases in income realistically from where I am would come from becoming self employed which is a medium to long term goal.

I’d like to put money into commercial property to reap the rewards I achieve for my clients but don’t yet have the capital so for now I’m looking at the slow and steady route. If I get a big income increase then commercial property would be my next move.

I really appreciate everybody’s time replying to this thread.

Worth remembering that commercial property can be held in a SIPP, so you can be buying that property with tax free cash. The income is also tax free while in the SIPP.

Sounds like a no brainer for someone who works in that field.

[chip*]

Couple of pointers from me:

- Remember, there is no such thing as a free lunch when it comes to investing.

- You will read / fed many lines on how great a product will be for your portfolio etc... Just be clear, everyone in this industry wants to sell their product, but it may not be the optimum product for you or your risk appetite. Do your own independent research!!

- Ensure you fully understand all the associated risk on any investments, if not, get the salesman (some firm purposely avoid using the "sales" label to mask their true intention) to fully explain the downsides too. Pretty obvious to spot those smooth talking salesman as they tend to promote the headline news such as great returns and boasting about past performance, but none of the downsides as they want you to buy their products. However, if you use a financial adviser (and there are many dodgy advisers out there too!), a decent one should highlight both the up and downsides to any investment product or decision.

Edited by chip* on Saturday 19th February 12:21

[Derek Chevalier]

deggles said:

In terms of equity investing, Investing Demystified was an eye-opener for me. The key takeaway being it's hugely unlikely that, as an individual, you can 'beat the market', so your best bet is to accept that and optimise your strategy according to your appetite for risk.

Author has a Youtube series as well I believe.

A great choice, but I would probably start with Robin's book.

https://www.amazon.co.uk/Invest-Your-Way-Financial...

or his blog

https://www.evidenceinvestor.com/blog/