Are you worried about the current cost of living?
Do you stress about having enough money when you retire?
Given our current economic climate, I want to dedicate this episode to reassuring you that, despite all the uncertainty, things are going to be ok.
The reality is that prices are going up. Interest rates are going up. Houses are getting more expensive AND we’re living longer so our pension pots are being stretched thinner and thinner unless we’re prepared to work longer.
But all of these things are part of a bigger machine, and once you start to understand how these things work and you can start planning properly for the future, you’ll see there’s no reason to panic.
I am going to break down the complicated stuff and the economics in ways that make sense to all of us normal folk, so that you can get the reassurance and the advice you need to start creating your wealthy life.
Links & Resources:
Highlights from this episode:
(00:33) Economics is a dirty word
(03:35) Two sides to every story
(07:47) Start thinking long term
(14:16) How interest rates work
(18:57) What’s important to you?
(22:59) How to work out your disposable income
(25:29) Long term financial planning
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Browse Books by Vicki:
Using Other People’s Money: How to invest in property 4th edition
Make More Money from Property: From investor thinking to a business mindset 2nd Edition
Property for the Next Generation: Securing your future in uncertain times 2nd Edition
The New Estate: Insights from the 22nd century
The Wealthy Retirement Plan: A revolutionary guide to living the rest of your in style
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9 Critical Property Principles
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The Values Manual: Understand what your values are and how they can be key to a successful business
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Episode 15 Transcript – Don’t Panic Mr. Mannering
Hello, my name’s Vicki Wusche, and welcome to A Wealthy Life. And I’ll do a little different take on the podcast this week. So normally I will talk to you generally about wealth, what it means to be wealthy, and also how you can rethink the way that you’re planning to live your life so that you’re more in control.
Economics is a dirty word
Given where we are in the economic climate, if you like, at the moment, I felt it important to do a podcast that was really about economics, about the market. And I–don’t go panicking–I know “economics” is probably, and “economy” is probably a worse word than “maths” and “money” to most people, but stay with me on this.
Now, I’ll also caveat it with: I’m not an economist. I did do economy studies at university, badly, but I’ve lived through this and I’m not worried about interest rates and I’m not worried about the shifts in the market. And I want to explain why, if you get your house in order, you won’t need to worry either. So, the first thing to know is that whatever goes on in the economy is something you have no control over.
So, you can’t control whether, as we’re seeing at the moment, prices rise for fuel, for food or any of that sort of stuff. That’s out of your control; unless you’re actually a government minister listening to the podcast, in which case: sort it out guys. It’s just something that happens. The market place, any marketplace in any country, will want to move or want to grow.
And the reason that happens in very basic terms is that if a marketplace is doing well, whether it’s property prices, stocks and shares, selling gold or selling any sort of widget. Even if you went down to your local market and it was all about avocados or tomatoes; as soon as people see that there is a demand for that and that there are people making money out of that, they will find a way to get into the market.
And that will either increase supply or increase demand depending on where they’re coming in in the market. So, of course there’s always this need to grow, to grow, to grow. And then every so often a market takes off and whatever it is then becomes almost–I’m going to use the word, it’s a bit strong—but, unrealistically expensive compared with the rest of the market. So, something rises.
So, we frequently see that with the stock exchange [fumbles the phrase slightly] I’ll say it again; so that was quite obviously a tongue twister today! The stock exchange takes off, but maybe the property market is a bit flatter. Or, the property market takes off and the stock exchange is a bit flatter. Or strawberries are in season and banana prices stay low.
Two sides to every story
Right? So, it always happens that there is something trying to get ahead of the pack, because that’s just what happens. So, we’re in that situation at the moment where oil prices and everything will be going up. Normal people, us, are feeling the pinch. We’re feeling the price of our fuel for petrol and our heating costs going up.
But I guarantee you, there will be people out there speculating in the market, which will be enjoying the benefits of these prices going up. And we know this because we know for a fact that CPI, the Consumer Price Index–where are we now… we’re in about the end of May, beginning of June–is hovering around 9% and inflation probably feels worse than that. But we also can hear news stories where, I think it was BP in the first quarter, recorded profits of something like 4 billion [pounds].
Now that sounds like a big number. That number is almost irrelevant. What that tells you, is that anybody who has shares in BP is doing really well at the moment, which means that people who have pensions invested in BP, their pensions are doing well. So, there could be some pensioners out there that are actually doing well because their shares are in BP, whereas there’ll be some pensioners that maybe don’t have a private pension that are just relying on the government pension, and they will be doing badly because their pension won’t have increased.
So, you see there’s always two sides to every story. So that’s the first thing. So, if there’s two sides to every story, what can you do about it? You can attempt to be on the right side if you can foresee what’s going to happen. So that would be the first thing.
Start thinking long term
The second thing would be to just accept that you’re going to live a long life, right? You’re going to live a lot longer than your parents and the reason for this–and I mentioned it in my…can’t reach it now, let me reach for it… I mentioned it in my Wealthy Retirement Plan book. That you’re going to live a lot longer than you think, and a lot longer than you can afford. And the reason you’re going to live a lot longer than you think is because of medical advances and medical intervention, so they can cure so many more things.
We have better food now. So, our bodies should theoretically be better prepared for fighting off bugs and germs and illnesses that affect us. Unless you get yourself completely flattened in a car accident, or we’ve got the dreaded Alzheimer’s and dementia end of the scale, you have the chance that medical intervention or drugs or whatever will keep you going a lot longer than your parents.
Now, pensions are set at the age of 65, 67, 68–wherever we are–you know, climbing, climbing. But pensions are set so that theoretically the majority, I know it sounds awful, but the majority of the population will die so that the government or pension companies don’t have to pay out. You would never, as a pension company, set up pension age at let’s say 50; if the average age, which we know, is up in the high seventies, early eighties. Because so few people would then die at 50, you would have to pay out on all of these pensions. The drawings on the pension pots would be unsustainable, and then everybody would have to pay more in, or everybody would have to get less out.
So, since the invention of pensions, it’s an illusion that a pension is that to protect you in your older age; it’s set so that the probability and the likelihood is that you will not be able to draw on it for very long. Shocker. Okay. The truth is, as we are moving forward in our medical advances and medical interventions, we are living a lot longer past that pension age. And if you are just relying on a pension that kicks in when you’re 65 and then, instead of popping your clog somewhere in your early seventies you live into your eighties or your nineties, you’re going to require a lot more money, but you’re also going to require a lot more support.
So, you’re going to live a longer life than you think. And you’re going to live, potentially, a longer life than you can afford, unless you do something about it now. “Well hold on a second Vicki, you were just saying that the market goes up and down and I can’t do anything about the market.” That’s true.
But the point is, if you understand that this financial situation, life plan, that we’re in is about a long-term plan, then minor adjustments as they come through in the market won’t worry you as much because you understand that you have a plan for the long term that can actually ride out, if you like, any adjustments in the market. And the only point where you will need to consider market situations is that point at which you want to sell out of whatever investments you’re in, because then you’ve got to sell out at the right price.
And so, this brings us to another thing. We are all trained, if you like, that we need to buy a house and that when we buy a house, what we’re going to do with it at the end is that we’re going to pass it down through our inheritance to our children. First, your children are going to live longer than they think, and they are going to–because you’re living longer–be much older by the time you finally are ready to give your inheritance.
So, you know, if I plan to live–even if I plan to live until I’m 90–my daughter will be 60. Well, at 60 her child will be somewhere in his forties, late thirties, forties. So, typically when our parents died and our grandparents died at much younger ages, inheritances were coming through to, let’s say, the children of the grandparents–your parents–at the mid-forties, fifties age.
And then that put them in a position where they can maybe clear the mortgage, clear their debts, make a plan for their retirement, give you a little bit to get you going as little kids or whatever, and then carry on. And then they would then pass in another 20 years or so, and you would have got your inheritance. But if everybody’s going to live much longer, there are these, sort of, 40-odd-year age gaps between the inheritances; and therefore, when the inheritance kicks in from the grandparents, the parents are already grandparents, potentially even getting close to being great-grandparents themselves.
You know, if I’m in my nineties and my daughter’s in her sixties, the likelihood is that her child is in their thirties, that child would have children. So, my daughter will be a grandmother and I will be a great grandmother. So, when I pass–if you think about inheritance planning, you should always pass down to the youngest generation, because then you avoid multiple inheritance tax payments. Well, if I pass my money down to my great grandchild, who’s somewhere, sort of 10ish, then that bypasses my child, her inheritance, and bypasses my grandchildren’s inheritance. So, it’s really interesting to see how this historical pattern of money flow isn’t going to be the same.
So, two points: the economy always shifts. You can’t do anything about it, but what you can do is plan for the long-term. You’re going to live longer than you think, longer than you can afford. You need to make a long-term plan. And then: we can’t be relying on inheritances and we can’t be relying on pensions. We can’t be relying on anything that is this historical way of dealing with money. All the more reason–and hence, the reason that I wrote the book—that we need to be planning our own wealthy retirements.
Now, if we’re going to take over and plan our own wealthy retirement, why not plan what age you’re going to retire? Gosh, you know, why wait till you’re 65? What you could do is make a plan where, let’s say somewhere in your fifties, mid-fifties, instead of full retirement–which is actually a bit of a rejection from the workplace; a massive life change, you know, all your status, all the structure in your life disappears–why not do some form of fifties-semi-retirement where you start to think: “how do I want to spend my time? What do I want to spend my time doing? Actually, I still quite like either my business or my job. And so, I’ll do that maybe three days a week and I’ll do something with the other four days a week.” If you decide that, then you can create the financial plan that will give you the income that you can live that life because this is a long-term plan and therefore, we don’t need to panic.
How interest rates work
So, coming back to the economy: yes, interest rates are rising and they are rising in a response to inflation because that is the job of the Bank of England. Now, please, I hope I get this right; don’t shout at me if I get it wrong. But my understanding is, if I remembered it correctly, that the reason we want to keep our UK interest rates low is because it makes the cost of our products when we export them theoretically cheaper.
So, as a country that needs to trade because as an island, we can’t supply everything for ourselves, we need to bring imports in. If we have an economy that is reliant on imports and doesn’t have enough exports, if imports are coming into the country, then our money is leaving the country and that’s not good. So, what we want to do is we want to have a balanced economy—ha ha–as balanced as it can be, where there is the opportunity for us to export the goods that we do make to other countries, which means they give us money, and then when we have to import stuff from foreign countries because we don’t produce them here and we give them their money, we’ve got this balance going on. Or a semblance of a balance going on.
If interest rates get higher, that makes all the cost of the products in the UK much higher, which means when we want to export them, they’re much higher, which might mean that other countries, if they weren’t–and of course they are at the moment–but if they weren’t struggling with their interest rates going up, our prices would look proportionately much higher. And so, they may look elsewhere for support. Oh, now I can see that your ears are steaming, that your eyeballs are swirling. That was as much as I got out of my economics lesson when I did it.
So, what I just want to say to you is there is a reason that we control interest rates and by putting up interest rates a little bit what we’re doing is we’re slowing down the cost of the economy, we’re stopping the economy running away with itself. It almost seems counter-intuitive, but it does, it just calms things down.
What’s important to you?
Then there is always the threat of a recession and we’re having massive conversations, and people are going on and on and on about how the house market is going to crash. And theoretically it should. And there’s a little bit of me going “well, why hasn’t it?” And let me just take you through that little piece of thinking.
So why hasn’t, or why am I thinking that the house market should have crashed? And then I’ll do whether I’m worried about that or not. So first off, we went through Brexit. And when we went through Brexit, everybody in the general public was very stressed. And so, when there’s stress in the general public and uncertainty, then thinking about making major purchases, like moving house, actually starts to slow down.
So, that means the residential buyers don’t put the houses on the market and then there are surplus houses that the investors can pick up. Okay. Then we got into COVID, and of course just as the market was opening, everything slammed shut. And then, by the time we got through to, let’s say the end of 2020, beginning of 2021 last year, the market went mad and it was a bit like a pressure cooker.
All of this pressure had been moving. So, there were all the people that wanted to maybe move during Brexit for family breakup, family extensions, moving because of jobs, all sorts of situations like that. Then of course, we’ve gone through pretty much nine months of being locked in or six months of being locked in, with one another, there’s a whole load more people thinking “actually the way I live now, I want to live differently.”
So, people in flats wanted to move to houses. People without gardens wanted gardens or wanted bigger gardens, or people in cities wants to move further away from everybody. Now, that’s why everybody–there was this mass Exodus of everybody leaving London and all landing in Devon and Cornwall–because they saw that as the Nirvana of where they wanted to live.
What we will see is that eventually those people will go, “crikey, I’m a long way away from London. And although I can work away from home, say, three days a week, I actually miss the whole cafe culture or being able to go to concerts,” or whatever else. And there’ll, there’ll be a gradual shift to those people coming back.
But where we are right now is that we’ve got this bubble that has been going through the market. House prices in some parts of the country went absolutely crazy in 2021, and are still staying quite strong now into 2022. There were some losers, of course. So, generally flats. They started to fall in price and that’s because during COVID people went, “do you know what? I really need some outdoor space. If this happens again–you don’t know, it might happen again or something similar might happen–I don’t want to be locked in a flat anymore. I want outdoor space.” So, they were affected.
But generally house prices are still affordable. They are still fundable, because even though interest rates have gone up–and they went up half a percent just recently, and that’s affected mortgages; they’ve gone up, let’s say half a percent, unless your lender has been very greedy–that is such a low rate compared with where we were… Oh, where’s my maths? Now we’ve had COVID I’m completely lost, but let’s just say 2010, right. So, 12 years ago. And I probably should have done my research to be very precise about it, but about 10-12 years ago, we were looking at interest rates, and certainly mortgage rates, around the 5-6%.
And we’re now still–depending on whether you’re a residential buyer, investor or in a limited company–still looking at around 2-3%. So, money is still very, very cheap. People haven’t lost their jobs, which is odd. Because another thing I was thinking was when furlough ends and all the employers suddenly have to open their businesses back up and businesses in a different way, some of them might not have made it.
They’ll let some of their staff go. We’ll have a whole load of people unemployed, but we haven’t seen mass unemployment. So that’s very odd. And I think that that’s also because a lot of people have had this shift in their thinking, which is what I’m talking to you about all the time and what I was talking about before we even invented COVID; is what’s really important to you? What are your values?
And so, there’ve been a lot of people who’ve been through life-changing experiences; either because they’ve lost people close to them, or maybe because they had that mortality moment themselves; they got sick and went, “crikey, you know, actually I am not immortal. I don’t know how much longer I’ve got, but I’m going to enjoy every moment of my life.”
There might be a few people that are left with the inability to work because of changes in their health situation. But I think that there are also a lot of people who, simply by the fact they were stuck at home, couldn’t go out, couldn’t go to the pictures. Couldn’t go to the theatre, couldn’t drive, couldn’t use the train, maybe cut down on the takeaways–all sorts of things changed.
How to work out your disposable income
And actually, there are a lot of people out there that have saved quite a lot of money, just literally over that 9–12-month period. There are also another batch of people who instead of having to commute five days a week are probably only going into work two days a week; that’s 40% of their travel costs. That’s the 60% saving of their travel costs. That can be a lot of money for some people, both in terms of petrol prices, even before they went up, but also in terms of train prices. So, now there are people starting to save money, to have more money available than they thought.
All right. This has been countered by, you know, heating costs going up and petrol costs going up, I understand that. But up until this point, this is why we haven’t seen a load of people made unemployed. This is why we haven’t had a load of people defaulting on their mortgages. This is why there haven’t been a load of repossessions. And this is why the property market hasn’t crashed yet, because there are still people out there able to afford to make these moves to bigger, better, or differently located properties. So, all in all, nothing is performing as it should expect. The only things that we know is that your utility costs are going up, your heating and your gas prices are going up.
You’re going to live longer than you think, and petrol is going up. But then petrol, I never understand petrol. Petrol always seems to go up, even when theoretically it should come down, but that’s because we don’t make it, it’s controlled elsewhere in the market. And it’s something that people gamble on again.
So, what does this mean for you? First off, don’t panic. Right? Second off, if you haven’t already, through all of the nagging that I’ve given you and all the episodes that go before this, got your spreadsheet out and started to look at your personal expenses, you must do that. Now, bear in mind, well I’m looking out the window and it’s freezing cold today.
I’ve even got a cardigan on. You know, classic British early summer. It’s cold. But it’s not–it’s still up in the mid-teens. We are in a comfort period right now. We have got long days, the heat, the lights aren’t on. We have got fairly warm days; the heating isn’t on. We have got at best four months, maybe five months, until the heating really has to be put on–depending on how many jumpers you’re going prepare to wear this autumn. You’ve got four or five months to sort out your finances, to sort out your utility bills to ride you through the winter.
And this winter could potentially be very difficult for a lot of people, particularly because they won’t be hearing a message like this that says “right, prepare. Prepare.” They’ll be listening to the government; and there was some proposal where they were going to give every single household 200 pounds as a, call it a grant, towards your heating bills. And then that will be deducted at 50 pounds a year for the next five years going forward.
Sorry, I don’t want your 200 pounds. I’ll manage myself. I don’t want you to start determining when you’re going to take 50 pounds off of me, because it might not be convenient for me in the future. So, I’m looking at my spreadsheet and I’ve told you this before: you take your receipts, you enter them in the spreadsheet, you monitor your spending, you pay attention to your providers, and that’s all providers. That’s from your utility bills, to your TV, to your Wi-Fi. Do you go down the gym? Do you need this? Do you need to eat as many takeaways? What else do you want to do or not want to do? Have you started saving money because you’re now not buying that coffee station coffee 5, potentially 10 times a week because you’re not going in and out of the train all the time?
You’ve actually probably got, if you pay attention, more money, more disposable income in your account, than you know. Because if you’re worrying now, the only reason you’re worrying is because you don’t know. Because if you did your spreadsheet, you’d know your financial position. And once you know your financial position, you’ve either got enough money coming in to meet your expenses, so the two are equal, you’ve got more than enough money coming in to meet your expenses, and you’ve got a surplus. Or maybe you do do your expense—[laughing] there we go, I always get that with “doodoo.” So sorry. Very childish of me. Maybe you do do your Excel spreadsheet. And when you do your Excel spreadsheet, you find that you’re riding very close to the edge.
That’s great news. That’s not a reason to worry. That is great news because now, you know. Now you have certainty. Now you can do something about it. And you don’t only do this in your personal life, if you run a business, you do this to your business. And be nice, support your employees to do the same thing. I’ll happily have a Zoom call with your employees and take them through this process.
We can share the spreadsheet with them and help them, because if you have stress-free employees, you will have employees focused on running the business. The business will be more successful. Everybody all the way round, will be more successful.
Long term financial planning
So, to recap, you’re going to live longer than you think. And longer than you can afford. It’s about creating a long-term financial plan. It’s about always being aware of your current financial situation and whether interest rates rise, property prices rise or fall, it’s always a good time to invest.
I was asked this question the other day: “is now the time to invest in the property market?” And the answer is, if the spreadsheet says yes on a specific deal, it’s always a good time to invest in the property. You’ll just change your strategy. The market is always going to want to adjust and you need to be able to ride that. So, instead of my usual gardening metaphors of planting a seed; although I think this needs to be more than planting a seed this time, this needs to be getting your compost out and preparing your beds, but let’s try a sporting analogy this time.
You need to ride the waves like a surfer. You need to pace the race, like a marathon runner. You need to join the Peloton like a cyclist; although make sure that you’re joining the right Peloton, don’t listen to the hype and the front pages, and I mean, all the nonsense that’s in the news. You need to turn inward a little, you need to look at your spreadsheet. You need to sort out your finances and then maybe help your family members to sort out their finances. If you have an older mum or dad, go through the finances with them. Go through your finances with your children, and then maybe share it with your siblings. And, if you’re an employer, share it with your employees.
Get part of the right group, listen to this podcast, make sure that you subscribe. And of course, if you’re enjoying the podcast–which I hope you are, and I hope you’re getting a lot of value out of it–then, please leave a review. Reviews are so important to podcast hosts. Not only does it let us know that we’re helping you in the right way, but it does help get the message out there to other people that might be looking to listen to the podcast as well.
And of course, if you’ve got any questions, then do please get in touch. So, in the show notes for this I will once more, because it’s so important, put in the spreadsheet for you so that you’ll get the link to the spreadsheet that you can use to make sure that you are tracking your finances. And, of course, you can always reach out and book a complimentary call with me and I’ll happily chat through–but do your spreadsheet first before we have the conversation.
Above all, don’t panic. I feel like I’ll show my age and there was a Dad’s Army program. And if you’re far too young to know Dad’s Army and you didn’t even see the film, then go Google it. And the phrase in Dad’s Army is “don’t panic, Mr. Mannering.” And that’s what I want to say to you: don’t panic.
Get the spreadsheet out, know your position. Know actually that you’re in a good position or know that you need to do something about the position you’re in now. Don’t just prepare for increased costs that are going to come this particular winter–although that is a very urgent reason that you need to do that. But I think what you’ve also got to do is look out into the long-term and go, “do you know what? This is an opportunity for me to take back financial control so I don’t get worried about this.”
You know, I’m curious when interest rates rise, because I need to adjust my spreadsheets. I need to look at how my accounts are going. But, quite frankly, until we getting to the point where we’ve got 6-8% interest rates, I don’t have to worry. A lot of my mortgages are locked in for five years, so they’re on very, very nice rates at the moment. So, it’s about how you manage your money. That gives you the confidence and the comfort and the control. So, there’s three really important words, confidence in the market, confidence in your finances, comfort in the knowledge that you’re okay. And what did I have? Confidence. Comfort… and, oh, how could I have forgotten the word control? Yes! And be in control.
So that’s my message for you now, this little off piece; I might do another couple of these as the market shifts for you. But don’t panic, take action, get in control and you are going to be fine. And, as always, I hope that this podcast has put some much needed “Whoosh” into your life. I look forward to hearing from you, to seeing your reviews, and of course, to having you subscribe so you’ll listen to me on future episodes. And maybe we’ll even have a conversation at some point.
You’ve been listening to Vicki Wusche – wealth strategist, author, and property investor. With a name like Wusche, spelt W-U-S-C-H-E, I’m easy to find on all the usual social media channels. Do come and connect. Been loving the podcast? Then join the listener Fan Club, where I will share extra insights and host webinars. Links to this and more of my story are both in the show notes and on my website: vickiwusche.com. See you on the next episode!