On Wednesday 4 December 2024, Warren Shute, a Chartered Financial Planner, author of The Money Plan, and founder of Lexington Wealth Management (www.LexingtonWealth.co.uk), gave us a wonderful presentation on 5 steps to achieve financial success.

Warren has helped many people achieve financial freedom and live life by design. He is recognised as one of the UK’s top financial planners, and his practical approach blends financial education, investment strategies, and life planning to transform the way you manage money.

Warren began his talk with some worrying statistics:

24 million or 45% of adults find it difficult to keep up with bills and credit commitments
4.2 million adults miss domestic bills and credit commitments
One in five people (20%) under the age of 40 do not expect to receive their state pension until the age of 75+
67% of women aged 41-55 believe they will never be able to retire
Not saving enough for retirement is a major worry for 26% of people surveyed
Household debt is expected to increase by 21% from £2,019 billion in 2020 to £2,447 billion in 2025

Warren offers 5 step process to help us achieve financial success:

Step 1 define your outcomes: how do you want to live the rest of your life? what do you want to achieve in 10 years, 5 years, 3 years, or 1 year?

Your goals should be SMAC: specific, measurable, achievable and compatible with your values.

Your goals can be classified as PEAC:

Personal: What do you want for your health and relationships?
Economics: What do you want financially? With your business?
Adventure: What adventures are on your bucket list?
Contribution: What contribution do you want to make?

The following actions can help you move towards your goals: write down 3-5 daily actions and regularly review and celebrate your achievements.

Step 2 organise your finances: automate as much as possible.

Over your lifetime, you will have £1.6 million go through your accounts based on an average UK salary. Yet, 25% of UK households have less than £100 saved. You therefore need develop a strategy to manage your money effectively. This can be achieved using a smart bank account system.

The key principles of a smart bank account system are:

Pay yourself first – it is recommended that you put away a minimum of 12.5% of your income
Set up an emergency fund to give you a financial buffer to deal with unexpected costs
Automate all your regular payments (mortgage/ rent, utilities, kids’ pocket money) so that you do not miss your payments and can protect your credit profile
Keep your spending lean so that you can save and invest, and avoid debt

Step 3 wealth is built on 4 pillars:

financial protection: is achieved when you have set up an emergency fund, have Wills, Trusts and LPAs, protection, and insurance in place

financial security: when you have no unsecured debt and an emergency fund equivalent to 3-12 months of expenditure

financial independence: your investments provide enough income for you to meet your needs without working

financial freedom: your investments provide enough income for you to you’re your desired expenditure without working

Step 4 repay unsecured debt using the Snowball System. This is done by:

list all your unsecured debts and arrange them in order of smallest balance first
ensure minimum payments on all debts
pay smallest debt first to motivate you and continue this until repaid, and then move to debt number 2, repeat through your debts until you’re debt free.

Step 5 investment success involves making 3 important decisions:

Term: how long can you invest your money? The longer you invest, the better.
Risk: how much risk can you take? Equities provide better returns but also involve more risks and volatility.
Wrapper: decide which type of account to hold your investments. There are 4 main options: pensions, stocks and shares ISA, general investment account, and off-shore bond.

It is generally recommended that your first priority is to maximise your pension allowance. However, when you are younger, you may wish to consider stocks and shares ISA and LISA (to help you buy your first home).

Summary

In summary, only you can determine your success.

To achieve this, it is advised that you:

write down your vision and goals, and read them regularly,
take pride in your achievements,
live your life – don’t just save up for the future, you need to enjoy the present as well.