Unknown Speaker 0:01
Money matters. I wish that I knew tall when I was an investor, a business owner and a money educator,

Unknown Speaker 0:09
understand it better compound

Unknown Speaker 0:12
international budget investment to recover from debt. No one explained to me that your money to align us at work is about normalizing the conversation. I Welcome to the Money Mechanics podcast. Episode Number Two today, we're going to be talking about the money momentum method. My name is Sarah Poynton Ryan. I'm an investor, business owner and money educator, and everything in this podcast is brought to you to help to normalize the conversation about money. I believe I was put on this earth to simplify and demystify the conversations around money. So let's get into it. What is the money momentum method? Many people come to me. I work with a lot of clients, and I talked about this a lot in my book. I think it's chapter four in the book, I get asked the question of, should I invest first? Should I clear my debt first? How should I start making actual tangible change to my financial position? And I believe there's actually a series of things that you can do in a particular order that will get you the results that you want. So the money momentum method is the steps that you can take to actually start to see tangible differences in your finances. So let's have a chat about what this is and the things that you can be doing to make change. So the first step for anybody is you need an emergency fund. I know that for some people, you'll be thinking, Well, hold on, surely clearing my debts better first or surely starting to invest is better as the first step. But actually, I disagree. I really, really think that having an emergency fund is the number one priority that we should all have if we haven't already got it. Now, first of all, what is an emergency fund? So an emergency fund is a pot of money, usually, in an ideal world, it will be three to six months of money, right? But actually, for most people, that's almost impossible to get to in today's, you know, financial situation that we are in as a society, what I'd say is a minimum of one month, and ideally, if you can get two to three months, it puts you in an incredible position. Look at how much money you need each month. If your outgoings, your essential outgoing to all, you know, 3000 pound a month, or 1000 pound a month, or 2000 pound a month, whatever it is you need at least one month, ideally, two to three, right? This actually is a stage for most people that takes quite a long time. You know, if you're only putting maybe 2050, 100 pounds a month towards this, it can take a chunk of time to do it, but let me tell you why it's important that you do this first, right? An emergency fund is there when the inevitable shit happens, right? We've all woken up and gone to walk out to work of a morning and car tires are flat, or, you know, the boiler breaks in our house and we need a new boiler. Or, you know, we're on holiday and something happens and we need to spend more than we were expecting, because I know you need to fly home early, or whatever. The thing is, an emergency is a genuine emergency, right? It is not there's a sale on in Primark, or that's a terrible example, because they don't do sales in Primark. An emergency is not that there's a sale on in Prada or a sale on in next and actually you need to go and buy that express extra special pair of jeans, right? That's not an emergency. An emergency is a genuine situation that if you don't throw money at it, it's going to impact your life at a deep level, your car dies. You need a new car, right? Those sorts of things, they're genuine emergencies. The reason we need an emergency fund first, before we start clearing our debt, before we start thinking about investment, is that if you haven't got an emergency fund, what will happen is you'll start to invest, or you'll start to clear your debt, and you'll be starting to make progress, and the inevitable shit storm will land, because it does with all of us. And what will happen is you'll put it back onto debt, because that's the only available money that you've got. You'll put it back on a credit card, or you'll take it out of your investment pot, because it's the only money that's there. So if you have an emergency fund, first, right? That money sits there that is for emergencies. Then as you're starting to clear your credit card, as your balances are coming down as you're starting to invest and move things forward there, well, you don't have to touch any of that to get those tires fixed. You'd have to touch any of this to get your boiler fixed, because it's this stuff over here that will cover your general life happening, which, you know it happens to all of us. That stuff is covered by your emergency fund over here, when your debt balances are coming down and your investors coming down, we get to that stage. We don't want to touch it. We want to leave it, because otherwise, what happens is we go back to the beginning. And most people, because they don't have that emergency fund, when they start to clear their debt, they get into this cycle of clearing a bit. Something happens.

Unknown Speaker 5:00
This goes back to maxed, clearing a bit, something happens, goes back to maxed. And we have to get out of this cycle. And the only way to get out of that cycle is to have an emergency fund first, right? So the first part, first stage of the money momentum method, is to set up your emergency fund and to start putting money every single month consistently into that pot until you've got one to three months ish of living expenses. What an emergency fund also does, and this is quite a exciting thing for people like me, if you're if you're independent, and you know you like the freedom and choice that life you know can give you, have an emergency fund allows you to know that you've got enough money to pay your bills, right? What it also means is, if you're in a job that you hate,

Unknown Speaker 5:50
it gives you a little bit of a safety net to say, Well, do you know what I'm going to move because I've got enough money to tide me over. And that gap, you know, there's usually a gap between leaving a job and starting a new job, there's usually a pay like blip. You don't get quite as much the first month as you do the second. You know, we've all been through that. Well, an emergency fund is what will buffer that storm. It's what will help you to ride that period. It also, you know, people, if there are a lot of people who'll be watching this, who maybe are in a toxic relationship, an emergency fund gives you independence financially to be able to make a change. And all right, it's not forever money, because it's, you know, three months worth of your cost, but it gives you a safety net. It gives you a sense of security that you could make a change if you wanted to, and you'd be okay. I believe that everybody, every individual, not couples, as a couple, you should have your own emergency funds each we're not talking about a couple's emergency fund. We're talking about you and them having your own emergency funds. Every individual should have an emergency fund first, right? The second thing is clearing your high interest debt. Now, what is high interest debt first? Let me explain that, because that's quite an important factor in this but the second step of this money momentum method is to clear your high interest debt first. So there's a rule of seven that we use, and I talk about this load in the book. By the way, there's a whole chapter on exactly what constitutes high interest debt, low interest debt, good debt, bad debt. There's a whole chapter in there. So if you've not got a copy of the book yet, get on, ordered and read this chapter. It's also an audio by the way, on Amazon, high interest debt is the debt that costs you more than 7% a year. That's what we're talking about. So credit cards sometimes come in at like 1819, 20, 28% depending on what it is. You know, your payday loans that are coming in hundreds of percents, in some cases, loans that sort of stuff, anything that is over 7% a year, that's high interest debt. That's the debt that we need to clear first, right? The reason we need to clear that debt first is because when you start to think about investing so fast forward a little bit. We've cleared all our debt, and we've now got spare cash. We now start to invest. When you look at the lowest risk investment opportunities that there are things like the S, p5, 100 index funds, these sorts of spaces to put your money, typically, they will return 7% and above. If you look at the historic trends with the S, p5, 100, averaging, you know, eight to 11% every year for the last 30 odd years. So if you can invest low risk and earn more than 7% a year, then when you've got rid of all your high interest debt, the debt that's costing you more than 7% you can then put yourself in a position to say, Well, should I invest my money, or should I pay my debt? Because you can earn more by investing than your debt is costing. But if your debt is costing you more than 7% actually, there's no way that you're going to be able to invest low risk and confidently, to be able to make more money than your debt is costing Yeah, so if your credit card's costing you 18% you're not be able to take that same money that you're using to pay off, invest it and get 18% to pay back your credit card. It's really unlikely. And if you're going to do it, you can do it, but it'd be really high risk. What if you lost the money? So what we do in the first part of this process, we have our emergency fund, then we clear off any debt that's costing more than 7% a year. Now, the first step to be able to figure that out, by the way, is to go to your statements. It says it on your statements, most people have never looked. I know when I was in 60 grand of debt, I had actually never looked at what my interest rates were, because I'd had 0% and I knew it like ticked over into more than 0% but I never really looked it. I never understood what my money was costing me every month. Okay, so, loans, credit cards, car finance, any of those things that's costing you more than 7% a year. That's what we do next. Okay, so emergency fund for.

Unknown Speaker 10:00
High interest debt. Those two things are ticked off. The next step in the money momentum method is to start to consider investment versus paying off your debt. Now, as I briefly mentioned, if you can invest your money to earn more than 7% then let's say you've got 100 pound debt here, and you can earn 10%

Unknown Speaker 10:25
but your debts costing you 7% there's a 3% difference, so you can invest it and earn 10 or you can pay it down clear seven. Actually, you've then got a conscious choice to make. Are we going to clear our debt so that we're debt free, or are we going to start to invest and use the income that we're earning from our investments to clear our debt? You've got that flexibility and that option, once your high interest debt is gone, you can then look at that low interest debt and consider what it is you're going to do. Are you going to invest first, or are you going to clear your debt now, as you're preparing to invest, which is basically this step. There's some rules to follow, right? And the rules are, you need to start small, you need to diversify. And we never, ever invest what would destroy us to lose? We don't invest things or money that we really would be uncomfortable if we lost. Okay, we only ever invest money that we are okay to take the level of risk that we're taking with. Okay, so understanding risk profile is quite important. And for those of you a copy of the book, there's a link, the resources link that's included in the book, On that page, when you go to that page, there's a risk profile quiz that if you go through it, it will help you to understand what your risk profile is, whether you are somebody who's very cautious, or whether you're somebody who actually doesn't mind taking risks. All of that's in there, so go to that link that's in the book, and you'll be able to figure that out. Why do we need to start small when we're preparing to invest Well, actually, it seems pretty obvious to me, but I didn't make good choices in the early days because I was still figuring it out. So there'll definitely be people listening to this who aren't really sure how to start investing. And I know I've got clients of mine who their first investment was 10,000 pound into a crypto Investment Fund, and they lost it all. It happens, right? I know it happens, and it's because we don't necessarily know how to choose our investments yet if it's really, really new to us. So having the rule of starting small means that if you did lose it, you're unlikely to really suffer, because you've got to learn, right? Right. So starting small, I'm talking about taking 50 pounds, 10 pounds even, and putting it into a investment platform. I use free trade. That's the one that I love, and I can put a link with this video, so that you can go and check out free trade and have a go of it. Put 10 pounds in, put 50 pounds in, put 100 pounds in, don't put 20 grand in as your first investment and put it all into one place. That's terrible. Don't do that. That's not what we want. Now, I can't give you investment advice. I can't tell you what to invest in. I can tell you where I started. Though, for me, I wanted to make sure that I was diversifying so that, because I don't want to lose money, I've definitely lost money, and I talk about that a lot in the book. By the way, all the places I've put money in, it's been a terrible idea, and how I've let my money mindset overtake and actually make really bad decisions based on greed. But that's for another episode. I started with the S p5 100. And I like the S p5 100 because it's so diversified. It's the S p5 100, for those of you that don't know, is the 500 largest companies in America. So it's got alphabet, which owns Google. It's got meta, which is like Facebook and Instagram, WhatsApp. It's got these big companies, Tesla, Coca Cola, all of these sorts of companies, right? They all sit on the S p5 100. And the S, p5, 100 is a fund that tracks the performance of all 500 of those businesses. Now the difference between a fund and a stock, I'll do a full episode on this, by the way, but just for quick reference, a fund is a pot of investments and a stock is one singular a fund is like a bouquet of flowers. A stock is one stem, right when we want to start investing and we start in small. The reason I chose a fund is because if one of those companies, out of those 500 went bust, I still got 499

Unknown Speaker 14:35
companies in that pot that will help to buffer that storm, whereas if I just bought Coca Cola shares, and Coca Cola went bust. I mean, it's not going to, I don't think, I'm pretty sure it won't, but if it did, well, that stock I've I've lost. So I selected funds because that made sense to me, and I started with 50 pounds. I put 50 pounds into my free trade account. When you do that, you get a free share as well, which is great. But I then invest.

Unknown Speaker 15:00
Invested it into the S p5 100. Back then, you could get shares there about 88 pounds now to buy a share in the S p5 100, but you could choose a fund where you could buy fractional shares. You don't have to go for the S p5 100. But what I'd say is, you start with something that's diversified. You start with a small amount of money. You put it into a place that is very diversified, ie a fund, and you just watch it do its thing. You learn what the chart means. You learn what it means when it goes red, what it means when it goes green. You learn what it means when you get a dividend payout. If you choose a dividend payout again, I'll do another episode on that. The starting small is your ability to learn as you do, rather than just learning a theory and having a head full of theory, but doing nothing because you're worried you haven't got enough, or you're worried you're going to lose it. What we do is we learn, and then we do but do with a little bit, don't do with a lot. So once you started right, you've started small. We've got our emergency fund, we've got our high interest debt cleared. We've started to test, we started to invest. What we then need to do is just make sure we remain consistent. So if you decide that 50 pound a month is your investment pot, then every month on payday, put 50 pound into your investment fund. Be consistent. If you can automate it, that's even better. So I've got a Monzo account, and I automate my Monzo transaction. I actually do it weekly. So every week, on a Saturday, my money goes across to my free trade account from my Monzo as an automatic transaction. I don't even have to think about it, and then I put it into the investments that I want to once the market's open again on a Monday. That because it's automated, I haven't even got to think about it. I've not got to remember it's just done. If you can automate it, it's going to be way better for you. That consistency, that's what's going to help you to move forward in your investments. And then the last step of the money momentum method is to get into good habits of saving for specific things. So we've got our emergency fund that's for emergencies, right? We've got no debt. Now we're starting to move away from height, well, we've moved away from high interest. We're reducing our low interest debt as we move forwards, and we're now consistently investing. But now, what if you are planning a wedding, what if you're planning a holiday? What if you're looking to buy a house and you need to put a deposit together? What do you do? Well, this is where you have to start being very disciplined.

Unknown Speaker 17:30
Keep investing that 50 pound a month. It keeps going into your investment fund, because you're going to benefit from compound interest over time. But instead of nicking your emergency fund to pay for the wedding or that holiday you want to go on, or the stag do that you've been invited to, or, you know, whatever it is, we save for specific things. So again, we automate that in our again, I have a Monzo account, and I know there's lots of accounts that do this. We set up a pot, and that's the pot for Joe's Hendo. And every week we put some money into Joe's Henry pop. That's for the car that we need to buy. That's for the house fund that we're going to buy next year, and every week or every month we put a little bit more into there. And you might be thinking, well, Sarah, hold on, how am I going to save for specific things if I'm also investing and I'm also paying down my debt and all these things? I'm going to do another episode on this. There's a whole chapter on this in the book, but ultimately, it's important, once you understand that your debt is gone, you're going to have so much more money available to you. So when you follow the money momentum method in this order, actually you're going to feel great because you'll have quick wins. You're going to have really good momentum. And I'll talk to you about the two different techniques that you can use to clear your debt. In another episode, you've got everything that you need from an investment perspective, and you're now starting to save for those big life things. You will just feel better about your money. You'll have more of it. You'll feel less stressed about it. Your money will be making more sense. So that's been the money momentum method. Thank you very much for hanging out with me and learning all about this. If I can answer any questions, just stick it in the comments and I'll make sure that I answer them for you. If you want to buy a copy of the book, we'll put the link in there. Loads of you are watching this over on YouTube. If you guys are there, hit subscribe for me. Give us a little likes that we can spread the word. Those of you listening just on audio, give us a little follow. Add us to your playlist, and it will help us spread the word on there too. I don't know how to finish that sentence. Peace, peace out.

Unknown Speaker 19:27
Um, I've been Sarah Poynton, investor, business owner, money mechanic, ah.

Transcribed by https://otter.ai