Dr James, 0s:

When it comes to investing, everybody gets super excited about the investment piece, as in which stocks to buy, how much to diversify their portfolio, what accounts to use, everything along those lines. But actually there's a little bit more to it and there's a crucial first step that has to come before we even think about anything to do with investing if we want to get the best results. Independent financial advisor Luke Hurley joins us today. He represents Videre Financial Planning. Luke is going to be sharing with us a little bit more about what we can do in the very first place to ensure that we actually get the results we want from our investment portfolio. I'm also super excited today to announce a brand new feature for the Dentists Who Invest platform, and that is free verifiable CPD to all UK dentists who have enjoyed this podcast episode. Whenever you finish the episode, all you have to do is click the link in the podcast description. It'll take you right through the Dentists Who Invest website. You'll be able to complete a short questionnaire and, once passed, you fill in your reflections and we'll go ahead and email over to you your verifiable CPD certificate, which is entirely free. What that means is this podcast episode will be able to contribute towards your verifiable CPD hours during this learning cycle. Another episode Dentists Who invest podcast team with returning face, Mr Luke curly. We're here to talk today about your vision, the strategy that you need to have in order to ensure you're making solid financial choices. When we talk about your vision, well, well, a big part of that is your. Is your number really crystallizing how much you need to retire? And this is something that often goes awry with people in their financial plans. Given that we're all just programmed to, how can we say, just build the biggest asset portfolio that we can feasibly achieve? What that sometimes means is we're sacrificing time, time that we could otherwise had off or time that we could otherwise been financially free. Luke, how are you today, my friend?

Luke, 1m 59s:

Yeah, really well. Thanks, James. All good, my end.

Dr James, 2m 1s:

Awesome. Well, listen, I think this is one of those episodes where I'm going to do less talking rather than more, which I'm not so good at, but I'm going to. I'm going to do my very best for the good of the audience, for the benefit of the audience today, because we all want to benefit from your expertise whenever it comes to deciding what parameter, understanding what parameters and things that we need to know in order to how can we say, crystall, crystallize the vision, so to speak, and be efficient about our investing journey.

Luke, 2m 27s:

Sure, for me, the vision stage is probably the most important when it comes to building out a financial plan. It's underpinned from a philosophical perspective by what I consider to be three key core principles. Three key core principles which you can debate, but for me they're universal and they're absolutely vital. So the first one is that time is our most precious resource. We've only got so many years of life. It's important to recognize that and to get the most we can out of the life that we have. The second is that happiness is our ultimate goal, given that we no, time is our most precious resource. And the third is that money is an enabler or a tool for us to um live the best life possible. So those three principles, for me, underpin financial planning, um, and it's key then to drill down. Well, okay, ok, we don't know for certain, but how much time, realistically, could you have left? Because goals are, in an ideal world, that they're measured in terms of time and duration and time horizon, so we can look at ONS data and we can make some accurate guesses around that. Then, in terms of addressing money, money is a tool and enabler. The question there is what for? It's different for everybody. What is your money really there for you to achieve what's important to you in life. And that's where we come onto the first section, which is understanding or realizing what your why is, what your purpose is, what the meaning is your North Star, what is the driving force behind your financial plan? And it can be as simple as jotting down really what your values are, what is at the core of what you're looking to achieve. So simple questions like what is most important about money to you? What's the money money for? What makes you happy? Um, what are the experiences you, you you most enjoy what in the environments you most enjoy them in? Who do you most enjoy spending your time with? All of those questions should elicit the information around what's what's most important to you in in life, and that should be right at the top of your financial plan, driving most of your decisions, um, and decisions, and you should be aligning your values with your money. So, for me, some simple questions like that. What I hesitate or what I don't like to see at that point is somebody saying, well, the most important thing for me is financial security. It's okay. Well, financial security to allow you to do what? So it's taking it a step further than simply um, some of the regular answers that you see, which is fine. I want financial freedom, okay, well, freedom to do what? Exactly? What do you want to use that extra time for? And that's how you really dive deeper into the question of what is your why? And that's how you start working your way through. We talk about maslow's hierarchy of needs. That's how you start working your way up the, the levels, um, towards self-actualization. If you're talking about the top of the, the pyramid, um, so that's that's, for me, is the starting point you know what and when you were saying just then, I, I used to be off.

Dr James, 5m 37s:

I've I've grown up a lot, I hope, in the last few years, and one thing that I never, ever bothered to do, uh, back in the day, was actually have a goal, really, or a hug. I had goals, but maybe not crystallized goals like this is exactly how I want it to look, right, because I swear, the number of times you write down what you're actually trying to achieve, you'll realize that a lot of your actions are completely paradoxical to achieving that goal. So, for example, I'll say this right, uh, time for kids. Right, you're actually working really hard to get all this money to have time for kids. Right, you know that's, that's the goal whenever it comes to financial freedom or financial planning. Right, but in reality you probably have the assets to be able to be retired and have the time to do that years ago, but you feel you're so programmed and you're so conditioned from years of doing it to think that you continue to have to do it. But you don't know what that is until you write it down. And that's maybe for someone who's like I don't know middle-aged, 40s, something along those lines. That's one example.

Luke, 6m 33s:

There'll be loads of them out there yeah, it's shining a light um reflecting and then really considering whether your actions are aligned with your values. Um, and there's lots of people that are sort of sleepwalking and pay lip service to this stuff but they're not actually engaging with it and aligning what they do with what they're necessarily saying.

Dr James, 6m 57s:

Awesome. So that's the first stage, I suppose, in crystallizing your vision, and then how does it develop from there?

Luke, 7m 3s:

Yeah, first stage for me is work out what your why is, and there's from a from a planner's perspective. There's other questions that we do and we can go on a deep dive and it may be that somebody answers those questions and realizes that they're on completely the wrong track, in which case there's other professionals that they might want to speak with. But it's just a useful exercise to to add context and to frame a financial plan. Once you've done that, the next step really is to go into some more specific goals, which some people are put off by the word goals, and it can be quite a daunting process for some people. It's a bit of a loaded word for some people. For me, it's quite easy. There's two main categories. You've got what I would consider to be spending goals or milestone goals, which are very specific events with attached spending requirements. For example, for me I know I've talked to you talked about this on the podcast before, but that might be for me, my children going to university, it might be my children getting married, it might be gifting some money to help them get on the housing ladder, for example. That's very specific. I can attach a time horizon to it, I can attach a monetary amount to it and I can really give it some um, some some some context um. So that that's the first type of goal and and they're really that. That involves some guesswork. Okay, you can't get this stuff entirely accurate, but it's about putting some stakes in the ground, having some guesses about what the future might hold. Think of family milestones, work transitions, you know, ambitions on that front, business targets, important birthdays. Uh, it might be real lifestyle stuff. It might be particular going on a particular type of holiday. It might be um changing a property, buying a bigger house, whatever it might be. It's a, it's a clear milestone goal. That's. That's got some form of spending um attached to it.

Dr James, 8m 47s:

They're one-off costs that we need to to factor into our, into our plans I can tell you thought about this in great detail because it's very much like bang, bang, bang. These are the components. This is the precise point at which you think about this and this is how it works, and I remember you telling me that sticks in the ground analogy a while back, and I really like that. You know it's just a point to navigate towards, rather than it being a fixed outcome that we're going to necessarily achieve, because you can't. You can't say when it's going to be. You can never say when someone's going to get married, particularly if they're like five years old. Will they ever get married?

Luke, 9m 22s:

exactly. They may never get married, right, but, um, if they do, I'm going to be prepared for it. Um, so yeah, measurable and time bound. In an ideal world, that's what we want these goals to be. We should be able to measure them and we should should be able to attach a time horizon to them. That's key, and these are going to be different for everybody. I mean, I, from my experience, I see a lot of the same kinds of things come out through the discussions that I have with clients. Um, but you know, everybody's got different goals and objectives and and things are, you know, look slightly different and also based on life stages as well.

Dr James, 9m 53s:

There's there's there's clear differences between people there we are, so get some stakes in the ground and get some figures associated with those, and then I suppose we're thinking to ourselves next okay, cool, how do we start making progress towards that? Really, yeah.

Luke, 10m 10s:

so the future step is really looking at the strategy to to achieve those goals. Right, but the um on top of the milestone goals or the, the spending goals, we've got our universal ultimate number one financial goal for everybody, which is financial independence. Um, and so when I said I don't think it's actually that difficult to go through a goal setting process, really that's because the the most important goal for most people when they're building up their wealth is to know what do they need in order to be financially independent in the future. Now, financial independence is the point at which you're working because you choose to, not because you have to. So it's quite clear, and it's about measuring when, or how much is enough for you individually, as a household, how much is enough for you to achieve the lifestyle you want without having to go into work to build up your resources any further do I recall you telling me once upon a time there's a distinction between financial freedom and financial independence? um, I do use them interchangeably. I I think, um, I think you can achieve financial freedom before you achieve financial independence, if you really want to drill down into it, because it might be that you change your working environment and it's a little bit more in the present term as opposed to financial independence, which is, for me, very much tied to going to work. So, yeah, I think there's maybe slight differences, but I also see them used interchangeably.

Dr James, 11m 40s:

Go on, sorry no no, go ahead. I was just going to ask is there any sort of and I'm asking this to you, you know, from the point of view of you being immersed in this world as a professional is there any sort of distinction or terminology that's used insofar as, let's say, you hit the point where you've got financial, financial freedom, if we want to term it that right, where you've literally your uh, the money, your cash flow from your investments covers your outgoings, but that's it. Are you with me? It literally keeps the electricity on, keeps you fed and watered, like a decent lifestyle, right, but there's not really a whole lot there on top to go and party and do others and do fun stuff and experience life yeah, I think there's different.

Luke, 12m 21s:

Yeah, totally. For me, the way I've now defined financial independence it's it's tied to somebody's desired lifestyle, which includes your essential spending you know, your survival cost, shall we say and your personal discretionary spending there is. I think I do feel like it needs to be aspirated, aspirational, I don't think you necessarily need to say you know, I think I think you can aim higher, and some people might call that financial abundance. There's all financial freedom, and where it's about pushing that even even further up, um, I have seen certain uh charts where they say you know, financial security is getting all your basics covered, then you've got financial independence and then you've got financial freedom, which is what you, as you say, it's about going, going further and really pushing that discretionary spending. It's, yeah, it's, it's all, it's all a, it's all useful. However you want to categorize it, it's about working out what your the cost of your lifestyle is and if you want to pushing, nudging that up to not only be the lifestyle you've got now but the lifestyle you want in the future, and that's really how you work out your number. So the, the, the key is it's a personal figure per person. How much is enough for you. Why is that important? Well, I think you know, ultimately, there's three types of people. There's those that don't have enough. You know they're not. They're not on the right trajectory, they're not going to achieve financial independence, they haven't been saving enough for their retirements. Unfortunately, in the UK, that that at the moment is the is the landscape for an awful lot of people Worrying levels, in fact. You've got those that get it just right, they've got enough and they have timed things perfectly. They've, they've done their planning and they've been on the right trajectory. And then you've got the third camp, which is those that have too much, and what I mean by that is their, their, their family, their household, the future generations are due to pay a pretty healthy tax bill, um, on their demise, through inheritance tax, where they've worked hard all their life and paid tax, and then what's left is then taxed on death, um, so kind of three categories. Now for dentists, do I see those that don't have enough? Well, I've met I've met some, but most people tend to be on the right trajectory. Um, I do see lots of people fall into the camp of having having too much um and therefore needing to put in place some, some form of plan to deal with their their uh, inheritance tax liabilities further down the line? Um, so, yeah, there's, there's the three camps. Now, why that's important for me is, if you don't know that there's, we're human, so our number one fear, or most people's number one fears, uh, when it comes to money's running out, okay, so it's a, it's a deep down human fear we're going to run out of money and that's natural. Um, if you don't know that you've got enough, then you can go throughout life living the life of somebody that didn't have enough, and that's that's the key thing to understand. Defining whether you're on the right trajectory actually informs your decisions today. So it's about plotting forward and working out when you're going to have enough, and then you can come back into the present and make various decisions to make sure, coming back to those original principles, that you're living life on your terms and making the most of it do you know what I almost interjected then?

Dr James, 15m 31s:

because I was just going to ask you this, that key little quote that you said just then, just before you went into that explainer. I was hoping that you might repeat that, but here's the thing you did actually give a little bit more context whenever you explained it afterwards. So we're all good. Anyway, didn't mean to jump in.

Luke, 15m 47s:

You're in full flow there, no worries um, so yeah, knowing you have enough for me is just as important as actually having enough in the first place, and that's really what financial planning is a as a discipline, is all about, and that's what also gives people like myself the most satisfaction is helping people have that clarity and confidence over their direction of travel in terms of how you actually work out what your number is to come back, which is key for financial independence. Well, there's the shortcuts. The the most involved way is obviously to go line by line, and really the most involved way is obviously to go line by line and really interrogate your spending habits through bank statements. I do think that's a worthwhile exercise. One way to start things off, to get a very almost like a bit of a shortcut, to get to a figure immediately, is to look at how much, as a household, do we have in terms of our net income? So, as a household, what's our net income after we've paid tax? How much are we saving every year, whether that be in cash savings or investments or pensions, whatever? How much are we actually setting aside for the future? And obviously, the difference between your net income and what you're setting aside is being spent in one way or another um. Then, once you've worked out what that number is, you can then interrogate that in more detail. So let's say, as a household, you had a hundred thousand pounds of net income, but you're only funding one person's iso and twenty thousand pounds is being saved. Well, eighty thousand pounds is being is being spent in one one way or another. And then it's about being intentional and going in and having a deep dive as to, okay, where is that 80 000 pounds actually going um? And then you might find some leaks. You might find that there's some, some, some wastage along the other on the way. You might just find that actually, that's your, that's the cost of your lifestyle and that's what, that's what you're aiming for, um, but that's that's. That's how I would go about working out what you need as a household.

Dr James, 17m 43s:

And you know, I actually love that method that you highlighted just then, because there's probably a very deep part of our human psyche that tries to not acknowledge how much we are truly spending. And if you just literally look at the numbers, there's nowhere to hide. And I get we can modify that and we can reel it in and what have you. But at least it's a place to begin. So that's some very, very simple, actionable information for anyone listening to the podcast today. You can use it to figure out your number per se and then naturally that's going to change and move around with time, given that retirement for most people is many decades away. So naturally inflation is going to move that around, and what have you? But it's, it's, it's a cool, it's a cool. I almost said the word experiment, but I mean, I don't know, I don't know, it's an experiment, so much it's a cool. How can we say, yeah, just thing to look into and investigate.

Luke, 18m 32s:

Really yeah, um, some interesting facts, so I was reading these earlier. So, 77 percent of people in the uk don't know how much they need in retirement. Um, based on the survey completed. Uh, 51 percent of people in the UK don't know how much they need in retirement. Based on a survey completed, 51% of people think that the amount that they're being forced to pay into their pensions through ultra-enrollment is enough to see them through. Unfortunately, for lots of people, that's not going to be the case, which is why it's important to interrogate these numbers. 20% are confident that they are saving enough for retirement. So only 20 one in five people have that level of confidence, which is why that clarity and actually knowing that you're on the right path is so, so important. Uh, 70 say that targets would help them save more. Um, which is really what we're trying to do putting those stakes in the ground. Um, 51 of people focus on their current needs and wants at the expense of providing for the future. That's, I think that's a human tendency. Okay, that's a natural excuse me um, behavioral, um trait of human beings. And 70 of 35 to 54 year old self-employed savers have less than 25 000 pounds in a pension. Um, now, I don't see too many dentists in that position, if I'm honest, and this is a national, uk wide survey, but it's just some interesting context, I think, in terms of where we are as a nation 70 percent of 35 to 55 year olds have less than 20 000 in a pension.

Dr James, 20m 0s:

No way, oh my goodness. Wow, that is we call it.

Luke, 20m 4s:

We call it a savings gap or the savings gap it's. It's a concept widely talked about in the in the financial planning profession that we've got so many people that that just are not saving enough money for for the future and you know, there's actually a flip side to that, which is interesting.

Dr James, 20m 20s:

And I sometimes observe with dennis, even if, let's say, I say I thought you, you know, when you talk to dennis on the phone and they're like, oh yeah, I'm gonna do my very best to max out my isa this year. I was pretty close last year, I got the 18 000 in and you're like, even you know, forget even maxing it out. What a fortuitous place to be. That's unbelievable, that's amazing, right, but dennis don't necessarily realize how can I say how blessed they are sometimes on that front and also how that can sometimes mean that actually they might have a lot of the things in place they need to retire already, given that their savings are so massively boosted relative to other people. But if you're mingling in other dentist circles, well, your bar is going to be not really so much representative of you know, your, your kind of frame of reference is not going to be representative as to where other people are. So when you hear stats like that, it's just like jesus, that's. That's crazy context, isn't it? Yeah, it just makes you reflect and it makes you think. Actually, do you know what? It's really important that I think about this stuff because I probably am over-saving and overworking.

Luke, 21m 29s:

There's a body of research that's updated every year which looks at the national averages for retirement spending, which again, I think is useful to share with people. Excuse the coughing, I've recently come out of a bout of COVID. So a single person, they have a level that they say is like the minimum level that people should be aiming for. So for a single person that's £14,400 a year. In London that's £15,700 a year, which for me is I mean, it's real survival stuff. People are going to really struggle on that to make ends meet in the current economy. As a couple that goes up to £22,400, or in London £24,500. The moderate level of spending nationally they've labelled £3,300 for a single person, £3,800 when you're in London, £43,100 for a couple or £44,900 if you're in London, 43,100 for a couple or 44,900 if you're in London. And then what they deem to be a comfortable retirement level for somebody that's on their own, that would be 43,100. In London, 45,000. As a couple it's 59,000. In London, 61,200. So there's some very, very rough averages for the national picture. For a dentist, the takeaway should be that if we're a couple then we should be aiming for 60k plus and that's once everything's paid off, ideally. You know your mortgage is gone. That's just money that's being spent on living life, on lifestyle for a single person, as I say, 43 or 45,000 per annum to cover all your outgoings, discretionary and essentials.

Dr James, 23m 12s:

Interesting. Context is so valuable. Context is so valuable, right? Because each one of us, our realities, are, to a greater or lesser degree, distorted from the average that's out there. And that can work both ways. You know, it's not just, we're not just talking about the finance, the dentist, we're talking in every other area of our life. How do you know that you're doing well, you're doing not so well, where you could be, where you should be, unless you understand where the bar is. And that's why I love those stats Makes you think.

Luke, 24m 3s:

Once you have the number that you're aiming for, some people will talk about theions for you to draw down on to ensure you don't run out of money. Now, that's based on some research based in the US which, in rough terms and there's lots of caveats to this and it's very simplistic suggests that if you invest a lump sum of capital and you take 4% at the outset so let's say, a million pounds is invested and you take 40k a year if you increase that every year with inflation as a portfolio withdrawal, then, based on back testing of historic scenarios, you shouldn't run out of money. Now, there's there's caveats to that. That's us-based. There's gray areas around that, around charges and various other things, but that's that's. That's often. If you hear about the four percent rule, that's what it's alluding to, and to get to that figure is simply work out what the income amount is and multiply it by 25. Now, for from my perspective that is, there's lots of flaws in that, which is um, namely, it doesn't allow for regular sources of income, so it does not uh factor in state pension, nhs pension. It doesn't factor in buy to let income, rental property income you know it's, it's uh. It doesn't allow for changes in income over time. So on average um people probably spend about 40 less um in their 80s than in their 60s. So that method of thinking of just working like that original income figure just purely looks at the same amount all the way through. I think that's flawed. So there's lots of lots of flaws in the process. It's useful as a back of an envelope calculation, fine, but really what our role is as financial planners is to use financial modelling software to actually have a bit more of a deep dive into that and work out how your number is going to change over time and then overlay that with where, the what resources and what assets can you use, factoring in tax implications of different tax treatments from from different accounts. How will you meet that spending requirement to enable you to be financially independent? So there's a lot more complexity when it comes to actually taking that number and then delivering a financial plan.

Dr James, 26m 9s:

Another thing to point out about that rule of 4% is that, just as you were saying, obviously it doesn't factor in income from other sources. So let's say somebody's business, or let's say somebody's well, specifically somebody's dental practice practice, and there's this whole mindset where we have to get this. We have to start. How can we say divesting, you know, changing our investment portfolio when it's in our pension or when it's in our ISA, switching it around so that we're not as heavily exposed to assets that retain or the assets that give us? How can we say like orientated towards growth or orientated towards returns, whereas if you actually have enough income from your other assets, you might just choose to leave your pension. Just to compound, add infinitum, it doesn't. You don't actually have to touch your pension. Yeah, so here, what I'm saying is. What I'm saying is, um, that actually, if you're stashing away loads of money in the pension, just realize that it might even not even necessarily be for you whenever you get there. That's crazy. It's actually for your kids.

Luke, 27m 12s:

Yeah, it's what I'm saying is, people make this stuff really simple, but there's way more to it than what meets the eye the pension is a great example because when we do retirement plans for people, often it's one of the last um accounts that we're we're modeling for somebody to access because of the um the inheritance tax side of things. So if, let's, some say somebody has capital in their, in their estate, maybe they've sold a business and they've released some capital, it makes far more sense for them to draw down on that capital rather than the capital in their pension, where, where the tax treatment is different around inheritance tax. Um, so, yeah, completely, and that's where having a proper financial plan and knowing that is is absolutely vital, um, because it enables you to then come back and go okay. Well, actually, if the pension is one of the last things that we need to touch, then the time horizon isn't 60, for example, for the pension and therefore, um, where you get some investment products out there where they say that you know 60 is like the finishing line and they're going to change the asset location, the asset mix of the portfolio as you get closer to that point. Well, actually, if you do a plan and you and you realize that the pension is is actually going to be there until you're possibly in your 90s or beyond and it's going to pass on to future generations and it's an intergenerational account.

Dr James, 28m 26s:

Then it might be that you come back and change the asset mix plus, you've stashed a lot of money away throughout the course of your journey that you might have been able to I don't know have a little bit of fun with as well. Potentially, potentially, potentially. It just shows why planning is so helpful. And understand this stuff and it actually it's about 50 reasons that come back to what we were saying at the start, why figuring out your vision is so important, because you might be working way harder than you need to until you figure out your goals quite literally, it underpins everything and that's it.

Luke, 28m 57s:

It's about addressing the fear of running out of money, bringing things back into the present and then making your decisions with that information. Informed decisions, make smart choices. And, yeah, check that you're on the right path and if you're not, do something about it.