A Little Bit Richer podcast

Kia: Hey, hey, it's Kia and you're listening to A Little Bit Richer. Pensions - we all know it's good to save into one, but it's so tempting to put it off until retirement's closer. It's understandable, but if you're wanting to get A Little Bit Richer, you've got to think about your long-term financial journey too. Let's get into this more. Today, I'm talking to Kim Brown, Legal & General's Pension Scheme Director. She's going to explain more about workplace pensions. But just before we get into this, it's worth saying that you're likely to have a workplace pension if you're working for a company. If you're working for yourself, you can save into a personal pension and we'll cover this topic in a later episode. Okay, Kim, let's break it down. What's the difference between a state pension and your own pension savings, and why is it important to have both?

Kim Brown: So the state pension's paid for by the government when you reach, currently, age 66. Research we've done on 22 to 32 year old shows that 22% of that group are looking to rely solely on their state pension at retirement. Now, the state pension is 10, 000 pounds a year, provided you've had 35 years or more in national insurance contributions. So provided you're willing to wait until age 66 to start and provided 10, 000 sounds enough for you to live on, then the state pension should give you that basics. If you think that actually that isn't quite sufficient for your needs or what you picture your retirement to be, you might want to look at what you can save for additionally through things like workplace or personal pensions.

Kia: Okay, that's brilliant. So let's touch on workplace pensions then. So how exactly do those work?

Kim Brown: So if you are 22 years of age or older and earning 10,000 pounds a year, your employer will automatically put you into a workplace pension. So we call that automatic enrolment. You can choose to join even if you don't meet that criteria and ask to be automatically enrolled. So why, I guess, workplace pensions and I think there's two big selling points of workplace pensions. In addition to the already great thing you're doing, which is putting money away for retirement, you get the benefit of employer contributions into your pension scheme. So currently, your employer has to pay 3% of your salary into your pension for you each year on your behalf. You also get money from the government. So if you're a basic taxpayer and you want to put a hundred pound a month into your pension, only 80 quid will be taken from your salary. The other 20 pound is paid for by the government under what's called tax relief. So the difference I think with pensions above things like ISAs, which are other good saving vehicles, is that two key additional sort of free money for you as an individual.

Kia: I think when it comes to workplace pensions, let's just dive into employee contributions a little bit more I think. So when you contribute let's just say 5% to your pension, how does that work from your employer, their contribution into it?

Kim Brown: Yeah, so if you're paying 5%, which is the AE minimum, your employer pays 3% in your salary. A number of employers will pay additional amounts. So you can think about increasing your contribution and seeing if your employer will match that.

Kia: So that's just extra money from your employer, almost like, I think the way I like to see it is like a deferred pay rise or deferred money that you're getting from your employer that you're going to have, maybe not right now into your bank account, but you'll have it at later date, I think is a good way to look at it.

Kim Brown: Yeah, I love that. That's the key thing about workplace pensions. You've said it better than me. Free money from your employer and free money from the government a s tax relief.

Kia: I mean, what's better than free money? Right? What's better than that? Right, so as we've mentioned, pensions are important, however, most people don't start taking notice of their pension and their pension savings until they get older. So what's the best thing someone who's younger and listening can do to help keep track and remain on track when it comes to their pension savings?

Kim Brown: So I think it's about saving as early as you can, as much as you can. If you start saving in your early twenties and even in your early thirties, you are benefiting from the magic of compounding. So that can make a huge difference on the ultimate pension that you'll end up with. So if I give you an example of how that works, I'm going to use our names.

Kia: Go for it.

Kim Brown: So if we've got a Kia and a Kim.

Kia: Yes.

Kim Brown: If Kia and her employer together are contributing to 2, 000 pounds a year to her pension and has done so from the age of 19 to 30, we project that that will give her an outcome on retirement of 243, 000.

Kia: That's a good amount.

Kim Brown: That's an all right amount.

Kia: Yeah.

Kim Brown: That's a good amount.

Kia: I think Kia's happy with that.

Kim Brown: If you take Kim, similar details, her and employer pay in 2, 000 pound a year, but she starts at 30, but she saves all the way up to 65. So Kim's been saving for 35 years as opposed to Kia's 11, but her outcomes is expected to be 10,000 pounds less so 236, 000 at retirement. So that just shows you that impact of starting early and what the compounding does to your eventual pension outcome.

Kia: I think that's a key thing. I think compounding is often this word that is mixed up with investing isn't really explained. I think the way you've put it is so useful to everyone that the earlier you start, the more of an impact it can have and it almost makes it a bit easier to keep going in your savings and stay on track with your savings, I think.

Kim Brown: Exactly that. And your example earlier of free money, if we come back to that, that 2, 000 pound a year, Kia and Kim, they've both only paid a thousand each. The additional 250 from the government top up the tax relief and the 750 from the employer. So you're doubling the money and by investing it earlier, it's also then working for you.

Kia: We love that, don't we? We love that, we do. So let's come to where we are right now. So right now, money is unfortunately really tight and it's easy to be tempted to reduce how much people save into their pensions. I know it's definitely a toss up. Do you take the money now or do you still keep saving the amount that you have been? So what would you say to someone who's considering reducing the amount that they contribute to their pension?

Kim Brown: I think everyone is going to have different circumstances and I think my key thing would be make sure it's a considered ask, so understand what you'd be getting in your pocket today and that point I just made on what that could look like over time. Now, if you need your money in your pocket today, you need your money in your pocket today, but it is a good deal and so you need to be considering what it could be impacting you in the future.

Kia: I think that's a really good point. I think it's important to always just sit down and review your finances. And like you said, see if you reduce it by a certain amount, how much does that leave you with, if it's something that can help you or should you keep your pension contributions the same amount. It is a very unique decision to make and it's one that should be well thought through as you said. So I completely agree with you. Now, let's look on the flip side. Is it worth, Kim, paying more into your pension if you have the option?

Kim Brown: Yeah, so I think many of us dream about what that retirement could look like. We talk about every day is a weekend when you retire, but I don't know about you, but weekends can be quite expensive.

Kia: Oh, they can. They can.

Kim Brown: For me.

Kia: Depending on what you do, they can.

Kim Brown: So the research I referred to at the start, the expectations of 22 to 32 year olds and many are looking to retire age 60, and the earlier you retire, the more your pension has to do for you, the longer you're going to be relying on it. So there's things you can do as you go. So if you're getting a pay increase, think about is this a part of that you can add to your pension contributions, that you won't perhaps miss in your pocket yet today, but can go and look for saving for your future. Same with bonuses, part or some or all of your bonus can go into your pension and that'll be tax- free. I'd also think about it in particular life events. So career breaks can have a huge impact on your pension outcomes. We experience what we call the gender pensions gap, which is that women are walking away at retirement with half the pension pot of men. Some of the factors of that include cost of childcare, breaks for maternity, the increased likelihood of being a carer and also potentially walking away from work earlier due to symptoms of menopause. So I think it's about understanding and planning for particular life events, whether that's maternity or paternity leave. I know as a mum of a two- year- old, it's not top of your list, pensions, when you're doing some of these big things, but it should be on your list.

Kia: Just touching on what you said there then, obviously there is that pensions gap. So if we're speaking directly to women then, what can women do to almost help their pension contributions and their savings?

Kim Brown: So I think there's a lot as individuals women can do. So they can plan, they can continue to pay maternity contribution, they can talk to their partner at a household level. The reason we have gender pension gaps or in fact pension gaps across a number of different minority criteria is multifaceted. So we need solutions across legislative change, we need employer policy review all in the support of producing more equality at pension outcomes.

Kia: I completely agree and I think it's important for people to know the different ways that they can contribute, especially women, and even the fact that your partner can contribute on your behalf. I think a lot of people don't realize that and there's different things that can help boost those savings even when you just take time off and you do have other responsibilities that require you and may not be your pension so much. So I want to ask you a question as well. When it comes to pensions, a lot of people don't know how much they should have in their savings. What does that look like? As you mentioned in the beginning, the state pension is around 10,000 pounds per year. How can someone, even if it's just like an estimate, how can someone get a good understanding of how much they should aim to have in their pension pot?

Kim Brown: There are different tools out there that can help you look at that. Most pension providers will have things like calculators online. You can look at what sort of age you're looking at, the type of experience you want to have at retirement. So whether that looks like one holiday a year, whether that looks like a holiday in the UK or abroad, the type of lifestyle you're looking at. And then it'll help you calculate what you need to be contributing today and you can consider if that's sufficient, based on who you are, what wider savings you have and what kind of retirement you're looking for.

Kia: That's really useful. Have a look at pension calculators, have a look at some of the stats to kind of give you a good baseline and guideline for how much you should have saved. Love that. So Kim, pensions are also a form of investment and I know when you think of it like that, sometimes it can be so overwhelming because the world of investing just seems so scary. So what is something that our listeners should consider on that side when it comes to pensions?

Kim Brown: So I think that's a really good point. So pensions, like any investment, can go up and down and there is the risk that you could end up getting less than you put in. So that's something to be mindful of, but I don't think because it's investing people should just focus on the more daunting aspects of investment. Investment, I think, is really exciting and really interesting and you as a person saving to a pension, your contributions are being invested and you can choose to make decisions about that if you want to. If you want to move away from the fund you're being put into, you can pick a fund that's higher risk, but potentially with higher reward if that's something you're interested. You can also pick funds suited to your particular beliefs, whether that's religious beliefs or looking at funds that are more focused on ethical, responsible, sustainable investing.

Kia: I think that's great. I think it's good to be able to know that you can adapt things like your pension to suit your morals and your views and ultimately the risks that you want to save your money with, whether you want to be really high risk, like you said, maybe you're someone who's younger, for example. I know I'm a high risk person, I don't mind, let's go for it. Or you want to be low risk. It's completely up to you and it's tailored to you. So I think that's a great point to make as well. Okay, Kim, we're going to wrap things up now. What are the three quick things that you can recommend someone does if they're wanting to use their pension to get a little bit richer?

Kim Brown: So I think it's about keeping track of your pension. We don't have jobs for lives anymore. When you are moving jobs, keep track, you can also pull those pots together, that's your preference, under what we call consolidation. It's about looking at all those things we've talked about, about ways to get additional money in. So talk to your employer, see if there is contribution matching, if you can put any additional aside, particularly in earlier years. And then I think it's about saving as much as you can for as early as you can so that your pension can start working for you.

Kia: Amazing. Kim, this has been such a great episode to learn more about pensions. And hopefully everyone listening knows that we can start early and get those pension savings rolling. We've been looking ahead to retirement, but let's bring things back into the present day a bit more. There's so many hacks to make sure you're getting the most out of working life, and that's what the next episode's all about, the world of workplace benefits. And it's not just work from home and free lunches, there's so much more. That's out next week. But while you wait, if this stuff is working for you, then hit follow, tell your friends and come back next time. Until then, have a good week and go stick some money in your pension.

Kia: Hey, it's Kia, and welcome to the first episode of A Little Bit Richer. If you're here, you probably know the score. For the next few months, I'm going to be bringing you bite- sized financial tips. You know, the stuff that we never got taught at school. What comes out of my salary? How can I get my own place, or a bigger one? What do I need a bank account for? Okay, the last one is a bad joke, but you get the picture. We're all in this together. It's you, me, and a different guest each and every episode. Up first, I want to kick things off with Laura Ann Moore. Laura's a money and mindset coach. She's all about demystifying personal finance in a simple and judgment- free way. She also has our own podcast. My kind of woman. We're going to be chatting about why all this stuff is so important. Okay, let's get into it.

So, Laura, it's really tough out there at the moment. Everything's going up in price and salaries just aren't keeping up. Everyone's stretched and it is stressful. Do you have any suggestions on how people can cope with this pressure?

Laura: Yeah, I think first of all, I would say it's really important to identify where the stress is coming from. I think it's so easy to go into this panic of, " I feel overwhelmed, I feel anxious, I feel stressed," but sometimes we don't know where that feeling is coming from. So, the first thing I would say is really try to understand and identify it first, because it might be a practical thing, but it might also be an emotional thing. So, on a practical basis, I would say make a plan, make a tangible plan where you can say, " What is my next step?" Because it's that classic thing, isn't it? Where you go, " Oh my God, I need to kind of do everything in one go." And that's the overwhelming part.

Kia: Yes, it's true. I do that all the time. All the time.

Laura: Yeah, and it's so easy to do. So, actually going, " Where is my money at right now? What is one small step that I can take today with this week that I know that's going to alleviate a little bit of pressure?" It could literally be as simple as checking my bank account, making a better budget, paying someone that I owe, something little like that. And then on an emotional level, I would say really to ask yourself what stories you're telling yourself.

Kia: It's a big one.

Laura: It's a big one, because that's what we do. Our brains will tell ourselves stories about a situation. So, we might read something in the news that makes us scared, makes us feel overwhelmed, and then we tell ourselves we need to be worried, we're in a bad place, but actually, it's more your relationship with money or your money mindset that's causing you to feel that anxiety. So yeah, on an emotional level, really starting to just see how you're talking to yourself, see things that keep coming up, and identifying whether they're actually true or whether your brain is telling you a lie.

Kia: I think that's a good one, Laura. I think sometimes we spin these narratives, like you said, that just aren't true. You can sit there and say, " I'm bad with money," and you're going to start believing that because you've said it. And I think it is just being aware and conscious of what we're telling ourselves and maybe what impact that has on how we view things, like you said.

So, there's been some Legal & General research done recently that calls your 20s the lost decade, and that's because it's a key time to build money for the longer term, yet it's often not made use of. So, what are your top recommendations, Laura, for someone trying to make the most out of their money?

Laura: I think when it comes to money, you want to think about the step before and really asking yourself, " Why do I want money? What role do I want money to play in my life?" So, first off, creating some goals. Financial goals, like, " I want to save X amount, I want to invest X amount," but also some life goals. What is the reason of you working and making money? So that you're not just chasing the money for money's sake, you're going, " I'm going to get the money so that I can travel, so that I can build a business, so that I can buy a farm and raise some ducks." I don't know.

Kia: Whatever floats your boat.

Laura: Yeah, whatever floats your boat, and really starting to connect with what your why is. So, creating these goals. Also, understanding what your values are. For me, three of my values are travel, education, and health. So, that really helps me when it comes to spending, saving and investing, because I can ask myself is the way that I'm managing and growing my money right now in alignment with my goals and with my values? And I think they're, on an emotional level, a really great way to start to make the most out of your money like the step before. Because I think people jump into trying to make the most of their money on a practical basis, and then you're like, " Why am I actually doing this?" and you don't have the motivation. So, I think understanding the motivation is key first.

Kia: That is, like you said, you hit the nail on the head, that is a key one to keep you going. I think quite often you'll hear people say that they want to save, and there's no real target or reason. But when you have that reason, like you said, it could be to have your duck farm, it could be to travel and see the world, whatever that reason is, it helps you. So when things maybe aren't as fun or things just feel a little bit hard, you can always circle back to that and say, " Right, I know why I'm here. I know why I'm doing this for my finances, or I know why I'm working." Like you said, to keep you on track, because that was often the hard bit.

Laura: Yeah. Like I recently released an episode on my podcast about achieving my big happy goal, because I've been running my business and I've been keeping the business afloat, but I'm like, " What do I actually want this money for?" And then when I tapped in, connected with myself, I was like, " I do really want to travel more." So, now that's kind of like my north star, and it might be for the next five years maybe, and it's given me the motivation to rejig the way that I'm spending and saving. And like you say, when times get hard and maybe you do have to cut back for a short period of time or whatever that looks like, you actually know why you're doing it. So, it feels like it's coming from a place of your motivation is towards pleasure as opposed to away from pain.

Kia: Yes. I love that, I love that. Laura, we're coming onto a big topic now always on people's minds, property. So, it feels like that everyone is currently in a race to buy their first home, especially when you're on social media. That's all we're kind of seeing right now, and it is so easy to compare yourself to everyone else's journey. So, do you have any advice for our listeners who are wondering whether or not they should be saving for a deposit right now?

Laura: I think the house deposit one is a really interesting topic, because there's so many stats out there that shows people or house prices versus wages now, there's such a bigger gap between it or a disparity between it versus 20, 30, 40 years ago. Our parents and our grandparents, it was so easy for them to say, " I need financial security for the future. I'll buy a house." And it was so much more accessible. Whereas now, for young people, I think in general it's like the go- to, especially in the UK, is, " I should buy a house." So, what's happening is we have this generation of young people wanting to buy a house but not really knowing why or if that's something that they want.

So, my first thing is always really understand what your why is. Do you really want to buy a house? What is your motivation there? Is it because all you've ever dreamed of is having a beautiful home that you can make your own, you can raise a family in, or are you just doing it because society tells you to do it, your parents are telling you to do, it's what your friends are doing? So, asking yourself if it's actually what you want first.

Kia: Yes.

Laura: Do you know what I mean?

Kia: That's a big one, that's a big one.

Laura: Yeah.

Kia: I think it's a massive financial undertaking, and I don't think that should be minimized. I'm going to touch on property more in this podcast, but it's such a big thing to purchase. It's probably likely to be the biggest thing you'll purchase in your life, that you need to understand, like you said, why are you doing it? Are you doing it because you want a property or because everyone else is doing it? And I think once you understand that, then you can decide, is it for me, should I do it? Like you said.

Laura: Yeah, exactly. And I think, so when you ask yourself, " Why is it I'm asking myself should I be saving for a house deposit?" I always think when the word should is in there, you've got to question what's going on. So, if that is how you feel, if you say, " The reason why I want to buy a house is financial security," maybe just ask yourself are there other more accessible ways that I can look to build wealth for the future that allow me to create that financial security and that wealth for the future that don't require me to save 30, 40, 50 grand for a house that maybe is going to take me however long to save, giving this anxiety around doing that? So, when you understand your why, that's definitely kind of key. Then I would also say it's okay to save for a house deposit and then you change your mind. Right?

Kia: Yes, that's a big one as well. Yes.

Laura: Because goals can change. When I was 19, I saved 15 grand to go to drama school, and then at the very last minute, two weeks before I was due to start, I ended up going traveling, so that I had that money there saved, but the purpose of it completely changed. So, if you right now can't decide, you could go, " Okay, well, maybe I'll put a bit away. I'll start building that pot up." We're always going to need money for something, whatever that thing is, and if your life changes, your goals change, at least you have a nest egg that could be then maybe put into a lump sum for investing, or maybe you do something that's investing in yourself like travel, or whatever that looks like. So, it's like don't be afraid of putting money away for a goal that might change.

Kia: Yes.

Laura: And then the final one I think is speak to your friends or family that are homeowners, or people that have gone through the house buying process within the last few years.

Kia: Yes. They will definitely give you the truths and the realities of that journey, and I think sometimes you need to hear that and say, "Is this something I want to undertake myself, or can I give it a pass for the minute?"

Laura: Yeah. A lot of people that I've spoken to always say there are a lot of hidden costs. I haven't gone through the process myself. It's just from people that I've chatted with. And that's not to say, not everybody regrets it. Some people will say, " There's loads of hidden costs, but I wouldn't change it for the world," or, " There's loads of hidden costs, I wish I didn't do it." So, I think just chatting with people in your community, and if you don't have any friends or if you're the first one in your group that are maybe planning to buy a house, get online and have a look, socials, different pages, different forums, and try and find people in that community that can share that knowledge.

Kia: I love that. Get informed, get informed. That can definitely help you. Right. So, I've got another Legal & General factoid for you. They're doing a lot of research into this thing called the Bank of Family, and it's the idea that if you don't have relatives helping you to get on a property ladder, it's very hard to achieve. Laura, does that reflect what you're currently seeing at the moment?

Laura: A hundred percent. I think in my community of people who I chat with in the DMs, different clients and stuff like that, or people that I meet at events, there is definitely a large portion of people that I know have got on the property ladder because their parents have been able to pass down money in whatever form. But there's also a lot of people really aware that that is a privilege. Like people being like, " Oh, my mom and dad have helped me out here, but I'm really grateful for it." And I always say to them, don't feel guilty for it. If you are in that lucky position, absolutely grab it with both hands and go for it. But if you are someone who isn't in that position, that's like me, my parents couldn't pass down any money for a house, that's also okay, and that's where it's worth looking at other ways that you can start to build wealth. But yeah, I've definitely had a lot of conversations with people who say, " Yeah, probably a large portion of this money has come from not me."

Kia: Yes, yes, it's true. And I think it is, like you said, it's acknowledging that, that if you have that help, it does make the journey a lot easier, and if you don't, it is going to be a lot harder. But I think once you understand that and you decide on that, that's a good process for you. Laura, we're getting into an exciting bit because I'm going to ask this question every single time, and you have the honour of being the first person to give your answer.

Laura: Woo-hoo.

Kia: So, Laura, what are your top three tips to help our listeners get a little bit richer?

Laura: So, to get a little bit richer, tip number one is to improve your money mindset, your relationship with money. And the great thing about that is it's free, because you can just start by acknowledging, " How do I feel about money? How would I like to feel about money?" and start to change your language around it. So, that's tip number one. Tip number two is around money management and really getting to know your numbers. Really having a non- judgmental, unbiased approach towards your money and saying, " What's coming in, what's going out?" Because that's just data that can help you then make decisions. And then the third one is about, whilst it's important to enjoy your money in the now, starting now to invest and prepare for the future is going to make you a little bit richer. So, they're my top three tips.

Kia: Laura, thank you so much for being the first guest on A Little Bit Richer. You've shared so many gems that are going to be so impactful to our audience. So, thank you so much.

Laura: Thank you for having me.

Kia: Laura was a great first guest, but there's lots more to come, so be sure to follow this podcast, tell all of your mates. I don't want to leave anyone behind here. Next episode, I'm going to be taking your payslip apart and making it all make sense. See you then.

Kia: Hey, it's Kia, and welcome back to A Little Bit Richer.

Okay, cast your mind back. We all remember starting that first full- time job, getting excited to get paid, and then come payday, wondering where the hell a third of our money had gone. The answers all lie in your payslip and I want to make that little bit of paper make sense. How hard can it be?

Asesh Sarkar is going to join me to help rip apart those payslips. Not literally. They're mostly digital now anyway. Anyway, Asesh is the global CEO and co- founder of Salary Finance, a leading employee financial wellness platform. He's also the chair of trustees of MyBnk, which runs financial education programs for five to 25 year olds. He knows his stuff.

Asesh, let's start with the basics. You get your payslip and there's a lot of deductions. What are the main ones and what are they for?

Asesh: So if we take it right from the beginning, so you get your payslip, a recent survey showed that one in four people don't actually look at their payslip, and another one in four people do look at it but don't really understand it. So one in two people aren't really getting much value from their payslip. So a payslip I think of a little bit as a book or a story. A story has a beginning, it has a middle, and it has an end. And so on every payslip you have a beginning, which is your gross pay. And what that means is that's the amount of money you earn, the top line.

So if you work, if you're hourly paid, and let's say you earn 10 pounds an hour, if in the month you've done 10 hours, then your gross pay is a £100 for that month. Or if you get a salary and let's say you earn £ 12,000, £1,000 a month, then your gross pay is £1,000 for that month. So that's the beginning of the story. Like you say, there's deductions and other things.

The middle of the story is then these deductions, so things which come out. And so there are universal deductions, things which everyone has to pay over a certain level of income, and other deductions which are specific to your employer and any benefits you may have taken up. And then once those deductions are taken, you get to the end of the story, which is your net pay, and that is how much you take into your bank account at the end.

Like with most stories, most happens in the middle, and so if I maybe pick on two of the common deductions and two of the big ones. So that's tax, one of those taxes is income tax and the other is national insurance. So income tax is typically a big chunk. Income tax is collected by the government, or by HMRC, and they use that money for public services. So whether it's funding schools, hospitals, roads, other emerging service, that's how the country is funded. And when calculating income tax, it depends what your tax code is and how much you earn.

So on your payslip you'll see a tax code, some digits, and some letters usually. And what that tells you is what's called your personal allowance, which means how much you can earn without having to pay any tax. For most people, if you earn less than a £100,000, that is about £12,700, and so that's your tax- free amount. So if you earn under that, you don't have to pay any tax. If you earn above that, then you are a taxpayer and then you pay one of three rates of tax, a basic amount, a higher amount, or an additional amount. That's the first chunk.

The second chunk is national insurance. And so again, this goes to the government, but this money the government uses to fund, if you're ever unemployed, if you're ill, retirement, and they use this money to fund those. As it happens, I'm going to visit my mom later, I need to take her to hospital, and so sometimes people can view deductions and taxes are negative, but equally we're fortunate to live in a country with great services, and so the money does go towards that. And national insurance is a little bit like income tax in a calculation.

You have an amount of income below which you don't have to pay anything. I think that's around again about 12, 500. If you earn below that, then you don't have to pay anything. £12,500 to around £50,000, you pay 12% of what you earn. And above £50, 000, it then drops down to 2% for that incremental income. And so they're the two big universal deductions.

Overall, that's the story of a payslip. You start with your gross pay, what comes in, you have your deductions that come out, then you have your net pay at the end.

Kia: I think that was a great breakdown. I've got a payslip here, so we have a good example to have a look at.

Asesh: Good.

Kia: So you mentioned tax, so often that's referred as PAYE, in your payslip.

Asesh: That's right. Yeah, pay as you earn. That's right.

Kia: Exactly.

Asesh: Exactly.

Kia: So that is the tax that you mentioned first, and then we've got national insurance, which is also on there. So I think it's really good, like you said, even the tax code. I think a lot of people don't realize that the tax code is important, like you said, it denotes your personal allowance amount, but it's also important to make sure you're on the right tax code. I think that often happens to a lot of people who move jobs. I know that happened to me when I went to one of my jobs, I was on the wrong tax code, got taxed a large amount.

But it's always good to keep on top of that. That's why, if you're part of the one in two, hopefully from listening to this episode, you will change that.

So you touched on the fact that there are other deductions, so let's go into that a little bit. What other deductions could you also see on your payslip?

Asesh: Yeah, so other deductions tend to be employer specific things which your employer offer, and then what you choose to take up from your employer. So one of those is pensions. Actually, all employers in the UK now offer a pension. And so if you choose to do that, then you'll see that on your payslip as well, and so that leaves your payslip and then you'll see that money going into a pension pot somewhere. Another example is employers quite often offer employee benefit. So something like cycle to work is quite common in the UK, and so that's where essentially your company gives you a loan to buy a bike. That amount you don't have any tax on, so you're essentially saving on that a tax amount, and then you repay that with a monthly fee until the bike is paid off.

Or about 5 million employees in the UK can access what my company offers, which is called salary financing. That is if you take a loan, we can collect the repayments on payroll to allow you to get a low interest rate. Equally, we allow you to save directly from your salary as well.

And there are a host of other things. If you have any student loans, that could come off it as well. But it is always really worth taking a look at that deductions line, whether it's tax, whether it's something else, just to make sure you are not overpaying, because these things happen every payslip and if you are overpaying even a little bit every payslip, then it can start to add up.

Kia: Exactly, exactly that. So I think when it comes to talking about our money and having a look and seeing how much money we've got, I find that payday is a really good day to budget. That's definitely what I do anyway with my money. So it's a good time to put away money into different pots, whether it's going out, saving money, all those kinds of things. And bills. Do you have any advice for our listeners when it comes to budgeting and almost the best practices for that?

Asesh: Yeah, sure. So I think it's important to remember the world we live in is a world in which billions of pounds is spent enticing us to spend our money. And unfortunately, to live in a great world where there's pretty cool things to buy, endless very cool things to buy, and so every day you're being enticed, whether it's you are watching a Reel, watching TV, you're on your computer looking at an ad, everything you look, whether it's people talking, there is just this constant opportunity to buy very cool things.

Like I say, unless you budget and unless you take the time to budget, you'll just continually spend, and then are out of control of your finances and it becomes quite challenging. I think the process of budgeting is really important, and like you say, the payday is a really good time to reflect on how the last month has gone, or whatever frequency you get paid on, and then what you want to do in the next month as well.

Personally, I was born in a city, not a huge amount of wealth. My parents are first generation migrants. I've done reasonably well, and so I have more money now. So I've seen people across the income spectrum and it's definitely not the case that money equals happiness. You could be happy with any level of money. But what tends to be the case is if you are in control of your finances, you do have a level of peace and a level of happiness. And if you're not in control, no matter how much money you have, you don't have that. So always recommend, regardless of your income and your position, being in control is independent of that.

And so in terms of (inaudible) , a lot of financial planners recommends, which makes a lot of sense, I follow as well, if you look at your expenses and your budget, you put it into three categories. Things you have to spend, you need to spend, and so you need a roof over your head, you need food, you need to pay your bills. There's then things you want. And so maybe you like some nice clothes, you've got a nice holiday, that's fine as well. And then there's also saving for your goals, because as you get older, you are going to want to progress in life. You are going to want to deposit on a house and other things.

And the general rule of thumb is that you have 50% of your income which goes on your needs. You have 30% of your income which goes on your wants, and that's quite a decent amount on things which you enjoy. And 20% on your future goals to allow you to be progressing in life as well. And then different people have different preferences and you can allocate, but just being thoughtful about that, I think, is quite helpful. It just allows you to have some balance.

Kia: No, I agree. I think it's good to have a baseline. I think sometimes if you are coming to it for the first time, you don't know where to start. I think it is good to, like you say, put it down 50, 30, 20. It's a good way to look at your money. But right now where we are, for many of us, especially at the moment, it's a struggle to make ends meet. And with the money that's left over in deductions, it can be a bit hard. So it's time for the question I'm asking everyone, you've got your pay, money's in your account, but what are the three things that you can do to try and get yourself a little bit richer?

Asesh: So number one is budgeting. Really important. Very few people do it. Life is definitely very tough at the moment. It gets even harder without a budget. So I think number one is you're looking at your expenses, categorize them, and just making sure you're more going to make sense. Number two is pay yourself first. And so rather than saving at the end of the month in case there's any money left over, save at the beginning and let the rest of your pay cover your expenses.

And number three, employers offer really great benefits, discounts sometimes, whether it's a loan or savings direct from your salary, it's really worth taking maximum advantage of that because whilst we're all one person, the benefit of an employer is they have lots of people working there so they can negotiate better rates and you may as well take advantage of it. So I think definitely have a budget say first to give yourself a buffer, and then to take advantage of all of the benefits your employer has.

Kia: That's some amazing tips and I completely agree, especially on the employer element, because I've definitely managed to get some good tickets to go to the theme parks, with a good discount.

Asesh: Absolutely.

Kia: But to Asesh, thank you so much. You have given so much insightful knowledge to our listeners, so thank you for coming on.

Asesh: Thank you for having me.

Kia: Now then, you heard Asesh and I chatting about pensions, student loans and all that stuff, but we're on a clock and I know you're busy. These episodes have to be short. So I'm going to dig deeper into all of this. Episode three is about pensions. It's easy to think that they're only for people in their late thirties, but that couldn't be further from the truth. You'll see. In the meantime, if you're enjoying the podcast, hit follow and tell your friends. It's two things that will really help.

 Okay, next week, pensions. See you later.