Consolidating personal finance knowledge

It's time for a personal finance recap

After writing on a multitude of personal finance topics for a number of years I felt that it was time for a recap. I'd like this article to be a general consolidation of the multimillionaireroad personal finance plan. This post is a good starting place to any novice looking for a cheat sheet as to how to start thinking about personal finance.

The multimillionaireroad plan can be broken down into five main categories, plus a bonus consideration. The personal finance areas to consider are earnings, debt, savings, investing,  retirement, with the bonus consideration of inheritance. Let's break it down.

Considering your business earnings

I use the word "earnings" as opposed to the more conventional "income" deliberately. This is one of the key concepts that people miss. Your source of income should not exclusively come from your day job.

Diversification of earnings is important for multiple reasons. Having alternative income sources provides security. Whilst you may be comfortable in your job today, there is no guarantee that you won't lose your job tomorrow.

Additional income streams provides you with optionality. Assuming your non-employee earnings are large enough they may enable you to cease working in the conventional sense of the term. Furthermore, there is the more obvious point that you will build up savings and investments quicker.

Earnings can therefore be broken down into several sub-components:


Salary tends to be the bulk, if not all of most peoples' earnings. It is important to step away from this mentality. It's great to have a regular job that you enjoy. However, please don't let this be your only source of income.

I would always recommend networking within your company and externally in order to raise your profile. You never know when the right conversation will lead to a promotion or an increase in your salary (if this is already a consideration for you then you may wish to read: How to budget for a salary increase).


Many companies pay bonuses or commission based on performance. Whilst you should always be gunning for those bonuses it is important not to expect them. You really don't want your consumption behaviour to be affected by the possibility of receiving a salary increase that never arrives.

Many people get overly exciting when they receive their bonus and splurge it on holidays or presents. Whilst it is important to reward yourself on occasions it is sensible to put the bulk of that bonus income aside into savings. If your not sure what to do then check out: What to do with your bonus.

Investment income

The key idea is to have multiple income streams. Investment income generally doesn't require a lot of maintenance (unless it's a property that you're managing). Build up the capital, invest in the asset and earn the yield - simple on paper!

Side businesses 

Most people believe that your main source of income should be from your job. They believe you should get up, do your 9 - 5 (seriously, who actually only works those hours!?) and then go home and chill. What you really want to do is build up one or two side businesses.

There are a couple of reasons why you will want to build side businesses.  Firstly, if you believe that your regular job is 100% secure then you're naive. In a downturn such as the financial crisis in 2008-9 no one was immune to a job cut. Having a side business can make you more secure, providing an income whilst you look for a new job.

Furthermore, the side business is a great source of extra cash. With extra cash you can make extra investments (fun right?!). The fact that it came from an additional income stream means that you won't miss it if it all goes into investments. When you start doing this you'll truly understand the meaning of the phrase: money breeds money!


The topic of side business income brings us back to the subject of your regular earnings. If you're not planning on quitting your job to fully focus on one of your side businesses then your salary is important. You need to focus on maximising your earnings from this salary. The following are a couple of rules to follow with regards to your job.

You should always be networking. Meet everyone in your office. Meet everyone in you industry. The coffee meeting is your friend. Build your network and it will reward you in the long run. You never know when the next job offer or promotion may come from. 

You should always be negotiating. You should be negotiating salary, bonus, benefits and compensation. Your boss should know that you're keen to move up, to learn more, to take on more responsibility, that you're looking to be paid more.

When it comes to negotiation. The key is to have more information than the person sitting opposite you. Know your facts, come prepared and you will be rewarded your efforts.

Bonuses are a regular part of some employee earnings. Once again, ensure that you're negotiating and networking for as high a bonus as possible. It's all about demonstrating your value to your line-manager or the bonus decision maker.

When you're paid your bonus - put the majority (70%) into savings and enjoy a reward with the remaining 30%. Never budget for a bonus. You should never be relying on the bonus in order to support your lifestyle. If you are then you're budgeting wrong (read below!).


The rules on debt are straightforward...ish. In general, when it comes to debt treat it as a knight would treat a dragon: avoid it, prevent it attacking if too late, destroy it where it is already present

Debt is the antithesis of saving. Every £/$ that you're putting into paying off interest is money that you're giving away to someone else.

If you've got a load of expensive debt and some savings then you need to assess your position. If the interest charge on the debt is higher than the return on savings then you immediately need to pay off as much of your debt as possible with those savings. You'll save on your interest payments in the long run.

Some debt may be unavoidable and even beneficial. A mortgage is a good example. If you take out a mortgage such that the monthly payments are affordable (less than one third of your monthly net income) then this could be of benefit. Firstly it'll stop you putting money into rented accommodation that you don't own and will never own. 

Secondly, by purchasing the property you might find that the capital growth more than outweighs the mortgage interest. In my case, we pay 2.54% on our mortgage but estimate that we're earning 8% in capital gains each year thanks to an extremely boyant London housing market.

Other forms of debt take advantage of leverage, causing returns to be accelerated as you generate earnings from other people's money. A key example of this would be investment properties. A portion would need to be funded from buy-to-let mortgages. As long as the rental returns are at least 125% of the mortgage repayments then it should be a sound investment (aside from all the things that could go wrong!).


You will read in almost every (decent) personal finance blog that there is one key piece of advice for savings. Automate them. Set up an automatic transfer from your regular earnings into a savings account each month. Make sure that this is the first thing you do each month before you start spending a penny!

Budgeting properly is a key aspect to ensuring that you don't need to dip into your savings. You should track and record each transaction that you make. This habit will make you think twice about spending as the act of having to write down the item and it's cost may put you off the purchase.

Once you've started to track your spending you will need to think about making your lifestyle more frugal. Don't sweat the pennies - it's not worth it. Think about making savings on the big ticket items: mortgage/ rent, car, holidays etc.

Finally, another key area of saving comes from the tax system. Ensure that you take full advantage of ISAs and any other tax savings products. If you're earning self employment income (from your multiple income streams) then read up on your governement websites as to what deductions you're eligible for on tax.

The government provides various tax incentives for individuals and companies. Make sure that you use them.


Every few months, once you've built up your savings, funnel these into your investments. Investments can include: stocks, funds, bonds, premium bonds, property and peer-to-peer lending. For obvious reasons, property should probably be at the bottom of your list until you have enough money to invest.

The key is to make sure that you understand what you're investing in. How does the product generate a return and what's the risk involved? If you're unable to answer those questions then you should probably avoid the investment proposal.

Never ever gamble. You will more than likely lose money. I tried trading CFDs (rather like spread betting) whilst in college. It ended in a mess and me losing money.

In most cases do not take advice from fund managers, wealth managers or financial advisors. They're generally incentivised to promote a particular product. Take their advice with caution.

If you're not sure what to do then invest in index funds which track a particular stock market. Forget about your money for the next 5 years plus. If you are financially literate, ask yourself if you're financially literate enough. Do you understand the following terms: net present value, EBITDA, discount rate, cash flow, owner earnings, average rate of return, payback period, price to earnings ratio, PEG ratio. If any of this is new to you then I strongly advise against investing in individual stocks. Even if you are familiar with these terms I would still advise caution and to go with an index fund.

On diversification, I have mixed views. On the one hand diversification between different asset classes and within asset classes reduces your risk. However, too much diversification can significantly reduce your returns. The amount of diversification taken depends on your risk tolerance and on how long you have to wait out any shocks in the market.

As in the case of saving you should ensure that you're taking full advantage of tax benefits. When investing think about using your ISA allowance to ensure that the dividend and capital gains are tax free. Examples of other tax benefits include dividend income being charged at a marginally lower rate than normal income and there is a tax free capital gains allowance each year.


Pensions are the obvious go too asset class for retirement. However, these should be considered as part of a portfolio of assets for you to live off during your retirement. Having said that, do not be tempted to ignore the benefits of investing in a pension.

Often people tend to neglect their pension. They assume that sacrificing a small amount of salary each month will not make a difference in the long run. What they fail to realise is the compounding effects of the right pension fund over time.

I stress that you should ensure that you're invested in the right pension fund as most people tend to stick with the default fund that their employer puts them in. The problem is that the default fund tends to be an overly cautious fund, providing little capital growth over time. Ensure that you're active in choosing your pension fund.

There are large tax advantages to investing into your pension. Not only will most employers match your contributions but your pension contribution is income tax deductible. Essentially you will more than double your money on day 1 when you put into your pension fund.


After building your wealth and enjoying life, the final part of the multimillionaireroad plan is to share your wealth with your children and with the wider society. I'm a strong believer in something I call intragenerational progression. The idea is that it is the responsibility of each generation to ensure that the next generation has a better start in life than the one that they had.

Final thoughts

That's the multimillionaireroad plan in a nutshell. In the meantime we must enjoy the process of life and the journey to building wealth. Enjoy the road...

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