The Story of Ronald Read And The Magic of Compounding

Have you ever heard of Ronald Read?

Chances are, you haven't. That is unless you've read (or listened to via audiobook) the excellent Pyschology of Money, by Morgan Housel, which I highly recommend to anyone who wants to learn more about why we do what we do with money, and how we can do it better (https://www.amazon.co.uk/Psychology-Money-Timeless-lessons-happiness/dp/0857197681).

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Anyway, back to Ronald. His story is one of the first things you learn about in the book.

He was a man who lived a quiet and humble life in Brattleboro, Vermont and was born in 1921. So forgive me, but this story will have an American tilt to it.

He worked as a petrol station attendant and a cleaner for most of his life, seemingly an ordinary person in every aspect.

However, upon his passing in 2014, it was revealed that Ronald had amassed a fortune of over $8 million. From this he gave $2m to family and the other $6m to the local hospital and library.

His story became widely known because of the stark contrast between his unassuming lifestyle and his substantial wealth. Ronald was known for his frugality and lived modestly, driving an old car, wearing second-hand clothes, and eating at local diners. He enjoyed gardening and woodworking.

Friends and relatives were baffled by how someone with such a simple lifestyle could accumulate such wealth.

Upon further investigation, it was discovered that Ronald had been an avid investor. He had quietly built his wealth over decades by investing in blue-chip stocks and dividend-paying companies. He saved what little money he could each month, and his investment strategy was conservative, patient, and disciplined. Instead of trying to time the market or chase after the latest trends, Ronald followed a buy-and-hold approach, allowing his investments to grow steadily over time.

The story of Ronald Read teaches us several valuable lessons:

1. Live Below Your Means: Despite having a significant amount of wealth, Ronald lived well below his means. He didn't feel the need to show off his wealth through extravagant purchases or lifestyle choices. Instead, he focused on living simply and saving and investing his money wisely. Some of the most well-off people I've ever met looked and acted like a normal person, and not like an influencer.
   

2. Consistency and Patience: Ronald's wealth didn't come overnight. It was the result of consistent and disciplined investing over many years. He understood the power of compounding and was patient enough to let his investments grow steadily over time. When recessions occured, he didn't panic. He didn't need those investments to fund his lifestyle, as he lived below his means. So he kept his cool when others would have panicked.
   

3. Simplicity in Investing: Ronald's investment strategy was straightforward and uncomplicated. He didn't engage in complex trading strategies or try to beat the market. Instead, he focused on investing in solid, well-established companies and holding onto those investments for the long term.
   

4. Humility and Privacy: Despite his wealth, Ronald remained humble and private. He didn't seek attention or recognition for his financial success. Instead, he lived a quiet and modest life, staying true to his values and principles.
   

Overall, Ronald Read's story serves as a reminder that wealth accumulation doesn't require flashy investments or extravagant lifestyles. By living below your means, investing wisely, and being patient, it's possible to build significant wealth over time.

Ronald did fantastically well to build up that level of wealth. By following those four key pillars outlined above, nobody had any idea how wealthy he had become, and he was bullet-proof financially.

But did he ever make the most of it?

I'll leave that for you to decide.

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If you'd like to talk to us about your situation to see if Financial Planning can help, you can book in an initial consultation here:

https://calendly.com/labfp/intromeeting

Otherwise, see you next time.

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The information contained within this blog post should not be taken as financial advice, as it does not take account of personal circumstances, which would affect advice given. Should you wish to talk to us about personalised advice for you, we'd be happy to do so.

Demystifying Financial Planning: What Does a Financial Planner Do?

Inspired by a trip to the website answerthepublic.com (which is always an interesting visit, try it if you haven't yet), I have been thinking about how this blog can be as useful as possible to readers.

Sometimes the content is technical, like with our recent explainers about Child Benefit and Tax Year End Tips. 

But now, we're diving into something less technical yet equally useful: understanding the role of a financial planner.

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This blog series is about all of those things you wanted to know about Financial Planners and Financial Planning, but never got the chance, or didn’t feel comfortable asking.

Before we delve into it, let's clarify something. In the world of finance, there are various labels used to describe roles : Financial Planner, Financial Adviser, IFA, Financial Coach, Wealth Manager, and more besides.

For the sake of clarity, we'll focus on the role of a Financial Planner in this piece, with plans to unravel the differences between the other roles in a future post.

I introduce myself as a Financial Planner. So, let's kick things off with the fundamental question: What exactly does a Financial Planner do?

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As You Become a Client

The journey begins with your Financial Planner getting to know you—your hopes, fears, aspirations, values, and financial goals.

A skilled Financial Planner will not necessarily always take what you say at face value. If relevant, and you are comfortable, a Planner may gently challenge your assumptions and thinking. This is designed to help you uncover possibilities you may not have realised existed.

This deep understanding of you forms the foundation upon which your personalised financial plan is built. This is where things move from conversation to becoming visual.

A financial plan is not just a document; it's a visual roadmap tailored to your unique financial situation. Using sophisticated software and sensible assumptions, your Financial Planner crafts a holistic view of your finances via a cashflow forecast, projecting your financial future based on current data and long-term goals. You and your Planner go through this forecast together in a meeting and can look at 'what if' scenarios, to see the possibilities that lay before you.

This forecasting helps in lots of ways. It identifies where you are on track and where you may need to change course to be able to do the things you want, without fear of running out of money later on. 

This helps with that age-old issue of 'living today vs. saving for tomorrow'. Without this longer-term picture, you can otherwise only go with a gut feel of whether spending is affordable or not.

Typically a planner will then send you your financial plan as a document, containing key highlights and commentary related to the forecast you went through together, and outline recommendations for how you can improve your position both now and in future.

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After Planning comes Advice and Implementation

Once the plan is in place, it's time to put it into action. This may involve adjustments to your savings, investments, insurances or retirement plans. Whether it's a minor tweak or a life-changing revelation, your Financial Planner guides you through the process, recommending specific actions and products (think ISAs, Pensions etc) to help get you closer to your goals.

Implementing the plan and advice can be daunting, but with your Planner's expertise, it should become seamless. From choosing the right investment platform to optimising tax efficiency, they handle the details, ensuring your money is in the right place.

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What Comes After?

Financial planning provides the most value to you when it is an ongoing process, not a one-time transactional effort.

Your planner schedules regular check-ins to review your progress, reassess goals, and make necessary adjustments. These meetings provide the time and space for you to think big picture about what you truly want, something rarely afforded in our busy lives.

This ongoing relationship is where the true value lies—built on trust, expertise, and a deep understanding of your life and how your money plays its part in that.

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What Else?

Whilst the process above is the same for every client, no two people are ever the same.

There is nearly always other things for a Financial Planner to help with. It could be ensuring you've got your Will and Power of Attorney up to date. It could be working with your accountant if you're a business owner to ensure your business and personal finances are aligned, or it could be to introduce you to a fellow professional to help put in place private medical insurance.

If it's to do with your money, your Financial Planner should be able to help, or introduce you to someone who can.

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The Greatest Value-add

While the tangible benefits of financial planning are evident, the intangible value lies in the relationship between you and your planner.

Beyond numbers and spreadsheets, they're there to support you through life's ups and downs, offering guidance, empathy, and sometimes, a friendly nudge in the right direction.

From a personal perspective, I genuinely believe it is one the greatest careers out there. I'm privileged to know the clients that I serve on a personal level, far more than other professionals get to with their clients.

At times I get to share in a client's happiness at how life is going, and at other times help pick them up if they need it.

I've been to client funerals, and likewise been there to help celebrate the births of children and grandchildren (not literally 'there' I should say!).

Credit: Kevin Nicolson, Financial Planner based in USA

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A Financial Planner's role goes beyond crunching numbers; it's about empowering you to live the life you envision.

Whether it's achieving financial security, planning for retirement, or navigating life's milestones, your planner is there every step of the way, as much as you want them to be.

That is why if you scroll to the top-left of this web page, you will see the the words 'The financial guide by your side' as part of the Lab logo.

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If you'd like to talk to us about your situation to see if Financial Planning can help, you can book in an initial consultation here:

https://calendly.com/labfp/intromeeting

Otherwise, see you next time.

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The information contained within this blog post should not be taken as financial advice, as it does not take account of personal circumstances, which would affect advice given. Should you wish to talk to us about personalised advice for you, we'd be happy to do so.

What are the Child Benefit changes?

You can now earn up to £60,000 a year without losing any of the benefit.

The point at which you lose it entirely is when your income is over £80,000 a year.

These Child Benefit changes were announced in the Budget in March 2024, and will replace the current allowances and limits on 6 April 2024.

Previous Rules

Previously these amounts were £50,000 for when you started losing the benefit, and £60,000 for when you lost it completely. So, from April it will be at a higher starting point, and it is a more generous taper, as the taper earnings amount is now £20,000, rather than £10,000 as before.

Those are the headlines, but as ever with these types of things, the detail is important to understand.

Individual Basis Testing

For now, Child Benefit entitlement is still tested on an individual basis. That is, if you are a single parent, then it is simple; the amount you earn determines how much benefit you get.

When you are in a couple, be it married or unmarried, and bringing up a child or children together, it is assessed on the highest earner of the two of you.

Let's look at an example.

Mr Stevens earns £55,000 and Mrs Stevens earns £70,000 from their respective jobs. They have a 2-year old girl called Layla.

In this scenario, the benefit level is assessed on Mrs Stevens, as she's the higher earner.

On her income level, they will now get half the benefit available, as her income falls exactly halfway between the start of the taper (£60,000) and the end of it (£80,000).

The 2024/25 allowance for a single child is £25.60 a week. This means they will get £12.80 a week. Before these changes, they would have received nothing.

The full amounts for 2024/25 tax year are as follows:

• £25.60 for eldest or only child

• £16.95 for each subsequent child

The taper works by reducing the amount of benefit you get by 1% for every £200 of income you receive over £60,000.

Remember, you need to claim Child Benefit, as you don't get it automatically.

Action - check to see if it is worthwhile claiming Child Benefit from April due to the changes. If so, claim here: https://www.gov.uk/child-benefit/how-to-claim

Adjusted Net Income Rules

As outlined in the last blog post, which was all about pensions, it is important to remember that it is your 'adjusted net income' that is assessed as your earnings level when it comes to Child Benefit entitlement.

This means that if you make a pension contribution and would otherwise be over the allowance thresholds, your total income gets 'reduced' by the amount of pension contribution you make, and could mean you are entitled to more Child Benefit allowance.

For more information on how this 'net adjusted income' mechanism works, read here:

https://www.labfp.co.uk/post/tax-year-end-planning-top-tips-part-two-pensions

New Proposed 'per household' System from 2026

From April 2026, it is proposed that your entitlement will instead be assessed on a 'per household' basis. It hasn't been confirmed how this will work yet, but it is required to stop unfair situations arising.

Let's go back to Mr and Mrs Stevens. Currently, they have £125,000 income as a household and receive half the child benefit available for their daughter Layla, amounting to £665.60 a year.

However, let's say Mr Stevens reduces his hours down to part-time, and earns £35,000. Mrs Stevens gets a promotion at work, and she now earns £90,000 a year.

They have the same level of household income, but will now receive no child benefit because her income is well in excess of the end of the taper (£80,000).

The 'per household' change is designed to avoid such situations, but we will need to wait and see how this will be implemented.

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They say comedy is all about timing. It is typical that I uploaded a post about how you can use pensions to get back lost Child Benefit allowance last week, and on the very same day it is released, the rules are changed in the Budget!

If you'd like help with understanding the implications of Child Benefit changes for you, ensuring your income is tax-efficient and working hard for you, come and book in a chat here: https://calendly.com/labfp/intromeeting

Otherwise, see you next time.

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The information contained within this blog post should not be taken as financial advice, as it does not take account of personal circumstances, which would affect advice given. Should you wish to talk to us about personalised advice for you, we'd be happy to do so.

Tax rates are correct as at time of writing - 11/03/2024.