In 2012 I published a video explaining how to buy a car without using finance. The principle is that instead of paying interest on loans, you make do with a lesser car to start with, bank the money you would be paying on a finance payment and trade up each year. In the example, I started with a £2,000 car and ended up in five years with one worth £20,000, paying no interest and a fraction of the depreciation along the way.
Today, four years after posting that video, I got an email asking if I had stuck to my principles and not taken out any car finance. I was pleased to be able to reply that I had not. I make public my views about how money works and how I think personal finances should be managed. It is only fair I should practice what I preach and be held to account for that. We should organise our own finances in the way we advise clients to manage their own.
And yet I see many examples of advisers making stupid financial decisions. The example of car ownership is a classic case in point. What universe do you have to live in where it makes sense to pay interest to buy a depreciating asset? I go to seminars and conferences where the car parks are filled with flash cars. I do not have an issue with that per se but it is madness to go into debt to buy them.
I can hear you now: “But I have the income to sustain the payments.” OK, but if you saved the monthly payments instead and bought with cash, you would save the interest. Why would you pay to make someone else rich when you can increase your pension contributions instead?
“But my clients expect me to have a nice car.” Where to start with this one? When I bought a Skoda some years ago one adviser I know told me my clients would disapprove. The opposite was true. Another told me he has “always been highly geared”, which actually means he has a lot of debt and has never knuckled down to clear it. He could probably retire 10 years earlier if he was not paying so much in interest payments.
Do we expect our clients to do as we say but not as we do? Being a few stone overweight, it would be a bit rich if I started giving anyone dietary advice. Likewise, how can I look my clients in the eyes and advise them to do something I am not doing myself?
So I invest in the same way I advise my clients to invest (passively, and using multi-asset funds, in case you are interested). I would never invest in anything I did not fully understand and I do not advise my clients to either. I recommend my clients organise their finances exactly as I do my own, with the inevitable tweaks for different life stages.
Yes, I would love to drive an Audi, but I do not want to be the adviser equivalent of a dentist with bad teeth. So I will continue to pootle about Cornwall feeling smug in my Seat Ibiza (£8,000 – bought for cash), while ramping up my pension contributions.
Pete Matthew is managing director of Jacksons Wealth Management