Book reviews

Book Review: The Money Tree: Money, how to make it, save it and grow it

The Money Tree is a great addition to the bookshelf for those who want a basic understanding of personal finance.  Written by Martin Bamford, an experienced chartered financial planner, the book provides an overview of:

  • Debt
  • Savings
  • Mortgages
  • Protection
  • Investments
  • Tax and retirement planning

The purpose of The Money Tree is to help you:

  • Take back control of you money
  • Make decisions
  • Seek professional advice confidently

The Money Tree definitely achieves what it sets out to and is written in a very factual manner that is easy to understand.  Martin Bamford has a wealth of knowledge and great ability to simplify ideas for those getting to grips with personal finance.  What I especially like is that Martin Bamford understands and recognises there is no one size fits all approach, he provides different suggestions for individual circumstances.  Each chapter ends with a summary of the key points that you can refer to easily at a later stage.

The only negative aspect of the book is that it was written in 2006 so please bear in mind some laws regarding pension, ISAs and tax may have changed during this time.

wallet change

Chapter 1: Dealing with debt
This is a great source of information for those in debt.  Whether your debt is manageable or you are struggling to pay, it is worth the read.  If you have manageable debt The Money Tree provides suggestions on how to pay this back more quickly therefore accruing less interest.  For those struggling to manage their debt, The Money Tree provides plenty of resources such as websites for more information or organisations that can help you as well as discussing options such as bankruptcy and IVA.

Chapter 2: Taking control of tax
Many people struggle with understanding tax, with all the different types of tax and misconceptions surrounding them it is easy to understand why.  I’m glad that Martin Bamford includes this Chapter because it is incredibly important yet many personal finances books rarely mention it.  The Money Tree explains income tax, capital gains tax and inheritance tax, as well as inheritance tax planning by discussing your options for legally reducing your tax bill.  Please note this book was written in 2006 so some tax and ISA laws have changed, but this chapter still contains lots of useful information.

Chapter 3: Serious about Savings
I think a lot of people struggle to save because they end up saving for the sake of saving, they don’t understand why they are saving and the importance of it.  The Money Tree explains the reasons for saving such as having short term financial goals and building an emergency fund.  It emphasises the importance of building a savings habit, especially from an early age.  It also discusses savings as an asset class and how the value of cash in relation to inflation can affect the spending.

Houses
Chapter 4: Making the most of your Mortgage
Purchasing a home and taking out a mortgage is a popular topic of conversation in recent years, for those who are considering taking their first step onto the property ladder but do not know where to begin with mortgages The Money Tree can guide you in the right direction and give you an idea of the costs involved.  The Money Tree explains the different types of mortgage products (such as fixed, variable, tracker etc.) and reviews the positives and negative of each.  Martin Bamford does a great job of discussing which products are most suited to different circumstances.  Interest only mortgages are nowhere near as prevalent as 10 years ago when this book was written however they are still available from some lenders, if you are considering an interest only mortgage The Money Tree discusses the advantages and disadvantages of obtaining this.  Martin Bamford recognises that purchasing a home just isn’t a viable option for many people and suggests you to consider renting.  I’m glad this is mentioned as some people feel out of their depth when it comes to purchasing a home and it’s important to recognise that there are reasons why people need to rent and why they may prefer to rent.

Chapter 5: Plan to protect
This is an important chapter that often gets overlooked in personal finance books.  It explains the differences between assurance and insurance, which many people are unaware off and may think they both provide the same protection.  The Money Tree discusses the different types of cover and gives you an idea of what is appropriate for your individual circumstances and how much cover you actually need.

Chapter 6: Intelligent Investment
The Money Tree differentiates risk into four categories and defines each: risk to your capital, risk to your income, shortfall risk and inflation risk.  It discusses the relationship between risk, reward and volatility, which then leads into your individual circumstances and provides a set of questions to determine your investment profile and how much risk are you prepared to take.  Diversifying investments into different asset classes (such as cash, fixed interest securities, property and equities) is important and the Money Tree provides an overview for each.

Chapter 7: A financially secure retirement
I cannot emphasise how important this topic is, there are so many people (too many people) who have not planned appropriately for their retirement and believe it is something they can deal with at a later stage or they will just live off the state pension.  However the longer you leave planning for your retirement, the more difficult it becomes.  It think there are two main reasons people have not considered planning for retirement:

retirement

  • They don’t understand pensions, or
  • They grossly underestimate the amount they require in their pension pot to have a comfortable retirement.

The Money Tree covers both of these points. It defines the two types of pension (defined benefit and defined contribution) as well as discussing the pension rules (note: some pension rules have changes since this book was released).  It also discusses how to get started with planning for your retirement, whether you are employed or self-employed.

Chapter 8: Time for advice
This chapter is all about when you may want to speak to a financial advisor and why, as well as what to look for in a financial advisor and what to expect during your meetings.  I feel that going it alone isn’t considered enough in this book, possibly because the author is an independent financial advisor himself.  If you have the time and inclination to do the research yourself then it will save you a lot of money.  However if you are unsure of anything or just do not have the time then it is best to get professional advice, these are very important topics and if you get them wrong they could end up costing a lot of money in the long term.

Chapter 9: Bringing it all together
The final chapter shows you how to bring everything you’ve learnt in the previous chapters into an actionable financial plan.  But it’s not as simple as setting up your plan once and leaving it in place for the rest of your life, your personal circumstances and possibly your financial goals will change as you get older and it is best to revisit your plan to ensure it is still viable.

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