Money Management Basics

Thank you everybody, again for joining us today for today's presentation. Today's topic is money management basics, which I showed as pop up on the screen should be coming through clearly now. So thank you. And I will just hop out occasionally and just make sure if there's anybody waiting, we can pop them back in. But let's kick off.

You will have noticed over the webinars that we have been doing and you know, the library that we're starting to build now on the website and on the YouTube channel, I'm trying to work across a few different themes. So the first themes that we did late last year and earlier this year was just around what is the financial planner? And what do we actually do? What do we not do? What are some of the myths etc.

Moving off of that now, it's really about building those foundational aspects of money management. So we've talked a little bit about the different kind of really cool criteria of what money management looks like. And what I really want to dig down to today and the five big money management basics, and why I think these are important and what kind of lessons we can learn from the people that have gone before.

A little bit of a bias announcement here as well. I am a traditionalist when it comes to this sort of stuff. I think one of the best things we can all do as consumers and citizens in modern day is to ignore a lot of the marketing noise that gets thrown at us, we will talk in a moment about what our grandparents can teach us about money, they had a few advantages.

One of them being they didn't have social media to make us feel bad about ourselves all the time, other than themselves all the time. So I think a big part of what we need to do to keep control of our money is to say no to a lot of things. So hopefully that doesn't jar too much with what people's experience is.

So disclaimer, as you know, we're going to talk about some strategies and some ideas. So there's no specific advice. The usual rule applies, do not take action based on his presentation, always seek out independent financial advice before making any big drastic changes. And we will be recording this video again. So we can chop it up and pop it up on YouTube.

Now underpinning this idea of money management basics, I don't want to hop straight into the tactical aspects and mechanics of it, I want to talk a little bit about why it's worth looking at this. And the key reason for me is because it constitutes the greatest step, I think you can take towards achieving financial success, which is wonderful. But the reality is that financial success for all of us is a little bit different. If you ask any 10 people what their definition of financial success is they don't you're going to get 11 different answers. So the first thing I encourage people to consider. And this is part of the planning process as well, but also just in general, everyday life, what does financial success actually look like for you. So we've been lucky to have a few conversations with people lately. And for some of them, it was to build a property portfolio of 10, 15, 20 properties. For somebody else, it was buying six properties and then selling three, which was success to them because it meant that they could retire a bit early. For somebody else, it was making sure the schools, the private school fees would be paid for their children, so their children had the best shot of a good education. So this couple in particular, that signified financial success. For somebody else is buying a fantastic sports car. For each person. It's different.

Which is why I think it's worth reflecting a little bit on what grandparents can teach us. If you think back to your grandparents, the way they managed money. If they're anything like mine, they were very old-fashioned, very traditional, very manual. I mean, me in laws still pay their bills at the post office. So maybe it's not that far removed. But obviously, our grandparents grew up in a very different time. So my grandparents were born in the 30s. They had parents who had come through difficult times, but one Great Depression was a big part of their lives. Growing up with money was a very different object during that time. They had a very different perspective on money. And what that translated into was very old fashioned, very deliberate, and methodical steps towards money because money, they had to do it every cent counted. I think one of the advantages and disadvantages we have now is that we all earn more money as a household generally than our grandparents did. We spend more money than they did. And I think we leaked more money than they did as well, whereas they were a lot stricter and more detailed around where their money went.

Now I'm not suggesting we go back to living like we lived in the Great Depression. That's not something we want to do. That's not a row we have to hope but grandparents did have a few lessons that we could learn from, and the first one was that they saved money. Often it wasn't so they could buy something or save up for you know, buying a new car or something like that. It was simply because they did not know what was coming around the corner, they were used to abrupt sudden disastrous change. And they knew that their best bulwark against that kind of danger was to have money put aside for the proverbial, but often not theoretical, rainy day. Now inflation, etc. all of that kind of eats into that argument. But they knew that the best thing they could do was to not spend everything today and put money aside for tomorrow, because they simply did not know what tomorrow would look like.

Now, if you're anything like me, our perspective of tomorrow, since I was a little kid has always been actually fairly optimistic, you know, the world was getting better, our future was shiny things were looking quite good. That is a false view, really, I mean, there's nothing guaranteeing that tomorrow will be better for us. I'm not saying that we should all hide under our beds. But the other is saving money for a rainy day. I think it still rings true today, I think it's still good practice. They avoided that. Often, that wasn't their choice that was very hard to get back then. But still, as your grandparents were like mine, they often still railed against the use of debt to buy things. And it ties into that idea of delaying their own gratification and avoiding debt less than with a great deal of freedom later on in life. We see people all the time that are battling, you know, huge credit card bills, they've got a personal loan, and they've got a car loan over a very nice car that their friends are no longer as impressed by debt can cause, debt that can be like fuel in a rocket. It can take you to the moon or it can blow you up. So we want to be careful about that. They were fundamentally very frugal people. You know, I'm not speaking for all grandparents. I know some grandparents growing up with probably quite leveraged with their money. But as a rule of grandparents that I come across a lot I get talked about we're frugal, they knew where their money went, they repaired clothing, they kept their same car for much longer than you would expect now. They didn't buy lots of new furniture, they often worked on secondhand things, they were really clear, conservative, and I think clever about how they use their money.

Now, for some people such as my wife, frugality is not always quite the positive approach. But I know that the way I look at things, holding on to your money and making it last and buying things that are important to you, is quite a good principle, is a key principle and part of my life. They bought assets, they didn't buy liabilities. So they bought houses, they bought land, they bought cars that would last them for 30 years, they bought things that contributed value to their life, which is why we see such concentrated property holdings, I think, particularly around Melbourne, in certain ethnic areas, you had certain ethnic groups and immigrant groups that came in, and they bought assets, and they have passed that wealth down through their families. So I think that was a key characteristic, or maybe there's a bit of a survivorship bias there. But they bought things that added to their wealth as when they could. And I think my lasting impression, particularly my grandparents, but again, of many grandparents that I get to see and get to work with elderly people, they were much more focused on the substance of things rather than the shine. So they weren't, I mean, it's very much that Shania Twain song “That doesn't impress them much." They were really more interested in the substance of things because they knew that shine goes away. Shine fades, and substances what remains. So again, very old-fashioned, very traditional, very boring. You know, I mean, if you looked at this on something like TikTok or Instagram, this isn't selling many likes, this isn't selling many products. This is really boring stuff, which is why I love it. Because I think the stuff that doesn't sell anything, there's a reason that people aren't pushing up.

So just from my own perspective, for me what financial success translates into, I'm very poorly motivated by material things, I've realized that about myself aspiring to buying something doesn't really do much for me, but instead for leads these five things. So I really, I think a financially successful person has a great deal of clarity around what they're doing with their money. So it isn't tied into how much they're earning or how much they have. It's very much how deliberate and intentional are they being with their money? And does that then align with their values, so me not being motivated by money. If I were to live a life in pursuit of material things, I would have a constant level of dissonance or disconnection with that, and my motivation would fall apart, and I would not end up anywhere near where I should be going. So being clear and intentional around your money and aligning it with your values is a really big part I think of financials concerts, but idea of alignment continues through your family as well. I think being aligned with what you want to achieve financially as a family, as a couple, as a household. That to me strikes a huge amount of success. If you can maintain a happy life with people, you love and that love you. And do so in a way that leads to financial confidence success. I think it's a wonderful life.

Control. I am a top-level control freak. That's why I run my own business. I run my license and I work for myself. Have, that's a big part for me. For some people, that may not be a huge thing. So financial success for me involves me remaining in control of other people. It's not tied in to independence. I don't like people telling me what to do. And so being able to parlay any sort of financial income or growth towards maintaining independence is really important. But also, social security. So my grandparents were not wealthy, they did not leave a great deal of money to my parents, they're not wealthy. So that idea of money equaling security is a very prominent one in my approach to money. So that's how I define financial success. And for each person watching this now, live or on the recording, I would really encourage you to take some time at some stage in the next week or so. And work out what financial success actually looks like for you, and then have that conversation with your significant other. And then you can start talking about the areas where that's different, aligned, etc. Because what that's going to do is, once you're clear on where you're heading, and what you want to do with your money, it will become a lot easier for you to say, “no, thank you.” And just as a side note, when I was looking for images for this, there was no, no thank you image, there were only thank you images. But the message I'm trying to make now is that your income is a finite resource, you will earn a certain level of income over the entirety of your life. And every time you say yes to something, if that's going to consume part of that income, you are detracting from a fixed amount, which means that you can't afford to say yes to everything. There's probably a handful of people in the world that can use Zuckerberg, Reinhard, Gates. But for most other people, for the majority of the population, you cannot say yes to everything. So it's important that you learn what you want to say no to. And this is why that idea of financial success is really important. Because if you have that clearly defined, it's really easy to say no to everything that comes up. If you don't have that define, if you don't have the light on the hill that you're walking towards, you will be distracted by everything that comes along by every TikTok meme that comes along or every pressure you feel, don't give your child the perfect $10,000 birthday party or buy them the exact toy or clothes that I should have, or all that material stuff that ultimately, to be completely honest with you, you will not care about in five years, two years, 10 years, whatever. But you will care about it and what will make you wake up in the middle of the night later on in life is where you are in life in terms of that idea of success or financial success and what your money is doing towards that. So if your North Star is facing north, and that's what your financial success is heading towards, you should be heading north. But everything you're doing, everything you're deciding is heading south, you're going to be really unhappy. So try to avoid that. And one of the ways you do that is by saying no thank you and as a inveterate unrepentant definitely repented people pleaser, but it was really hard for me. I say yes, I have historically said yes to a lot of things that led me off that path. Changing that's made a big difference. So I do implore you become comfortable saying no, do politely say no, thank you. But try to say no to more things because you every Yes, it's taking away from a finite resource, which is a very long-winded prelude to the five basics of money management.

Now, we do have a post on the website on the blog that expands this into 10 Big Money Management ideas. But we've distilled that down to the five basics and there is nothing particularly exciting here I should flag there is no get rich, quick strategy here. There are no shiny objects. There is no fantastic meme or anything like that. These are really boring fundamentals that if you can do these and get in the habit of doing this over the long term, you will achieve consistent financial success. So number one, rule, no brainer live within your means. As it sounds, if you're earning X and you're living and you're spending X plus one, you will be going backwards, and that plus one will be coming from somewhere most likely debt. That debt will either be via a credit card, a personal loan, a car, loan, family loan, anything like that. Either way, you are living beyond your means. And we've all done it. I still have nightmares about the car that I bought, that I thought was quite a good buy that I found with a car loan. That promptly six months after that cost me 1000s to get things fixed and then just died on me on the Monash. That was a mistake I made, and I was living beyond my means, I could not really afford that car.

But the real reason I mean encouraging people to live within their means is it gives you back control. It lets you make decisions. Now it does mean that you have to say no thank you quite a lot along the way, because our entire financial economic system is predicated on the idea of making us spend money. And the system does not really care what our income is, it only cares what we're spending. So you need to get a lot more comfortable saying no thank you to that sneaker ad, or that motorbike ad or, you know, that pressure you feel to travel overseas every year or every second year, because that's what everybody else is doing. Because I can tell you, as somebody that sees a lot of balance sheets, there's a lot of debt funding, a lot of Instagram pictures. And it just, to me, it doesn't make a lot of sense because you're compromising and sacrificing the control over your future to do those things. Now, it's a fine line, because you need to balance the enjoyment of today, with planning for tomorrow, you don't want to just eat baked beans and drink water for the next 20 years. But that's why working out what your means are, being really clear on what that is and making sure you always live within that that every paycheck you're putting, at least you know, $1 away, will keep you in control of your financial future. Because again, hardening back to our grandparents, we don't know what's around the corner. So it just makes good sense to retain control over your life.

It is also for people that are watching this if you're farther along or further along in your career, living beyond your means for an extended period of time also runs the risk of trapping you in a job you're not happy in. Because you need to keep earning that level of money. If you live within your means, you can look at that, and you have the freedom to find a role that is meaningful and fulfilling for you that may not necessarily pay you the exact amount. Again, it all comes down to control and flexibility. For me anyway. Number two, pay your so first, you may have heard this a bit, and be a little bit unsure about how to do that we'll come to that in a second. But ultimately, with every paycheck that you get, your savings should be the first transaction that happens. Not your rent or mortgage payment, not your groceries, not your utilities, not your holiday fund or anything like that. Money should be going into a savings account for you first because you are paying in the future you an amount of money and in the future, you deserve that money. Future you deserve to feel a lot more secure and comfortable around their financial future because you deserve to feel more secure and successful around your financial future. So pay yourself first, anywhere between kind of 15 to 30% is a really good objective to have. If you can capture 15 or 30% of every salary payment you receive, you're setting yourself up for having a lot of control over your financial position, having a lot of freedom in the future, and choosing when, where and how you work. So 15 to 30% is kind of the rule of thumb there.

Number three on the list of top five money management basics, manage your debt, or manage you. Now I am not some sort of Wowzah then parent throwback who thinks that we should not have any debt. Very few people could buy a house in Australia without taking on a mortgage of some sort. That is important debt is a critical part of the financial system. And it will be a critical part of your finances for a long time. But the point I want to make here is that you should be managing that debt, you should be making again clear and intentional decisions about the debt you're using, what it's being used for, how it's being repaid, how much it's costing you and your exit strategy. So we're lucky enough to do a lot of work I work with connected with loan gallery, who do a lot of fantastic work around broking mortgages, I would encourage everybody here to have your mortgage reviewed at least every two to three years, regardless of what the news is saying pop it in your diary, put a recurring calendar in there for every three years from today to contact your broker and get your mortgage reviewed.

Now, some of them are doing The Loan Gallery guys are doing fantastic stuff in the background, it automatically getting loans, repriced, for people, so they just go back to people and say, look, you learn streak now. They're trying to see if it's working really well. It's really exciting. But still take control and manage your own debt, get in touch with your broker every two to three years and say I want to review my mortgage to see if there's a better offer out there. Things have changed in my life; I have a higher income now the house has increased in value. What are some options out there? Similarly with car loans, credit cards or being very intentional around the way that you're using debt, credit cards, you really don't want to have a high letter level on a credit card. Yeah, when credit cards charge a horrendous amount of interest on payments on outstanding balances. I can't even add anything as a ratio. The general rule of thumb is not having a credit card. That's a little foolish, I think I think most people will have one if you can don't have a credit card, if you have to have a credit card to keep it to within maybe two to 3% of your total income at the most. Because that's like oh, yeah, yeah, at the most you know, don't get sucked in by points don't get something my frequent flyer miles like yes, if you use them exactly right. They can work out pretty well. But the number of people Use them exactly right is so low. That's why the frequent flyer programs are worth so much. So be really proactive with your debt, really intentional. And I'm not joking about pop something in your diary to have it checked every two or three years, do a recurring meeting.

Another idea here, this is outside what we're talking about. But I know a lot of people that will book out a day of annual leave here. And in that day of annual leave, they'll spend half a day contacting all the utility providers, insurers, finance guys like just to try to find where the savings are. So getting paid for the day, you take half the day, and you just try to save money, because it's a payment and accurate process. But you can do that. Let's say you take the rest of the day off and do something fun. You're out for lunch, do something together. But yet be again, really proactive, really intentional, really clear on the role debt is playing in your life, and how you can manage it most effectively.

Number four, and that is a moldy sign I didn't realize quite how moldy that was. Compounding works. Now you if you've got any interest in finance, which I'm assuming you're watching because you do. You will have heard of Warren Buffett, you will have heard about his idiom statement truism around compounding, the compounding remains the most powerful force in the universe. The compounding, if you're not super familiar with it is simply the matter of earning or paying interest on top of interest. As you work overtime, it's the combination of time or patience and money. So if you have $1, and you're making 10% on that, the following year, you're making 10% on $1.10. And then on $1.21. And then it continues and on long enough timeframe, the curve becomes exponential, or all of a sudden, you're making 10% on a huge number, which contributes a huge number, which means it keeps growing. It's an incredibly powerful force. And really, it's kind of the underpinning of Superannuation.

Superannuation is a long-term investment that most people will be in for at least 40 years. A 40-year investment timeline is a fantastic way to let compounding really work. It kind of kicks in compounding really kicks in after year seven or eight. Beyond that, you'll really just try and get the flywheel moving. So compounding is a wonderful, fantastic thing when it comes to growing wealth. And it's why when you look at a house in Oakley, for instance, there might have been bought for $24,000.35 years ago, is now going through a bit over a million, it's because each year is going by 3%, 4%, 5% to 6% just blows it away. So it's fantastic if you can and where you can in your life take advantage of compounding the positive version. But there is also a negative version of compounding where if you are not repaying the interest on your loan, you will end up paying interest on top of that interest. And if that continues for too long, your exponential graph will be 180. And it'll be heading south. And that's where people get themselves into real trouble. So they can use debt to pay debt. And then all of a sudden, they're paying more interest across more debts, and then they just can't get away from under it. And that ultimately ends up in bankruptcy. So be really conscious do some reading up on compounding Warren Buffett's got some pretty good stuff on it. I think Charlie Munger is as well. There's a lot of really handy sort of one or two paragraph guides on compounding that I know are quite useful. Learn how it works and think about how you can take advantage of it in your life. But also avoid the pitfalls because it can, it can be pretty negative, it can lead to some pretty bad outcomes, you always hear about the positives. And that's true of all personal finance, you will always hear the positives, the negatives will generally be used as fear to try to sell you something.

Number five, last one of our top five money management basics. So probably applies more to life as well as just money, but failing to plan is planning to fail. And yes, I am a financial planner. So I would say this. So take what I'm about to say with a grain of salt. But bear with me. Think of your steady person, 25 working in maybe a white-collar job getting paid living life having a great time buying $18 pints of beer, which somehow happened in Melbourne having a great time. But floating along, which is great, what if that's what your 20s are for. But if you just keep floating along and you don't have a plan that you're pursuing, you are essentially the leaf on the stream, like you're just floating along and you're bumping from ripple to ripple and you'll hit the rapids or you'll hit a rock and it says you don't really have any direction or any control over where you're going. If instead you start having a plan, and now these plans, they do not have to be fixed in stone. Like what's a good example? Like I'm going to generalize here and maybe offend a large portion of people, but doctors are a real kind of big example of this. So a lot of doctors you don't become a doctor by accident. You become a doctor through lots of intentional action planning and hard work. But what we often find is doctors come out of university, they come out of the medical degree, they hit the market, the employment market. And there's a bit of a loss of direction, because they, they don't really know what to plan for next. So because they fail to plan that next five years after school, because they're putting so much work towards achieving that goal, they can sort of become a bit of drift. We see tendency doctors 5, 7, 8 years later, and that being a drift has kind of led to some pretty average financial decisions. Because they're taking, you know, guidance from their friend over here, or their family to barbecue or this thing they saw on TV, they're not driving, they're not taking the reins of their own financial future the way they did with their educational future prior to that, yeah, it's a gross generalization. But that's kind of pretty consistent across the professions. So what I would encourage you to do is, don't just plan for the next period of time, have a multi-level plan, have a big life plan and have one that's broken down into more discrete phases. But just also recognize that things change, some people come out of medical school, or they come out of law degree, and they realize they hate medicine, or they hate the law. But they've kind of sunk eight years into this a little bit of assist with that they've told their family, they want to be a lawyer, so there's going to keep rolling with it. But be prepared to change and pivot your plans. But have a plan, if you do not have a plan, you are hostage to fate and to other people's expectations and wishes. And again, this idea of taking over and retaining control of your financial circumstances because it gives you control over your life as much as you can, boils down to this point of having a plan. Now that plan might be to retire at 45. And maybe to keep working till you're 89. Doesn't matter. Just have something have a plan in place. Plenty of goal setting exercises out there, plenty of guidance around planning, when it comes to money.

Obviously, I can help keep an eye on the blog, we are putting stuff out around these kind of meta fundamental building blocks of a financial life. And one of them is how to build an effective plan and how to monitor it. So that's the big one. And a lot of that is because the moment you're living in right now often feels like the most important thing.

Now something we've all struggled with; we have my son's third birthday coming up and talking about his birthday party. Now, I'm not in it as much, but I know my wife is feeling pressured around what their party needs to be. And like, struck some cake out here in a bit of music will be fine. But yeah, that's me being maybe overly frugal. But it's the most important thing. But another way to think about it is if you can take some time now and then put together those plans, you're investing in your future self, you're dedicating your resources to your future self as well. And you will diminish your stress and risk and worry along the way. So truly, if you, if you do not have a plan in place for what you want your life to look like, if you're not driving the boat, if you're not in the in the driver's seat, who is? Having a plan, we'll put you back in that driver's seat.

So these are five money management basics, like I said, but they're boring, like these are not something you're going to sit around and talk to your friends about over a few ones are not like this super boring. But if you can do this every pay cycle, every week, every fortnight every month, every quarter, every year, every five years, every decade, all of a sudden, you're really going to start seeing the compelling benefits of really good money management habits. Now you will keep some grief along the way living within your means can mark you as a little bit of an outsider, it can leave you out of the loop for some things, which is why you need to have a really clear idea of what financial success is to help you brush off some of those comments and notes that might come along the way. Managing your debt.

If you're taking out a mortgage of $900,000, be really intentional about that, which sounds silly, right? Like that's a huge amount of money. He wasn't being intentional about it. But there are some people that kind of just default float their way into doing that. Be really clear, be really intentional and really boring when it comes to managing your money. Which brings the sort of one big question, you know, this is a webinar some guys throw on until lunchtime on a Thursday afternoon. What's the actionable stuff you can walk away from here and start doing things is normally the point in our financial planners’ webinar where I sell your product, or I pitch your solution. The good news is I'm not going to do that because the processes and the steps to take are all within your control. They're all things that you can do pretty easily. And a good structure is the bonus of today. I just realized how salesy I'm making it sound by accident. But I want you to meet Dave Ramsey. You may be familiar with him. He's very big in the personal finance world. He's from America and is a little bit shouty, but he's very clear, very helpful and I think he's made a huge impact on the way people manage their money. And I will say from the top to the American money management landscape is, it's as close to a dystopian nightmare as I can think of when it comes to money like you are on your own in America between the medical bills and the college bills. It frightens me. And I'm glad that we are in the Australia system, which is a little bit easier to live in. Not easy, but easier.

Dave Ramsey is a personal finance expert. And he's developed 7 baby steps for people to help start taking control of their money. I have no pretensions that they will give this as my idea I've stolen this shamelessly this is basically formed the basis of a lot of advice we've given people. And a lot of this is not mathematically perfect. A lot of it is behavioral encouragement, rather than mathematical perfection, which what I found with personal finance, it's easy to go down the hole if you're like me, and spreadsheet minded, where you spend all your time trying to find that exact, perfect, optimized, exact number of utter perfections. It doesn't exist. It has to be robbery, you're going to stuff things up, things are going to get stuffed up along the way, it is much better to have a flexible structure within which you are living your life. They're trying to find those three sets of changes. I think I've mentioned this poor guy before, but I know somebody who would spend four to six hours a year trying to save $100. And it just doesn't stack up to me. Which I know grants candidates, a lot of the frugality I'm talking about but be very intentional.

So Dave has these seven baby steps of pregnancy six, because one of them is paying down your kids college fees. Which, thank God, we don't have to deal with yet. But he's six baby steps. So number one is the first step to take and if you think of this as a staircase, you want to finish step one, and then you move on to step two, and you slowly climb up the staircase until you achieve that point of financial security success.

Number one, work towards saving $1,000 for a starter emergency fund now for people listening that have got $10,000 $20,000 $50,000 in savings, obviously not the point. But we're talking here about baby steps, people that are starting out, people that are in their late teens, 20s. These other signifiers, I think, have a really solid financial foundation, and one of them is being able to save $1,000 for a starter emergency fund. That $1,000 doesn't get touched that $1,000 is for when your car needs new tires, or when your washing machine blows up or when you have to move out of your home for some reason.

Now, it's arguable whether or not $1,000 is enough, when we're giving this advice, we suggest people go for $5000. But again, the behavioral aspect of this is it's an achievable goal that people can hit in a relatively short term. And you couldn’t as well call it dopamine Dave, because you hit that you get a huge dopamine hit, then you can move on to the second one with a bit more enthusiasm, the greater the enthusiasm, the greater the likelihood of you achieving it, you achieve this you get more dopamine, you move on. And you work through this process over a number of years, and you will achieve a complete turnaround in your financial position.

Number two is paying off all debt except for your mortgage using the Debt Snowball Method. And this is something I think we're presenting in the next webinar. But the Debt Snowball Method is quite a nifty way to eliminate debt if you have multiple credit cards, personal loans, bits and pieces floating around which a lot of people do particularly in their 20s. Now I'm also keeping in mind that a lot of you've come onto this webinar through The Loan Gallery, theme, and loan gallery do a really great job in helping people build up a savings buffer for when they're buying their first home. So I'm really conscious there were a lot of people listening will be first homebuyers. I'm not a mortgage broker. But I'm pretty certain that if you have less debt, less personal debt, when you go for a mortgage, you're more likely to get the mortgage on better terms. So we're trying to eliminate debt.

Now the way you do it is through the snowball method. And this is a very quick rundown. You work out all of your debts. And you work out which one has the lowest interest rate, you work them out in terms of interest rate, and you make all the minimum payments on all of the loans to just keep them sort of ticking along and not going delinquent on them. And then you smash every extra dollar of your budget that you can against the highest interest rate debt. So the key to this I should have mentioned is you need to work out what your excess income is. So let's say you have $500 a month to put towards extra debt repayments. And you've made that decision because you've saved up your starter emergency fund. You've gotten rid of some subscriptions; you've decided to decline a few things. Now you've got about $500 extra a month in your pocket that you want to put towards smashing down the debt. You have a credit card, a personal loan and a car loan or credit cards or 90% of the personal loans at 4% of the car loans or 2%. What you do is you pay all the minimum payments on all three loans, but you pay $500 A month against the credit card, and you do that every month until the credit cards are gone. Let's say that the minimum payment on the credit card is $200. You clear the credit card using those extra repayments, then you transfer $700 a month onto the personal loan at 4%. So the personal loan is now getting the minimum payment for the personal loan, the minimum payment for the credit card and your extra $500. So the personal loan is $200. Again, that's now getting a $900 a month payment against a personal loan balance. And you continue that for as long as you can until you eliminate that loan, you clear that loan and now that $900 is transferring across to the car loan, and you smash down with taller and as quickly as you can. Now, if you if you're going if you're spreadsheet minded, you pop this into the table, you will work out that this is not the most mathematically optimal way of paying down the debt. Pretty marginal difference, it's kind of a couple of percent points difference if it's over a short enough period. If you don't want this, you will pay more interest and you should have then you could where this is beneficial is again that dopamine chase. So you are concentrated, you're motivated, and you're pushing this repayment, and you're knocking down the credit card and six months in, you realize that you know what I'd rather spend $500 on something else this month, or book a holiday or go with my friends or do something or either book a holiday or not pay for the holiday. I am not a grandparent I am aware that costs more than $500. But all of a sudden, you're within sight of paying down a credit card. So you forgot that month you said no, okay, I'm going to keep this and you pay down the credit card and you pat yourself on the back and you say, you know, I was knocked off that credit card debt. How fantastic does that feel because it is an achievement. And again, you're swimming upstream against the entire financial marketing. Economic marketing was a cool, really cool thing about Eisenhower quote, or in the defense industry anyway, you're swimming upstream against the entire tide of what people want you to do. By being sensible with your money and not spending it on stuff you don't need. So then you chase the next dopamine hit you clear the personal line. Now the pat on the back fantastic handles, this now got $900 A month of free cash flow. Let's knock it off the credit card, say the car loan is costing you another $500 a month, you've eliminated all this debt, it might have taken you two, three years, sure. But you've now got $1,400 of spare cash flow in your pocket. Now that $1,400, you now have the choice of what you're going to do with that. And the reason I call it a snowball is because it takes quite a while for the momentum to start. Now you're slowly paying down the credit card, the other loans aren't really moving. But then as you change to the next loan, and the next loan, the snowball is bigger, the snowball is accumulating more snow, it's moving quicker. And then eventually that last debt, it actually gets paid really quickly. It tends to fly off really quickly.

So now you've got $1,400 a month of extra cash, what do you do with it, if you listen to social media, you go and buy crypto or whiskey barrels or another investment property or something like that. Dave would politely disagree, maybe not politely, but he would disagree. He suggests that you then save three to six months of expenses in a full emergency fund. So underpinning all of this, you will realize you need to have a budget. And it's a really key part of it again, the future webinar could work out what six months of expenses is going to look like. And if you're the average household and you're pulling in as a household income, maybe 140 $150,000 a year, you're probably spending north of 100k.That's the reality. So it's a good target, you really want to have somewhere around the $50,000 put aside in a bank account. Now, again, not mathematically optimal, because you will be getting 4% to 4.5% interest now. And paying tax on that if it's sitting in the bank account. Another better option genuinely is to have it in the investment account. But you could be making more money in the long run if you put that into property or shares or another investment, probably not crypto, probably not whiskey barrels. So it is not mathematically optimal. But it is going to act as an emergency fund. So if you need to have critical surgery, if one of your kids gets sick, if you need to move across the country, for some reason, if someone in your family gets sick, this is going to buy you six months of time that you can concentrate on that aspect of it. You know, my classic but a common one is genuinely one of my parents is sick. Work won't give me any more time off. I just want to go be with them. Because I think it's the end like it's the final three months of their life wanting to spend it with them. This emergency fund lets you take control of your life and make the decisions that are right for you not right for somebody else. So you've paid your debt down. You've got $1,400 a month now you're knocking into an emergency fund. Again, it's probably going to take you three to four years to build up that balance in there to $50,000 or whatever six months of expenses works out to be for you. That's fine. This takes time. If it's boring, it should be steps four, five and six are kind of once you get beyond that threshold of safety, once you've got those six months expenses put aside, then you can start really investing. And that's, you know, over the, say, 15% of your household income into retirement.

The reason I like leaving this a little bit later in the list for us is that you have 11% of your income going into retirement accounts here, thanks to the genuine miracle that is Superannuation, you have 15% Going into there. So you build up your savings account, and then you maybe look to top up your household income by 4%. salary sacrifice is a really cool way to do that. So look into that, and the chance comes, then you will still have surplus income. Remember, you've got $1,400 A month in this hypothetical. So divert that towards paying your handout early. Now, five, and six, I think should be done together.

So I'm a big believer that you should have three pools of wealth. As a person in Australia, you should have money in your home money in your own name, and money and super. So doing all these in conjunction together will help you build up those three pools at once. Now, again, mathematically, you're probably better off smashing money towards the mortgage, depending on your interest rate, but the sense of achievement and satisfaction that comes by just doing five and six for five years. I think it's well worth it, and you're diversifying thing, which is good.

That's everything. Send an email, Jordan.vaka@theadvicegallery.au as realized I hopped off the contact page. The central email inboxes Hello@theadvicegallery.com.au. The website is theadvicegallery.com.au. Do check out the blog we're trying to keep pretty active. I think there's some interesting stuff in there. Their number, their 0431664422.

If you are a Loan Gallery customer, be sure to contact your broker for the introduction. We are waiving all advice fees for learning gallery customers for a limited time, so be sure to come through that channel. And we’ll apply that waiver for you as well. Yeah, if you have any questions. I know it's a boring topic. I want it to be boring. Money management should be boring. It should be something that you can sit on autopilot and go out and live your actual life.

But I can say that we get to see people through the full spectrum of their lives. The people that are coming to see us in their 50s and 60s are the ones that had a plan, did the basics really well ignored a lot of the noise and controlled their own life for as long as they could. And it's really quite cool for me to see it quite aspirational for us. So thank you, everybody. Thank you for watching again. Any questions? Jordan.vaka@theadvicegallery.com.au. I look forward to seeing you at the next one. The next one will be two weeks Thursday. The one after that is on Tuesday, the following fortnight as well. Thanks everyone.