One of the things we all struggle with is finding the right motivation to do things better.
Making good decisions with your money is hard.
There are so many fun things to spend it on. The Wittner sale! A Shellac manicure! A new handbag! All nice things, I’ll agree. (And all things I have been known to ‘invest’ in).
But if we are to build true wealth, we can’t just buy nice things.
We need to think about the kind of life we’re building. What we want to do, how we want to live, what we want to achieve.
Because money shouldn’t be about what you can own; it should be about what you can do.
A big part of this is what I call ‘Mindful Spending’ – which you can read more about here. But you can also go bigger with your thinking.
What’s your legacy?
I started a new job a couple of months ago, and my first pay was not only more than a month’s worth, it included a nice payrise. I gave myself a month to go a little nuts with it. I called it the ‘month of spending’.
One of the greatest enjoyments I had was taking out people I love and picking up the cheque.
Then I made a ridiculously large order at Dan Murphy’s so that my cocktail cabinet is ready for guests who enjoy Martinis, Old-fashioned’s or Negronis. (I may be partial to those myself, from time to time).
In general, I’ve set up my place with a comfy lounge, a fancy air mattress and good pillows, so that all my friends and family can come stay in the city when they want to. Do I encourage/enable them to go out and have big nights in Surry Hills? Possibly.
Anyway, I’m not telling you this to make you think I’m a good person, or to make you come over to my place (but hey, you’re totally welcome). The point is that money is making me happy, by making other people happy.
If I thought about what I would like to be remembered for one day, I don’t want people to say ‘Belinda had a great collection of boots’ (although, admittedly, I do).
I want them to say ‘Bo was always up for an impromptu cocktail party at her place’. Or maybe, ‘Remember that time she danced on the stage at Arq/in the cage at Stonewall/on the podium at Carmen’s’. (Admittedly, that last one was circa 1998).
So maybe this is a really long way of saying that making memories is just as important as making money.
Finding your why
I understand that not everyone wants to be remembered for their willingness to dance in public. But I’m sure you have an idea of how you want to impact other people’s lives.
I’m not advocating that you spend on other people before yourself. Like the oxygen masks on the plane, fix your own financial situation before anyone else’s. But do with an eye for how it impacts others.
Here are some questions you might ask yourself, when you’re trying to get serious about not wasting money:
How does my spending affect other people around me, either positively or negatively?
Do my current spending choices make feel good? How good? What would make them feel even better?
Am I setting myself up for positive opportunities down the track? Or is my spending focused on short-term sugar hits?
Sometimes, it’s good to take a step back and think about the bigger picture.
And hopefully, it will be one more motivator to make good decisions with your money.
There’s a curious thing about modern, middle-class life. We can afford things. We have money to spend. But we’re not very good at it.
Sure, we have to cover the boring bills and housing costs. But someone with a decent income has a bit of flex left in their budget. The dilemma is deciding what to do with it.
I’ve been thinking about this lately. How do we know if we can afford something?
Or more accurately, how do we decide what we can afford?
It’s more complicated than it sounds. Humans are notoriously bad with delayed gratification. So, when we’re deciding how to allocate our money, we often choose what’s right in front of us.
Shiny things, fun things, easy things!
In a perfect world of financial responsibility, we wouldn’t go shopping or to the pub until we’d put extra money into our savings, our mortgage, or investments. But life is not perfect, nor are we.
But I have a theory that the key to building wealth is saying, “I know I can afford this, but should I?”.
There are some common spending traps that we should be conscious of in life. We would do well to notice, pause and reflect on these … before we get out our wallets.
Maybe most spending is emotional. We have a vision of our lives that we’re trying to fulfill. To look a certain way, present a certain way, create a certain story about ourselves.
But there is also a particular type of emotional spending that’s a response to a situation. It’s called retail therapy, and it’s bullshit.
Therapy is a positive process that makes you face your feelings and deal with them. Shopping is just avoiding those feelings.
Spending to soothe your pain – or at least delay it – is a trap.
(I’m not saying I haven’t done it, but I will say I have I ended up with poorly fitting outfits.)
Solution? Process your emotions, rather than avoiding them. Call a friend, go for a run, hit the gym (my personal favourite). Maybe even go to real therapy (seriously – it’s great – I wrote about it here).
This is my hobby horse, so get ready for a rant.
If you’re spending fifty bucks a week buying lunch, because you can’t haul your arse into a supermarket, then it’s time to reassess your life choices.
It’s not about having time, it’s about having priorities. I’m not saying you need to spend hours in the kitchen every night. Commit a short period of time to even the most half-hearted food prep, and you’ll thank yourself. (I gotchu fam – tips here and here).
Same goes for spending too much at the pub/cocktail bar, because it’s a habit and your friends do it and you can’t think of anything else to do that’s cheaper or more satisfying.
Look, everyone likes a night out, but if it’s your default, then maybe have think about the habits you’re forming.
Solution: Work out where your downfall is, and how much time or effort you need to fix it. It may be less than you think.
It’s easy to think something is necessary because you do it a lot. But it just means you’ve set your baseline at a particular level: regular salon sessions, eyelash extensions, getting your hair done every six weeks, or whatever recurring cost has become part of your routine.
I was convinced that one-on-one coaching every week was definitely necessary and justified. But having stopped it this year, it turns out, it’s not. I love my coach, but do I have other financial priorities right now? Yes. (Am I a good enough powerlifter to justify the cost of coaching? No)
Solution: I’m not saying you shouldn’t treat yourself. I’m saying to think about what you have normalised in your life, and whether it’s serving you well.
The social pressure of money is a real thing.
People don’t like to say ‘I can’t afford that’. There’s a perceived shame in noting the lofty financial expectations people place on others.
So you either find money for things, or whack it on credit cards.
Hen’s weekend that’s gonna cost 300 bucks? Suck it up and pay.
Friday night drinks that cost $50 a round? Deal with it.
Group birthday present for $100 each? Sign me up.
And before you know it, the budget is blown.
Solution: Generosity is good, but you don’t have to get on board the crazy-cost-train every time you’re asked. If you have a financial goal you’re working to, make it known. “Sorry, I’ve got some aggressive savings goals for my house deposit. Can we look at some other options, or I will do my own thing”.
Real friends will be chill about that. Shallow friends can eat a bag of dicks.
Set yourself up for success
Look, I know this stuff isn’t always easy. The first step is being clear on your goals – it’s easier to say no if you know the reason. I highly recommend working on your goals (here) and mindful spending manifesto (here).
Then you’ll be set up for success when it comes to saying no, or not today, or not ever.
‘Wow, that looks healthy’ is a standard refrain from people in the kitchen at work when I get out my food. They say it with a sense of envy or wistfulness (or maybe just relief that they don’t have to eat it). But overall, people act like making a daily tuna salad is some feat of adulting that’s beyond them.
I’m here to change your mind on that. If you really want to take control of your grocery bill and your diet, meal planning is the not-so-magic bullet.
Moreover, if you buy lunch at work even a couple of times a week, that’s $1000 a year at least.
I thought everyone knew how to do this whole menu planning thing, but my friend Linda told me it’s a bit of a dark art to her.
So, here I give you the step-by-step guide to meal-prepping like a boss. A ladyboss, of course.
1. Gather your recipes, grab a coffee and write a list
Pick a recipe book, website or Pinterest board and have a browse. This might sound fancy – i.e. researching recipes – but it keeps you interested in meals and gives you new ideas.
You can still put your staples in the week’s meal plan (mince and veg sauce is a firm fixture on mine). But throw in a few new things, and you’ll feel like Nigella fucking Lawson.
(Life pro tip: e-books on your iPad mean you can take a few recipe books to your favourite cafe. This one is Well-fed 2 by Melissa Joulwan, one of my fave paleo books. I also like Pete Evans’ Healthy Every Day, despite him being a massive tool).
Writing a list is where you start to make savings. By buying just what you need, instead of stuff that kinda looks useful or tasty as you wander the shops, you will avoid wasted food.
I split my list into three sections – fresh food, supermarket aisles, meat/chicken/fish – for easy nagivation.
2. Buy the things on your list but be flexible
I shop at Harris Farm a lot, and they have an awesome section of cheap, marked-down meats that need to be cooked or frozen in the next day or two. This is ideal for meal-prep nerds, because I’m cooking most of it in one day. But of course, it depends on what’s available, so I will often change my meal plan to use those ingredients.
Similarly, if you make a plan that uses, say, avocado, and those bastards are $7 each (a real thing I saw yesterday), then good sense dictates that you ditch or amend that recipe.
3. Put your stuff away properly
I’ve sung the praises of Tupperware’s fridge range in a previous post. They are the key to avoiding the curse of soggy celery and wrinkled capsicum. However, they don’t work if you leave them empty in the pantry.
I wash and dry the fresh things, then put them in my Tupperware. If you are a loser and don’t have any, buy some special stay-fresh bags or read these tips. (Or ask me to hook you up with my Tupperware lady). Food waste is a killer for the planet and your pocket, so making a bit of an effort makes a big difference.
3. Set aside a food prep time and get cracking
I devote Sunday afternoon to food prep. I totally understand if you have lives and kids and obligations; not everyone can do it all the time. But creating a routine like this, even including the kids in it, is the only way to make this work.
It’s a matter of investing time on Sunday to reap the rewards for the rest of the week.
As I said to a boy on Tinder who “didn’t have time” meet me after a couple of months’ chat, “I don’t believe in having time, I believe in having priorities”. (He was actually really surprised/upset. Next!).
It can take a while to get the hang of what order to cook things in, and it makes an unholy mess in the kitchen. But the end result is worth it.
Finding room in the fridge is the hardest part of this. I have an extensive Tupperware collection and end up playing Tetris with it (sorry, will stop mentioning the T-word). But if you don’t, that’s ok, the old snap-lock bags work a treat too (try and reuse them where you can).
I’ve been freezing more stuff lately, so I can rotate dishes through the week. One thing I struggle with sometimes is ‘Day 4 Syndrome’: when you can’t stomach one more of that chicken curry after four days in a row. So the freezer is helping with that.
And that’s basically it. Stop buying lunches, save money, avoid food waste, be healthy and maybe even get skinnier (if that’s what you want, and if you don’t, that’s totally fine and good on you for your self-love).
I’ve changed my mind about something. Something important.
I’ve said on this blog before that if you don’t buy your own home to live in, it’s not the end of the world. As long as you choose some other way to build your wealth, you don’t have to freak out about not getting on the property ladder.
And financially speaking, that holds true.
But I think I missed something important: human emotion.
Having just settled into the new apartment I bought, I realised I’d been denying something to myself. I like having my own ‘patch of dirt’. It fulfils a deep human desire to be settled and to feel some control over my destiny.
This feeling was compounded by the dramas of trying to get my bond back. The exit cleaners didn’t do a good enough job, so I found myself Gumptioning walls in my lunch hour.
A detail was missed in my ingoing condition report, so I was accused of leaving holes in a wall. And then there was the threat to make me pay for an electrician to change a light bulb that was out.
I fought tooth and nail, and in the end they only withheld $8.80 for said light bulb. But it reminded me of the way the cards are stacked against renters in this country, along with short leases and pet bans.
So, this is my advice for the yet-to-be-homeowners. Do everything you can to get your foot onto the first rung of the property ladder.
It might take a while, and it might mean making sacrifices, but it’s one of the most important things you can do with your money.
“But wait”, I hear you say. “I’ll never afford a property in this crazy market”.
And if you’re in the very lowest income band, that may be the case. But for someone earning decent (or even ok) money, especially early in your career, it’s totally possible. And here are three ways you can go about it.
Rentvesting – There are two hard parts of buying a property to live in. Scraping up the deposit and then repaying the loan (known in the industry as ‘servicing’).
If you go down the route of buying where you can afford and renting where you want to live, you remove that second challenge by having rental income.
If you live in Sydney or Melbourne, being a first home buyer is really bloody hard. There aren’t really any bargain suburbs left, even on the outskirts.
But if you look elsewhere, median house prices look far more manageable. Perhaps it’s just out of town, like the Central Coast or the Bellarine Peninsula. Or it might be regional, such as Wagga Wagga or Ballarat. Or a smaller capital city such as Hobart or Adelaide.
I am not giving you hot tips on all of these as investment property destinations. I’m simply naming places where you can pick up a house for the price of a small garage in Sydney.
How do you work out where to buy? Well you can do a ton of research yourself, looking at the supply and demand drivers. Talk to people in the area. Visit it for yourself.
Or you can work with professionals whose job it is to research these things, and provide recommendations.
I am most definitely NOT talking about the guys who try and spruik you an off-the-plan development in the outskirts of a holiday town.
No, I’m talking about real professionals whom you pay for their services. Like any such adviser, choose carefully, look at their results with other clients and use your bullshit detector. But for the clueless or nervous, this can be a useful way to avoid buying a dog of an investment in a far-flung place.
Family Guarantees – This approach works where you have the ability to service a loan (i.e. a decent income) but trouble saving a sizeable deposit. Your parents can use the equity in their own home to act in place of a deposit. Say you have 5% saved for a $500,000 property, but need 20%. They promise to cover the missing 15% if anything goes wrong and you default on the mortgage.
This is different to just getting a lump sum gift from the parentals (let’s admit, that’s the dream solution). It means they don’t have to actually come up with the cash (unless things go wrong – see below).
Of course there are risks involved. The biggest is that you default and the lender demands some or all of that money your parents promised. Some lenders also require the guarantor (i.e. your folks) to cover the mortgage repayments if you fall behind yourself.
And lenders will generally require the parents to get independent legal advice before going ahead, so that’s an additional cost.
You’ll still need to prove your ability to save and be a responsible adult – lenders want to see proof of ‘genuine savings’. But family guarantees can get you into your own place sooner and avoid the cost of Lenders Mortgage Insurance (which banks hit you with if you have less than a 20% deposit).
Play the long game – Maybe it’s going to take you five or ten years to cobble enough together for a home. But in the Monopoly game of life, that’s not actually very long. If you live to 85 that’s less than 10% of your life!
It drives me nuts when I hear people say things like ‘well I’ll never afford to own property so I’ll just spend my money and enjoy myself’.
No! Just because you can’t afford it now, doesn’t mean you can’t ever afford it.
First of all, there’s the power of compound interest: 10 years of slow and steady socking away will actually see you get some free money in there too.
Secondly, just because you earn this much now doesn’t mean you will forever. You can climb the ladder, increase your education, change career, start a side hustle, marry money … ok scrap that last one. But seriously, there is always an opportunity to do more, be more and earn more than you do now. So don’t rule out a big goal.
The hardest part in a long game is staying motivated. If your timeline is five years, saying no to another overseas trip or buying clothes from Kmart instead of Lorna Jane can get old real quick.
So, don’t be afraid to do things like set SMART goals, make a vision board (as cheesy as it sounds) and track your progress regularly. Hey, maybe even ‘treat yoself’ to a reasonably priced reward when you hit milestones.
I have a plan to pay off my mortgage in 12-15 years (depending on what interest rates do), so some of this stuff will be going on in my little world.
I have specific and aggressive retirement goals, and this is what will keep me from making poor decisions about money.
I’ll never give up martinis, but will I drop twenty bucks on them in a fancy bar? Hell to the no! (I will totally make them at home.)
That’s because I have done the numbers on repayments, and I know that paying an extra $250 a month can cut five years off my mortgage. And then I think about not having to get up and schlep to an office five days a week, because I’m doing my own semi-retired thing, and it motivates me!
So, my message to you is: don’t despair! With a clear goal and some good behaviours, you too will one day have the pleasure of telling your property manager to get fucked. (Note: this only happened in my head, not out loud).
Anyone who has ever walked out of a salon with a kick-arse blowdry knows this. Never in my life have I got my hair as good as Millie can. I always book an appointment on a day that I have some major social event, so I don’t waste that hotness.
But there are other important things we should pay for in life. I’m often surprised how people who would spend a hundred bucks on drinks and dinner, will blanch at the idea of spending that to see a health professional.
So, I want to have a conversation about things that might be a really good investment, even though you have to shell out some cash.
Some of these have a material return on investment, while others just have a positive impact on your life. But it’s a version of mindful spending – ‘how am I going to deploy my money in a way that gives me the most happiness?’.
1. A financial adviser – I know, you expected me to say this. And I don’t think everyone needs an adviser at every stage of their lives. But there are some points where it makes a lot of sense. For example:
Getting married– Do not tell me that you can drop upwards of $20k on a wedding but can’t spend a couple of grand on a Statement of Advice. Or, you could be really sensible and spend some of your wishing well money on it.
Getting hitched is a good opportunity to map out a financial future together, and ensure you’re on the same page about it.
Many couples miss this crucial goal-setting convo, and muddle along with different ideas of what they’re trying to achieve. Conflict ensues (every time you bring home new shoes).
Having kiddoes – This is more about getting your insurance sorted. If you’re responsible for tiny humans, you need to think about life, trauma and income protection insurance to protect them. If something happened to you, would your partner have the resources to keep working, cover childcare, educate the kids and pay a mortgage … until the kids are all grown up?
Australians are woefully underinsured for things like this. But you can talk to a financial adviser just for an insurance review (i.e. you don’t get a full financial plan) and the fees are pretty low – under $500 in the network I work for. Sometimes they may even waive them (because they get a commission). Definitely worth looking at.
Becoming a grown up– I know, there is no real test for this point. But I think there is a solid case for sitting down with a professional at some point around your late 20s – early 30s mark. You’ve been working for a few years now, you’ve saved some money (or not) and you want to genuinely get your shit together.
But there are so many options! Speaking to an expert can help you clarify your goals and give you comfort that you’re on the right track. I went through this process at age 29 and even though none of the life plan worked out (the kids, the marriage etc), it was a great, educational process and taught me a lot about goal setting. (Side note – I didn’t actually implement the advice because it was very heavy on investing in equities, and I was worried about the markets. This was early 2008. In all of the good calls I ever made financially, this was the best).
Of course there are other triggers for seeing an adviser – these are just a few. So how do you find a good one? Well, same way you find a good hairdresser, to be honest.
Ask friends and family, look at testimonials, search online. Make sure they are qualified and part of a reputable group that holds an AFSL. Ask about their qualifications, and see if you like them in your first consultation, which is generally free. If the vibe isn’t right, look for someone else. Basically, find someone whom you trust and seems legit.
Then filter their advice with your own thinking and preferences – just the same as if your hairdresser were to say ‘I think you should try a fringe’ and you know you hate having one. That’s what I did, way back in 2008.
I worked with finance clients, I could see the sub-prime crisis brewing, my boss and I discussed how heated the market was – and I held off. Why didn’t my adviser do this? Well, I think people who are ‘in’ the industry often fit the old cliche: when you’ve got a hammer, everything looks like a nail.
Just like the sales lady in Kookai is going to tell you that a Kookai dress is the best solution to your birthday outfit quandary, an adviser probably wants to sell you a financial product. It’s up to you to decide if your bum looks big in it.
A Personal Trainer – I know, this blog is about money, not fitness. But I want to address this because a lot of people question spending money on a PT. Is it just an extravagance?
If you get a good one, it’s not. A good PT will push you to your limits (“just killing me enough” is a great description for my coach), correct your technique and create variety that makes your body respond and change.
I question the value of some PTs I see in the gym: having a chat, watching you go through the motions, being your bestie.
If you don’t hate your PT a little, for the hour they’re training you, you should probably find a new one.
I first went to my coach when I’d hit a plateau – I wanted to get leaner and stronger but couldn’t do it alone. Years of powerlifting later, I am both of those things (although annoyingly, my triceps mean I can hardly wear any suit jackets).
I have experienced both elation and disappointment in getting there. I’ve cried with frustration in deadlift sessions, celebrated PBs, competed in events and made my body do stuff I never imagined it could.
For me, that’s worth the money I spend. If you’re plateaued, frustrated with results, finding it hard to stay on track, or ready to push yourself to new places, get a good PT.
The caveat on this is – if you can afford it. i.e. if you’ve paid for all the other things like bills, savings and an emergency fund. And you may need to skip something else, like buying lunches and coffees out, or getting your nails done. You can’t have all the treats, all the time.
Cleaners, removalists, carwashes and any other service provider – I just moved house and paid a removalist to do it all for me. After years of borrowed utes, trucks and a Ukrainian guy off Airtasker whose offsider was his tiny girlfriend, this was a wonderful luxury. I had the money, so I paid for it. Didn’t lift one box – amazing!
Whether you pay for things like a cleaner is down to you. But I would argue you need to consider:
Can I afford it? i.e. have I paid all my bills including my savings? Have I given up a different luxury?
Does it make my life better? i.e. am I using that time I saved wisely, or defusing a relationship pain point (fighting over who cleans the bathroom).
You really need to answer both those questions before you can shell out, guilt-free.
Choosing how to spend your time (Facebook, or read a damn book?). How to spend your working years (I’ve spoken to three friends this week about their career dilemmas). How to spend your emotional energy (obsess over 3% body fat gain, or not?).
And nowhere is this more prevalent than deciding how to spend money. So many things seem pressing or important.
We buy stuff because we are used to the instant gratification of retail therapy.
The pressure to look hot, young, thin and hair-free sees us scooting into salons to address our perceived shortcomings.
And the social groups we move in demand a certain level of spending, on everything from dinners out to expensive hen’s days.
No judgement about any of these things. We are all at the mercy of these forces. (God knows I think far too much about botox on a bad day.)
A very tempting – and understandable – response to this is to minimise the choices we make. In other words, choosing not to choose.
This is not an ideal plan.
You know the 80/20 rule, right? AKA The Pareto Principle. It says you get 80% of your outcomes from 20% of your efforts. (Nice easy summary of it here). Like, 20% of your wardrobe gets worn 80% of the time; 20% of the people in your company do 80% of the work. And so on.
The same applies to your money. Not in an exact ‘whack out your calculator’ way, but in a general sense of doing a few things right can have an outsize impact.
So, here I offer unto you: the lazy girl’s guide to doing the right thing with your money.
Tip 1. Start retirement saving early – The magic of compound interest means the earlier you start, the greater the gains and the less the pain. I know, super is boring and you have to pay of home loans and HECS debts and stuff.
But here are some amazing numbers. Laura is 30 years old and already has $30K in super. She’s earning $75K annually, and putting the standard 9.5% of that into her super. If she works for 30 years, she will end up putting just $213K of her own money into that nest egg.
But she will end up with over $1.1 million!
That’s because most of the money comes from compound returns – the light pink bars in the graph below. This is a simplified version of retirement saving: in reality, her salary will go up and down, and her rate of return will too. But it gives you the picture.
Now, if Laura puts in just a little extra – say 12% of her salary – she will end up with $1,321,429 – an extra $212,000! That’s a lot you can spend on a round the world retirement trip, just by putting away a couple of hundred extra every month.
On the downside, if Laura takes four years off work to have some kidlets, then she only has 26 years to work that magical compound interest. So, her total nest egg goes down to $791,566. Yep, instead of $1.1 million.
Again, that’s simplified, because the amount would actually depend which years were taken off, and where in the savings cycle she was up to. But it illustrates the reason there is such a huge retirement savings gap between men and women (like, close to 50% I’m sad to say).
So, the action points here:
Add a little extra to your super as early as possible – ask your payroll peeps about salary sacrificing.
If you are off work or going part-time, your spouse/partner can make contributions into your super and may get some tax benefits too. (Nice summary here)
Another option, if you’re on a low or part-time income, is to make an after-tax contribution of up to $1,000 to super and the government will contribute 50% to match it – up to $500. More on that here.
For goodness’ sake, please roll all your super into one account! Paying multiple fees and insurance policies is like standing in the shower tearing up hundred dollar bills. Most funds do it all for you these days, so pick your fave fund and get in contact. The difference at retirement could be tens of thousands of dollars!
Tip 2. Pay down debt faster – This applies to all debts, from credit cards to car loans. But I want to talk about the biggest, hairiest debt: your mortgage.
A quick play on an Extra Repayment Calculator shows that on a $400,000 home loan, paying an additional $250 per month would mean:
You save almost $52,000
You pay off the loan 5 years and 7 months earlier[i]
Think you can’t afford that extra money? I challenge you to find it.
It’s you and your partner not buying a coffee every day (yep, for realz – $8 x 30 days = $240).
It’s cutting your grocery bill by shopping in bulk or somewhere like Aldi (did you read this post?).
It’s getting your hair done differently so you go every three months instead of every six weeks (I did this and it changed my life).
It’s putting on your big girl pants and not buying shit you don’t need, three times out of four (the fourth time, well, hey, we are all human).
Whether it’s a hundred bucks or a thousand, looking for ways to chuck extra money into your mortgage puts you so far ahead. You can either get out of debt faster, or leverage the equity you build up to invest in another property.
Find a better deal – On the loan mentioned above, you’d save $33,683.69 over the life of the loan, by moving from an interest rate of 4.04% p.a. to a loan at 3.63% p.a. (yes, these loans exist).
Plus, you’d be paying almost $100 less as the minimum repayment each month. That’s money you could either have in your pocket, or ideally, pay off as an additional amount.
Yes, refinancing means a lot of paperwork, but get a good broker and they do the hard work for you. Whatever you do, don’t pay the ‘lazy tax’ by staying in an expensive home loan.
Use your offset or redraw – These work in slightly differently ways but have the same effect: they reduce the amount that your interest is being calculated on.
If you think about it, 4% of $100,000 is much less than 4% of $150,000. So, you want to be paying interest on a smaller principal amount.
Redraw – this lets you access any additional funds you’ve paid above the minimum repayment. Say you’ve paid an extra $5000, you can get it out in an emergency (a real one, or ‘I need a holiday before I kill someone’).
Offset – the balance “offsets” the interest charged on your mortgage. Say you have $10,000 in an offset and $300,000 on your loan, you only pay interest on the equivalent of $290,000.
It’s similar to the redraw but a bit more dangerous because it’s easier to access. Often a redraw takes a day to process, whereas you can have an offset mixed up with all your normal bills and banking.
Even if you don’t have a mortgage, you can apply a lot of this thinking to your saving.
For instance, look for better deals on the interest you get paid – or even look at other types of investments depending on your timeframe and goal. (Check out this post for some tips).
Track your money and expenses so you can find extra savings. And always pay yourself first. Just like you pay your mortgage repayments before everything else, your savings should go into a different account before you even see it, hold it or think about spending it. Ideally in a different bank!
Start early. Pay off debt. Sounds simple huh? It is in theory, but can be hard in execution. If you’re not convinced you can do it, maybe part of the challenge is to tweak your attitude to money.
May I recommend one or two posts I’ve prepared earlier?
My late step-grandma* had a saying about choosing a partner: ‘Never stoop to pick up nothing’.
This post is not about that – I just wanted to share it because it’s great, and to prove that Grandmas know their shit.
My Grandma used to have five empty Vegemite jars, which she’d put her stray pennies into. There were different jars for different purposes.
“And if you keep doing that, soon you have a shilling, and then you have 21 shillings, which means you have a guinea to spend”.
(OK, I had to Google how many shillings in a pound, but I did know that guineas are more exciting than a boring old pound).
This old-fashioned idea actually underpins a fancy new concept: microsaving apps like Acorns. I’m a huge fan of this app, which scrapes small amounts off your bank account – called ’round-ups’ – and invests them for you.
Say you spend $3.50 on a coffee, it garnishes the 50 cents (to round up to $4), and pops it into a portfolio of Exchange Traded Funds (ETFs) – click here if you want to know more about them.
I like this because it’s painless saving. Of course I have other savings. But my Acorns is a bonus stash that I actually forget about most of the time.
Words from the wise
My friend Cara has an Irish Granny who tells her to ‘save your pennies and the pounds look after themselves’. So true! Even if we don’t actually have pennies or pounds.
On one hand, little bits of good work all add up, in those real or virtual Vegemite jars.
On the other hand, it’s all the small purchases here and there that drain your finances.
In fact, I just went through an exercise proving this. My work is about to launch a budgeting tool which links to your bank accounts and categorises all the transactions (from the last 6 months!) into ‘essentials’ and ‘discretionary’.
But it can only do about 70% of them automatically, meaning I had to go through and label a bunch of transactions myself. Soooo many transactions in the ‘Bars, Cafes and Restaurants’. Soooo many in ‘Clothes and Accessories’.
Sobering but not too surprising. After all, my mindful spending manifesto says I can spend money on going out to brunch, dinner or drinks with friends. It says very little about buying clothes though, so I am going a bit too far with that.
Even though I’m still within my ‘spend and splurge’ limit, the process showed me that I should probably shave that allocation down a little.
Considering I just bought an apartment this week, after three years of post-divorce renting, I think that’s a useful and timely lesson.
So my hot tip is this: track what you spend. Even if it’s just for a month, you’ll quickly see where your money goes, and whether it’s in line with your goals or priorities.
I like the trackmyspend app from MoneySmart, but there are others in the app store. Or go old school with a notebook.
Other great tips from my Grandma and her generation:
A stitch in time saves nine – Looking after things properly means they last much longer. I notice this the most with shoes. If you spend the time and effort wearing in a great pair of shoes, get them resoled and reheeled before they fall apart. I have some beautiful boots cracking the ten year mark now, thanks to some love and care from Mr Minit in Martin Place.
A penny saved is a penny earned – This is really, really important. Earning money is hard and annoying most of the time.
Every time you don’t spend money on something, you can not only keep it, but put it to good use.
My Acorns account is a good demonstration this. I’ve received an 8% return on my funds in the last year. That means every dollar I put in is now worth $1.08 – for doing nothing!
Sure, I’m not going to spend that 8 cents all at once. But when you add this up over time, it’s powerful. Over the next year, I’ll be earning 8% (or whatever it turns out to be) on $1.08 – not just the original dollar.
And this, my friends, is the magic of compound interest.
The graph below is from the MoneySmart compound interest calculator (which I freaking love). The pink columns show what happens if I keep my $1000, continue earning 8% every year, but do nothing else for 10 years.
It’s nice. You get $1220 of free money, and come out with $2220. Good outcome, but no reason to crack out the champagne.
However, if you add just $100 a month, look what happens. That is literally the cost of buying a takeaway coffee every day. If you allocate that to an investment fund for 10 years, you could walk away with over $20,000!
Those light blue columns are the ‘free’ money – the interest earned over that time.
There are lots of assumptions in this example, including getting 8% returns (not guaranteed with shares). But you get the general picture.
Every dollar you don’t spend is good. Every dollar you don’t spend, and invest in something more productive, is even better.
That ‘productive’ thing may just be paying down your mortgage. Don’t get me started on how much you can save by doing that – I have a whole post in the works about it.
But you get it, right?
And finally, here is a tip from Grandma White, which has served me well over time:
If something has green mould, cut it off and it’s fine to eat the rest. If it’s pink mould, throw it out.
I take no responsibility for public health outcomes on that one.
*Side note about my step-grandma Gwen: in her later years she told her daughters “If I die, don’t throw out my wardrobe without getting the $17,000 out of the back.” Over the years, she’d saved whatever was left over from the housekeeping money and stashed it there. Perfect.
Assumptions in calculator: Scenario 1: $1000 deposit, no additional payments, 8% interest each year. Scenario 2: $1000 deposit, $1000 monthly payment, 8% interest each year. Past performance of an investment isn’t a reliable indicator of future performance.
Do you ever feel like there’s an devil on your shoulder convincing you to spend money?
I’m not sure if it’s the same devil who says ‘yes, you need another shot at 1am’, or just a close relative of hers.
Either way, these evil little goblins like to ruin your bank account or your Sunday morning. But we don’t have to give in to them every time.
There are ways to tame the devil on your shoulder when it comes to spending.
1 – Remove temptation – There’s a difference between allocating extra funds to your mindful spending, and simply giving in to bad habits. (If you haven’t read this post, I recommend it).
Mindful spending is where you think about what’s important to you or brings you the greatest pleasure. For example, I spend an outsize amount on fitness because it makes me happy and is good for me. But I don’t buy designer clothes or eat at expensive restaurants. I give myself permission to spend on the priority.
This is not the same as the ‘treat yo’self’ mentality. Buying an expensive pair of shoes is only mindful if you’ve previously decided that it’s part of your Mindful Spending Manifesto. You’ve accepted that expensive shoes make a positive difference to your life, and you’ve cut back on something else to allow for it.
Something that seems to permeate our culture is a sense of helplessness in the face of spending. Yes, shops are good at marketing. Yes, we all have moments of weakness. But unless you have a legit mental addiction (in which case, you should be in treatment), managing our spending should be something we work on with the same fervour as we work on our diets.
So, if you love expensive shoes, don’t go into that shop. If you overspend on boozy nights out, don’t take your card with you – make a cash budget and stick to it. If you can’t be trusted on the ASOS website, don’t click into their newsletter – which brings me to the next point…
2 – Reject reminders – I’ve heard two different people say recently that their worst habit is getting a newsletter from their favourite store, then splurging as a result. “It’s my weakness”.
Well this might sound obvious, but how about you unsubscribe? I’ll admit, these stores are clever. You can’t go to any e-commerce site these days without being offered ‘15% off for subscribing to our newsletter‘. What a bargain you say!
Sure, give them your email and get the coupon. But that’s it! No more. As soon as their welcome email hits your inbox, hit that ‘unsubscribe’ button faster than a Kylie Jenner lipstick sells out.
And if you’ve already got a bunch of these emails hitting you up, then spend 10 minutes – right now – getting them out of your life.
While you’re at it, you probably need to unfollow them on Instagram too. I know, I’m mean. But will your life really be worse because you haven’t been invited to ‘shop the new season look‘?
3 – Get off the spending merry-go-round – AKA: avoid recurring costs.
I love a Shellac manicure with all my heart. Those colours! That staying power! But I have no Shellac in my life anymore, because that shit is a revolving door of gel polish, UV light and acetone baths.
Even if you just want it for an event, you have to go back a few weeks later to get it taken off. And then while you’re there, you may as well get a new colour … and then boom! You’re back on the spending cycle. (And the impact of acetone baths on one’s health is also kinda questionable).
The same can be said for a lot of hair and beauty treatments, but also things like those ridiculous subscription boxes. Like, you really need a box of random beauty products every month? Puhlease. Tell those charlatans who’s in charge of your spending, thank you very much. (Hint: it’s you)
4 – Get smarter than the finance companies – One of the wonders of modern life is how it thinks up new ways to make you buy shit you don’t need. We’ve moved on from the old-skool credit card.
Now, we have Afterpay and zipMoney. Sure you don’t pay interest (although there can be late fees). But it takes a purchase that’s otherwise unaffordable or ill-advised, and puts it within your reach.
It breaks down the mental barrier of ‘my cashflow can’t deal with this‘.
So my advice here is simple: don’t use them. Don’t sign up to them. Don’t create an account (or cancel the one you have).
At the very least, give yourself 24 hours to consider a purchase using it. You’ll be surprised how often you change your mind.
Another trap is the credit card balance transfer. ‘Move your debt to us‘, the banks say. ‘Pay no interest!‘, they say. And you think ‘right, this is the time when I stop adding to the balance and pay off all my debts’.
If that actually happened, these things wouldn’t exist. It’s a trick. You sign up and spend more.
If you really are paying a lot of credit card debt off, and being slugged with interest, you get ONE GO of moving to a no-interest card. Then you ditch it. Freeze it, stash it with your parents, hide it somewhere. Whatever you do, don’t give yourself room to add to that card – all you’re allowed to do is pay it off.
And that, my friend, is how to slay the devil on your shoulder.
I know, a lot of people don’t trust financial planners. There are good and bad ones, just like any other profession. We’ve all had a hairdresser who takes ‘just a trim‘ and turns it into ‘radical hair makeover so you look like a lesbian biker‘. (Don’t get me wrong, I love lesbian bikers – I just don’t necessarily want their haircuts).
However, I’ve been having a conversation with a mate who’s a financial planner, and he messes with my head because he’s all about ‘plans’.
I would ask him ‘should I buy a property to live in or invest in’ and he was all like ‘well, what’s your plan?’.
I don’t know! I’m in my late 30s, divorced, childless. So far, all the ‘plans’ I made 10 years ago haven’t really turned out.
But that doesn’t mean I can get away without one. Without some goals, I don’t know where to put my money or how much to save.
And if you don’t know the destination, how will you know the how to get there?
Sometimes, choosing the destination is the hard bit
People often ask me about what to with their money. I can’t tell them specifically (partly because I’m not licensed so it’s illegal). But I do ask them ‘what’s the goal’?.
Is it saving enough for a property? Is it having enough to travel? Maybe it’s just being a bad-arse with a backpack and a round-the-world ticket (oh hey Betsy, how’s Iceland?).
Tactics are useless without a strategy. And a strategy is nothing without a goal.
If you’re like me though, you find big life planning stuff daunting at best, terrifying at worst. But don’t worry, Fierce Girls, I got ya.
I came up with questions to help you create some clarity. And then I made a fucking worksheet! I know, I am crafty AF.
Doing the worksheet
Now, you can do this and not necessarily come up with a special number. You know, a savings goal or something. That’s a topic for another day.
But you will think critically about the factors that shape your decisions. So the questions in the worksheet are (and you can totally pick the timeframe that applies to you):
Where do you want to be __ years from now?
What things do you want to experience?
How will you spend your time? Who with?
What will you own?
What is a must-do or must-have?
What can you give up or cut back?
What is the ‘why’?
When I did this exercise, I came up with a general plan that I don’t want to be a full-time, salaried employee much past my mid-fifties. I want to write books and hold workshops and coach people and be generally useful. I also want to travel as much as possible.
So that means I have about 15 years to build wealth, take holidays, smash a mortgage and sock away superannuation. Scary huh?
It also means I can give up expensive cars, too many clothes, and general unnecessary ‘stuff’. When I am considering a purchase, my decision tree is something like ‘Could I better spend this money on my trip next year?’ or ‘Wouldn’t I be better to chuck this into my mortgage?’.
Of course I won’t be perfect. But I have a plan and sense of direction. And then everything else is easier from there. Try it yourself!
Next week: The Track Your Spend challenge: finding where your money goes and working out how to save more of it. Yep. I’m gonna make another worksheet. It will be amazing.