Speaker 1: Welcome to How Do They Afford That, The podcast that
Speaker 1: peaks into the financial lives of everyday Australians. I'm Michael Thompson.
Speaker 1: I'm an author and the co host of the podcast
Speaker 1: Fear and Greed Business news. As always, I'm with Canna Campbell,
Speaker 1: financial planner and founder of Sugar Mummer TV, the financial
Speaker 1: literacy platform covering YouTube, podcast books, Instagram, threads, TikTok and more. Hello, Canna,
Speaker 1: Good morning Cana. A lot of people don't work in stable,
Speaker 1: consistent jobs, right, and I think the rise of the
Speaker 1: gig economy. I mean, the gig economy has always been there,
Speaker 1: but the rise and the the prevalence of platforms like
Speaker 1: kind of Uber and air Tasker and things like that,
Speaker 1: right have just made it so much easier for people
Speaker 1: to build an income or multiple streams of income out
Speaker 1: of the gig economy. It's great, but it can be
Speaker 1: a little bit unpredictable. So my question for you today
Speaker 1: is how do you save when your income is a
Speaker 1: regular Because saving money matters. We know that you've got
Speaker 1: to build up your emergency fund, you've got to keep
Speaker 1: your budget kind of in the black, but also if
Speaker 1: you want to get ahead through investing and stuff. You
Speaker 1: need to be able to put money into that, right,
Speaker 1: So how do you do it? Okay, do you want
Speaker 1: me to narrow it down slightly?
Speaker 2: We should also point out you don't have to be
Speaker 2: necessarily as part of the gig economy to have this
Speaker 2: inconsistent income. You know, for example, people who are commission based,
Speaker 2: you know, they were going to sales job. You know,
Speaker 2: their income fluctuates, you know, real estate agents. You know,
Speaker 2: it's might be a quite a month or two and
Speaker 2: then they might be flush with cash.
Speaker 1: Yep. Casual workers in a whole range of different jobs.
Speaker 2: Yeah, even people working remotely, you know, seasonal work, you know,
Speaker 2: working in Santa Ski field, or people who work for say,
Speaker 2: cruise ships when they're on board, they're working, but when
Speaker 2: they're not.
Speaker 1: Yeah, any kind of freelance work, all that kind of thing.
Speaker 2: Okay, So not just excluding people here, not just gig economy.
Speaker 1: No, it is much much much bigger than that, wider
Speaker 1: than that. Yeah, Okay, in that case, since we are
Speaker 1: now talking big picture, right, let's start with the bigger picture.
Speaker 1: Is saving even more important when your income is unpredictable
Speaker 1: to give yourself that buffer?
Speaker 2: Absolutely, it is a non negotiable. It is an essential.
Speaker 2: It is that savings that you have set aside, well
Speaker 2: away from your everyday spending account, is that's going to
Speaker 2: help smooth out the highs and lows and will help
Speaker 2: you stay sane and safe during periods of time, maybe
Speaker 2: a couple of weeks, or maybe even a couple of
Speaker 2: months or even a year where that you have those
Speaker 2: really tight lean months.
Speaker 3: It is your lifeline.
Speaker 1: What, then, I suppose, is the biggest mistake that you
Speaker 1: see people making if they've gotten a regular income when
Speaker 1: it comes to saving. Is it not appreciating the importance
Speaker 1: of doing it when they've got a good week or
Speaker 1: a good month.
Speaker 2: Yes, so I see two of the most sort of
Speaker 2: common mistakes. Is number one is actually holding out thinking,
Speaker 2: you know what, we've had a really good month, or
Speaker 2: I've had a really good month this month, I'm just
Speaker 2: gonna spend a bit here and I'll save next month's
Speaker 2: you know, paypacket, And then you say the same thing
Speaker 2: the following month, and it never actually eventuates. You never
Speaker 2: actually start building up that safety money of that bar
Speaker 2: for a or that emergency fund. The other mistake I
Speaker 2: see is people assuming I guess it'd be like counting
Speaker 2: their chickens before their hatch. Is that the good times
Speaker 2: will just keep rolling and you know, their lifestyle just
Speaker 2: continues on and the lifestyle creep then kicks in and
Speaker 2: they don't actually realize their abnormal months or their abnormal
Speaker 2: successful periods of time that's not the norm. So they're
Speaker 2: the biggest mistakes I see, and they come with massive regret.
Speaker 1: Okay, how do you do it? Then? Is it a
Speaker 1: case of setting? And I want to talk to about
Speaker 1: budgeting as well. I will do that a little bit
Speaker 1: later on. But in terms of just saving, do you
Speaker 1: try to set a a specific dollar amount that you're
Speaker 1: going to save each month or does that not work
Speaker 1: when your income is variable?
Speaker 2: Look effects fixed amount is better than nothing at all,
Speaker 2: But I much prefer a flexible sort of dollar amount
Speaker 2: where you have sort of targets and any amount over
Speaker 2: this amount you normally own goes into this account. I
Speaker 2: have a big issue with these percentage systems. You know,
Speaker 2: the buckets, okay, like you know, spend fifty percent, save
Speaker 2: twenty percent, invest thirty percent. Like the hard and fast
Speaker 2: rules I find very limiting and leave people feeling like
Speaker 2: they've failed, and then they.
Speaker 3: Don't bother trying at all.
Speaker 2: You need, you know, if your income is fluid in
Speaker 2: that it is volatile. One month it's okay, next month
Speaker 2: it's averaged. In the following month it's miserable. But then
Speaker 2: you've got a great big paypack or a big check
Speaker 2: coming in. You've got to be keep your cash flow
Speaker 2: management fluid. It's why I like to talk about Yeah,
Speaker 2: and it's a really long analogy but which I won't
Speaker 2: go into in detail. But previously in other episodes I've
Speaker 2: spoken about being like a traffic control director with.
Speaker 3: Your cash foe.
Speaker 2: You've got to, you know, look at what the traffic
Speaker 2: is banking up. You've got to move traffic along. You've
Speaker 2: also got to work out whose turn is it to
Speaker 2: like sit and wait for a bit and let other
Speaker 2: people go past. You've kind of got to do that
Speaker 2: even more so, and that's one of the pressures that
Speaker 2: come with having a regular income and managing all of
Speaker 2: the expenses, because whilst your income fluctuates, our living expenses
Speaker 2: also fluctuate. We have expensive months, we have frugal months,
Speaker 2: we have low key months. We have unexpected expenses during months,
Speaker 2: So you know, you're juggling a lot, you've got to
Speaker 2: really stay.
Speaker 3: On top of it.
Speaker 1: Okay, Just to kind of paint a picture of how
Speaker 1: that that might work, let's do a little example an exercise,
Speaker 1: shall we. So to keep it really simple, let's say
Speaker 1: one week you earn a thousand dollars, yes, all right,
Speaker 1: and then the next week you earn ten thousand dollars.
Speaker 1: It's an absolute per week. That one me too. I
Speaker 1: like that second week. But this is the risk I
Speaker 1: suppose of the percentage system. It's in that one thousand
Speaker 1: dollars week, so you have fifty percent of it going
Speaker 1: to your mortgage or rent. So there's five hundred dollars gone,
Speaker 1: and then you say that, okay, my next thirty percent
Speaker 1: is going to groceries, and then the next ten percent
Speaker 1: is going towards other bills, and then the final ten
Speaker 1: percent is my savings. All right. So that's one hundred
Speaker 1: dollars going into your savings, one hundred dollars into your
Speaker 1: other bills, three hundred dollars going into your groceries, all right, Okay,
Speaker 1: So that means that then you are putting aside hundred
Speaker 1: dollars one hundred dollars. That means then that the following week,
Speaker 1: when you make ten thousand, that means that you are
Speaker 1: only then putting one thousand dollars into savings, and all
Speaker 1: the other ones are just completely blown out of all proportion.
Speaker 1: Whereas you would be better to say, you've got your
Speaker 1: five hundred dollars for your for your mortgage or your rent,
Speaker 1: your three hundred dollars that you still need for your
Speaker 1: for your gross, you hundred dollars for your other bills,
Speaker 1: and then everything north of that, yes, suddenly means that
Speaker 1: you are putting aside nine thousand, one hundred dollars into
Speaker 1: your savings exactly.
Speaker 2: And this is why I don't like these hard and
Speaker 2: fast percentage systems. I think they are Look most people
Speaker 2: I can't even fit into these percentage systems a financial planner.
Speaker 2: But when you look at a dollar amount and you say, okay,
Speaker 2: well we need this much to pay for the rent,
Speaker 2: this much for groceries, this much for utilities and transport,
Speaker 2: and then we can sect like, look at what's left
Speaker 2: over and then divvy it up as a dollar amount,
Speaker 2: that's great. And then if you have another bumper of
Speaker 2: a month, you can keep adjusting it and have sort
Speaker 2: of goals that you work around it. So it is
Speaker 2: really important that you create something that is a boundary
Speaker 2: that is right for you and what you need, and
Speaker 2: can actually work with you to build that consistency and
Speaker 2: smooth out your cash flow.
Speaker 1: That doing that little exercise, I think probably illustrated it
Speaker 1: for me more than anything else that I've heard, because
Speaker 1: all of a sudden, you have built yourself up a
Speaker 1: very very nice buffer rather than just spending it because
Speaker 1: you think you can, because you're doing it on a
Speaker 1: percentage basis.
Speaker 2: And it feels really nice having emergency money. It is
Speaker 2: a great night sleep knowing I've got fifty thousand dollars
Speaker 2: in a separate savings account in case I have a
Speaker 2: few bad months, or if I lose my job or
Speaker 2: you know something, you know, my work drives up.
Speaker 1: Yeah, is the key to this discipline, because otherwise how
Speaker 1: do you kind of stop yourself from going into panic
Speaker 1: mode I suppose in lean months and then over spending
Speaker 1: in the good months. Is it just about being really
Speaker 1: really strict with yourself.
Speaker 2: Yes, self control, But also it's about having a good memory,
Speaker 2: not necessarily a good memory of bad things that happened
Speaker 2: to you, but witnessing other people. So remembering God, I remember,
Speaker 2: you know, my best friend went through a really hard time,
Speaker 2: and you know, he or she didn't have an emergency
Speaker 2: money and they had to move back home or they
Speaker 2: had to sell their house. You know, those sorts of
Speaker 2: things like capitalizing on someone else's lesson can be really
Speaker 2: powerful and helping you stay focused and motivated and having
Speaker 2: that sense of discipline because you build a sense of
Speaker 2: respect just to what that buffer account or that emergency money,
Speaker 2: whatever you want to call it, provides you, and it
Speaker 2: will help you take away that temptation where you go
Speaker 2: to spend it because you're like, no, I don't want
Speaker 2: to end up like that personal I remember this happened
Speaker 2: to me a few years ago, and I was so stressed.
Speaker 3: I was so anxious. I'm never going to let that
Speaker 3: happen again.
Speaker 2: I'm learning, I'm growing, I'm leaving that behind in my past.
Speaker 2: So it really is about focusing on the benefit of
Speaker 2: that money so that it's not even a temptation.
Speaker 3: It's no negotiable.
Speaker 1: As I said, Okay, we're going to take a quick break.
Speaker 1: When we come back, I want to talk to you
Speaker 1: about budgeting methods. I want to talk about the idea
Speaker 1: of setting yourself a pretend salary.
Speaker 2: Well, you're talking about my drip feed technique, so that
Speaker 2: you get ready for that helpful.
Speaker 1: Drip feed, and then also this idea of automatic savings
Speaker 1: transfers and whether you can kind of automate the process
Speaker 1: so that you don't have to think about it and
Speaker 1: don't stress too much. There's actually a lot to get through,
Speaker 1: isn't there. We'll take a quick break and come back
Speaker 1: in a moment and do that. Can We're talking about
Speaker 1: how to save when your income is unpredictable, And as
Speaker 1: you said, this is bigger than the gig economy. This
Speaker 1: is any kind of freelancers or anyone on commission based work,
Speaker 1: or anyone in casual work or anything where your shifts
Speaker 1: might vary and your income might vary. So this is
Speaker 1: actually a lot of people budgeting methods. Okay, is there
Speaker 1: anything that works better for say, for gig workers, freelancers,
Speaker 1: et cetera.
Speaker 2: So welcome to my lesson on my drip feed technique.
Speaker 2: So what you do is you put all of your
Speaker 2: income into the one account, and you know it doesn't
Speaker 2: matter where it's come from, you know who from how
Speaker 2: much it all goes into the one account. You would
Speaker 2: then pay yourself initially a small set salary per week,
Speaker 2: per fortnite, per month, whatever you would prefer to help
Speaker 2: you manage your cash flow, and that obviously accounts also
Speaker 2: for tax as well if you are self employed. But
Speaker 2: it basically it takes it creates almost like a fake
Speaker 2: salary for yourself, but it creates consistency in your income,
Speaker 2: which for a lot of people will make it a
Speaker 2: lot more a lot easier to actually manage the cash flow,
Speaker 2: which is one of the key foundations of actually financial
Speaker 2: good financial management.
Speaker 1: And so you're pretending then that this set salary is
Speaker 1: what then goes on to pay for all of your
Speaker 1: other bills.
Speaker 2: Ess all the normal all your normal living expenses and bills.
Speaker 2: And I recommend people started off as low as they
Speaker 2: can to help build up that account because it may
Speaker 2: take a couple of months to actually build up a
Speaker 2: decent balance, but you and then you can review it,
Speaker 2: so you might go, okay, well, I'm going to take
Speaker 2: five thousand dollars per month as a net salary and
Speaker 2: obviously accounting for a pay as you go tax depending
Speaker 2: on your if you're self employed or not. So then
Speaker 2: you would sit with that for a couple of months
Speaker 2: learning how to live off with that as a set salary.
Speaker 2: Then say in a month or two time or next quarter,
Speaker 2: you look at that and go, can I give myself
Speaker 2: a pay rise? Perhaps I can afford to actually give
Speaker 2: myself now six thousand dollars per month. Again, you've got
Speaker 2: to account for the increase in tax that you can
Speaker 2: prepay to the ATO if you want, or put into
Speaker 2: a separate savings account, so that you are allowing giving
Speaker 2: that account the time to actually build up, so that
Speaker 2: you have a decent amount set aside, and that money
Speaker 2: keeps on flowing. And again you can review it. You
Speaker 2: might need to slightly tweak it and change it as
Speaker 2: your situation changes, your needs change. But it is a
Speaker 2: great way of taking away that sense of instability that
Speaker 2: comes from an irregular, volatile income stream.
Speaker 1: A cash flow, all right, And at the same time,
Speaker 1: this float essentially would be expanding.
Speaker 2: Yes, yes, And that's when if you see, for example,
Speaker 2: I might do this for a couple of months and
Speaker 2: I think, I see, okay, well I've actually now I've
Speaker 2: got instead of having say fifty thousand dollars in savings
Speaker 2: for my drip feed technique, I don't need as much
Speaker 2: as that I might reduce it accordingly, or am I going?
Speaker 2: You know what? I know that there's some really tight
Speaker 2: months coming up, and I could be without a job
Speaker 2: for a lot longer than I initially thought. I actually
Speaker 2: need that base amount to be a lot higher, around
Speaker 2: say seventy thousand. But the point is you're regularly engaging
Speaker 2: with it, but you're creating almost like a pretend salary
Speaker 2: for yourself.
Speaker 1: I really like that. The problem that I see with
Speaker 1: it is the potential to dip into that float when, if,
Speaker 1: and when you need it. And I suppose this probably
Speaker 1: comes back to a discipline thing.
Speaker 2: Well, that's about to say like it is a big
Speaker 2: responsibility to manage your cash flow. It is not something
Speaker 2: to be disregarded. You do need to track and regularly
Speaker 2: check your cash flow, and you really need to connect
Speaker 2: with your why, which is why I refer to learning
Speaker 2: from previous mistakes, or learning from other people's previous mistakes,
Speaker 2: so that you can take on some wisdom here. And
Speaker 2: you know, a great way to stay motivated is to
Speaker 2: look at.
Speaker 3: Making it as visual as possible.
Speaker 2: And I see this a lot in the debt free community,
Speaker 2: where people have created like charts and graphs and envelopes
Speaker 2: and stickers and you know, really made it incredibly visual
Speaker 2: and colorful.
Speaker 1: You know.
Speaker 2: And they've done it in a digital way through canber
Speaker 2: or they've got stuff on the fridge to help them
Speaker 2: see their progress. And I always say, like progress fuel success.
Speaker 2: When you can see, okay, we're building up that buffer amount,
Speaker 2: or you know, we're ready to take a bit of
Speaker 2: a salary increase from our drip feed technique, you can
Speaker 2: actually see that it's working. The debts are coming down,
Speaker 2: you're actually engaging with your finances. You're a lot more
Speaker 2: You've got a lot more skin in the game, You're
Speaker 2: a lot more emotionally engaged, committed connected. You can see
Speaker 2: it's working. The hard work's paying off. That's only going
Speaker 2: to fuel that determination and commitment to keep it going
Speaker 2: and make sure this continues on working for you.
Speaker 1: Okay, And does that big float from which you pay
Speaker 1: that that drip feed kind of salary, does that replace
Speaker 1: the emergency fund or are you separately feeding into an
Speaker 1: emergency fund.
Speaker 2: Look, it really depends on your situation and what your
Speaker 2: financial responsibilities are. Ideally, in a perfect world, you have
Speaker 2: emergency money separate as well as your drip feed float
Speaker 2: system happening as well. So yes, they are different, and
Speaker 2: I probably confuse the listeners and yourself Michael by Court
Speaker 2: referring it maybe as an emergency money. Technically they are separate.
Speaker 2: This is to help manage your the inconsistency of your income,
Speaker 2: and I rarely see it well. To be honest, I
Speaker 2: have never seen anyone be able to manage irregular income
Speaker 2: successfully without this technique.
Speaker 1: Okay, so that's how important.
Speaker 3: So I smoke up my own ass. But yes, that's
Speaker 3: quite the image, isn't that?
Speaker 2: But because I know it works, and I know with myself,
Speaker 2: especially when I started my own business years ago, like
Speaker 2: I was, I was twenty six, twenty seven, and I
Speaker 2: had a mortgage. I had a lot of risk on
Speaker 2: my shoulders and I was paid quarterly. Wow yeah, and
Speaker 2: it took three months before I got my first paycheck.
Speaker 2: So this is what I did, and it worked, and
Speaker 2: I still swear by it today.
Speaker 1: I have experienced this as well in book publishing. Yes,
Speaker 1: when I published my first novel in twenty twenty three,
Speaker 1: and it is essentially payments related to that, I staggered
Speaker 1: almost over not two and a half years, which means
Speaker 1: that you have to budget and manage that cash, which
Speaker 1: is just such a challenging thing to.
Speaker 2: Do, and it's also time consuming as well. That's why
Speaker 2: I like the system is because all the money goes
Speaker 2: into the one bucket.
Speaker 3: There's none of this.
Speaker 2: Okay, when I get this check from here, I'll put
Speaker 2: it to that, When I get this deposit here, when
Speaker 2: that money comes in on when that gets paid, I'll
Speaker 2: put it here and there.
Speaker 3: It just put it simplifies it.
Speaker 2: And you know, if you are juggling multiple jobs like
Speaker 2: it's the gig economy, or you're juggling lots of things
Speaker 2: in life, as we all are, this just makes it
Speaker 2: really clean and really simple. And I think that's what
Speaker 2: we over complicate things by having multiple accounts. I'm looking
Speaker 2: at you, Michael, and you know we don't need to
Speaker 2: just keep it simple so that you were engaged with it,
Speaker 2: and you don't because it's easy to understand. You don't
Speaker 2: put it off either.
Speaker 1: You are going to be so proud of me. I
Speaker 1: have not told you this recently, please the under seventeen
Speaker 1: because in the past we've talked about the fact that
Speaker 1: I had twenty six bank accounts, right and then you
Speaker 1: got that. You put me on a bank account diet
Speaker 1: and told me I wasn't allowed to open any more,
Speaker 1: and I got it down to what I thought was nineteen,
Speaker 1: and then it went back up to twenty two because
Speaker 1: I found some more. The other day, I consolidated a
Speaker 1: whole bunch of bank accounts and I am now down
Speaker 1: to let me it is fifteen.
Speaker 3: I am really proud of you right now.
Speaker 1: It is. In fact, it could actually be better than
Speaker 1: that because.
Speaker 3: I see progress, feel success. So you are evidence.
Speaker 1: Yeah, it is, and it is all about just trying
Speaker 1: to improve that cash flow, the visibility over cash flow.
Speaker 1: And so this has been a really interesting process talking
Speaker 1: through the drip feed system. I mentioned automatic savings transfers.
Speaker 1: Really you can part of this is automated, then, isn't it.
Speaker 1: If you are doing this drip feed system, then you
Speaker 1: are paying yourself that same salary every single week, which
Speaker 1: is an automated thing you.
Speaker 2: Can set up automated. But this is the thing, and
Speaker 2: you did ask me this question which we haven't touched on,
Speaker 2: but the automation. Automation is great because it obviously takes
Speaker 2: it's one less thing for you to have to do,
Speaker 2: but it also can make us maybe a little bit lazy, okay,
Speaker 2: and hold us back from actually achieving our true potential. So,
Speaker 2: for example, say I have you know, two hundred dollars
Speaker 2: per month regular savings plan to build up you know,
Speaker 2: my my emergency money. For example, if I have an
Speaker 2: irregular income stream, I could potentially save more so and
Speaker 2: which means I could build up my emergency money number
Speaker 2: a lot faster. So by having that money staying in
Speaker 2: my account, I could be actually transferring three hundred dollars
Speaker 2: per month or four hundred dolls per month. But I
Speaker 2: don't I to stick to this automated system of two
Speaker 2: hundred dolls per month. I'm probably gonna go and spend
Speaker 2: that one hundred two hundred dollars a month that I
Speaker 2: actually could afford to put aside. And that's where I
Speaker 2: think the danger lies because.
Speaker 1: To get into that that the challenges with the percentage
Speaker 1: system that we talked in the first part.
Speaker 2: It but also we don't actually look at our numbers,
Speaker 2: and that's what we need to be doing. We need
Speaker 2: to be checking our accounts, we need to be checking
Speaker 2: our transactions, and we need to be making sure that
Speaker 2: we're doing the best we can obviously, but whilst enjoying
Speaker 2: a healthy balance in life.
Speaker 1: Okay, Look, the drip feed system is just such an
Speaker 1: interesting way of operating.
Speaker 2: I explain it actually in so much more detail in
Speaker 2: my book Mindful Money.
Speaker 3: I even have like charts and graphs.
Speaker 1: Okay, it's very helpful. And I think we talk then
Speaker 1: about that that is not just helping you save, that
Speaker 1: is helping budget at the same time, and in doing
Speaker 1: so you may well be able to allocate money not
Speaker 1: just to your emergency fund, but also to investing exactly
Speaker 1: and help get you ahead. Okay, comprehensive. And I like
Speaker 1: the fact that you pointed out this is bigger than
Speaker 1: just the gig economy. This is so many people who
Speaker 1: I mean, it almost feels like people with a fixed,
Speaker 1: stable income are in the minority these days.
Speaker 3: Yeah, I agree.
Speaker 1: Yeah, very useful. Okay, where do we find you if
Speaker 1: we need more information?
Speaker 2: Well, if you have any questions about my drip feed technique,
Speaker 2: just send me a damn on Instagram at sugar mom
Speaker 2: My TV and I'll come back to you as soon as.
Speaker 1: I can and you can hear me every day with
Speaker 1: Sean Aylmer on Fear and Greed Business news you can use.
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