1 00:00:00,240 --> 00:00:03,160 Speaker 1: Welcome to start here a very special mini series that 2 00:00:03,240 --> 00:00:07,200 Speaker 1: I have created for you through Sugar Mamma's Fireplay. This 3 00:00:07,320 --> 00:00:10,160 Speaker 1: is our safe space where you can pick my brain 4 00:00:10,720 --> 00:00:14,360 Speaker 1: ask the financial questions that you have been carrying quietly. 5 00:00:14,840 --> 00:00:18,680 Speaker 1: So whether you're feeling overwhelmed, uncertain, or just a teeny 6 00:00:18,720 --> 00:00:21,560 Speaker 1: tiny bit curious, this is a series where I can 7 00:00:21,600 --> 00:00:28,000 Speaker 1: give you empowering practical guidance. Now, today's question comes from 8 00:00:28,040 --> 00:00:30,639 Speaker 1: a single mum who's using or about to use a 9 00:00:30,680 --> 00:00:34,960 Speaker 1: debt recycling strategy, and she just has one question before 10 00:00:35,000 --> 00:00:37,960 Speaker 1: she jumps in. So I'm going to read this directly 11 00:00:38,000 --> 00:00:41,479 Speaker 1: this message. Hi Canna, I'm loving this new series. I'm 12 00:00:41,520 --> 00:00:44,000 Speaker 1: a recent single mum and I'm about to pull the 13 00:00:44,040 --> 00:00:48,320 Speaker 1: trigger on my first debt recycling strategy. I've saved fifty 14 00:00:48,320 --> 00:00:51,720 Speaker 1: thousand dollars cash to recycle on my three hundred and 15 00:00:51,840 --> 00:00:55,240 Speaker 1: ninety thousand dollars home loan. I'll be investing in new 16 00:00:55,440 --> 00:00:59,200 Speaker 1: licks listed investment companies and topping up my existing six 17 00:00:59,440 --> 00:01:04,240 Speaker 1: ETFs with these funds pre debt recycling. Each of my 18 00:01:04,360 --> 00:01:10,000 Speaker 1: ETFs are automatically enrolled in dividend reinvestment plans. Is it 19 00:01:10,040 --> 00:01:13,880 Speaker 1: best to continue to do this post debt recycling or 20 00:01:14,280 --> 00:01:18,199 Speaker 1: given debt recycling objectives, is it best to temporarily take 21 00:01:18,400 --> 00:01:22,800 Speaker 1: the cash dividends to save more cash faster to further 22 00:01:22,959 --> 00:01:26,920 Speaker 1: debt recycle. My ideal goal is to pay down my 23 00:01:27,040 --> 00:01:30,800 Speaker 1: home whilst growing my investment assets at the same time. 24 00:01:31,400 --> 00:01:35,120 Speaker 1: For reference, I'm a phenomenal budgeter and saver and plans 25 00:01:35,160 --> 00:01:39,160 Speaker 1: to do this with every fifty thousand dollars chunk that 26 00:01:39,280 --> 00:01:43,759 Speaker 1: I save. Thanks Canna. Okay, So the ultimate question is 27 00:01:43,760 --> 00:01:46,480 Speaker 1: is do I reinvest my dividends or do I use 28 00:01:46,520 --> 00:01:50,440 Speaker 1: them to help pay down debt. Now, before we dive in, 29 00:01:50,840 --> 00:01:53,680 Speaker 1: I just want to make a quick reminder that this episode, 30 00:01:54,120 --> 00:01:57,000 Speaker 1: as is all of my Start Here episodes and everything 31 00:01:57,040 --> 00:02:01,320 Speaker 1: on Sugar Mama's Fireplay is always in nature and obviously 32 00:02:01,400 --> 00:02:05,440 Speaker 1: for educational purposes only. And I include that when I 33 00:02:05,640 --> 00:02:08,120 Speaker 1: talk about things that I do that I might share 34 00:02:08,320 --> 00:02:12,280 Speaker 1: with you, I'm never giving you like personal investment or 35 00:02:12,320 --> 00:02:18,560 Speaker 1: strategic advice. Everybody's financial situation is incredibly unique and these 36 00:02:18,600 --> 00:02:22,200 Speaker 1: types of decisions really need to be discussed with a 37 00:02:22,320 --> 00:02:25,400 Speaker 1: licensed financial plan like myself, but on the basis of 38 00:02:25,520 --> 00:02:30,280 Speaker 1: personal professional advice through a statement of advice, also a 39 00:02:30,280 --> 00:02:32,840 Speaker 1: debt recycling strategy is one that is high risk and 40 00:02:33,080 --> 00:02:37,960 Speaker 1: quite complicated. It is so important that your debt recycling 41 00:02:38,000 --> 00:02:42,760 Speaker 1: strategy is actually set up correctly the right way the 42 00:02:42,880 --> 00:02:45,400 Speaker 1: first time. If you're going to be doing a debt 43 00:02:45,440 --> 00:02:48,400 Speaker 1: recycling strategy, which I'll explain in more detail in a second, 44 00:02:48,440 --> 00:02:50,880 Speaker 1: you want to make sure that you have a separate 45 00:02:51,000 --> 00:02:54,360 Speaker 1: investment loan. You're not saving up money to then go 46 00:02:54,440 --> 00:02:57,280 Speaker 1: invest You're saving up money to pay on your home 47 00:02:57,320 --> 00:03:01,400 Speaker 1: loan to then redraw back through the investment loan. It's 48 00:03:01,600 --> 00:03:04,959 Speaker 1: really clear that there is a really defined line between 49 00:03:05,000 --> 00:03:09,360 Speaker 1: your deductible debt and your non deductible debt. So if 50 00:03:09,400 --> 00:03:12,040 Speaker 1: you have it already, definitely go and see a mortgage 51 00:03:12,080 --> 00:03:14,560 Speaker 1: broker to make sure that this is set up correctly. 52 00:03:14,639 --> 00:03:17,919 Speaker 1: If you need a great mortgage broker that has done 53 00:03:17,960 --> 00:03:20,799 Speaker 1: a lot of this debt recycling, including my own debt 54 00:03:20,840 --> 00:03:23,120 Speaker 1: recycling strategy, just send me a DM and I'm happy 55 00:03:23,120 --> 00:03:27,400 Speaker 1: to share his contact details now. In the meantime, I 56 00:03:27,440 --> 00:03:29,040 Speaker 1: really want to talk about the pros and cons of 57 00:03:29,080 --> 00:03:31,839 Speaker 1: each option for this particular listener and to anyone else 58 00:03:31,880 --> 00:03:35,160 Speaker 1: out there who has a share portfolio, whether it's recycling 59 00:03:35,240 --> 00:03:36,960 Speaker 1: or not and one does the same thing. Should I 60 00:03:36,960 --> 00:03:40,680 Speaker 1: be taking the dividends to help pay down debt like 61 00:03:40,760 --> 00:03:44,360 Speaker 1: the mortgage, or should I be reinvesting the dividends for 62 00:03:44,640 --> 00:03:49,280 Speaker 1: long term compounding growth opportunities. Well, hopefully this episode will 63 00:03:49,320 --> 00:03:53,119 Speaker 1: actually help a wide range of people in similar situations 64 00:03:53,200 --> 00:03:57,760 Speaker 1: but also different situations. So I'm really excited about publishing 65 00:03:57,800 --> 00:04:00,160 Speaker 1: this episode for you because I feel like everyone is 66 00:04:00,200 --> 00:04:03,360 Speaker 1: going to feel so much more confident about what they're 67 00:04:03,360 --> 00:04:05,800 Speaker 1: doing and what they decide to potentially do what change, 68 00:04:05,840 --> 00:04:09,200 Speaker 1: but also feel really informed along the way. All right, 69 00:04:09,400 --> 00:04:13,160 Speaker 1: let's get started by explaining and start going to start 70 00:04:13,200 --> 00:04:15,560 Speaker 1: take a few steps back actually, and explain what a 71 00:04:15,560 --> 00:04:17,560 Speaker 1: debt recycling strategy is, if anyone needs a bit of 72 00:04:17,600 --> 00:04:23,279 Speaker 1: a refresher. So, a debt recycling strategy is where you 73 00:04:24,040 --> 00:04:28,359 Speaker 1: essentially convert non deductible debt like your home loan, into 74 00:04:28,600 --> 00:04:33,400 Speaker 1: tax deductible debt and invest that borrowed money into income 75 00:04:33,520 --> 00:04:38,360 Speaker 1: producing assets like shares or even buying investment properties. For example, 76 00:04:38,720 --> 00:04:41,440 Speaker 1: say I have a million dollar home and I have 77 00:04:41,480 --> 00:04:44,920 Speaker 1: a six hundred thousand dollar mortgage, so I've got technically 78 00:04:44,960 --> 00:04:47,760 Speaker 1: four hundred thousand dollars with equity. I would go to 79 00:04:47,800 --> 00:04:50,039 Speaker 1: my bank and say, look, I'm interested in, you know, 80 00:04:50,640 --> 00:04:54,320 Speaker 1: borrowing some money to invest. The bank may say, obviously, 81 00:04:54,400 --> 00:04:57,000 Speaker 1: after doing a whole pile of checks with and obviously 82 00:04:57,000 --> 00:04:59,400 Speaker 1: getting a mortgage broker to help me, the bank would 83 00:04:59,440 --> 00:05:02,640 Speaker 1: then lend me, for example, one hundred thousand dollars. Now, 84 00:05:02,640 --> 00:05:05,560 Speaker 1: that would mean that I have a separate investment loan 85 00:05:05,560 --> 00:05:07,760 Speaker 1: of one hundred thousand dollars, and I can go and 86 00:05:07,800 --> 00:05:10,560 Speaker 1: invest that one hundred thousand dollars. But remember I still 87 00:05:10,640 --> 00:05:13,719 Speaker 1: have six hundred thousand dollars home loan. Now I would make, 88 00:05:13,920 --> 00:05:16,719 Speaker 1: you know, extra payments on that six hundred thousand dollars 89 00:05:16,720 --> 00:05:19,120 Speaker 1: home loan and also service the one hundred thousand dollar loan. 90 00:05:19,480 --> 00:05:21,640 Speaker 1: And as that mortgage starts to come down, I go 91 00:05:21,720 --> 00:05:23,920 Speaker 1: back to the bank and say, you know, I've just 92 00:05:23,960 --> 00:05:26,200 Speaker 1: paid off another fifty thousand dollars of my home loan. 93 00:05:26,600 --> 00:05:28,880 Speaker 1: I want to continue on investing. They would take that 94 00:05:28,920 --> 00:05:31,240 Speaker 1: fifty thousand dollars from me, so my home loan limits 95 00:05:31,279 --> 00:05:34,000 Speaker 1: now down to five hundred and fifty, and then another 96 00:05:34,040 --> 00:05:36,960 Speaker 1: fifty thousand dollars would be available for me to borrow 97 00:05:37,480 --> 00:05:40,640 Speaker 1: on my investment loan. Taking my investment loan up to 98 00:05:41,400 --> 00:05:44,719 Speaker 1: one hundred and fifty thousand, and this is a really 99 00:05:44,720 --> 00:05:49,240 Speaker 1: powerful strategy that I think more people should consider using 100 00:05:49,440 --> 00:05:53,920 Speaker 1: a in a very slow, gentle, intelligent way because there's 101 00:05:54,000 --> 00:05:56,400 Speaker 1: so many great benefits that come from this. But it 102 00:05:56,440 --> 00:05:58,360 Speaker 1: is high risk, which is why I must stress it 103 00:05:58,400 --> 00:06:01,200 Speaker 1: must be done under the guidance of a financial planner, experience, 104 00:06:01,279 --> 00:06:05,400 Speaker 1: mortgage broker and even an accountant. And the key benefits 105 00:06:05,440 --> 00:06:08,640 Speaker 1: to doing something like this is it can help you 106 00:06:08,640 --> 00:06:12,440 Speaker 1: path your home loan faster. It means you're actually building 107 00:06:12,520 --> 00:06:15,719 Speaker 1: an investment portfolio and you're able to diversify out of 108 00:06:15,760 --> 00:06:17,480 Speaker 1: the family home. Not all your money is tied up 109 00:06:17,640 --> 00:06:21,279 Speaker 1: in the home. Obviously, you're able to build and create 110 00:06:21,839 --> 00:06:25,960 Speaker 1: you know, passive income sources depending on what you invest in. 111 00:06:26,360 --> 00:06:27,800 Speaker 1: And also for a lot of people can help them 112 00:06:27,839 --> 00:06:31,320 Speaker 1: path the mortgage a lot faster because they're producing their 113 00:06:31,400 --> 00:06:35,080 Speaker 1: tax in a legal manner along the way. So you know, 114 00:06:35,760 --> 00:06:39,239 Speaker 1: the ultimate goal is you know, long term financial freedom 115 00:06:39,279 --> 00:06:43,159 Speaker 1: and independence. And you know, when used correctly and for 116 00:06:43,200 --> 00:06:46,720 Speaker 1: the right reasons at the right time and conservatively and 117 00:06:46,760 --> 00:06:50,800 Speaker 1: proactively manage, it's very very powerful and if you can 118 00:06:50,880 --> 00:06:54,279 Speaker 1: reinvest this can really take your wealth to a whole 119 00:06:54,360 --> 00:06:58,599 Speaker 1: other level. But of course you know this strategy has 120 00:06:58,960 --> 00:07:01,359 Speaker 1: trade offs, and you approach that you take has always 121 00:07:01,360 --> 00:07:04,080 Speaker 1: got to take into consideration your cash flow, your risk profile, 122 00:07:04,560 --> 00:07:07,240 Speaker 1: your goals, and you know how much time you've really got. 123 00:07:07,240 --> 00:07:09,040 Speaker 1: This is not a type of strategy you'd recommend for 124 00:07:09,080 --> 00:07:13,600 Speaker 1: someone approaching retirement, so you know it needs to be 125 00:07:13,840 --> 00:07:15,800 Speaker 1: done with advice. All right, But let's move on to 126 00:07:15,840 --> 00:07:19,520 Speaker 1: whether you should be reinvesting your dividends or taking them 127 00:07:19,520 --> 00:07:23,360 Speaker 1: to help pay down your mortgage quicker. So reinvesting your 128 00:07:23,360 --> 00:07:28,760 Speaker 1: dividends can be a really smart move, especially if you're 129 00:07:28,800 --> 00:07:33,240 Speaker 1: in the early stages of debt recycling. The reason why 130 00:07:33,320 --> 00:07:36,800 Speaker 1: a lot of financial planners would recommend, you know, dividend 131 00:07:36,880 --> 00:07:40,720 Speaker 1: reinvesting is obviously, you don't have to pay brokerage costs 132 00:07:40,720 --> 00:07:43,679 Speaker 1: if you've got an automatic dividend investment plan set up, 133 00:07:44,280 --> 00:07:47,920 Speaker 1: which can be really beneficial over the long rue. The 134 00:07:47,960 --> 00:07:51,360 Speaker 1: next obvious one is the compounding growth opportunities. You know 135 00:07:51,400 --> 00:07:55,840 Speaker 1: you're building on the base dividends mean that you can 136 00:07:56,160 --> 00:08:00,520 Speaker 1: acquire more units or shares, which ultimately pay more dividends, 137 00:08:00,520 --> 00:08:05,280 Speaker 1: so you're actually acquiring more dividend income sources Obviously there's 138 00:08:05,320 --> 00:08:09,480 Speaker 1: the long term wealth creation opportunities. You're leveraging time, growth 139 00:08:09,680 --> 00:08:13,200 Speaker 1: and income to build a really strong portfolio, and you're 140 00:08:13,240 --> 00:08:16,559 Speaker 1: building passive income. You know, reinvesting means thousands of dollars 141 00:08:16,600 --> 00:08:20,800 Speaker 1: in the future and annual income. And if you reinvest 142 00:08:20,840 --> 00:08:23,320 Speaker 1: those dividends, which I think is a really big one 143 00:08:23,360 --> 00:08:26,520 Speaker 1: that is undervalued, is there's no temptation to spend those 144 00:08:26,560 --> 00:08:29,240 Speaker 1: dividends because they're gone. You never actually get them, they 145 00:08:29,320 --> 00:08:32,400 Speaker 1: never deposited into your account, They're just put straight back 146 00:08:32,440 --> 00:08:35,800 Speaker 1: into the portfolio. You could almost like just go back 147 00:08:35,800 --> 00:08:39,080 Speaker 1: to sleep. It's a very passive approach and your money 148 00:08:39,120 --> 00:08:41,840 Speaker 1: is really working as hard as it possibly can for 149 00:08:41,960 --> 00:08:45,800 Speaker 1: you with a dividend reinvestment plan. But obviously there are 150 00:08:45,880 --> 00:08:48,480 Speaker 1: two sides to every story, and it's not all upside. 151 00:08:49,040 --> 00:08:51,240 Speaker 1: So the downsides you need to be aware of are 152 00:08:51,720 --> 00:08:56,400 Speaker 1: cash flow pressure. Now you've previously been comfortable reinvesting all 153 00:08:56,440 --> 00:08:59,640 Speaker 1: of your dividends, but now the landscape is about to 154 00:08:59,679 --> 00:09:02,240 Speaker 1: change because you're going to be taking out an investment loan, 155 00:09:02,320 --> 00:09:06,400 Speaker 1: so your overall debts are going to increase. If all 156 00:09:06,440 --> 00:09:09,320 Speaker 1: of those dividends continue to be reinvested, you may have 157 00:09:09,800 --> 00:09:14,200 Speaker 1: less surplus cash flow to reduce your mortgage at the 158 00:09:14,240 --> 00:09:18,880 Speaker 1: same rate or even potentially cover any unexpected costs. And 159 00:09:18,920 --> 00:09:21,240 Speaker 1: you've also got to remember in your cash flow, not 160 00:09:21,280 --> 00:09:24,560 Speaker 1: only are you seeing your mortgage reduced at a slower rate, 161 00:09:25,240 --> 00:09:27,079 Speaker 1: you've also got to keep it taking into consideration you've 162 00:09:27,080 --> 00:09:30,400 Speaker 1: got to service this new investment loan. You've also got 163 00:09:30,480 --> 00:09:34,760 Speaker 1: the risk of interest rate changes. If the rates rise 164 00:09:34,800 --> 00:09:37,480 Speaker 1: again and your cash flow is really stretched, this can 165 00:09:37,520 --> 00:09:42,120 Speaker 1: become really stressful and really stressful really quickly. And then 166 00:09:42,160 --> 00:09:44,920 Speaker 1: of course you've got a factor in income tax. Even 167 00:09:44,960 --> 00:09:48,440 Speaker 1: if we reinvest our dividends, whether we're debt recycling or not, 168 00:09:48,960 --> 00:09:52,360 Speaker 1: you've still got to pay income tax on them as 169 00:09:52,360 --> 00:09:55,400 Speaker 1: if you had received them as cash. Now, of course, 170 00:09:55,400 --> 00:09:57,439 Speaker 1: if you're investing in leaks, you're probably going to be 171 00:09:57,520 --> 00:10:00,880 Speaker 1: getting some franking credits which will help all but you 172 00:10:00,920 --> 00:10:03,960 Speaker 1: need to factor this and budget this into your cash 173 00:10:04,000 --> 00:10:06,920 Speaker 1: flow so that you get no nasty surprises at the 174 00:10:07,040 --> 00:10:10,000 Speaker 1: end of each financial year. The other thing you need 175 00:10:10,080 --> 00:10:13,280 Speaker 1: to take into consideration, and this isn't just a recycling thing. 176 00:10:13,320 --> 00:10:17,400 Speaker 1: It's a general risk of reinvesting, and that is the overexposure. 177 00:10:17,679 --> 00:10:21,640 Speaker 1: If you are reinvesting back into the same leak or 178 00:10:21,640 --> 00:10:25,120 Speaker 1: etf over and over again, particularly if they have some 179 00:10:25,200 --> 00:10:28,560 Speaker 1: stellar returns and pay out large amounts of money through 180 00:10:28,600 --> 00:10:33,480 Speaker 1: gains or income. You may discover that over a period 181 00:10:33,480 --> 00:10:36,120 Speaker 1: of time you might be particularly overweight to a certain 182 00:10:36,200 --> 00:10:41,960 Speaker 1: asset or sector, But this is actually very easily managed 183 00:10:42,000 --> 00:10:45,319 Speaker 1: by just regularly monitoring and making sure that your porfolower 184 00:10:45,440 --> 00:10:49,040 Speaker 1: is properly diversified and you know, matches your risk profile. 185 00:10:49,679 --> 00:10:53,320 Speaker 1: You also need to remember that this investment loan must 186 00:10:53,360 --> 00:10:59,720 Speaker 1: be addressed ideally for most people before retirement. Also, you 187 00:10:59,760 --> 00:11:02,640 Speaker 1: need to be in a position where your portfolio has 188 00:11:02,840 --> 00:11:07,080 Speaker 1: grown enough to completely pay off the investment loan, or 189 00:11:07,080 --> 00:11:09,240 Speaker 1: you're in a position where your own cash flow can 190 00:11:09,240 --> 00:11:11,439 Speaker 1: pay off the investment loan because you've now paid off 191 00:11:11,440 --> 00:11:15,600 Speaker 1: your home and if possible, that portfolio can actually provide 192 00:11:15,600 --> 00:11:19,520 Speaker 1: you enough passive income. I mean, there are some situations 193 00:11:19,520 --> 00:11:22,600 Speaker 1: where people have used a debt recycling strategy so wisely 194 00:11:22,640 --> 00:11:25,240 Speaker 1: that they've managed to pay off their whole entire home, 195 00:11:25,800 --> 00:11:29,480 Speaker 1: and their investment portfolio has worked so well for such 196 00:11:29,520 --> 00:11:32,320 Speaker 1: a long period of time that that passive income is 197 00:11:32,400 --> 00:11:36,000 Speaker 1: so great it actually is cash flow positive to the 198 00:11:36,080 --> 00:11:38,600 Speaker 1: investment loan that it's attached to, or can in fact 199 00:11:39,160 --> 00:11:42,520 Speaker 1: pretty much payoff or has already paid off the whole 200 00:11:42,720 --> 00:11:45,680 Speaker 1: entire investment loan. And again this is why this strategy 201 00:11:45,720 --> 00:11:49,400 Speaker 1: is for long term investors, and you know it needs 202 00:11:49,440 --> 00:11:52,120 Speaker 1: to make sure that it's this portfolio is and the 203 00:11:52,160 --> 00:11:55,880 Speaker 1: strategy is actually working for you, all right. So they're 204 00:11:55,640 --> 00:12:00,839 Speaker 1: the pros and cons of those dividends. The other idea 205 00:12:00,880 --> 00:12:05,480 Speaker 1: is obviously taking the dividends now as cash and using 206 00:12:05,800 --> 00:12:09,600 Speaker 1: those dividends to help pay off your home loan. Now, 207 00:12:10,280 --> 00:12:13,760 Speaker 1: the benefits now, the obvious ones are you're going to 208 00:12:13,760 --> 00:12:16,680 Speaker 1: be paying off your home loan a lot faster. Instead 209 00:12:16,679 --> 00:12:19,920 Speaker 1: of just having your own income to help pay down 210 00:12:20,000 --> 00:12:23,719 Speaker 1: the mortgage, you've now got a second income source your dividends, 211 00:12:24,280 --> 00:12:28,080 Speaker 1: so you can potentially save and shave years off your 212 00:12:28,160 --> 00:12:32,080 Speaker 1: home loan and save tens of thousands of dollars in 213 00:12:32,080 --> 00:12:36,320 Speaker 1: interest off your home loan, which is really empowering. And 214 00:12:36,360 --> 00:12:39,360 Speaker 1: then of course you've got improved cash flow and stability 215 00:12:39,400 --> 00:12:43,199 Speaker 1: because every dollar you pay on your personal non deductible 216 00:12:43,240 --> 00:12:47,320 Speaker 1: debt reduces that monthly pressure. And you've also got much 217 00:12:47,360 --> 00:12:50,720 Speaker 1: greater flexibility you can decide when those dividends come in, 218 00:12:50,960 --> 00:12:53,040 Speaker 1: where does it go the mortgage or do you want 219 00:12:53,040 --> 00:12:55,440 Speaker 1: top up the offset account or your emergency fund, or 220 00:12:55,440 --> 00:12:57,720 Speaker 1: maybe you want to go and spend some of that money. 221 00:12:58,040 --> 00:13:00,480 Speaker 1: You've just got that choice and that control back in 222 00:13:00,520 --> 00:13:03,760 Speaker 1: your hands. And then of course there's a psychological wins. 223 00:13:04,200 --> 00:13:07,839 Speaker 1: Watching your home loan fall and fall a lot faster 224 00:13:07,920 --> 00:13:11,920 Speaker 1: than you're used to can feel incredibly motivating and empowering. 225 00:13:12,840 --> 00:13:16,600 Speaker 1: So for some people this is a smarter move, but 226 00:13:16,640 --> 00:13:18,640 Speaker 1: there's also again we want to look at both sides 227 00:13:18,679 --> 00:13:22,480 Speaker 1: of the coin, the downsides. So the biggest one is, 228 00:13:22,920 --> 00:13:27,440 Speaker 1: and it's obvious, the missed compounding opportunities. You are going 229 00:13:27,480 --> 00:13:30,079 Speaker 1: to be losing out on those long term benefits of 230 00:13:30,160 --> 00:13:35,120 Speaker 1: letting that money grow inside your portfolio, and the portfolio 231 00:13:35,559 --> 00:13:39,480 Speaker 1: may not actually be where you want it to be 232 00:13:40,160 --> 00:13:44,760 Speaker 1: by a particular date, so you could actually fall short 233 00:13:44,880 --> 00:13:48,480 Speaker 1: of your goals when your deadline comes. And then of 234 00:13:48,559 --> 00:13:51,320 Speaker 1: course you've got the discipline risk. You know, if you 235 00:13:51,360 --> 00:13:54,920 Speaker 1: see the dividends there in your savings account, there could 236 00:13:54,960 --> 00:13:57,120 Speaker 1: be temptation to go and spend them on something that 237 00:13:57,160 --> 00:14:00,800 Speaker 1: does not aligned to your financial goals. However, that can 238 00:14:00,840 --> 00:14:04,240 Speaker 1: also be managed by having the dividends paid to a 239 00:14:04,280 --> 00:14:08,200 Speaker 1: separate savings account that is out and away from your 240 00:14:08,480 --> 00:14:14,520 Speaker 1: temptation to spend. So what is the right answer. Well, 241 00:14:15,280 --> 00:14:17,840 Speaker 1: here's the truth. I hate to disappoint you, but there's 242 00:14:17,840 --> 00:14:20,680 Speaker 1: no one size fits or answer. But I'm not going 243 00:14:20,680 --> 00:14:24,320 Speaker 1: to leave you hanging. This is what really matters and 244 00:14:24,360 --> 00:14:26,440 Speaker 1: what matters to you, and you should be thinking about 245 00:14:26,520 --> 00:14:30,000 Speaker 1: right now. You've got to stay within the cash flow 246 00:14:30,200 --> 00:14:33,720 Speaker 1: limits of your life right now. You also need to 247 00:14:33,800 --> 00:14:37,400 Speaker 1: understand what your risk profile is and how comfortable you 248 00:14:37,560 --> 00:14:41,840 Speaker 1: feel taking on this debt of fifty thousand dollars when 249 00:14:41,920 --> 00:14:44,080 Speaker 1: you've got a three hundred and ninety thousand dollars home 250 00:14:44,120 --> 00:14:47,800 Speaker 1: loan and you are a single mum. I don't say 251 00:14:47,880 --> 00:14:49,760 Speaker 1: that in a degrading way, but you need to keep 252 00:14:49,760 --> 00:14:53,080 Speaker 1: in mind the stress and pressure falls purely on your shoulders, 253 00:14:53,080 --> 00:14:55,400 Speaker 1: as it would for any single parent, and I know 254 00:14:55,480 --> 00:14:58,520 Speaker 1: this from being a single parent myself. The other thing 255 00:14:58,560 --> 00:15:03,240 Speaker 1: you need to do have is clearly defined goals that 256 00:15:03,400 --> 00:15:09,080 Speaker 1: are based around this debt management. You manage the strategy proactively, 257 00:15:09,600 --> 00:15:14,040 Speaker 1: not passively, so you may need to review and tweak 258 00:15:14,120 --> 00:15:17,840 Speaker 1: the strategy as time goes by. So what my ultimate 259 00:15:17,880 --> 00:15:19,760 Speaker 1: answer to you is you do not need to commit 260 00:15:19,880 --> 00:15:23,760 Speaker 1: to one decision or the other. There's not just one 261 00:15:23,840 --> 00:15:26,880 Speaker 1: simple path. In fact, I actually encourage you to tweak 262 00:15:26,960 --> 00:15:31,720 Speaker 1: and change your portfolio over time. So perhaps you might 263 00:15:31,760 --> 00:15:35,920 Speaker 1: want to reinvest the dividends for the first say five years, 264 00:15:35,920 --> 00:15:39,320 Speaker 1: for example, whilst your portfolio is growing, and then you 265 00:15:39,400 --> 00:15:42,720 Speaker 1: may want to decide after five years, perhaps to start 266 00:15:42,760 --> 00:15:46,160 Speaker 1: taking that income to help reduce your mortgage at a 267 00:15:46,160 --> 00:15:49,960 Speaker 1: more aggressive rate. Or perhaps you might decide, you know what, 268 00:15:50,000 --> 00:15:52,640 Speaker 1: I can't decide, So perhaps I'm going to take fifty 269 00:15:52,680 --> 00:15:55,520 Speaker 1: percent of the income as cash to help pay down 270 00:15:55,560 --> 00:15:58,920 Speaker 1: my loan, and I'm going to reinvest fifty percent back 271 00:15:58,960 --> 00:16:02,120 Speaker 1: into the portfolio. The key here is to always keep 272 00:16:02,120 --> 00:16:06,920 Speaker 1: it flexible, but to be intentional and always comes back 273 00:16:06,960 --> 00:16:10,200 Speaker 1: to your goals, your risk profile, and the deadline for 274 00:16:10,240 --> 00:16:13,280 Speaker 1: those goals. You know, always look at doing a stress 275 00:16:13,320 --> 00:16:17,640 Speaker 1: test before starting. Can you handle rising interest rates? Is 276 00:16:17,720 --> 00:16:21,280 Speaker 1: your budget factoring that in? Are you happy to see 277 00:16:21,320 --> 00:16:24,320 Speaker 1: your mortgage maybe not reduce at you know, the previous 278 00:16:24,360 --> 00:16:26,880 Speaker 1: speeds that you've seen in the past, because you now 279 00:16:26,960 --> 00:16:30,080 Speaker 1: have the responsibility of a new investment loan to service 280 00:16:30,120 --> 00:16:33,200 Speaker 1: and ultimately to slowly pay off over time. Also, have 281 00:16:33,320 --> 00:16:37,360 Speaker 1: you considered if dividends are cut, will your cash flow 282 00:16:37,520 --> 00:16:40,800 Speaker 1: still be able to service everything comfortably? You know? Do 283 00:16:40,840 --> 00:16:43,400 Speaker 1: you have a plan B? Do you have a plan C. 284 00:16:44,280 --> 00:16:47,040 Speaker 1: Now I want to quickly share with you what I do, again, 285 00:16:47,160 --> 00:16:49,600 Speaker 1: not as advice, but to give you a little bit 286 00:16:49,640 --> 00:16:52,760 Speaker 1: of an insight, because I am really passionate about following 287 00:16:52,760 --> 00:16:57,240 Speaker 1: my own advice. So, while you have a debt recycling strategy, 288 00:16:57,240 --> 00:16:59,480 Speaker 1: and this is something I've always I've had for years, 289 00:16:59,600 --> 00:17:01,360 Speaker 1: you know, I think I took out my first debt 290 00:17:01,400 --> 00:17:05,159 Speaker 1: recycling strategy maybe maybe twenty seven, and it's something that 291 00:17:05,840 --> 00:17:09,880 Speaker 1: really works for me. So do I reinvest my dividends 292 00:17:09,920 --> 00:17:11,560 Speaker 1: or do I have them paid to the home loan. 293 00:17:12,040 --> 00:17:14,239 Speaker 1: I reinvest all of my dividends. I don't think I've 294 00:17:14,240 --> 00:17:18,080 Speaker 1: actually ever spent a single dollar of my dividend income. 295 00:17:18,760 --> 00:17:22,000 Speaker 1: What I do is I reinvest everything because my goal 296 00:17:22,080 --> 00:17:23,520 Speaker 1: at the end of the day is to build a 297 00:17:23,520 --> 00:17:26,880 Speaker 1: passive income stream of in excess of two hundred thousand 298 00:17:26,920 --> 00:17:30,879 Speaker 1: dollars a year. At this stage of my life, my 299 00:17:31,040 --> 00:17:36,120 Speaker 1: cash flow can cover our mortgage and our cash flow, 300 00:17:36,320 --> 00:17:40,440 Speaker 1: my cash flow with my partner can cover our investment loans. 301 00:17:41,119 --> 00:17:44,520 Speaker 1: I do try and keep all the debts at a 302 00:17:44,640 --> 00:17:48,640 Speaker 1: very conservative level. I don't try and over leverage myself. 303 00:17:48,720 --> 00:17:51,919 Speaker 1: I don't try and get greedy, and my priority is 304 00:17:51,920 --> 00:17:55,560 Speaker 1: to pay down our non deductible debt first, because that 305 00:17:55,720 --> 00:18:01,000 Speaker 1: is normally what for most people is more financially efficient. However, 306 00:18:01,840 --> 00:18:05,280 Speaker 1: for some of our investment assets that don't have dividend 307 00:18:05,320 --> 00:18:09,600 Speaker 1: reinvestment plans, I have actually set it up to pay 308 00:18:09,680 --> 00:18:13,280 Speaker 1: the income stream to the investment loan. So you could 309 00:18:13,280 --> 00:18:16,400 Speaker 1: say I have a bit of a blend. So for example, 310 00:18:16,880 --> 00:18:20,080 Speaker 1: an investment property, you can't reinvest rent. It has to 311 00:18:20,119 --> 00:18:22,359 Speaker 1: be paid to you. So what I do is I 312 00:18:22,400 --> 00:18:26,600 Speaker 1: have that rent paid to the mortgage, and so not 313 00:18:26,640 --> 00:18:29,679 Speaker 1: only is it servicing the mortgage, it's very slowly and 314 00:18:29,720 --> 00:18:34,040 Speaker 1: steadily reducing that mortgage over time. Because at the end 315 00:18:34,080 --> 00:18:36,560 Speaker 1: of the day, I want to build this passive income stream, 316 00:18:36,640 --> 00:18:38,320 Speaker 1: and I want to make sure that I get there 317 00:18:38,680 --> 00:18:42,240 Speaker 1: at the deadline that I have set for myself and 318 00:18:42,280 --> 00:18:45,919 Speaker 1: for my family. It definitely is something that I tweak 319 00:18:46,000 --> 00:18:49,320 Speaker 1: and change all the time. And I'm acutely aware of 320 00:18:49,359 --> 00:18:51,560 Speaker 1: our mortgage and the importance of paying that off as 321 00:18:51,640 --> 00:18:55,720 Speaker 1: quickly as possible. So if I get a bonus, or 322 00:18:55,760 --> 00:18:58,639 Speaker 1: I get a tax refund or a windfall of some kind, 323 00:18:58,800 --> 00:19:02,879 Speaker 1: it goes towards the more. Occasionally I might increase that 324 00:19:02,960 --> 00:19:06,119 Speaker 1: investment loan, but only after I've gone through lots of 325 00:19:06,119 --> 00:19:09,760 Speaker 1: different stress tests to make sure it is right for us. 326 00:19:09,840 --> 00:19:11,800 Speaker 1: But as you can see by me sharing this bit 327 00:19:11,800 --> 00:19:15,040 Speaker 1: of information with you about our financial affairs, you can 328 00:19:15,080 --> 00:19:18,600 Speaker 1: see it's not a black, one white world. It's a 329 00:19:18,760 --> 00:19:22,239 Speaker 1: mixture of different things that are always an alignment to 330 00:19:22,440 --> 00:19:25,520 Speaker 1: how much risk we feel comfortable taking on where the 331 00:19:25,560 --> 00:19:29,119 Speaker 1: passive income sources are, are they diversified, and what is 332 00:19:29,160 --> 00:19:34,359 Speaker 1: actually going to make us sleep well at night. So 333 00:19:34,400 --> 00:19:38,080 Speaker 1: to quickly wrap up, what I strongly recommend is to 334 00:19:38,200 --> 00:19:41,640 Speaker 1: get expert advice if you're feeling unsure. You know, as 335 00:19:41,640 --> 00:19:43,879 Speaker 1: I said, debt recycling is a high risk strategy. You 336 00:19:43,960 --> 00:19:46,480 Speaker 1: want to make sure that it works for you and 337 00:19:46,560 --> 00:19:49,600 Speaker 1: it's set up correctly. You also want to make sure 338 00:19:49,600 --> 00:19:52,720 Speaker 1: that those loans are segmented. You want to make sure 339 00:19:52,760 --> 00:19:54,480 Speaker 1: that if you get ordered by the ATO, you can 340 00:19:54,560 --> 00:19:57,960 Speaker 1: clearly show this interest that I've claimed is for this 341 00:19:58,000 --> 00:20:02,720 Speaker 1: particular investment loan, can actually see very clearly what is 342 00:20:02,760 --> 00:20:05,359 Speaker 1: deductible and what is not. You never want your financial 343 00:20:05,400 --> 00:20:08,040 Speaker 1: strategy to be undermined because it wasn't set up correctly. 344 00:20:08,600 --> 00:20:13,280 Speaker 1: And another really important point is have you considered where 345 00:20:13,320 --> 00:20:16,560 Speaker 1: superannuation fits into all of this. I am not aware 346 00:20:16,600 --> 00:20:19,359 Speaker 1: of your age, but I know you're a mother, and 347 00:20:19,400 --> 00:20:22,280 Speaker 1: I know you're a single mother, and quite often women 348 00:20:22,640 --> 00:20:25,119 Speaker 1: you know, and this is a sweeping generalization, and I 349 00:20:25,160 --> 00:20:26,800 Speaker 1: hope you don't take offense to this, but a lot 350 00:20:26,840 --> 00:20:31,320 Speaker 1: of women don't have enough superinnuation. So perhaps a debt 351 00:20:31,320 --> 00:20:34,800 Speaker 1: recycling strategy is great. It might be you know, right 352 00:20:34,880 --> 00:20:37,920 Speaker 1: for you, it might be the perfect timing, but don't 353 00:20:37,960 --> 00:20:41,760 Speaker 1: neglect your super. Your super is equally as important, and 354 00:20:42,119 --> 00:20:46,680 Speaker 1: debt recycling strategies work best when they're combined with other strategies. 355 00:20:47,200 --> 00:20:50,320 Speaker 1: You know, superannuation can be incredibly tax effective. It can 356 00:20:50,359 --> 00:20:53,840 Speaker 1: be an incredibly powerful way to build up wealth over 357 00:20:53,880 --> 00:20:56,520 Speaker 1: the long run. Yes, it does come with risks, It 358 00:20:56,560 --> 00:20:59,800 Speaker 1: does come with you know, issues where you can't access 359 00:20:59,800 --> 00:21:01,879 Speaker 1: them until you meet a condition of release. But the 360 00:21:02,000 --> 00:21:06,479 Speaker 1: upsides are most definitely worth investing time to consider this 361 00:21:06,520 --> 00:21:10,080 Speaker 1: as part of an overall strategy, and then finally, make 362 00:21:10,119 --> 00:21:14,280 Speaker 1: sure you've set some really clearly defined goal posts. Know 363 00:21:14,720 --> 00:21:18,280 Speaker 1: what they are before you get started with this strategy. 364 00:21:18,840 --> 00:21:22,080 Speaker 1: Is your goal to build passive income like fifty thousand 365 00:21:22,080 --> 00:21:24,120 Speaker 1: dollars a year or one hundred thousand dollars a year, 366 00:21:24,560 --> 00:21:28,280 Speaker 1: or perhaps your goals may be purely focused around long 367 00:21:28,400 --> 00:21:30,399 Speaker 1: term capital growth. Do you know do you want to 368 00:21:30,400 --> 00:21:32,119 Speaker 1: get to a certain point where your share port follow 369 00:21:32,160 --> 00:21:34,000 Speaker 1: is worth to say eight hundred thousand dollars or a 370 00:21:34,040 --> 00:21:36,879 Speaker 1: million dollars or two million dollars. You've got to know 371 00:21:37,000 --> 00:21:40,879 Speaker 1: your destination and of course what milestones will trigger the 372 00:21:40,920 --> 00:21:44,679 Speaker 1: actual change in the strategy. So should you reinvest your 373 00:21:44,680 --> 00:21:47,560 Speaker 1: dividends or should you use them to pay off debt? Well, 374 00:21:47,760 --> 00:21:51,280 Speaker 1: as you now know, the answer is it depends, and 375 00:21:51,400 --> 00:21:54,320 Speaker 1: that is okay if your answer changes over time. What 376 00:21:54,400 --> 00:21:58,439 Speaker 1: matters is, of course, is you stay informed, knowledgeable, and 377 00:21:58,680 --> 00:22:01,920 Speaker 1: flexible and that you are at all times in control 378 00:22:02,160 --> 00:22:05,040 Speaker 1: of your plan. So thank you so much to this 379 00:22:05,080 --> 00:22:08,000 Speaker 1: particular mother for reaching out. And I have to say 380 00:22:08,000 --> 00:22:12,600 Speaker 1: it's so inspiring to see a single mom taking their 381 00:22:12,920 --> 00:22:16,879 Speaker 1: financial wellbeing seriously and being on a path where they 382 00:22:16,880 --> 00:22:22,160 Speaker 1: are intelligently and proactively and wisely making sure that their 383 00:22:22,359 --> 00:22:25,840 Speaker 1: money works for them and that they can stand strong 384 00:22:26,200 --> 00:22:31,360 Speaker 1: and independent in the long run. That is seriously sexy. 385 00:22:32,200 --> 00:22:35,200 Speaker 1: All right. If you've found this particular episode helpful, can 386 00:22:35,240 --> 00:22:37,600 Speaker 1: you please go and share it with a friend or 387 00:22:37,640 --> 00:22:40,879 Speaker 1: a fellow single mom who's working hard on their financial future. 388 00:22:40,920 --> 00:22:43,399 Speaker 1: I would greatly appreciate it. And of course, if you 389 00:22:43,440 --> 00:22:45,800 Speaker 1: could take a second to please leave me a rating 390 00:22:45,880 --> 00:22:49,199 Speaker 1: and review, I would greatly appreciate it. And if you 391 00:22:49,359 --> 00:22:52,960 Speaker 1: have a question yourself for a future start Here episode, 392 00:22:53,440 --> 00:22:56,040 Speaker 1: send me a DM on Instagram at Sugar Mama TV 393 00:22:56,320 --> 00:23:00,280 Speaker 1: or Canna Campbell Official. I would absolutely love to hear you, 394 00:23:00,800 --> 00:23:04,240 Speaker 1: and I promise the moment it is recorded, I will 395 00:23:04,280 --> 00:23:06,480 Speaker 1: let you know, and I also let you know when 396 00:23:06,520 --> 00:23:08,640 Speaker 1: it's going to be published so that you can make 397 00:23:08,680 --> 00:23:12,840 Speaker 1: sure you hear it the moment it goes live. All right. Remember, 398 00:23:13,080 --> 00:23:17,280 Speaker 1: your money isn't just numbers, just like for this single mom, 399 00:23:17,400 --> 00:23:22,280 Speaker 1: it's her power, her security, and her freedom. All right, Everyone, 400 00:23:22,560 --> 00:23:26,320 Speaker 1: see you next time on Sugar Mama's Fireplay Chow for Now.