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
Speaker 1: Thompson that I'm an author and the co host of
Speaker 1: the business news podcast Fear and Greed. As always, I'm
Speaker 1: with Canna Campbell, financial planner, founder of Sugar Mummer TV,
Speaker 1: the financial literacy platform covering like tiptoed over that financial
Speaker 1: literacy platform. It's a tongue twister, right, YouTube podcasts, Instagram threads,
Speaker 1: and books like our upcoming book very exciting.
Speaker 2: We have been a book.
Speaker 1: That's right, twelve Months of Financial Freedom. It is coming
Speaker 1: up in September. If you want to pre order a copy,
Speaker 1: you can do so online now put a link in
Speaker 1: the show notes as well. But we're very excited for
Speaker 1: that one to be published in September with Alan and Unwin.
Speaker 1: Twelve Months to Financial Freedom. On the back, there's a
Speaker 1: little picture of us, isn't there?
Speaker 2: Oh Calvin Client shoot, oh yes.
Speaker 1: Yeah, that was great fun. It's worth it just for
Speaker 1: that picture anyway. Hello, Canna, how are you? Yeah, I'm good.
Speaker 1: I'm a bit wary about today budgets.
Speaker 2: Yes, how's your budget looking?
Speaker 1: It's actually looking good sounded convincing. No, it's today isn't
Speaker 1: about how to make a budget, right, We're going to
Speaker 1: talk about why they don't work, which which sounds like
Speaker 1: we're going to be really negative, right, But we're going
Speaker 1: to look at some of the common kind of problems
Speaker 1: with a budget, because I think most people have had
Speaker 1: a crack at setting a budget, a household budget, you
Speaker 1: know roughly kind of what you're what you're earning, and
Speaker 1: what you're spending. But something doesn't work, the wheels fall off,
Speaker 1: it gets forgotten, you blow it out, blow it away,
Speaker 1: I don't know whatever. Yeah, yeah, anyway, it doesn't work.
Speaker 1: So we're going to fix it today. This isn't about
Speaker 1: creating the budget in the first place. It's about fixing
Speaker 1: what isn't working. Is that fair? Yeah?
Speaker 2: I think that's reasonable.
Speaker 1: Okay, all right? Why do so many people feel like
Speaker 1: their budget just doesn't actually work?
Speaker 2: So this is the problem. You know, they look great
Speaker 2: on paper, your budget. You know you've done written everything down,
Speaker 2: maybe even do as I recommend, which is checking your transactions,
Speaker 2: but they don't actually reflect the reality of your life.
Speaker 2: You know, they don't account for those irregular expenses, the
Speaker 2: price increases that we're experiencing on a almost daily basis,
Speaker 2: the natural human behavior, the habits that we might have,
Speaker 2: and the reality of our lives, and also the spontaneity
Speaker 2: that comes as well, when special opportunities come out of
Speaker 2: the blue that we go, wow, I want to do that.
Speaker 2: That's great, let's jump on that. Would it be a
Speaker 2: weekend away or constant tickets or something like that?
Speaker 1: Is it then, is it the numbers aren't working in
Speaker 1: a budget or is it the behavior that's behind the budget?
Speaker 1: Where is the fault or is it you're going to say,
Speaker 1: it's a bit of both.
Speaker 2: You know me too well, Yes, so of course the
Speaker 2: numbers have got to be correct, you know, then it's
Speaker 2: got to add up. But what's more important, though is
Speaker 2: the behavior, but also the attitude as to whether your
Speaker 2: budget's actually going to work for you, like, you know,
Speaker 2: understanding emotional spending, understanding the lifestyle creep, you know, the
Speaker 2: lack of consistency and checking your budget and transactions. You know,
Speaker 2: you can't out budget behavior or a toxic habit. You've
Speaker 2: got to sort of work with it and have that
Speaker 2: awareness and build certain steps around it so that you're
Speaker 2: in control.
Speaker 1: Okay, Then when we are talking about the numbers. You
Speaker 1: kind of alluded to this before, about the fact that
Speaker 1: how you're not not prepared if something good, like a
Speaker 1: big opportunity comes up. Do people make their budgets too strict?
Speaker 1: Are they just kind of stripping everything out and kind
Speaker 1: of it's like a best case scenario that this is
Speaker 1: what the budget is going to be. But there is
Speaker 1: a little unspoken assumption that as long as nothing goes
Speaker 1: wrong and prices don't ever go up and we never
Speaker 1: have to pay for anything that we haven't actually accounted
Speaker 1: for here. Or is it that they get a bit
Speaker 1: too optimistic about the financial outlook or is it just
Speaker 1: something super broad that it's not a budget built for
Speaker 1: real life.
Speaker 2: Well, to answer your question, you're right, it is a
Speaker 2: bit of everything. You know, a budget that's too strict,
Speaker 2: and I've seen people budget to the nearest sense like
Speaker 2: that is a fast way to fail. It's really they
Speaker 2: do that, yes, and I feel yes, it's kind of
Speaker 2: I was quite shocked when I do come across the
Speaker 2: sea this to the point like to the cent, like
Speaker 2: five cents. So the problem with that is is obviously
Speaker 2: extremely unrealistic. There is going there are too many price fluctuations,
Speaker 2: and it is going to make you feel really crap
Speaker 2: about the time that you have spent and invested during
Speaker 2: the budget because it's going to fall apart very very quickly,
Speaker 2: and can also add to an element of self destruction
Speaker 2: when your budget is just way too strict and rigid.
Speaker 2: Then there's, of course the other end of the spectrum
Speaker 2: where it's way too optimistic. You know, it's you know,
Speaker 2: people fall short of their goals because it wasn't ever
Speaker 2: really an honest budget in the first place. You know,
Speaker 2: it's where the budget becomes almost it sets you up
Speaker 2: for failure. I like to look at budgeting as a playground,
Speaker 2: like a kid's playground. Have you heard this analogy before?
Speaker 2: I haven't not an analogy for a while.
Speaker 1: It's been far too long since one of your analogies,
Speaker 1: and I look forward to seeing how you make this
Speaker 1: one work.
Speaker 2: Okay, So my budget is not a street budget, it
Speaker 2: has it. I like think of my budget as spending boundaries.
Speaker 1: Okay, and where's the playgrounds? The playground within the boundaries
Speaker 1: a fence.
Speaker 2: You can play in the boundary. So think about a
Speaker 2: kid's playground at the park. Most playgrounds have a fence
Speaker 2: around it. You've got to lift up the latch to
Speaker 2: walk into the and once the children are in there,
Speaker 2: it's pretty safe. The ground foam for you. If they fall,
Speaker 2: they're not they're less like. I mean, yes, you can
Speaker 2: still injure yourself, but you know, it's the damage is
Speaker 2: kind of quarrente tanged to the playground. There's lots of
Speaker 2: equipment going on there. You can do lots of different things,
Speaker 2: but you are relatively safe.
Speaker 1: Yeah, like you could still get bald over by the swings, or.
Speaker 2: You could, but the swing is made with something that's
Speaker 2: not like metal and is going to you know.
Speaker 1: You could also rock it down the slide and take
Speaker 1: past a takeout a kid that's running past. At the
Speaker 1: same time, do.
Speaker 2: We have some unresolved child issues childhood? Sorry, I feel
Speaker 2: like something happened to you as a child that we
Speaker 2: need to explore here. But my point is you can
Speaker 2: have fun within the playground. You know, you can socialize,
Speaker 2: you can run, you can swing, you can jump, you
Speaker 2: can hop, you can swing from the monkey bars. You're
Speaker 2: not going to get into too much trouble. And that's
Speaker 2: the same concept as a budget that makes sense. So
Speaker 2: for example, I have an amount to spend at the supermarket.
Speaker 2: I can spend less if I want, but I can
Speaker 2: go up to that threshold. As long as I don't
Speaker 2: go beyond that threshold, I am safe. And the amount
Speaker 2: of people I have met, and I do so much
Speaker 2: coaching around this with you, one on one with people
Speaker 2: to turn up to a supermarket just don't actually have
Speaker 2: a threshold. And that's the whole point of having a reasonable,
Speaker 2: realistic threshold. So I don't just go and go, well,
Speaker 2: I'm going to buy. I've got a threshold of one
Speaker 2: hundred dollars for the week for a family of five.
Speaker 2: It's a realistic threshold, boundary, limit playground that reflects the
Speaker 2: reality of what I need to feed five people seven nights,
Speaker 2: seven days a week. And that's what I stick to.
Speaker 2: And so it doesn't I don't ever feel pressure or
Speaker 2: tension to stick to that because I've got it's safe,
Speaker 2: it's realistic. That doesn't mean I've got a massive buffer,
Speaker 2: like I've got the same stress and pressure as everybody else.
Speaker 2: But it just keeps me on track.
Speaker 1: Is that then, really the biggest mistake that people make
Speaker 1: then that the budget almost feels like a punishment that
Speaker 1: it is too restrictive. I really like, I know I
Speaker 1: was making fun of you. That is my default setting.
Speaker 1: But the playground analogy actually works. And in the second
Speaker 1: part of this episode, after we take a quick break,
Speaker 1: we might talk about how to kind of set up
Speaker 1: that playground structure, because I think that's kind of cool.
Speaker 1: But is it about If you set your budget too tight,
Speaker 1: too extreme, you are setting yourself up to fail definitely.
Speaker 2: And this is where to answer your question. This is
Speaker 2: where that respect of a budget because when you see that,
Speaker 2: you're when you have a budget, and it's actually the
Speaker 2: cash flow sys really that helps make a budget work
Speaker 2: for you and actually stick to it. But when you
Speaker 2: get through a pay cycle, going wow, I got through
Speaker 2: my whole entire pay cycle without running out of money
Speaker 2: or having to lean on a credit card or pinch
Speaker 2: from a redraw facility or an offset account or some
Speaker 2: savings that was email for something else, you go, wow,
Speaker 2: I've actually correctly rationed my money out through the pay cycle.
Speaker 2: It feels really good, and you start to have this
Speaker 2: profound respect of your cash flow and your budget. You
Speaker 2: don't want to mess with it because you're just creating
Speaker 2: unnecessary stress in your life. When you disrespect it. And
Speaker 2: you know, as I said, I've coached so many people
Speaker 2: around this and they become like fiercely protective of their budget.
Speaker 2: And they a will say to me, because I've seen
Speaker 2: how much my financial situation has transformed simply by being
Speaker 2: better at managing my money and cash flow, I don't
Speaker 2: want anything to mess with it and jeopardize how good
Speaker 2: it makes me feel. And this is where the endorphins
Speaker 2: come in of you know, the dopamine of going Wow,
Speaker 2: I like, I've got money in my account, I met
Speaker 2: that bill, that bill's not overdue, that you know, that
Speaker 2: bill came in and I wasn't stressed or worried about
Speaker 2: where I'm going to find that money because it's already
Speaker 2: ready to go in my other special account, which we'll
Speaker 2: talk about in a second. It's very empowering, and you
Speaker 2: just you it takes away also that I guess that erratic, spontaneous,
Speaker 2: you know, splurge spending that we can do if we
Speaker 2: don't actually have a budget that we respect.
Speaker 1: Can I ask you one quick other question, And I
Speaker 1: don't want to be too negative, but I think I
Speaker 1: represent a lot of people that have battle with budgets
Speaker 1: in the past. Where all of a sudden, you just
Speaker 1: it becomes a drag and you don't get to that
Speaker 1: point that you've just said where you suddenly feel the
Speaker 1: benefits of the budget. But tracking spending, and you've talked
Speaker 1: about this a bit in the past about checking in
Speaker 1: with your budget kind of every week and checking to
Speaker 1: make sure that you're spending aligned with what you have forecast,
Speaker 1: it feels like there is a danger in trying to
Speaker 1: track everything perfectly. Yes, and it feels like it can
Speaker 1: become a drag.
Speaker 2: Well, it's time consuming, so of course it feels like
Speaker 2: a drag. But also I don't really I'm not really
Speaker 2: a fan of tracking. I'm a fan of reviewing, but
Speaker 2: not tracking where you literally write in an Excel spreadsheet
Speaker 2: or a journal or a app every time you spend money,
Speaker 2: because it's not empowering at all. The horses already bolted.
Speaker 2: You're just putting in there that you just spend one
Speaker 2: hundred and fifty dollars on a new pair of shoes
Speaker 2: that you didn't really need. Does that make you feel good? No,
Speaker 2: makes you feel really crap and embarrassed and a shame
Speaker 2: that you've blown your budget again. So that's why I
Speaker 2: don't really like it. There are occasions, though, where I
Speaker 2: do think it's healthy, particularly if someone's trying to hone
Speaker 2: in on toxic habits and really understand perhaps what their
Speaker 2: triggers are behind, you know, squandalous spending, impulse spending, perhaps
Speaker 2: gambling or you know, but purchasing alcohol something like that.
Speaker 2: That can sometimes really help create that awareness so that
Speaker 2: you know what to do to then break that habit down.
Speaker 2: But no, I don't you know. I have a system
Speaker 2: where we check it on a two times a week.
Speaker 2: I check the family budget and because it's two times
Speaker 2: per week, I'm only having to go back, you know,
Speaker 2: maximum of five days, so it's really quick and easy
Speaker 2: to do. I can do it on my phone, sitting
Speaker 2: on the bus, on the train, you know, in the
Speaker 2: school pickup line.
Speaker 1: This is why I liked using a platform that we
Speaker 1: have talked about previously and they you might have heard
Speaker 1: ads for it Socket Smith on this podcast earlier in
Speaker 1: this year, because it took some of the kind of
Speaker 1: the grunt work out of having to do it, and
Speaker 1: so it's just good for visibility. You want to know
Speaker 1: how much you're spending on groceries in a week, just
Speaker 1: groups them together and all of a sudden, Okay, all right,
Speaker 1: that's it. That's what I need to then set as
Speaker 1: my target or my budget for the future. So there
Speaker 1: are platforms and apps and things that can help manage
Speaker 1: that process to make that a little bit easier.
Speaker 2: And I have to say this, once you've done the
Speaker 2: bulk of your budget, it actually you've done it for
Speaker 2: that will serve you for a long period of time,
Speaker 2: particularly if you are reviewing and on a regular basis.
Speaker 2: But that is the blueprint you can use. And also
Speaker 2: you can put your goals into your budgets so that
Speaker 2: you prioritize those goals actually happening rather than just thinking
Speaker 2: about them and talking about them.
Speaker 1: All right, super fast break on the other side, how
Speaker 1: to fix a broken budget? Can I were talking today
Speaker 1: about budgets, why you'reudget isn't working? And then how to
Speaker 1: fix it? Assume that I have a broken budget, please,
Speaker 1: I know that's going to really stretch your imagination. How
Speaker 1: do I fix it?
Speaker 2: So the first thing I would recommend you do is
Speaker 2: obviously print off it's not the planet. I'm sorry, We'll
Speaker 2: print off. Well, maybe if you can have maybe on
Speaker 2: separate screens your transactions you can see the truth and
Speaker 2: reality of what things actually cost, how much they've increased,
Speaker 2: and where the potential wastage is a lot of people
Speaker 2: will do a budget at with numbers over their own head,
Speaker 2: and that's where they really miss the detail and they
Speaker 2: convince themselves, at including myself, but that we spend less
Speaker 2: than what we really do. And it's not until you
Speaker 2: can see the numbers in black and white, because you
Speaker 2: can't hide. And of course, if you're using cash, you're
Speaker 2: also got to be very careful of that because they
Speaker 2: may not necessarily be captured in those transactions.
Speaker 1: You Know, what I find is the biggest stitch up
Speaker 1: with the budget Amazon and things, because all of a
Speaker 1: sudden you go into your transactions and there's a whole
Speaker 1: bunch of things from Amazon. Okay, all right. Some of
Speaker 1: those are technically within groceries. Some of those are maybe clothes,
Speaker 1: some of those are household items, some are sports, some
Speaker 1: are for school things. And it's just like it's so nondescript,
Speaker 1: all right, And as a result, there's just this big
Speaker 1: hazy blur in my budget.
Speaker 2: Perhaps we need to put in that case, because I'm
Speaker 2: a solutions person, a line in your budget that's purely
Speaker 2: for Amazon purchases, So you have, for example, a two
Speaker 2: hundred dollars per month Amazon allowance, because then it's you
Speaker 2: know where the leakage is or where the money goes.
Speaker 1: Yeah, yeah, and you will actually then see probably that
Speaker 1: would then come off say the clothing spend or the
Speaker 1: grocery spend or something, because it's and at least then
Speaker 1: it's still all accounted for, right.
Speaker 2: And perhaps you say, well, I'm going to you know,
Speaker 2: maximize or not max I'm going to cap myself at
Speaker 2: this level on groceries of part of the overall Amazon spend.
Speaker 2: So you might have two hundred dollar per month Amazon budget,
Speaker 2: but then seventy doll per month is for groceries within that, yes,
Speaker 2: within that turned it all limits.
Speaker 1: Okay, look, asking for a friend, how many accounts am
Speaker 1: I allowed to have as part of a budget, because okay,
Speaker 1: I'm not asking for a friend, I'm asking for me.
Speaker 1: Well really, oh subtle, wasn't it? Look this was long
Speaker 1: ago and early in the podcast we used to talk
Speaker 1: about how many accounts I have, which was twenty six
Speaker 1: I think twenty six accounts, and that's those those are
Speaker 1: long gone. That's that's the old Michael. But a simple
Speaker 1: budget is a visible budget, and twenty six accounts is
Speaker 1: not visible. You can't see it all at once, you
Speaker 1: can't compare, you can't kind of track everything. What's the
Speaker 1: ideal number here?
Speaker 2: Look, it really comes down to what you're trying to achieve.
Speaker 1: But so nineteen or so now, the two.
Speaker 2: Most important accounts are what your everyday account and then
Speaker 2: what I call your financial float account. You don't those
Speaker 2: the They do eighty percent of the heavy lifting for
Speaker 2: you in the cash flow mechanics, helping you stick to
Speaker 2: a budget, also helping make sure that you're prepared for
Speaker 2: those all those irregular ones that catch you by surprise
Speaker 2: or that we conveniently forgot about.
Speaker 1: Yep.
Speaker 2: So the answer is too. But then you can give
Speaker 2: You can have other accounts, but you must give those
Speaker 2: accounts a job. For example, you have a holiday savings account,
Speaker 2: you have a financial account, which perhaps is where you
Speaker 2: start saving whilst you're learning about where you want to invest.
Speaker 2: Perhaps you have an emergency savings account. So you can
Speaker 2: have additional accounts. Obviously, it's like juggling balls. You don't
Speaker 2: want too many. You want to keep make sure that
Speaker 2: you can view them all within the one screen ideally, and.
Speaker 1: They all need a really clearly defined purpose and.
Speaker 2: Name absolutely, and everything should be nicknamed so that you
Speaker 2: can see how you're tracking within a matter of seconds.
Speaker 1: Okay, what role does automation play in all of this,
Speaker 1: because I suspect I'm not alone in going The biggest
Speaker 1: barrier I have here is time. I just don't have
Speaker 1: the time to go through everything and to make sure
Speaker 1: that everything is going where it needs to be. So
Speaker 1: if you tell me that automation is great, then I'm there.
Speaker 2: Automation is great, done and I have, but you've got
Speaker 2: to also be careful with automation. There's a bit of
Speaker 2: a lazy man's trap within automation.
Speaker 1: Go on for this.
Speaker 2: Automation is great physical thing. It's like direct debits, you know,
Speaker 2: And I don't own a credit card. Well technically I
Speaker 2: do have a credit card, but that's it's linked to
Speaker 2: a business account for Tom's business as an emergency, and
Speaker 2: I be honest, I don't even know if I've activated it.
Speaker 2: Sits with my passport. But other than that, I don't
Speaker 2: have a credit card. Everything is on direct debit, which
Speaker 2: is an element of automation. So I don't need to
Speaker 2: worry about paying any bills. It automatically comes out of
Speaker 2: our family everyday living account. Also, I have extra mortgage
Speaker 2: repayments to help pay off our home loan, and that
Speaker 2: also is a sense of automation because it's a separate,
Speaker 2: regular extra mortgage repayment. There's also an extra savings autom
Speaker 2: of putting money away for a renovation as well, so
Speaker 2: there are automation is great. So instead of thinking about it,
Speaker 2: I've removed that friction. I just is just done automatically.
Speaker 2: And I recommend if you're going to do automation, try
Speaker 2: and get it as close to your payday as possible,
Speaker 2: within a couple of days, so that it comes out
Speaker 2: the money's taken out before you can actually spend it.
Speaker 2: It is good. The only problem is, and you're only
Speaker 2: going to fall victim to this is if you don't
Speaker 2: review your budget because things like pay rises, you know,
Speaker 2: new jobs, debts being paid off where those direct debits
Speaker 2: are now finished because they've paid off that debt, you
Speaker 2: can then be subjects to the lifestyle creep when that
Speaker 2: money can get spend elsewhere. So reviewing it on a
Speaker 2: regular base and going wow, I've paid off all my
Speaker 2: buy now pay later. I now have a spare hundred
Speaker 2: dollars per month. You want to make sure that then
Speaker 2: you shift that automation and give that money a job
Speaker 2: somewhere else. So that's why it's important that regular check
Speaker 2: in as to how the cash flow is going, not
Speaker 2: the budget. The cash flow is really really important. And
Speaker 2: the thing about a budget is it's about helping you
Speaker 2: when things go wrong. You know, budgets. It's great when
Speaker 2: everything's perfect, everything's consistent, everything's very simple. But that's not
Speaker 2: what our world looks like anymore. Our world is increasingly expensive.
Speaker 2: We're time poor, we're frustrated. There are a lot of
Speaker 2: challenges and blocks and issues around us that we're all
Speaker 2: trying to navigate at the same time, as well as
Speaker 2: all the other pressures of life and family and jobs
Speaker 2: and relationships and health. So your budget is there to
Speaker 2: support you, like when things are challenging, it's there to
Speaker 2: catch you so that you don't fall.
Speaker 1: Just like that playground, you brought it back to the playground.
Speaker 1: That is possibly your greatest analogy effort ever. You started
Speaker 1: and then you finished on this epic sermon and brought
Speaker 1: it back to the playground.
Speaker 2: Well, I probably might undo the completion of this because
Speaker 2: I have a quote by It's often attributed to Marilyn Monroe. Okay, okay,
Speaker 2: and it makes this is how I feel about budgets.
Speaker 2: So you know that famous saying if you can't handle me,
Speaker 2: I say this to Tom all the time. If you
Speaker 2: can't addle me on my worst day, you're sure as
Speaker 2: hell don't deserve me on my best. And I think
Speaker 2: this really, I know you look at going can I
Speaker 2: you are to mental? Poor Tom? How does he put
Speaker 2: up with me? But think about it like this applies
Speaker 2: to your budget as well. You know you don't need
Speaker 2: a perfect budget. You need something that works for you
Speaker 2: when you are tired, you are about to give up,
Speaker 2: You are emotional, and life is increasingly expensive and moving
Speaker 2: way too fast. That's where your budget has got your back.
Speaker 2: So there you go, my Marilyn Monroe. Should I just
Speaker 2: stuck to the playground?
Speaker 1: I think it works. I'm just like Marilyn Monroe and
Speaker 1: children's playgrounds and not kind of I don't come together.
Speaker 2: I really have to link that route, but they don't.
Speaker 1: Come together super easily. But I take the point and
Speaker 1: as a very good place to finish Kenna. If we
Speaker 1: want more words of wisdom and more less man course,
Speaker 1: more analogy, you know what I mean?
Speaker 2: Like, that's the that's my mindset, attitude towards the budget
Speaker 2: I think of it. I think of it from a
Speaker 2: practical point of view, as a mindset. It's a playground.
Speaker 2: It's a playground with boundaries. I can play within the boundaries.
Speaker 2: Just don't go out of the boundaries with you know,
Speaker 2: my actual attitude. You know, I really respect it because
Speaker 2: it keeps us out of trouble. It keeps us not
Speaker 2: spending money that we don't have, which is something that
Speaker 2: I think a lot of people do challenge struggle with
Speaker 2: at times.
Speaker 1: All Right, if we want more info from you and
Speaker 1: find you on Instagram, best Place, Sugar Mama dot tv okay,
Speaker 1: and you can hear me every day with Sean Aylmer
Speaker 1: on Fear and Greed business news that you can use.
Speaker 1: Thank you for listening to how do they afford that?
Speaker 1: Don't forget our book coming out in September twelve months
Speaker 1: to Financial Free Them available for pre order now anywhere
Speaker 1: where you can pre order books. Thank you for your company.
Speaker 1: Join us again next week