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 Mama TV, the financial
Speaker 1: literacy platform covering YouTube and podcast, books, Instagram threads, TikTok
Speaker 1: and more. Hello Canna.
Speaker 2: Hello.
Speaker 1: Over the last few years of doing this podcast, you
Speaker 1: have mentioned a bunch of things that can have a
Speaker 1: really kind of significant impact on your financial freedom and
Speaker 1: your financial future, things that probably haven't almost an outsized impact,
Speaker 1: like bigger than you would expect right on the potential
Speaker 1: few to have financial freedom into the future. But in
Speaker 1: some cases they might be things that you overlook. They
Speaker 1: might be things that you ignore, perhaps intentionally because you
Speaker 1: think it might be too hard, or that you don't
Speaker 1: realize just how important it could be and how much
Speaker 1: of a difference it could make. So today that was
Speaker 1: a big pause, was it? I was building the dramatic tension.
Speaker 1: I wanted to put together a list of your top
Speaker 1: three financial secret weapons, the things that people may not
Speaker 1: realize that just by making a few simple changes, you're
Speaker 1: going to actually have a massive, massive benefit on your
Speaker 1: finances into the future. Are you up for that?
Speaker 2: I am, because it sounds like a very efficient effective discussion.
Speaker 1: It will be, It certainly will be. Before we get
Speaker 1: into the efficient and effective discussion, just need to mention
Speaker 1: that everything we talk about is always general in nature.
Speaker 1: They have a personal investment, strategic or product advice purely
Speaker 1: for financial education purposes only. And if you hear something
Speaker 1: that you think, actually, maybe that works for me, then
Speaker 1: you should seek some professional advice to get some advice
Speaker 1: that is specifically relevant to you. Number one pound interest.
Speaker 1: I made that sound quite kind of dramatic. Dramatic, right,
Speaker 1: But this is one thing that you have mentioned this
Speaker 1: so many times in the past, just about the long
Speaker 1: term effect that it can have.
Speaker 2: What is it first, So, it's when your money is
Speaker 2: working for you because you're earning interest upon interest, and
Speaker 2: over time, it can actually help you accumulate a large
Speaker 2: amount of money where your money has built that money
Speaker 2: for you, rather than you having to always contribute.
Speaker 1: So it's the power of time, isn't it. Yeah, It's
Speaker 1: like that time really is one of the greatest assets
Speaker 1: that you have. Is just why it's so valuable to
Speaker 1: get into it early, because of this power of earning
Speaker 1: interest on interest on interest on interest, and it just
Speaker 1: keeps ongoing and you learn about like it is one
Speaker 1: of the things that I remember in the ten learning
Speaker 1: how to calculate compound interest. Are we mostly talking about
Speaker 1: superannuation here?
Speaker 2: No? It can be. No, Like super is just one
Speaker 2: area of our life. So compounding interest applies to any
Speaker 2: major long term investment, whether it be you know, super
Speaker 2: online interest, to high interest, your savings account, a managed fund,
Speaker 2: even dipit in paying shares. And if you say ten
Speaker 2: thousand dollars at eight percent per annum net and you
Speaker 2: lift it untouched in thirty years, that would be worth
Speaker 2: just over one hundred thousand dollars. And that's without you
Speaker 2: having to add a single cent.
Speaker 1: And that's without doing anything.
Speaker 2: Just letting it sit there untouched.
Speaker 1: Yeah, because all of a sudden, after that first year,
Speaker 1: your ten thousand dollars is suddenly worth ten thousand, eight
Speaker 1: hundred dollars correct, And then the following year it is
Speaker 1: worth ten thousand, eight hundred plus a new eight percent,
Speaker 1: and it just keeps on going. Did you see could
Speaker 1: you see the panic on.
Speaker 2: My face like a calculator.
Speaker 1: I don't have my calculator that I was using in
Speaker 1: year ten and I am at risk here two were there?
Speaker 1: You supported me? So thank you.
Speaker 2: I've got your back.
Speaker 1: That's the long term impact, isn't it? The fact that
Speaker 1: and that, as you say, is if you are not
Speaker 1: adding anything to.
Speaker 2: It, you can do so much more when you do
Speaker 2: regularly contribute, even if it's only a small amount.
Speaker 1: Okay, So that's why it matters. That's the long term impact. Right,
Speaker 1: The earlier you start, the better it is going to be.
Speaker 2: Right, correct, You've got the benefit of time.
Speaker 1: Is there a point to which it's too late?
Speaker 2: It's never too late, ever, never, ever, So even if
Speaker 2: you're starting in your forties and fifties, you can still
Speaker 2: make a massive difference. And a great example is you know,
Speaker 2: fifty year old investing five hundred dollars per month, again
Speaker 2: it's a a net return of eight percent per annum.
Speaker 2: You can still build an extra one hundred and seventy
Speaker 2: five thousand dollars within fifteen years.
Speaker 1: Really, okay, Can I just talk to you then about
Speaker 1: how practically this would work? Is that that you could
Speaker 1: talk to your financial advisor about it and just say, look,
Speaker 1: this is I want to make sure that my superannuation
Speaker 1: is going to be working for me, and that you're
Speaker 1: making sure that you are adding to your super because
Speaker 1: I know that you said this isn't just superannuation. But
Speaker 1: in most cases a financial advisor isn't probably going to
Speaker 1: tell you just to put it all into a bank
Speaker 1: account necessarily that's just earning interest. They might say to hey,
Speaker 1: let's look at how we can kind of maximize the
Speaker 1: power of your superannuation and do some additional contributions that
Speaker 1: kind of thing, right.
Speaker 2: Exactly, and also looking at well, you know what strategies
Speaker 2: are available, like such as the co contribution scheme, what
Speaker 2: that might also help to ensure that even more money
Speaker 2: is going into whether it be your superannuation for example, and.
Speaker 1: So using super as the as the example. And here,
Speaker 1: so you've got this lump sum which is earning interest
Speaker 1: on itself, you are then adding more to it every
Speaker 1: single year, and so you are not just earning kind
Speaker 1: of interest on that that that principal amount, you are
Speaker 1: then earning it on the additional repayments or sorry, the
Speaker 1: additional payments and edition contributions into it, and it's just
Speaker 1: getting bigger and bigger.
Speaker 2: Yes, you've got to make sure obviously it's invested in
Speaker 2: all alignment to your risk profile.
Speaker 1: Do you think people overlook that? Do you think they're
Speaker 1: just I remember about ten years ago, sitting down and
Speaker 1: figuring out just doing a very basic calculation, going, oh,
Speaker 1: I really like watching my superannuation going up. I think,
Speaker 1: and these are my contributions I'm making. If I was
Speaker 1: to not make any additional contributions from now until the
Speaker 1: until I retire, how much would that would that be worth?
Speaker 1: And I just did it on a calculator. I took
Speaker 1: the amount that was in my souper at the time,
Speaker 1: and I just took it as being I think it
Speaker 1: was like say six percent or seven percent, and so
Speaker 1: I just did times one point zero six and then
Speaker 1: I was hit equals equals, equals, equals equals equals, and
Speaker 1: just each one of those was another year. And it
Speaker 1: was the most fun I've ever had with a calculator,
Speaker 1: just watching it go up and up and up and
Speaker 1: up and up, and I'm like, that's compound interest right there.
Speaker 2: It's so empowering, isn't it. Yeah, that is why I
Speaker 2: call super sexy.
Speaker 1: Have I ever sounded more dull than just then?
Speaker 2: But can I take your dullness to a new level please?
Speaker 2: So if you'd really like to get amongst it, you
Speaker 2: can jump on the sugar on my website, and I
Speaker 2: have all these free calculators, including a superannuation calculator that
Speaker 2: can show you what your superannuation could potentially be worth
Speaker 2: if you do nothing, and if you do a super
Speaker 2: contribution strategy like sorry sacrificing, you can actually see it grow.
Speaker 2: But I have also, this is really important, got the
Speaker 2: impact of inflation. So you can see what the actual
Speaker 2: you know, say comes up with five million dollars, You'll
Speaker 2: see what that five million dollars is the equivalent of today.
Speaker 2: So it helps put things into perspective.
Speaker 1: Okay, God, we are boring, aren't we? When you have
Speaker 1: just said if you really want to get amongst it,
Speaker 1: go and check out my calculators, and I actually thought,
Speaker 1: oh that sounds all right.
Speaker 2: And it's free if anyone can access it.
Speaker 1: Music to my ears. Okay, that's compound interest. That's number
Speaker 1: one your first financial secret weapon. One of three. We
Speaker 1: have two more to go. Number two mortgage repayments. So
Speaker 1: this one right, With interest rates obviously can go up,
Speaker 1: they can go down, and with it go your mortgage
Speaker 1: repayments alongside that, Just how important is it? And I
Speaker 1: know the answer to this, but I'm going to ask
Speaker 1: you anyway, just how important is that if you can
Speaker 1: to keep your mortgage repayments the same when interest rates
Speaker 1: go down, it.
Speaker 2: Is incredibly important. It means that your mortgage is being
Speaker 2: paid off faster, which could potentially save you tens of
Speaker 2: thousands of dollars in interest over time, but it could
Speaker 2: actually help build almost like a safety buffer for future
Speaker 2: rate hikes. So yeah, rate hikes. So again, there are
Speaker 2: free kkllers on sugar my website. You can actually see
Speaker 2: exactly how much time and money you'll save. When I
Speaker 2: say tens of thousands of dollars, I'm being serious. In fact,
Speaker 2: it could actually be over one hundred thousand dollars in interest.
Speaker 2: But here's a little little catch with interest rate cuts,
Speaker 2: not all banks necessarily automatically reduce your repayments. Some do,
Speaker 2: some don't. So some people will find that with interest
Speaker 2: rate cuts their mortgage your payments have naturally gone down,
Speaker 2: But not all banks do that for you, So sometimes
Speaker 2: you need to go and manually increase it back up
Speaker 2: to what you were previously paying. If you're someone who
Speaker 2: wants to try and keep maintain their mortgage re payment.
Speaker 1: That was going to be my next question for you,
Speaker 1: kind of whether banks or your lender, whether they make
Speaker 1: it easy to do this. And I know that with
Speaker 1: my bank that I have my homelan with, I receive
Speaker 1: a notification saying, look, interest rates have gone down, we
Speaker 1: have reduced the minimum weekly payment that you need to
Speaker 1: be making. However, we will leave your repayment at the
Speaker 1: same amount that you are currently paying unless you otherwise
Speaker 1: tell us. And that's perfect. That's great because it just
Speaker 1: kind of pushes you, by a default, into a better
Speaker 1: financial situation further down the track.
Speaker 2: It's so interesting to say it because I feel like
Speaker 2: for a lot of people, they if they're not aware
Speaker 2: of this, they run into the lifestyle creep where their
Speaker 2: mortgage repayments come down and now they've got saine extra,
Speaker 2: you know, one hundred dollars per month to spend, and
Speaker 2: not knowing that the bank have dropped it automatically, they
Speaker 2: then spend that one hundred dollars per month when really,
Speaker 2: if they could afford to maintain it. That would be
Speaker 2: so much better for them financially over the long run
Speaker 2: because they could be saving serious time and money.
Speaker 1: Yeah, and the time part of that is interesting because
Speaker 1: it is not just the fact that you could save
Speaker 1: tens of thousands of dollars. You can be mortgage free
Speaker 1: a few years earlier, oh.
Speaker 2: Like you know, four years, So on a five hundred
Speaker 2: thousand dollars mortgage at six percent, if you can keep
Speaker 2: your repayments that the same after a one percent inter
Speaker 2: straight cut, you could save over seventy thousand dollars in
Speaker 2: interest and reduce your loan term from thirty years to
Speaker 2: twenty six years. Imagine being mortgage free four years earlier
Speaker 2: in life.
Speaker 1: That's actually four years of financial freedom.
Speaker 2: Yeah, that's money that you can use to invest, you
Speaker 2: can use to have an earlier retire four years earlier.
Speaker 2: Even like it gives you so many more choices, which
Speaker 2: is really what financial freedom is really about, time and choice.
Speaker 1: Okay, as a financial secret weapon. Do you think that
Speaker 1: that again, not enough people know about the power of this,
Speaker 1: that that just this little change, because we are talking
Speaker 1: today about little things that you can do, little changes
Speaker 1: that you can make that just by keeping your repayments
Speaker 1: up when rates are cut if you can afford to
Speaker 1: do so, and even then further, if you can afford
Speaker 1: to do pay a little bit more off on top
Speaker 1: of that. Just the massive, massive effect that has long.
Speaker 2: Term, absolutely, and this is the power of almost reverse
Speaker 2: compounding interest. So the biggest and best impact you can
Speaker 2: make in saving the most amount of time and money
Speaker 2: with the smallest amount of money's actually in the first
Speaker 2: couple of years of taking out your home loan. So
Speaker 2: you want to jump on this and see what you
Speaker 2: can do sooner rather than later. But again, there are
Speaker 2: free calculators everywhere to show you this, and again the
Speaker 2: Sugar Mamma website has these there for you where you
Speaker 2: can plug in all your information your loan, the interest
Speaker 2: rate you're paying, how far into your homelan, and what
Speaker 2: you can You can play around with the variables and go, well,
Speaker 2: what if I put an extra twenty dollars per month
Speaker 2: or an extra two hundred dollars per month, You will
Speaker 2: be blown away And it is a great source of motivation.
Speaker 1: And paying a little bit extra doesn't mean that the
Speaker 1: money is actually kind of lost to you as well,
Speaker 1: because of the power of redraw facilities and offset accounts
Speaker 1: as well, depending on your arrangement that you have with
Speaker 1: your bank.
Speaker 2: Yes, so more would you? I get asked this question
Speaker 2: all the time. The difference between the two. They have
Speaker 2: the same effects. So a redraw facility is money that
Speaker 2: you put on your home loan, but if you need to,
Speaker 2: you can take it back out. So say I have
Speaker 2: a five hundred thousand dollars home loan, I make extra payments,
Speaker 2: builds up in there, and they say twenty five thousand.
Speaker 2: I'm only being charged on the interest on four hundred
Speaker 2: and seventy five thousand instead of five hundred because it's
Speaker 2: in the redraw facility, and if I need to access it,
Speaker 2: it's the redraal facility switched on. I can get it
Speaker 2: back out. And this is why I say to people
Speaker 2: who have your emergency money sitting in a redrawor an
Speaker 2: offset account rather than a separate online savings account. An
Speaker 2: offset account works in the same way. So financially they're
Speaker 2: not any better than each other, just different people, different needs.
Speaker 2: So if I have twenty five thousand dollars sitting in
Speaker 2: an offset account such as my emergency money, and I
Speaker 2: have a five hundred thousand dollar homeland, same principle, I'm
Speaker 2: being charged interest on four hundred and seventy five thousand
Speaker 2: rather than five hundred thousand. And again, you can find
Speaker 2: offset and redoor facility calculators online which will show you
Speaker 2: exactly how much you can really save.
Speaker 1: Okay, that is two financial secret weapons compounding interest, mortgage repayments.
Speaker 1: We have a great one coming up as number three,
Speaker 1: but I'm not going to tell you what it is yet.
Speaker 1: We're going to take a very quick break and come
Speaker 1: back with the third financial secret weapon. Can We are
Speaker 1: putting together a list today of three financial secret weapons.
Speaker 1: These are things that so far they've been things that
Speaker 1: you can just make small changes and it will have
Speaker 1: a massive effect on your financial future and financial freedom.
Speaker 1: Number three on the list is one that you have
Speaker 1: talked about quite a bit, but it feels as though
Speaker 1: not enough people know about the potential here for passive income.
Speaker 1: Take us through it.
Speaker 2: So I like to call passive income money that you
Speaker 2: earn whilst you sleep at night. It is not about
Speaker 2: making complicated investment decisions, trading online, jumping in and out
Speaker 2: of stocks. It is not about selling a program or tupperware.
Speaker 2: It is not about you know, having to pitch something.
Speaker 2: It literally is you could go to sleep for a
Speaker 2: year and wake up and your money is working for you.
Speaker 2: Examples of passive income are earning rent off an investment property,
Speaker 2: earning dividends from shares, which is my favorite source of
Speaker 2: passive income, even earning interest from bonds or savings accounts.
Speaker 2: You haven't physically done anything to earn that money. It
Speaker 2: is your money working for you. Haven't have to go
Speaker 2: to work but on a suit. It's in front of
Speaker 2: a computer screen, touch something, sell something. It's the key
Speaker 2: to financial freedom. The more passive income we have, the
Speaker 2: better our financial wellbeing.
Speaker 1: Really is, do you need to talk to a financial
Speaker 1: planner about this? Feels like the basis of a conversation
Speaker 1: that when you sit down with a financial planner for
Speaker 1: the first time and you're going through your goals, that
Speaker 1: perhaps not enough people are actually putting this down as
Speaker 1: one of their goals, that hey, I would love to
Speaker 1: have passive income. I would love to be earning money
Speaker 1: while I sleep.
Speaker 2: I have done other podcasts on Sugarmum's fireplay about isn't
Speaker 2: when people will get stuck as to what can they
Speaker 2: have as a financial goal Obviously your goal should excite
Speaker 2: you and empower you. But a great goal everyone should
Speaker 2: have is a goal for passive income. And ideally you
Speaker 2: want to build up enough passive income that covers your
Speaker 2: living expenses, so you don't work by force, you work
Speaker 2: by choice.
Speaker 1: Where does it come from? Passive income almost feels like
Speaker 1: the end result here that you've got to build up
Speaker 1: to it through some smart decisions early on, whether it
Speaker 1: is about buying an investment property or whether it is
Speaker 1: about building an investment portfolio shares that are paying dividends
Speaker 1: and that you're able to earn money off those. It
Speaker 1: kind of feels like it's the end result rather than
Speaker 1: the way to get to it. How do you get
Speaker 1: to it? That's probably big question to answer in one episode,
Speaker 1: But how do you get there? What's the kind of
Speaker 1: where does this money come from? To build this? Well?
Speaker 2: There are lots of different strategies and look, you know,
Speaker 2: for people who don't have the ability to start necessarily
Speaker 2: investing today, what I would recommend they do is turn
Speaker 2: their attention to their superannuation because that is essentially an
Speaker 2: investment portfolio is just locked away. That is the passive
Speaker 2: income that's going to fund your retirement, So make sure
Speaker 2: it's invested correctly, make sure it's invested to your risk profile.
Speaker 2: You've got some goals behind it, and you understand how
Speaker 2: it works, the nuts and bolts, and what you need
Speaker 2: to do to help it grow. And you know, superannuation
Speaker 2: is just one facet of financial freedom. You know, when
Speaker 2: you're in a stage in your life where you can
Speaker 2: look at investing, it is a great idea to sort
Speaker 2: of have two strategies going in place, but again, speak
Speaker 2: to a financial planner because one may be more efficient
Speaker 2: than the other depending on where you are in your
Speaker 2: life cycle and cash flow and so forth.
Speaker 1: Do you see people that are and you have worked
Speaker 1: with a lot of clients over a long period of time,
Speaker 1: do you see people where they get to a point
Speaker 1: where they are able to live off passive income. Absolutely,
Speaker 1: because that to me feels like an incredible goal.
Speaker 2: Yes, and it is. I can't tell you what it's
Speaker 2: like to see it and be part of that journey
Speaker 2: and what should get to that point where clients couldn't
Speaker 2: even spend all the income that they were earning, and
Speaker 2: so their wealth just continued and continues today to keep
Speaker 2: growing because they just they can't possibly spend all the
Speaker 2: income that they've built over time through sticking to a strategy,
Speaker 2: getting advice, following advice, listening to advice, applying it, and
Speaker 2: not getting caught in market fluctuations and emotional knee jerk
Speaker 2: reactions decisions. They've let it do its thing, you know,
Speaker 2: let compounding interests work for them, and those people look
Speaker 2: so much happier and you know, enjoying incredible lifestyles.
Speaker 1: Now, it's worth probably pointing out that all of those
Speaker 1: components that you mentioned, kind of investment properties, building share
Speaker 1: portfolios and things, we've done separate episodes on all of those.
Speaker 1: So if you go back through the back catalog of
Speaker 1: episodes of How Today Afford that you will find kind
Speaker 1: of guides to each of those elements. But you kind
Speaker 1: of put it together and the potential of having passive income,
Speaker 1: earning money while you sleep, and that one day that
Speaker 1: could even be enough to be your primary source of income.
Speaker 2: Wow, but also can be a legacy as well.
Speaker 1: True.
Speaker 2: You know, if you're safe for simplicity, you have an
Speaker 2: investment portfolio pays you one hundred thousand dollars a year
Speaker 2: and you only need eighty to live off. You know,
Speaker 2: there's it's obviously a surplus that can continue to grow.
Speaker 2: But also when you pass on, you might want to
Speaker 2: donate that to a charity, and that gives a charity
Speaker 2: one hundred thousand dollars a year.
Speaker 1: And that can continue to be the case, rather than
Speaker 1: just donating a sum of money that you are actually
Speaker 1: helping to set them up as well.
Speaker 2: Exactly so, and I'm going to completely contradict myself. You
Speaker 2: can skip the passive income story if you want. I
Speaker 2: don't recommend it, but you know, so I need to
Speaker 2: obviously be completely open about other options because passive income
Speaker 2: doesn't appeal to some people. You know, there is a
Speaker 2: component of the fire community that's very much built focused
Speaker 2: on building up a lump sum and in drawing it
Speaker 2: down over a period of years.
Speaker 1: So fire is financial independence retire really.
Speaker 2: So I've seen strategies with people who've saved and you know,
Speaker 2: built up say an investment portfolio, not sorry, a lot
Speaker 2: some amount of money, say a million dollars, and they
Speaker 2: just draw fifty thousand dollars a year to live off.
Speaker 2: Now that is not passive income. They're eating into the capital.
Speaker 2: The concerns and the dangers with this is with inflation
Speaker 2: over a ten twenty year period, can see that million
Speaker 2: dollars erode away very very quickly. And then what do
Speaker 2: you do when that money runs out? You're back to
Speaker 2: square one again. If you can have even a small
Speaker 2: component of passive income and yes, that million dollars might
Speaker 2: be earning some interest, that will help slow it down
Speaker 2: and give you more long GeV with that financial independence.
Speaker 1: I reckon we have got some great ones today. That
Speaker 1: is three financial secret weapons that is terrific. Number one
Speaker 1: compound interest. Number two mortgage repayments and the power of
Speaker 1: keeping your repayments up and perhaps paying off a little
Speaker 1: bit more, and passive income. That is terrific. Are you
Speaker 1: Are you satisfied that these are financial secret weapons that
Speaker 1: not enough people know about? But maybe after today a
Speaker 1: few more people will yes.
Speaker 2: And to make this even more powerful, please invest time
Speaker 2: jumping online looking at visual calculators so you can see
Speaker 2: the numbers for yourself. You can look at your situation,
Speaker 2: what is capable within your budget and your financial responsibilities,
Speaker 2: and see what you can actually do for yourself and
Speaker 2: get you most gamified. Because you're like, oh, I wonder
Speaker 2: if I could squeeze extra twenty dollars per month in
Speaker 2: my budget to put that towards my mortgage. Seeing what
Speaker 2: those numbers do, it is the perfect source of motivation
Speaker 2: inspiration to try and make that happen.
Speaker 1: Yeah, I'll just go back to me playing with my
Speaker 1: calculator and figuring out my superannuation. Just equals equals, equals,
Speaker 1: equals equals. It was so satisfying watching those numbers go up.
Speaker 2: Well, go and have a look at play around with
Speaker 2: the Sugar Mama website because you can actually see it
Speaker 2: in a visual way with lots of pretty colors.
Speaker 1: Yeah, but you don't get to hit the equals button.
Speaker 1: It's physically just whack, whack whack. Anyway, that was a
Speaker 1: weird way to finish up. Can If we need more
Speaker 1: information from you, where do we find you?
Speaker 2: The best place to get in contact with me with
Speaker 2: any of your questions is through Sugar Mama TV on Instagram.
Speaker 1: And remember you can hear me every day with Sean
Speaker 1: Aylmer on Fear and Greed daily business news for people
Speaker 1: who make their own decisions. Thank you for listening to
Speaker 1: How Today For that, remember to hit follow on the podcast.
Speaker 1: And the best thing you can do is tell somebody
Speaker 1: else or perhaps send them this episode and spread the
Speaker 1: word about how today for that, thank you for your company.
Speaker 1: Join us again next week