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Speaker 1: Seven out we game breakfast personal finance with all the

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Speaker 1: rule of set.

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Speaker 2: That's twenty one minutes after seven o'clock. Shifting our attention

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Speaker 2: to personal finance now. This morning was speaking about, you

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Speaker 2: know that feeling where maybe you get a little bit

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Speaker 2: of money, perhaps you get a small increase at work,

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Speaker 2: if you're lucky ten percent, or if you're very lucky,

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Speaker 2: more than that, and so suddenly you were able to

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Speaker 2: do things you can do before. Maybe you can upgrade

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Speaker 2: your car, upgrade your WiFi, upgrade whatever it is. But suddenly,

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Speaker 2: even though you're making more money, you're actually you don't

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Speaker 2: have all that much left. Things are feeling a little

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Speaker 2: bit tighter. It's called lifestyle creep, where any bit of

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Speaker 2: money or increase or excess cash that you might have

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Speaker 2: is quickly gobbled up by additional expenses. And so how

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Speaker 2: can we deal with the issue of lifestyle creep? As

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Speaker 2: I said earlier, I've just recently experienced lifestyle creep. I

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Speaker 2: used to rent. I was planning to rent forever. My

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Speaker 2: circumstances changed. I needed to buy a house, so I did.

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Speaker 2: And the cost of a house versus the cost of

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Speaker 2: a rental property are chalk and cheese. There are suddenly

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Speaker 2: things I didn't have to worry about, that private security, guidance, maintenance,

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Speaker 2: that now I do need to worry about as a

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Speaker 2: household owner or homeowner. And so there I've seen lifestyle

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Speaker 2: creep in action. Perhaps you've seen it as well. Give

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Speaker 2: us a call on one eight three oh seven o two,

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Speaker 2: send us an SMS. I'm three on seven o two.

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Speaker 2: Joint is always my resident certified financial advisor, Paul. Rule

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Speaker 2: of Sir Paul A very good morning.

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Speaker 1: Too, Good morning Google. And maybe you should have spoken

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Speaker 1: to a financial advisor before you bought the house and

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Speaker 1: got some objective views around you know, what the house

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Speaker 1: to buy and the forthcoming attractions as far as expenses

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Speaker 1: are concerned. Yeah, because yes, it is. It is. It

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Speaker 1: is kind of really out there that everyone should have

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Speaker 1: a house, and you know it comes with a piece

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Speaker 1: of mind that it's your property and everything. Will you

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Speaker 1: run smoothly thereafter financially speaking, And there's nothing further further

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Speaker 1: from the truth. I mean, you you you've you're at

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Speaker 1: the outset. You don't anticipate enough, you underestimate the cost

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Speaker 1: of buying the property. I mean there's a lot of

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Speaker 1: tax involved there's a lot of transactional costs, you transferred

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Speaker 1: duty and all those things that come into play. And yes,

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Speaker 1: the romance of buying that property is quickly diminished when

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Speaker 1: you compare it to rental, or rental become someone else's

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Speaker 1: proper problem problem when the geezer packs in and things

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Speaker 1: like that. But getting to the point about about lifestyle creep,

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Speaker 1: I think I think there's a there's a lot of

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Speaker 1: a lot of lessons we can learn in there too,

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Speaker 1: And it's an interesting topic, especially on a holiday like this,

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Speaker 1: to sort of unpack, because it's it's a sobering watermark

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Speaker 1: for us in terms of trying to establish how much

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Speaker 1: is enough and what should I really be doing with

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Speaker 1: the extras that I do come across from time to time.

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Speaker 2: Right, And so even if I guess a house is

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Speaker 2: very often we don't think about all the associated costs

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Speaker 2: of a I guess, a new thing or or expanding

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Speaker 2: our expenses. Of instance, even with the car, often people

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Speaker 2: will look at the affordability can afford to pay, you know,

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Speaker 2: the financier, the bank, the installment, but you're not thinking

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Speaker 2: about things like fuel if it is out of motor

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Speaker 2: plan service kind of keeping that car clean. All the

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Speaker 2: running cost insurance. We know many of the cars on

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Speaker 2: our roads actually don't have insurance, but it is a

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Speaker 2: cost you'd need to consider, which is in addition to

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Speaker 2: what you'll be paying for the car itself.

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Speaker 1: Well, that's that's the easy one. Yes, I think that

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Speaker 1: their car is very, very underestimated in terms of how

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Speaker 1: much it takes away from you in terms of your

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Speaker 1: your income. It's a it's a bigger expense on the

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Speaker 1: on the income expense statement than you might anticipate. And

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Speaker 1: you know, the reality also is it's great to have

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Speaker 1: a new car. Is that Google? You know, you drive

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Speaker 1: it up, you can't wait. You probably wash your own

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Speaker 1: car for the first couple of sessions, you know, because

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Speaker 1: it's pride and joy. But then after a while that diminishes,

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Speaker 1: that gratification diminishes, and it just becomes a car after

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Speaker 1: a while, but you're still stuck with the problem of

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Speaker 1: paying it off over seventy two months or whatever the

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Speaker 1: time period is, and that diminishing return becomes just something

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Speaker 1: that falls onto your balance sheet. The car doesn't appreciate,

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Speaker 1: but you're still stuck with the pay of the debt.

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Speaker 1: And as we know, right now there's a very strong

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Speaker 1: likelihood that interest rates may very well tack up with

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Speaker 1: snow because there's an anticipation on inflation and what that

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Speaker 1: does now further or compounds on the cost of that

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Speaker 1: debt going up into the future. So, as you said,

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Speaker 1: cars come, you know, with a great view in the front,

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Speaker 1: but behind the scenes there's a lot of consequences as

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Speaker 1: well which we underestimate.

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Speaker 2: Yeah, one of the things that seems to be a

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Speaker 2: tool to dealing with the issue of lifestyle creep is

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Speaker 2: the thing we'll always been told we should be doing,

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Speaker 2: which is to be doing a very thorough summary of

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Speaker 2: what you need to pay for. What are the things

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Speaker 2: that I must have, so you know, your groceries, your transport,

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Speaker 2: your dare, etc. And then looking at them, what are

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Speaker 2: the things that are extra that are add ons that

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Speaker 2: could also be contributing to that lifestyle creep.

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Speaker 1: Well, that's that's a classic sort of definitive line in

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Speaker 1: a budget. If you can draw a line between must

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Speaker 1: haves and nice to haves and make a clear distinction

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Speaker 1: between the two must haves have to be dealt with,

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Speaker 1: and your income comes in every month, you've got to

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Speaker 1: pay those those bills they fixed costs, and you've got

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Speaker 1: to get them behind you. Where the opportunity lies to

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Speaker 1: improve your savings is obviously to trim into the nice

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Speaker 1: to haves, and you'll find them there. It's the you know,

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Speaker 1: that extra coffee at the shop that you know you

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Speaker 1: might want extras around it. It's that extra night out,

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Speaker 1: it's going for takeouts versus meals at home. I mean,

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Speaker 1: there are a lot of little things that you can

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Speaker 1: do to trim but so the point I really think

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Speaker 1: at this stage we should try and make is you know,

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Speaker 1: if wealthy people come into extra they don't look for

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Speaker 1: reasons to spend. Wealthier people look for reasons to save it.

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Speaker 1: And it's very evident, you know, I watch a lot

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Speaker 1: of these game shows on television and they say, if

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Speaker 1: you're going to win this money, what are you going

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Speaker 1: to do with it? And ninety nine percent of the

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Speaker 1: people give you reasons to spend. And when you look

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Speaker 1: at the really wealthier people, if they come into a

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Speaker 1: windfall or some extras, they see that as an opportunity

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Speaker 1: to create more wealth so they maintain their lifestyle. They

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Speaker 1: don't necessarily up it, and they keep a very clear

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Speaker 1: lens on the new extra coming in and how they

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Speaker 1: can reinvest that to make their future wealth even that

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Speaker 1: much better. So I think that's the kind of definite

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Speaker 1: of line in behavior behaviors. But getting back to it,

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Speaker 1: nice to have set the opportunity to control a lot

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Speaker 1: better and be behind more for you to put away

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Speaker 1: and build out that financial freedom that you're looking for

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Speaker 1: at the end of the day.

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Speaker 2: It also seems that an emergency question is always a

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Speaker 2: good idea, especially even with regards to lifestyle greep. You

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Speaker 2: should be putting some money aside. There should be money

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Speaker 2: aside to kind of soften the blow in case something happens.

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Speaker 1: No question. In fact, that's the foundation of a solid

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Speaker 1: financial plans, to have enough tucked away for emergencies and contingencies,

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Speaker 1: unforeseen things that come up. Like you know, we're the

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Speaker 1: real lesson we learned to give. It was actually during

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Speaker 1: the COVID period COVID lockdown, if we most of us

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Speaker 1: had a lot more in the bank in cash to

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Speaker 1: maintain our lifestyles while we were locked down, we would

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Speaker 1: have had that much better peace of mind, it would

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Speaker 1: be far less stressful. But a lot of us were

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Speaker 1: found wanting we didn't have another month of expenses saved up,

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Speaker 1: and the idea is to have six months plus you know,

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Speaker 1: in the bank, so that should the worst ever happen,

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Speaker 1: I can be sick get myself through half a year

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Speaker 1: of living expenses. And that's kind of thinking there, you know,

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Speaker 1: it's it's it's a grounding for any financial plan. You've

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Speaker 1: got to be able to put away and if you

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Speaker 1: if you can't do that, you're wasting your time trying

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Speaker 1: to go for longer term investments, because if you can't

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Speaker 1: save on the short end, how are you going to

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Speaker 1: learn to save on the longer term. So as a

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Speaker 1: starting point, even for youngsters coming out of school, you know,

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Speaker 1: getting their first job, don't go for the big, the

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Speaker 1: big investments. You want to just say what you can

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Speaker 1: and start building up a nice nest eck. That meant

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Speaker 1: that if you ever get into trouble of some sort,

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Speaker 1: you can dip into it and it gives you that

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Speaker 1: freedom to say, well, okay, I've got a backstop, I've

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Speaker 1: got a wicket keeper in my plan, and that's a

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Speaker 1: far more piece of mind than the stress of not

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Speaker 1: having anything and something unforeseen happens.

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Speaker 2: What's the message here from Merles is good morning, isn't

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Speaker 2: it better to have a house that is an asset

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Speaker 2: when it's fully paid, fully paid form, then to rent forever?

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Speaker 2: Very interesting show. As always, that's a message from Mel.

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Speaker 1: You know, I think invention b yes, you have a house,

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Speaker 1: it's better to pay for your bond than live in

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Speaker 1: a house and pay for your land Biard's bond as

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Speaker 1: a tenant. And I think there's a lot of financial

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Speaker 1: benefit in that, But it also it comes with a

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Speaker 1: lot of other question marks. It's not a silver bullet

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Speaker 1: for everyone. You know, renting does have its advantages. Go

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Speaker 1: if you're not sure where you're going to land one day,

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Speaker 1: you know, you might just start out for work and

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Speaker 1: you've got yourself an opportunity in one particular area, and

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Speaker 1: then another one comes up on the other side of

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Speaker 1: town or somewhere else in another province, and you've bought

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Speaker 1: this property just on the principle that you must buy

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Speaker 1: the property, you might find yourself better off having rented,

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Speaker 1: because renting does give you the flexibility to move around,

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Speaker 1: you know, to move towards opportunities like new jobs and

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Speaker 1: things like that. And as we said earlier on that

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Speaker 1: overestimate or underestimate the actual cost of running and maintaining

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Speaker 1: a property where it has its value. How coming to

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Speaker 1: our callers point is that we're nout directing that rental

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Speaker 1: income into our own asset. We're we're are paying for

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Speaker 1: our own house. And over time, I think, and that's

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Speaker 1: really the case too. Over time you will realize a

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Speaker 1: better benefit in terms of valuation because the property, hopefully,

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Speaker 1: and that's another question too that comes into the frame,

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Speaker 1: hopefully the property does appreciate the way you think it could.

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Speaker 1: Net out all the expenses, the insurance costs and the

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Speaker 1: interest charges and maintenance fees, et cetera, et cetera. After

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Speaker 1: that net return, yes, property probably will do better for

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Speaker 1: you down the road. But from a last stile point

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Speaker 1: of view, rental does have an opportunity as well. It

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Speaker 1: gives you that freedom to move whenever you want to

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Speaker 1: or whenever you should.

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Speaker 2: Yeah, and I guess even when looking at so you

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Speaker 2: are wanting to invest in property with the idea of

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Speaker 2: having it appreciate. You're going to put some money into it,

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Speaker 2: You're going to upgrade it to make some changes, and

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Speaker 2: the idea to sell it for more. That isn't necessarily

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Speaker 2: kind of the line that always it doesn't necessarily happen

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Speaker 2: that way. Where you can buy the property, invest put

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Speaker 2: money into it, fix it, but you may not realize

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Speaker 2: the same kind of or a greater return than what

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Speaker 2: you put in. That depends on a number of factors

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Speaker 2: and what's happening in the market.

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Speaker 1: You're on the money there. The property is Having a

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Speaker 1: second property, a rental property is a very romantic story too.

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Speaker 1: It's great to have that on your balance sheet. It's

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Speaker 1: great to have that as an investment. But when you

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Speaker 1: do the what we call internal rates of return, we

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Speaker 1: measure all the inns and the arts. Yes, we're getting

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Speaker 1: a rental in, but then you've got to take that

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Speaker 1: into your tax return and it's added to your module.

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Speaker 1: Rate of tax pushes you out the tax scales, so

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Speaker 1: the actual rental is not as much as you can

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Speaker 1: in terms of net return. Then if you take off

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Speaker 1: the things, your costs of maintenance and insurance and armed

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Speaker 1: response and all the other things, and when you net

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Speaker 1: it out over time in terms of an internal compound

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Speaker 1: rate over time, it's not that better off than most

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Speaker 1: other assets. And when you measure it against the hassle factor,

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Speaker 1: you know there's picking up the rent occupational risk because

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Speaker 1: some tenants don't pay on time all the time. There's

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Speaker 1: a lot of things involved in that too, so it's

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Speaker 1: not just a clear cut one sort of here we

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Speaker 1: go on games and I'll be financially free. And again

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Speaker 1: remember when you sell the property one day too, you've

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Speaker 1: also got capital gains tax, so you've got to give

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Speaker 1: something in there back there. So in my experience, when

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Speaker 1: I've sat down on financial plans and we've really looked

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Speaker 1: at projects of rental by ti lets, invariably the internal

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Speaker 1: rate of return is not as good as you might

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Speaker 1: think it is. It's not all about you are bought

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Speaker 1: the property for X and it's now are solded at Y.

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Speaker 1: What you've got to do is you've got to extract

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Speaker 1: all the interim costs that it took your agencies to

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Speaker 1: sell off the property one day. You've got to take

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Speaker 1: the transaction costs that you paid up front. And when

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Speaker 1: we build all of those ins and outs, google not

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Speaker 1: as not as you know, exciting as it might have been,

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Speaker 1: and as say, you could have put the money in

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Speaker 1: a lot of projects. I've seen that money would have

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Speaker 1: done better compounding in the bank, and that person might

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Speaker 1: have been better off just sitting on the beach and

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Speaker 1: not having to worry about it. But there are other

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Speaker 1: properties that have done very very well. So it's Horses

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Speaker 1: for Courses.

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Speaker 2: Paul is always a great pleasure having you on the show.

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Speaker 2: Thank you so much for your time.

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Speaker 1: Thanks you have a great long weekend you too.

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Speaker 2: That's our residence certified financial advisor Paul Rule of Star,

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Speaker 2: joining us for our personal finance conversation. Coming up, we

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Speaker 2: talk sustainability. Will speak to Resign Bauer. They are the

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Speaker 2: strategical lead for Fine for Good, who are an organization

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Speaker 2: that created something called Hope is a verb and it

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Speaker 2: is intended to support the work of nonprofit organizations but

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Speaker 2: also help us find, you know, really great stories of

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Speaker 2: people doing really great work. So we'll speak to Designer

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Speaker 2: about hope as a verb and the work that they're doing.

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Speaker 2: But before that, though, it's twenty four minutes before eight o'clock,

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Speaker 2: it's checking with your latest I Witness New Sport with

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Speaker 2: the Miwanda Mateza