WEBVTT - Bought a house. Now what? With Hannah McQueen 0:00:05.960 --> 0:00:09.479 Cura and welcome to this episode of Shared Lunch where 0:00:09.480 --> 0:00:12.280 we focus on Money Month, which is run by Sorted 0:00:12.320 --> 0:00:15.280 New Zealand. The theme this year is to pause and 0:00:15.400 --> 0:00:18.880 quite literally get your money sorted. So we thought we'd 0:00:18.880 --> 0:00:22.400 discussed something familiar to many, and that's you've managed to 0:00:22.400 --> 0:00:25.680 get on the property ladder. But now what How do 0:00:25.720 --> 0:00:29.280 you stop yourself from going backwards or standing still and 0:00:29.320 --> 0:00:32.600 grow your wealth for the future. I'm Helen Madison and 0:00:32.680 --> 0:00:35.479 to help us with this conundrum, I'm joined by financial 0:00:35.479 --> 0:00:39.519 strategist and coach, the founder of enable Me, Hannah McQueen. 0:00:41.600 --> 0:00:44.080 Hi Hannah, lovely to have you in the studio. Thanks 0:00:44.080 --> 0:00:44.840 for joining us. 0:00:45.040 --> 0:00:45.800 Thank you, Hannah. 0:00:45.880 --> 0:00:49.000 That's harder than ever to buy a house, it seems 0:00:49.080 --> 0:00:52.800 at the moment. And I think you recognize this that 0:00:52.880 --> 0:00:55.760 times have actually changed when you decided to, I think, 0:00:55.840 --> 0:00:59.240 republish or update your book, kill your mortgage, and sort 0:00:59.240 --> 0:01:03.760 your retirement. So let's start with what's different today than 0:01:03.760 --> 0:01:05.679 perhaps a couple of decades ago. 0:01:06.120 --> 0:01:10.199 Ultimately a couple of decades ago, provided you weren't bad 0:01:10.360 --> 0:01:13.479 with money, you were going to be okay in the end. 0:01:14.080 --> 0:01:18.240 So the conditions were favorable enough that you could almost 0:01:18.360 --> 0:01:23.640 drift towards financial success and being able to retire comfortably. 0:01:24.120 --> 0:01:26.760 As long as you lived within your means, as long 0:01:26.840 --> 0:01:29.400 as you delayed your gratification, you were going to be okay. 0:01:30.000 --> 0:01:33.840 And that was largely because the house prices to income 0:01:33.920 --> 0:01:37.000 prices were a lot closer than what they are today. 0:01:37.800 --> 0:01:41.119 So in my granddad's day, let's say he bought a house, 0:01:41.200 --> 0:01:44.600 and let's say he earned fifty thousand dollars. The house 0:01:44.640 --> 0:01:49.080 cost one hundred thousand dollars hypothetically, So what that meant 0:01:49.320 --> 0:01:51.120 is that it was a lot easier to save a 0:01:51.200 --> 0:01:53.480 deposit because he didn't have to save as much of 0:01:53.520 --> 0:01:56.920 his income to come up with a deposit, which meant 0:01:56.920 --> 0:02:01.480 he could get onto the housing ladder very early. He 0:02:01.600 --> 0:02:04.160 was able to have a very moderate mortgage. He could 0:02:04.160 --> 0:02:07.440 become mortgage free within ten years, provided he wasn't bad 0:02:07.760 --> 0:02:11.200 just being average. And then because he was mortgage free 0:02:11.240 --> 0:02:13.840 in ten years, he then had thirty five years to 0:02:13.880 --> 0:02:17.440 save for his retirement. So that was his condition. So 0:02:17.440 --> 0:02:19.359 then you go to my parents' day, where instead of 0:02:19.360 --> 0:02:21.280 it being a one to two ratio, it's a one 0:02:21.320 --> 0:02:23.799 to four, or to my day where it's a one 0:02:23.840 --> 0:02:27.040 to six ratio. So house prices are now six times 0:02:27.400 --> 0:02:30.680 the average income of someone, and practically that means that 0:02:30.720 --> 0:02:33.799 you need to save a lot, which means you need 0:02:33.800 --> 0:02:36.639 to get the deposit, which means it takes you longer 0:02:36.680 --> 0:02:41.160 to save. Your mortgage is fatter, which takes longer to 0:02:41.200 --> 0:02:44.880 pay off. And if you're lucky and you're good with money, 0:02:45.400 --> 0:02:48.360 you may be mortgage free by retirement. But that assumes 0:02:48.440 --> 0:02:51.240 that you will not upgrade your home, or help your 0:02:51.320 --> 0:02:54.600 kids onto the property ladder, or do anything kind of 0:02:54.680 --> 0:02:59.280 moderately exciting that under those conditions you might be okay. 0:02:59.360 --> 0:03:01.800 But less than forty percent of kiwis are on track 0:03:01.919 --> 0:03:06.960 to do that, And so I guess ultimately that big 0:03:07.360 --> 0:03:10.120 ratio has changed, which sort of has made it very 0:03:10.120 --> 0:03:13.800 difficult in other areas. But in addition to that, compared 0:03:13.800 --> 0:03:18.400 to my granddad's day, we've now got consumer debt, so 0:03:18.480 --> 0:03:20.920 short term death Like credit cards weren't even a thing 0:03:21.200 --> 0:03:23.800 back then. You couldn't even use a credit card, so 0:03:24.280 --> 0:03:27.160 now we can. Now we can buy things, pay for 0:03:27.240 --> 0:03:30.400 them later, we can buy things. We've just got so 0:03:30.480 --> 0:03:32.680 much choice. Not only were there no credit cards back then, 0:03:32.720 --> 0:03:36.480 but there are no cafes, so all these things that 0:03:36.520 --> 0:03:38.840 we enjoy and want to be able to enjoy, and 0:03:38.880 --> 0:03:42.360 maybe should rightly be able to enjoy. It's making it 0:03:42.400 --> 0:03:44.920 easier to spend when the conditions are worse, so at 0:03:44.920 --> 0:03:48.040 the very time, because normally, when things are harder, you 0:03:48.160 --> 0:03:50.000 come at that by saying, Okay, well, I'm going to 0:03:50.040 --> 0:03:53.120 be better. But if we look at these generations that 0:03:53.200 --> 0:03:56.080 I'm surrounded with, conditions are harder, but at the same 0:03:56.120 --> 0:04:00.720 time we are worse, and that's something that needs to 0:04:00.800 --> 0:04:04.440 quite seriously be addressed. Otherwise we're going to have people 0:04:04.440 --> 0:04:06.760 who either don't believe they'll get onto the property ladder, 0:04:07.040 --> 0:04:11.040 which is really concerning for young people, or aren't going 0:04:11.080 --> 0:04:14.120 to be able to retire safely, which has a lot 0:04:14.120 --> 0:04:15.560 of impact in other areas as well. 0:04:16.720 --> 0:04:19.839 So, while Leboon's situation is different, is it fair to 0:04:19.920 --> 0:04:24.160 say that given that environment what you've just explained, people 0:04:24.200 --> 0:04:27.320 are probably feeling a bit stark. There's a bit of 0:04:27.400 --> 0:04:30.000 fog around what they should be doing financially to be 0:04:30.120 --> 0:04:32.200 smarter and to get ahead. Yeah. 0:04:32.240 --> 0:04:38.719 Well, I think people think that I'm not bad with money, 0:04:38.839 --> 0:04:43.280 therefore there can't be any obvious areas I can improve. 0:04:43.600 --> 0:04:46.440 Therefore there's no point sort of going through that process 0:04:46.480 --> 0:04:51.360 of refinement. That seems to be the gist, And I 0:04:51.400 --> 0:04:55.240 think it's because they don't immediately see where their inefficiencies are, 0:04:55.279 --> 0:04:59.880 because a lot of them are more technical inefficiencies structure 0:05:00.080 --> 0:05:01.880 all to do with how they structure their mortgage and 0:05:01.880 --> 0:05:06.840 their key we savers, their insurances, their tax how their 0:05:06.839 --> 0:05:11.120 money flows like that. Actually those are specialist areas, so 0:05:11.160 --> 0:05:12.840 most people don't even know what they need to know 0:05:12.920 --> 0:05:14.719 to do it better. So they just think, well, it 0:05:14.760 --> 0:05:17.240 feels about right, therefore it will be. And then the 0:05:17.279 --> 0:05:20.919 other half is most people don't know how to save successfully. 0:05:20.960 --> 0:05:23.480 They don't know what their target should be for savings, 0:05:24.120 --> 0:05:27.240 and so then all that we do is we think, okay, well, 0:05:27.520 --> 0:05:30.280 for success, I just need to earn more money. If 0:05:30.320 --> 0:05:32.679 I just earn more money, I'm going to be okay. 0:05:33.240 --> 0:05:36.480 But what happens is as you earn more money that 0:05:36.800 --> 0:05:40.120 all that happens is that you get this lifestyle creep. 0:05:40.440 --> 0:05:43.200 You just spend a little bit more, and you feel 0:05:43.200 --> 0:05:46.320 okay about that because you're earning more money, but it 0:05:46.400 --> 0:05:51.880 translates to this really dangerous outcome of you're working hard 0:05:52.080 --> 0:05:55.440 and you're going nowhere, or you're not going getting ahead 0:05:55.520 --> 0:05:59.240 at the rate that you should indicative of your income, 0:05:59.320 --> 0:06:01.240 because I think we do you accept that the poor 0:06:01.640 --> 0:06:04.960 will always be poor and the rich will always be rich. 0:06:05.279 --> 0:06:08.039 But it is the strength of that middle class who 0:06:08.120 --> 0:06:10.880 kind of don't identify as being super rich but earn 0:06:10.920 --> 0:06:14.359 pretty good income when they are not getting ahead. That 0:06:14.520 --> 0:06:16.880 is a problem that really needs to be addressed. 0:06:18.320 --> 0:06:20.719 So if you're in that situation and you are feeling 0:06:20.800 --> 0:06:23.200 quite struck and you're not really sure what to do, 0:06:23.839 --> 0:06:26.080 what can what's the starting point? 0:06:27.480 --> 0:06:29.080 Yeah, well, it's almost like you've got to hop on 0:06:29.080 --> 0:06:33.240 the scales, right, which is horrific. I heard a locker 0:06:35.000 --> 0:06:37.640 from a weight loss perspective that the worst part of 0:06:37.680 --> 0:06:39.680 any journey when you're going to get on those scales. 0:06:40.120 --> 0:06:42.080 But we've got to take stock of where you're at. 0:06:42.600 --> 0:06:45.520 We need to understand what you're aiming for. And most 0:06:45.560 --> 0:06:47.599 people don't even know how to set financial goals. They 0:06:47.640 --> 0:06:49.920 don't even know what they should be aiming for. So 0:06:49.960 --> 0:06:52.280 again they default to, well, I just won't be bad, 0:06:53.880 --> 0:06:56.960 but we need to understand we you are, what you're 0:06:57.000 --> 0:07:00.240 trying to aim for, what you're actually progressing at. It's 0:07:00.240 --> 0:07:02.560 like there's no point having a goal unless you're tracking 0:07:02.640 --> 0:07:05.600 to it or understand your trajectory, and then we need 0:07:05.640 --> 0:07:07.719 to work out and can we do it better? And 0:07:07.800 --> 0:07:10.560 for most of my clients we can normally improve their 0:07:10.640 --> 0:07:15.440 savings rate by three hundred percent, like it's insane, And 0:07:15.480 --> 0:07:19.560 these people are financially literate people. They earn good income, 0:07:19.960 --> 0:07:24.480 they're managing budgets in their day job. But on a 0:07:24.520 --> 0:07:27.840 personal basis, we often need a plan and structure and 0:07:27.960 --> 0:07:30.640 some accountability if we're going to stick to it. 0:07:31.640 --> 0:07:34.040 Are there also things that you can do that more 0:07:34.080 --> 0:07:36.760 short terms, say like having an emergency fund, and then 0:07:36.800 --> 0:07:40.480 there's the longer term things thinking perhaps about your contributions 0:07:40.520 --> 0:07:42.160 to QBSABER for example. 0:07:42.720 --> 0:07:44.320 Yes you can, but those are the sort of more 0:07:44.360 --> 0:07:47.320 tactical things, right like that that's not going to move 0:07:47.400 --> 0:07:51.480 the boat out any faster, And yes, I want you 0:07:51.560 --> 0:07:53.119 to be in the right key. We save a fund, 0:07:53.200 --> 0:07:55.840 contributing the right amount with the right provider, of course 0:07:55.880 --> 0:07:58.120 I want that. That's sort of an inefficiency for most 0:07:58.160 --> 0:08:02.120 of us, But that a nice is still not going 0:08:02.160 --> 0:08:06.080 to get your mortgage paid off faster, and nor is 0:08:06.120 --> 0:08:07.960 it going to position you so you can help your 0:08:08.040 --> 0:08:10.680 kids onto the property ladder or whatever your goal is 0:08:10.760 --> 0:08:15.760 for you, And I think that's where people get sometimes 0:08:15.800 --> 0:08:19.559 fixated on the things that won't actually change the dial, 0:08:20.320 --> 0:08:22.920 and because the things that change the dial right, those 0:08:23.000 --> 0:08:28.360 are harder to unlock because it's often linked to behavioral change, 0:08:28.920 --> 0:08:31.320 and that can be tricky for some people, especially when 0:08:31.320 --> 0:08:35.360 you overlay relationships. But I think the first back to 0:08:35.440 --> 0:08:36.960 kind of what are the things that you can do 0:08:37.120 --> 0:08:39.360 as part of taking stock of where you're at, you 0:08:39.480 --> 0:08:43.640 have to understand who you are and how you work 0:08:43.679 --> 0:08:47.640 with money, because that will determine what strategy is going 0:08:47.679 --> 0:08:51.040 to be effective for you. Because if you are a saver, 0:08:51.720 --> 0:08:56.800 someone who naturally enjoys saving, which I can't even I 0:08:56.840 --> 0:08:58.559 can't relate to that at all because I'm a shopper, 0:08:59.120 --> 0:09:02.120 but they naturally enjoy doing that, how we would set 0:09:02.160 --> 0:09:04.559 a strategy for that person is very different to how 0:09:04.600 --> 0:09:07.880 we engage a natural spender. And neither of them are 0:09:07.880 --> 0:09:11.160 good nor bad. Like please don't attribute emotion to money, 0:09:11.720 --> 0:09:14.040 but depending on what you are, there is a different 0:09:14.040 --> 0:09:16.400 way that we need to combat or play to that 0:09:16.520 --> 0:09:19.200 strength if it is a strength. And I think that's 0:09:19.240 --> 0:09:24.800 where some people come unstuck. They're not self aware with 0:09:24.880 --> 0:09:28.120 their own money tendencies, that their money beliefs that they 0:09:28.160 --> 0:09:31.600 tell themselves. All these things have more of an impact 0:09:31.760 --> 0:09:35.439 around what you're likely to achieve rather than your income level. 0:09:35.760 --> 0:09:38.679 But also, I suppose often you buy a house, it's 0:09:38.679 --> 0:09:42.440 a pretty large asset. With someone else, you might have 0:09:42.640 --> 0:09:46.360 quite different money behaviors, and that probably is something you'd 0:09:46.360 --> 0:09:50.360 probably have to navigate. I mean, you must see couples 0:09:50.360 --> 0:09:51.720 in the situation all the time. 0:09:52.320 --> 0:09:57.520 Yes, sometimes I think I'm more of a relationship counselor 0:09:57.640 --> 0:10:03.600 and a financial advisor. Yes, I think you've got the 0:10:03.679 --> 0:10:08.280 coupling right, Like, if you're a spender married to a spender, 0:10:08.640 --> 0:10:11.800 you're looking good, you're having a good time, you're probably 0:10:11.800 --> 0:10:14.880 going nowhere, but boy, you fun. And then you've got 0:10:14.880 --> 0:10:17.120 the saver married to the saver, which are just sort 0:10:17.120 --> 0:10:20.079 of tight, which is helpful, I guess. And then you've 0:10:20.120 --> 0:10:22.160 got that combo where you could be a spender and 0:10:22.160 --> 0:10:28.160 a savor and that can be quite fraught. And I 0:10:28.200 --> 0:10:31.040 think when you first get together, it's probably cute and 0:10:31.080 --> 0:10:33.280 interesting and you're curious as to how they work with 0:10:33.360 --> 0:10:35.080 money and all of those things. But after a few 0:10:35.160 --> 0:10:38.760 years it's quite tiresome for everyone. Because the spender feels 0:10:38.760 --> 0:10:40.680 bad about spending and the saver is not making any 0:10:40.679 --> 0:10:43.680 progress and you don't understand why the other person is 0:10:43.880 --> 0:10:48.439 how they are, and it creates friction. Not necessarily arguments 0:10:48.440 --> 0:10:51.079 the friction could be dealt with by not talking about it, 0:10:51.720 --> 0:10:55.000 Like friction doesn't have to be explosive. But that friction, 0:10:55.160 --> 0:10:59.680 if we go back to the science of propulsion, that friction, 0:10:59.840 --> 0:11:03.320 that disconnect slows down your ability to get ahead. And 0:11:03.360 --> 0:11:06.240 I do think it's well many my clients, half my 0:11:06.280 --> 0:11:11.839 clients are that opposite attracts financially, and so we've got 0:11:11.880 --> 0:11:14.120 to learn, well, how can we navigate that when you 0:11:14.240 --> 0:11:17.679 both have you've had different upbringings around money. You see 0:11:17.760 --> 0:11:21.880 money differently, you spend differently, you're motivated by different things. 0:11:22.160 --> 0:11:25.880 How do we navigate that successfully so that you still 0:11:25.960 --> 0:11:28.320 like each other and obviously you still like me. So 0:11:28.400 --> 0:11:32.120 those are things that we take care to do. And 0:11:32.160 --> 0:11:37.200 I think it helps that I'm independent and qualified to 0:11:37.240 --> 0:11:40.240 comment on these things because there's a lot of emotion 0:11:40.440 --> 0:11:45.079 that comes to these meetings. There's frustration, there's hurt, sometimes 0:11:45.080 --> 0:11:48.520 there's guilt, and you have to be able to work 0:11:48.760 --> 0:11:52.400 through that in a really constructive way, which is interesting 0:11:52.400 --> 0:11:54.880 because one of the most common pieces of feedback I 0:11:54.920 --> 0:11:58.760 get from clients is I wish i'd found you ten 0:11:58.840 --> 0:12:02.640 years ago. I'm sleeping better, and I can't believe you 0:12:02.720 --> 0:12:05.360 got away with saying that to my spouse, right, Like, 0:12:05.480 --> 0:12:07.480 sometimes you've got to just hear it from the right 0:12:07.559 --> 0:12:10.440 person for it to be taken on board. So if 0:12:10.480 --> 0:12:13.400 I'm wanting to get fit, my husband's fit and I 0:12:13.400 --> 0:12:17.200 could take advice from him, perhaps I'm just I'm not 0:12:17.520 --> 0:12:23.440 interested in receiving helpful suggestions. And so even if he 0:12:23.480 --> 0:12:26.280 would say something that my personal trainer would say to 0:12:26.320 --> 0:12:29.040 me the exact same thing and without emotion, like, it 0:12:29.040 --> 0:12:31.880 wouldn't be like a jab, it would be really constructive 0:12:31.880 --> 0:12:36.199 and kind. I'm just not inclined to engage with his feedback, 0:12:36.240 --> 0:12:38.719 but I will my personal trainer, And I think back 0:12:38.760 --> 0:12:41.120 to that self awareness kind of taking the pulse of 0:12:41.160 --> 0:12:45.080 where you're at financially, understanding yourself who you need to 0:12:45.120 --> 0:12:47.360 hear the information from so you actually take it on 0:12:47.440 --> 0:12:49.079 board is very helpful. 0:12:49.559 --> 0:12:53.080 I'm in that spender saver relationship marriage if you like, 0:12:53.160 --> 0:12:55.319 and I totally concur with what you're saying. I could 0:12:55.360 --> 0:12:57.719 talk about it all day, but we won't. One thing 0:12:57.760 --> 0:13:00.600 I did wanted to talk about, though, was how much 0:13:00.600 --> 0:13:04.079 of a difference does it make with restructuring or structuring 0:13:04.120 --> 0:13:06.520 your mortgage. I mean, quite often New Zealand is I 0:13:06.520 --> 0:13:10.000 think most commonly fixed for two years and pretty much 0:13:10.080 --> 0:13:13.040 leave it and everything's being paid off at the same time. 0:13:13.520 --> 0:13:15.320 What do you say to that, Well. 0:13:15.160 --> 0:13:19.760 Structuring your mortgage is important, and you're trying to balance 0:13:19.800 --> 0:13:23.080 a few things. So you want certainty I guess for 0:13:23.120 --> 0:13:25.280 a period of time, and the fixed interest rate gives 0:13:25.320 --> 0:13:28.120 you that certainty. But you also want the ability to 0:13:28.200 --> 0:13:31.360 pay off the debt without being penalized because you do 0:13:31.400 --> 0:13:33.360 need to pay it off faster, and you want the 0:13:33.400 --> 0:13:36.680 flexibility of being able to reaccess that money as well. 0:13:36.960 --> 0:13:39.679 So you're trying to balance those things. Before you can 0:13:39.760 --> 0:13:42.120 work out how to structure it. We have to first 0:13:42.400 --> 0:13:46.120 maximize your cash surplus. So if you don't, if you're 0:13:46.200 --> 0:13:48.680 not saving at the moment, that suggests you don't have 0:13:48.720 --> 0:13:51.719 a cash surplus, and most people will, you'll sort of 0:13:51.760 --> 0:13:55.119 be able to identify whether you think you're sinking, floating, 0:13:55.240 --> 0:14:00.240 or flying somewhere along there around that spectrum. So we 0:14:00.280 --> 0:14:02.679 need to first determine is there money left over that 0:14:02.720 --> 0:14:06.199 we could put towards paying the mortgage off faster. If 0:14:06.240 --> 0:14:09.680 the answer is yes, great, that makes you better than most. 0:14:10.000 --> 0:14:12.760 The next question is how do I maximize that? And 0:14:12.800 --> 0:14:15.800 once I've maximized it, then I'll work out how I 0:14:15.840 --> 0:14:19.440 need to structure the mortgage. If your situation, though, is 0:14:19.480 --> 0:14:21.840 that you don't have much money left over, you're kind 0:14:21.840 --> 0:14:26.880 of living paycheck to paycheck most likely, well paycheck to paycheck, 0:14:27.400 --> 0:14:30.360 but there isn't much growing out the side, perhaps beyond 0:14:30.400 --> 0:14:32.720 your Kiwi saver, Well, then we've got to take a 0:14:32.720 --> 0:14:36.200 different approach because we have to try and stabilize your position. 0:14:36.840 --> 0:14:40.320 If you're already flying saving a lot, again, we still 0:14:40.320 --> 0:14:42.440 want to maximize it, but we're trying to fly you 0:14:42.480 --> 0:14:45.760 to your destination faster. So depending on where you're at, 0:14:45.760 --> 0:14:48.120 we want to first kind of squeeze out all the 0:14:48.160 --> 0:14:51.560 inefficiencies and try and get you. So we've got a 0:14:51.600 --> 0:14:54.720 plan to lift your savings rate to twenty percent of 0:14:54.760 --> 0:14:57.640 your income, and not everyone can get there. For some 0:14:57.680 --> 0:14:59.440 of my clients, it has taken us more than a 0:14:59.600 --> 0:15:01.960 year to get to that level, and it's a combination 0:15:02.080 --> 0:15:05.000 of costs coming down and also working on strategies to 0:15:05.040 --> 0:15:07.520 lift income so that we do have that money left over. 0:15:07.960 --> 0:15:10.680 But that's the first thing that we're trying to do, 0:15:10.800 --> 0:15:14.160 and then we work out how to structure the mortgage. Now, typically, 0:15:14.360 --> 0:15:17.120 if I was to put numbers around this, if you're surplus, 0:15:17.160 --> 0:15:22.160 the money leftover could be increased to fifty thousand dollars 0:15:22.200 --> 0:15:24.280 a year. I'm just plucking a number. Then I would 0:15:24.320 --> 0:15:27.360 link that into how I structure your mortgage. I would 0:15:27.360 --> 0:15:30.600 have a revolving credit facility that you don't have f 0:15:30.680 --> 0:15:33.760 poss access to, so it's not a transactional account, but 0:15:33.840 --> 0:15:37.080 it would be fifty thousand dollars overdrawn, and the objective 0:15:37.160 --> 0:15:38.720 is going to be to pay that off over the 0:15:38.720 --> 0:15:41.120 course of the year. Again, you don't have f poss 0:15:41.120 --> 0:15:44.760 access to that, but that becomes I guess, the propulsion 0:15:44.840 --> 0:15:47.240 to try and grow wealth when we move to the 0:15:47.240 --> 0:15:49.000 next stage. But I've got to get you mortgage free 0:15:49.040 --> 0:15:52.040 first well, as part of the know how quickly I 0:15:52.080 --> 0:15:54.920 can get you mortgage free before I overlay the wealth strategy. 0:15:56.000 --> 0:15:57.920 But there's a balancing act, though, isn't it. Because we 0:15:58.000 --> 0:16:00.200 often get the question should I be paying off my 0:16:00.320 --> 0:16:03.480 mortgage or should I be contributing to key wesaver, And 0:16:03.520 --> 0:16:05.920 obviously you should be contributing to key we Saver, But 0:16:06.000 --> 0:16:08.560 then it's how much and what's my emphasis? 0:16:08.920 --> 0:16:12.200 Yeah, So, as a general rule, you contribute to key 0:16:12.200 --> 0:16:15.080 we saver if you're not in financial hardship, and you 0:16:15.120 --> 0:16:18.680 contribute up to the level that your employer matches. If 0:16:18.720 --> 0:16:21.120 you're self employed, there isn't that much of an incentive 0:16:21.200 --> 0:16:25.480 to contribute beyond what the government will unlock the attacks 0:16:25.560 --> 0:16:28.360 credit for you. But let's say it's three percent. So 0:16:28.360 --> 0:16:31.040 if you had money outside of that, then the question is, well, 0:16:31.040 --> 0:16:35.040 what do I do with it? Well, yes, you could 0:16:35.040 --> 0:16:37.360 put it into key we Saver, and I guess that's 0:16:37.360 --> 0:16:40.480 a form of compulsory saving. But that is assuming that 0:16:42.040 --> 0:16:45.920 you haven't purchased your first home, I guess, And you 0:16:45.920 --> 0:16:49.720 don't need that money for retirement. I guess it protects it, 0:16:49.720 --> 0:16:52.560 it locks it in a vault for you. But for 0:16:52.680 --> 0:16:54.840 most of us, cerdainly the clients that I'm working with, 0:16:54.920 --> 0:16:57.840 I can put that money to work a lot faster 0:16:58.400 --> 0:17:00.080 and a lot harder than if it was left and 0:17:00.120 --> 0:17:03.080 a kiwisaver fund. So contributing up to the level your 0:17:03.080 --> 0:17:07.199 employer matches absolutely could put that into kiwisaver. It's the 0:17:07.359 --> 0:17:12.600 extra contribution that I'm I'm wary of because if I 0:17:12.640 --> 0:17:16.320 can put that money towards paying your mortgage off faster, 0:17:17.560 --> 0:17:21.520 not only are we creating flexibility and financial resilience now 0:17:21.800 --> 0:17:24.199 that you can benefit, but we're creating equity and your 0:17:24.200 --> 0:17:27.680 property as well that we could recycle as a deposit 0:17:27.720 --> 0:17:30.320 for an investment property. And so then you've got kind 0:17:30.359 --> 0:17:33.320 of three layers working hard for you. You've got your 0:17:34.280 --> 0:17:38.159 greater cash surplus, which increases your resilience, which means you 0:17:38.200 --> 0:17:43.720 can weather storms more comfortably. We've got your mortgage coming down, 0:17:43.760 --> 0:17:46.880 which is saving you interest costs, getting you mortgage free faster, 0:17:47.359 --> 0:17:49.640 and also creating equity in your home. And then we're 0:17:49.680 --> 0:17:52.920 tapping into that equity as a deposit for an investment property. 0:17:53.119 --> 0:17:57.000 Those three things will outperform any qv saver investment kind 0:17:57.000 --> 0:17:58.920 of any day of the week, any extra key WE 0:17:59.000 --> 0:18:01.399 Saver investment on what your employer matches. 0:18:02.560 --> 0:18:05.080 But the beauty of compound interest, obviously you need to 0:18:05.119 --> 0:18:07.680 be contributing something though, so that you can take advantage 0:18:07.680 --> 0:18:08.080 of time. 0:18:09.160 --> 0:18:12.960 Yes, but yes, but I do think that the benefit 0:18:12.960 --> 0:18:16.359 of kiwisaver isn't really the compound interest, and it isn't 0:18:16.480 --> 0:18:19.960 really time. It's the fact that your employer is contributing, 0:18:20.320 --> 0:18:22.960 so you're getting one hundred percent return. That is the 0:18:23.000 --> 0:18:26.879 beautiful thing. The actual fund that you're investing in after 0:18:26.960 --> 0:18:29.440 inflation in some of those things might actually give quite 0:18:29.480 --> 0:18:33.800 a poor return, but getting access to that employer money 0:18:33.920 --> 0:18:38.600 is the golden ticket for kiwisaver. So yes, having it 0:18:38.640 --> 0:18:41.720 locked up so you can't touch it is also helpful 0:18:41.760 --> 0:18:46.800 because you don't inadvertently fritter it away. But it's more 0:18:46.880 --> 0:18:49.000 that it's just locked up for a long period of 0:18:49.040 --> 0:18:51.760 time rather than the based performance of the fund, which 0:18:51.800 --> 0:18:54.600 is where I guess that compounding concept comes in. 0:18:55.960 --> 0:18:58.720 What about trying to be smart with your money? And 0:18:59.080 --> 0:19:02.440 I mean there's the options, the shares, the savings accounts, 0:19:02.880 --> 0:19:05.400 better deals on your insurance, things like that. I mean, 0:19:05.880 --> 0:19:09.399 all of them probably have a part to play. But 0:19:09.480 --> 0:19:11.679 if you weren't just focused on your mortgage and you 0:19:11.720 --> 0:19:15.280 had other investments and you're quite diversified, what do you 0:19:15.320 --> 0:19:17.880 think then what could people be doing well? 0:19:17.880 --> 0:19:20.200 I think it comes back to kind of the principles 0:19:20.480 --> 0:19:23.280 of wealth creation, where you want your money to work 0:19:23.320 --> 0:19:26.880 as hard as it can for the kind of balance 0:19:27.000 --> 0:19:30.880 of risk or volatility. So if we look at a mortgage, 0:19:30.960 --> 0:19:33.800 let's say the average mortgage rate, the three year mortgage 0:19:33.840 --> 0:19:35.959 rate at the moment is six point three five percent. 0:19:36.680 --> 0:19:38.760 So if you've got an extra dollar, you've got the 0:19:38.840 --> 0:19:41.680 question do I pay off my mortgage to save myself 0:19:41.720 --> 0:19:44.000 six point three five percent on what I've paid off? 0:19:44.080 --> 0:19:46.200 Or do I put that dollar into something else, whether 0:19:46.240 --> 0:19:49.639 it's managed fund, shares, property, crypto, whatever we want to 0:19:49.680 --> 0:19:52.600 call it. So I guess the question then is, well, 0:19:52.640 --> 0:19:55.159 what is the return on these other investments, what is 0:19:55.200 --> 0:19:58.119 the certainty of that return, and what is the impact 0:19:58.200 --> 0:20:00.679 of inflation as well? Because we've got a balance these things, 0:20:01.240 --> 0:20:04.520 and can I reaccess that money easily? When you're looking 0:20:04.560 --> 0:20:07.880 at a guaranteed return of six point three five percent 0:20:08.480 --> 0:20:13.240 guaranteed after tax saving, then that would be the equivalent 0:20:13.280 --> 0:20:15.920 of a guaranteed maybe ten per I can't do the 0:20:15.960 --> 0:20:17.719 math in my head, but let's say a ten percent 0:20:17.760 --> 0:20:22.160 return before tax, before fees and all of those things, 0:20:22.680 --> 0:20:26.120 which most investments, whilst they might perform at that rate 0:20:26.720 --> 0:20:30.160 over a long term, some might very few of them 0:20:30.320 --> 0:20:33.520 perform at that rate on a guaranteed level. And so 0:20:33.560 --> 0:20:35.240 then you say, well, I need if I'm trying to 0:20:35.240 --> 0:20:37.840 get my money to work as hard as it can 0:20:38.280 --> 0:20:41.080 for as much certainty, which while you've got a mortgage, 0:20:41.119 --> 0:20:43.439 you need to be thinking more about the certainty of 0:20:43.520 --> 0:20:47.199 outcomes rather than the hopeful outcomes. We're not ready to 0:20:47.320 --> 0:20:50.439 diversify yet, because you've got this mountain of debt that 0:20:50.480 --> 0:20:53.080 we need to get under control, and we do want 0:20:53.080 --> 0:20:55.359 to get that under control before we even kind of 0:20:55.400 --> 0:20:59.240 think about diversifying. And I think that's why some people 0:20:59.359 --> 0:21:05.040 lean to more property based assets whilst they have a mortgage, 0:21:05.119 --> 0:21:07.920 because they can reuse the equity they've got in their 0:21:07.960 --> 0:21:11.040 home or on the property that they're paying off and 0:21:11.200 --> 0:21:15.720 still grow wealth. Now, once we mortgage free, it's game 0:21:15.800 --> 0:21:19.119 on for diversifying to your other assets. But we really 0:21:19.160 --> 0:21:22.840 want to ensure we get certainty of return kind of 0:21:22.880 --> 0:21:25.960 no matter what. And while interest rates remain high, it 0:21:26.080 --> 0:21:28.760 makes more sense in most instances to pay off that 0:21:28.840 --> 0:21:32.320 mortgage over investing in other types of assets because it 0:21:32.359 --> 0:21:35.280 just won't work as hard. But when interest rates drop, 0:21:35.359 --> 0:21:37.560 and we're kind of on the precipice of rates starting 0:21:37.560 --> 0:21:40.840 to drop, we're going to move. I guess the equilibrium 0:21:40.880 --> 0:21:44.359 of that point is going to change. So you'll recall 0:21:44.440 --> 0:21:46.679 in COVID when interest rates went down to two percent, 0:21:47.359 --> 0:21:50.000 why would you pay off a mortgage under those conditions 0:21:50.000 --> 0:21:52.280 when you could get a lot more investing in other 0:21:52.320 --> 0:21:55.159 types of assets. So the first question we ask is 0:21:55.800 --> 0:21:58.080