S1: Hello and welcome to It all adds up. The podcast
S1: where we chat about money, how to get it, how
S1: to spend it, and how to invest it. I'm senior
S1: economics writer at the Sydney Morning Herald and The Age
S1: newspaper's Jess Irvine, and.
S2: I'm money editor Dom Powell. And this week is the
S2: grand finale of our special series focusing on real life budgets,
S2: money questions, and how you're tackling the rising cost of living.
S1: Yes, In this week's question comes from listener Sarah, who
S1: sent us in her budget and then she, in the interim,
S1: listen to the other budget episodes that we've done and
S1: went away and actually saved herself a couple of thousand
S1: dollars following some of the tips and tricks that we mentioned.
S1: Dom So yay! Us Yeah.
S2: Well, who who knew? Who knew that we're actually giving
S2: good advice on this podcast?
S1: We knew deep down inside, but it's nice to have
S1: that external validation. Anyway, we have a voice memo from Sarah,
S1: so let's have a listen.
S3: Hello, Jess and Dom. My name is Sarah, and I'm
S3: a paramedic and a 50 year old soul parent to
S3: two beautiful girls, 28 years old and 16 years old.
S3: Thank you so much for scrutinizing my budget. I've been
S3: looking at various ways that I can make some savings.
S3: And recently I've managed to make some changes with my
S3: health insurance by reducing it down to just hospital only
S3: and no extras and having a bigger excess and reduce
S3: that cost from $274 a fortnight down to 150, which
S3: was amazing. I'm looking at other ways that I can
S3: save because my overarching goal is in 15 years time,
S3: I plan to purchase my home outright at retirement and
S3: still have a great retirement savings plan as well. So
S3: any ideas on how I can save some costs and
S3: increase my surplus would be most amazing. Thank you so much.
S2: Well, thanks for sending that in, Sarah. Love to hear
S2: that you've been listening to the podcast and, you know,
S2: implementing some of the some of the things that we've
S2: been talking about. I think there's a few things to
S2: look at when we look at Sarah's budgets and the
S2: things that she's she's changed. So if we look at
S2: the first budget that Sarah sent us a few weeks ago,
S2: she was saying that her annual cash surplus was around
S2: about 4000. And in the MOStrillionECENT one that she's sent
S2: us just this week, she's increased that cash surplus to
S2: around 7000, which is great. That's 3000 bucks extra in
S2: the pocket.
S1: And that's per year. It's not every month or something,
S1: but but that's how much she's perhaps can save annually.
S1: But that's fantastic because, you know, 4000 might be a
S1: bit slim. We're getting towards something that's a bit more
S1: of a decent sort of cash surplus being generated each year,
S1: which isn't that great.
S2: Yeah, absolutely. And I mean, there's a few reasons when,
S2: you know, when when you look at Sarah's budget that
S2: she's increased this cash surplus. One of the most notable
S2: things that I saw was that she's increased the amount
S2: of money that she's gotten from her side hustle, which
S2: I believe is, I assume, teaching Pilates. It just says Pilates.
S2: I can't imagine you can get paid for doing Pilates,
S2: but if you can, someone let me know, please. But
S2: I'm assuming that Sarah does do Pilates instructing as a
S2: side hustle and she's increased the amount of money that
S2: she's gotten from that quite significantly. So this is great.
S2: And also a real testament to the strength of having
S2: a good strong side hustle.
S1: That's a fantastic, solid side hustle. And I did read
S1: that it's the number of Australians who are actually sort
S1: of have two jobs at the moment is increasing because
S1: you know, you are looking for that extra source of
S1: income on the saving side as well. So she mentioned
S1: that she saved on her electricity and the health insurance
S1: as well, noting that if you increase your excess, you
S1: have to pay more in the event that she will
S1: have to make a claim. So just being careful of
S1: that and dropping the extras because you don't need the
S1: extras to avoid the Medicare levy surcharge, if you're over
S1: that 90,000 single income threshold where you have to pay
S1: that tax slug, if you don't have the hospital cover,
S1: you only do only need the hospital cover. But sort
S1: of doing an analysis for yourself as to whether the
S1: benefits you get from having health insurance extras you actually
S1: receive back more than you pay in premiums is a
S1: really good exercise for people to do. And it sounds
S1: like Sarah's gone away and done that analysis and figured
S1: out that, yeah, she can reduce the premium by, you know,
S1: $100 or whatever it was. That's that's fantastic.
S2: Yeah. And it looks like she's also cut down on
S2: her expenditure, not by a huge amount, just by, I
S2: think it was maybe 20 or 30 bucks a fortnight
S2: or something like that on just doctors and specialists. So
S2: clearly Sarah sat down and had a look at the
S2: money that she's spending on, you know, health and health
S2: insurance and sort of just really worked out all the
S2: areas that she can she can cut back on, which
S2: is great, getting rid of any of those sort of
S2: non-essential sort of specialist visits or doctor visits is always
S2: a good way to save a bit of cash.
S1: And I noticed she's also cancelled her audible subscription for
S1: the for a little while. And that obviously saves money.
S1: But the great thing about that, I don't know if
S1: you've ever done this done but I mean I have
S1: had audible and then you cancel it and then you
S1: get bombarded with come back, it'll be free. We won't
S1: charge you for a whole month or two. Like you
S1: get the free offers so you can resubscribe anytime you want.
S2: Audible is one of those things that I think is
S2: almost always sending me deals like I've never done. I
S2: think I've ever been sent so many offers by a
S2: company other than Audible like in my life. Like it's,
S2: it's ridiculous. And I don't even listen to audiobooks. I
S2: think I listen to one audiobook maybe once in 2018. So,
S2: you know, there's a life hack through everyone, get rid
S2: of your audible and then you can, you know, just
S2: get free offers for the rest of your life.
S1: John What did you think in general? I mean, I mean,
S1: I would now claim this is a testament to having
S1: a budget and seeing how realistic it is and tracking
S1: your spending and, you know, finding those little savings, because
S1: we saw that Sarah was doing sort of more a
S1: bucket style approach, which is traditionally what you've been doing.
S1: How do you how do you feel about that?
S2: Well, I think this is. If you, you know, listen
S2: back to the first episode of this series that we did,
S2: you know, six weeks ago now, where I sort of
S2: admitted my terrible budgeting strategies. This all sort of hits
S2: quite close to home, to be honest, because Sarah pretty
S2: much said, I did this, these sort of strategies. I
S2: did this sort of, you know, bucket based approach, and
S2: all I kept doing was just dipping into the buckets,
S2: you know, I kept going and taking a little bit
S2: out of this fund, a little bit out of this
S2: fund when I needed it. And that's exactly what I do,
S2: you know? So this is this is this is I
S2: suppose you're right, a testament to having a real budget,
S2: meticulously tracking every single thing you spend money on rather
S2: than just sort of grouping it into generalized categories. Yeah.
S1: And like, look, you don't have to do it forever,
S1: you know, you don't have to be doing this every
S1: single month, although you can if you're me, but just,
S1: you know, doing it once, having the really good, fine
S1: tooth comb through the budget, questioning everything as to whether
S1: it does align with your enjoyment of the the dollars
S1: that are going out and having a look for sort
S1: of those little savings because it all adds up.
S2: As all add up. I think the buckets method can
S2: be very attractive for a lot of people because it
S2: seems very low effort. And I think that if you
S2: have a really simple life, right, like if you've if
S2: you don't spend money on sort of strange things, you know,
S2: you've got very limited, you know, expenditure, you've got very
S2: basic expenses, all that sort of stuff, then the buckets
S2: method works well because then, you know, you don't have
S2: to really think too much about it. But when you're
S2: buying a little thing here or are you spending a
S2: little bit money on a holiday here and all that
S2: sort of stuff, then you really do need to have
S2: that oversight, I think, which is where obviously we've seen
S2: this with Sarah's budget here, that now once she starts
S2: tracking it all, she can really see where all that
S2: money's going and then start to make those savings.
S1: Yeah, And it's not about sort of living on a
S1: barebones budget for the rest of your life and cutting
S1: your own hair as some of us in the room
S1: have done. It's me. But even though I've been on
S1: that arc of, you know, sometimes it's fun to see
S1: how much you can save, but you can't live like
S1: that forever. And making sure that you're making room for
S1: enjoyment in your budget is so important. Although things are
S1: a bit tight at the moment for a lot of people.
S1: So having the good look but you know, making sure
S1: that you do have some some fun in the budget
S1: as well. But looking at.
S2: The rest of Sarah's budget, there are some areas where,
S2: you know, you can see that there will be some
S2: cost savings in the future. As she mentioned, she has
S2: a 16 year old daughter at the moment. She shows
S2: on her budget that her school costs are around $10,000
S2: a year. Obviously, that will stop eventually, and that's $10,000
S2: that you could do anything with. You could invest it,
S2: you could put it into your super.
S1: So it might be fun for Sarah to do a
S1: different version of her spreadsheet where you do actually go
S1: through and cut out some of those kid costs. Because
S1: I've done that and I'll be living a life of Riley.
S1: I'll be fine. Yeah, kids are expensive. So I think, yeah,
S1: particularly planning for retirement, that's that's something that's going to come,
S1: come out. I do also see that there is quite
S1: a high spending on holidays which, you know, in her
S1: email Sarah said she wants to live now as well.
S1: You know not just to be saving only for future
S1: her but also have a good life with the holiday front.
S1: But that is something that can be wound back, I guess,
S1: if things get much tighter. She's also spending $1,500 on hairdressing. But,
S1: you know, aforementioned tips.
S2: You got to suggest that Sarah cuts her own hair.
S1: You know what? I don't think I am going to
S1: because I have done it. It's really stressful. So I
S1: am building hairdressing back into my to my budget. But
S1: I do also get a bit shirty because I feel
S1: like women have to spend more on haircuts. So yeah,
S1: I mean, elsewhere we've got about $700 a year for clothes,
S1: which seems pretty reasonable, $600 a year set aside for gifts,
S1: which I'm, I find I spend a bit more than that, actually,
S1: you know, some streaming services. You can't cut out everything.
S1: We need to to live. And what's really nice to
S1: see is Sarah also puts aside, you know, over $500
S1: a year for charity donations. So that's another benefit of,
S1: you know, looking at your money and having a plan
S1: for it. You can set aside some some feel good
S1: spending money and that's certainly appreciated.
S2: Some feel good tax deductible spending money.
S1: Well, that is true. Do not forget to claim that
S1: on tax, Sarah, at the end of the financial year.
S2: We'll be back in just a moment. Now I feel
S2: like we should get into one of Sarah's major questions,
S2: which was her plan to purchase a home, I believe,
S2: in about 15 years once she's retired and presumably using
S2: her superannuation, which she will have access to purchase her
S2: house now. Obviously there's lots of ways that this could
S2: go and the ways and ways that you could do this.
S2: But Jess, what do you think about that as a
S2: sort of a plan?
S1: Yeah. Well, I've always wondered with my mortgage if it will,
S1: it is so big that if I will be at
S1: a point where I may be able to use some
S1: of my super when I access it, you have to
S1: make various conditions of release, but they can kick in
S1: from the age of 60. Whether I might use some
S1: of my super money as a lump sum to pay
S1: off my mortgage. And we're seeing that many people are
S1: keeping their mortgages into retirement and doing just that. So
S1: I guess Sarah's doing another version of that where, you know,
S1: she's putting all the money into super and she's got
S1: a nice healthy nest egg there. And she's working in
S1: a sector where she gets a pretty generous rate of
S1: contribution from her employer and she is topping that up
S1: as well with extra contributions. So maybe it grows in
S1: whatever the assets are there, not in property because she
S1: hasn't bought the property yet, but it grows and there's
S1: great tax deductions. And then if you can pull it
S1: all out at the age that of 65 seems to
S1: be what's in her plan and then purchase the property.
S1: You know, you're making a you're making an asset allocation
S1: decision there. And my main thing and I would feel
S1: bad if I didn't sort of at least put this
S1: in the mind is things change in super. And I
S1: have always wondered if one of the things that might
S1: change would be if they put conditions around whether you
S1: can access the money as a lump sum. There is
S1: no suggestion at the moment about that, but there is
S1: talk about shifting people towards sort of pension based super
S1: payouts so that, you know, you're sort of you're withdrawing
S1: a certain percentage of your balance each year rather than
S1: taking it all out. And some people are not as
S1: responsible as Sarah and buying a home, but, you know,
S1: go to some great holidays and then living on the
S1: age pension. And so I think that's just something to
S1: keep in mind. And we can't give financial advice about
S1: that sort of thing. But, you know, just being just
S1: keeping an eye on that, I guess if the plan
S1: is to use the super to buy the house.
S2: Yeah. And I think that if we've been shown anything
S2: from the recent debate over super in the past few weeks,
S2: is that any sort of changes to these these systems
S2: will be telegraphed well ahead of time. You know, there
S2: will be you know, you'll you'll have a good few
S2: years to sort of work it out. So like let's
S2: just say, you know, that does something like that does happen.
S2: You'll have a long time to be able to sort
S2: of plan for it and potentially work around it and
S2: do something else. Something else I would also mention with
S2: sort of Sarah's plan here is that I think, you know,
S2: it's got a lot of merit, but there is the
S2: sort of the downside that she will be paying rent
S2: for the next 15 years, which just obviously, you know,
S2: never feels great in terms of an investment. You know,
S2: people sort of say that rent is like dead money
S2: in a sense, which is not something I necessarily agree with. But,
S2: you know, there is a bit of a downside to
S2: to not putting that into a mortgage.
S1: Yep. There's the rent is the dead money. And then
S1: if you do get the mortgage, then the interest that
S1: you pay to the bank is the dead money. So
S1: that's maybe a trade off that she's thought about and
S1: we don't know. But it could be a situation where,
S1: you know, you're living, you're renting somewhere that you want
S1: for your lifestyle now and that maybe she can, you know,
S1: when she does buy, maybe she'll be living a bit
S1: further out or in something that's smaller than she's got
S1: now because, you know, you've got the kids now. But
S1: in the future you might be able to buy a
S1: smaller property. You know, maybe that's something that she's she's
S1: thinking about. So, yeah, I guess all of this is
S1: sort of highly, highly personal to your own circumstances. But Sarah,
S1: thank you so much for sending in your budgets. I've
S1: loved seeing the evolution and I'm glad to hear that
S1: we have helped a little bit. That's a it's a
S1: lovely note to to leave things on really with this
S1: series that we've done. Dom That's that's what I hoped
S1: would happen.
S2: Absolutely. You know it's it's it's real It's a real
S2: world impact. Yes. So thanks to everyone for tuning in
S2: over the last six weeks listening to us dissect some
S2: real life budgets. I hope you did take something away
S2: from it. I hope you got something worthwhile, something you
S2: can take home and apply it to your financials. It's
S2: been really enjoyable to do and it's been so much
S2: fun to hear from everyone sending in their questions and
S2: their spreadsheets.
S1: And I think, you know, the more we can be
S1: transparent and talk about our money, the better off that
S1: situation that puts everyone in. And if you're bereft of
S1: someone to send your budget to, you can share it
S1: with a friend. Like I think having this conversation with
S1: friends and family can be just as much fun too.
S1: But I've certainly enjoyed having a squiz at everyone's numbers
S1: And yeah, thanks so much for listening.
S2: We'll be back with our next series shortly. But until then,
S2: be well and keep on saving those dollars.
S1: Because it all adds up though.
S2: It does all that up. Just.
S1: This episode of It All Adds Up was produced by
S1: Chai Wong. The information discussed is general in nature and
S1: does not take into account your personal financial situation, goals
S1: or objectives. You should always do your own research or
S1: get professional advice before making any major financial decisions. If
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