Financial Phrases to Live By (Part 1)

Foreign Money, where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to the Crown Money Podcast. I'm Jessie Edge and I'm joined as always by Scott Parry.

How are you going, Jess? But not as good as you, but better than most. Let me give you a hot tip.

I love it.

How are you tracking?

I'm good, I'm great. I've just spent the weekend in Perth which was a delightful 27 degrees and sunny and now coming to Melbourne where it is, I believe it's nine degrees this morning. So just having a bit of, I.

Think you got yourself to blame for that. So no sympathy over here.

All right, we're going to run through some something this morning we found some really cool little one liners that just really kind of reminded reminded us of a couple of core kind of thoughts or values that we have at Crown Money and we just wanted to touch on a couple of them and have a quick combo and just remind everybody these important things. So let me get cracking. I love this one. It's infrequent splurges bring the greatest happiness. Discuss.

I agree with this. I am an infrequent splurger and I am happy. So I think for me it's something where it sort of you got to have the black to see the white and you've got to have those days where you are saving to then appreciate the splurge. If you're just splurging what I every day, it just loses the sparkle or the shine. So we I call it moderation I always say but the key to it is just making sure that you're actually feeling that you've deserved it, you've earned it, you've worked for it and you it's a reward as opposed to just a day, another day in the life of and so for me I feel a lot of gratitude when I do those splurges and I man maybe once a once a quarter, once every half year where I just, you know me, I just randomly will just go okay, donk his X Y whenever I I've sort of been wanting but I'll just do it in a lump sum. But I'm very like low maintenance cost wise throughout the month before that. I'm not, I don't do a lot of shopping, I don't do a lot of online shopping. I'm not too sure about yourself, Jess, but where you.

Sideswipe there, right? Yeah, I kind of think of a splurge is like A first kiss. Right. The anticipation of the first kiss is the best part of it. Like it's the build up, it's the waiting for it, it's the excitement. And then like the kiss is awesome, but it's actually the build up which is, can be the best bit. I think of that as splurges as well. It's kind of going, it's the thinking about it, it's the back and forth of deciding whether you really want it. And, and it's that, you know, building up for it, saving up for it, kind of that and getting to that point of purchasing, that's half of the fun. So I think that's what we're kind of missing in this must have now society that we all live in is and can have now society. With the access to things delivered same day, you know, later, credit cards, we can have things now. So I think we've lost a little bit of the art of the anticipation. So I really like that one. I think that's a cracker.

And also it's delaying self gratification. Yeah, that's the art. If you can learn how to delay self gratification, it's phenomenal. I mean, everyone's heard about the study they did with kids and the marshmallows where they put the kids in a room with one marshmallow each. And then they said to the kids, if you don't eat this marshmallow, when I come back into the room in three minutes time, I'm going to give you another marshmallow. And the kids who could actually delay eating that marshmallow to get a second marshmallow, they studied them and followed them throughout life. And they were abundantly more successful financially than those who just ate the marshmallow and said, no, I want it now, I'm eating it now. And so that ability to delay self gratification is a life skill. And if you could really sort of start to focus in on that, you're going to be better off financially because of it. And so that unfortunately isn't taught with this day and age, with marketing messages coming to us here, there and everywhere. We want it now, we get it now, and we worry about paying for it later.

Yeah. And, and they say that that skill, it's like a muscle. So the more you, the more you train it, the more you use it, the better you get at. So it's one of those things where just start doing little things. And we discussed this in a previous podcast. If you want some, if I want something, I will not buy it. Same day, I must sleep on it. And I think that's just the sleep on it rule. It's a super simple one, because probably about 80% of the time, by the time you get to the next day, actually, I don't really want it, or I actually don't really need it. So just keep practicing that. And then you kind of extend that period out and say, well, if I want to buy something, I'm going to wait a week. I want to buy something, I'm going to wait a month. And then you kind of keep building up until that muscle is super strong.

Flex, flex.

All right. Oh, this is a cracker. So a dollar saved is more than a dollar earned, but this is what it is. Sorry.

A dollar saved is more than a dollar made.

Yeah, made. There we go.

Okay, there's like, a little bit of rhyme here.

I apologize.

That's okay. It's okay. Just trying to keep things rolling. So we subscribe to this, and I'll tell you the method behind the madness. A dollar saved is more than a dollar made for one reason and one reason only, and that is called T A X tax. So if you have a hundred dollars and you put that into your mortgage account and let's say you mortgage at 6%, for example, I know the rate's going to be different, whatever bank you're with or whatever time you're listening to this, but let's say it's at 6%. That $100 is earning you 6% because it's saving you 6%. Okay, but there's no tax on that. It's a solid 6% net. Whereas if you put that hundred dollars into.

Take it back one more time, because this one is. It's a little bit of a confusing concept to get. So explain again how if I put that $100 in my mortgage, have I made 6%?

Okay. So when you put any money into a mortgage, it comes off the principal, and that principal has interest that's calculated daily. And the lower the principal, the less the interest that's charged daily.

And so I would. If I didn't have that $100 in that account, I would have had to have paid 6.6percent interest on that additional $100 loan balance. Yeah, I put $100 in. I've dropped it down. So I've saved myself that 6% interest that I would have had to have paid.

Yes, correct.

So that's how we're. That's how we're earning it.

Yeah, no, we're. That's how we're saving it. So interest saved is the same as interest made. Because mathematically for you to get the same return on that hundred dollars, if you had to invest it into it, share portfolio or any investment out there, you'd have to get like a 7 to 8% return because then that gets tax, your income gets tax, your growth gets taxed. And so a 7 or 8% return after tax is 6%. So that's where it comes back down to the interest saved is the same as interest made. It's just better because there's no tax on it. You don't pay tax on any money that you're saving or any interest you're saving. But any investment returns that you're making, you're paying tax on them at your marginal tax rate. Primarily if it's in your super fund, obviously it's a different story. It's, it's a little bit better. But we're talking pound for pound Outside of Super, $100 is much better off in this environment. Investing in debt, investing in your mortgage, because the return of 6% is guaranteed, there is no risk as opposed to trying to chase a 7 to 8% return in the market at the moment. That there is risk, it isn't guaranteed and you have to pay tax on it.

Yeah. So investing in debt, that's what that term means. Correct. That's a good one. Fantastic. This is, this actually leads on from what we were just talking about, if you're excited about an investment, it's probably a bad idea. This is, this is a hard lesson to learn, isn't it? Because especially when you're younger and you're like, I want to invest in something, it's cool, someone's going to give me a 500% return on my money. Like you're super pumped. The reality is, yeah, if you're excited about something, it's generally going to be high risk.

Yeah, that's why you're excited, because it's going to have a high return. No one's getting excited about the term deposit. Low risk, low return. And that's all, that's all returns are, is what is a pricing of risk. That's what a return is. So if someone says, why did term deposits pay so low? Because there is such low risk and why do investments pay so high? It's because that's what the risk is. That's a risk fee. And so yeah, if you're getting a double digit return, 10% plus, there is a much, much higher amount of risk compared to a 3% return. And yeah, just from my experience, I certainly haven't been a beneficiary of any high risk ventures to date. Certainly. Yeah.

Like just the perfect example.

I am the perfect example. I'm in my time, have got exceptionally excited over some exceptionally risky investments and I'm yet to see one come off. So in hindsight there should have gone with the term deposit.

Yeah. And I think there's another expression here that actually matches that perfectly. It says get rich quick and get poor quick are two sides of the same coin. Yes, true. Yeah. It's like the. They are because. Exactly. It's a pricing of risk. And so if you're investing money in this, it's going to make you rich quick. The chances of that actually coming off are probably 1 to 5% and there's a 95 to 99% chance that it will fail and you lose your money. So I think that's, you know, going into any investment with eyes wide open and understanding that that's what it is. And usually if, if it sounds too good to be true, it is.

Except for crown money, that doesn't.

But that's the difference between investing in an investment, investing in debt. Investing in debt is a guaranteed return.

That's right. That's right. As well. We can sleep easy at night, doesn't matter what the markets are doing. So yeah, that is just in like experience, the higher the risk, the higher the rate of return, but the less likely you are to receive that rate of return.

It's a quick way to lose the money as well.

Yeah, it's really, really quick. So, yeah, I mean anything that is pushing those double digit returns is certainly going up there for. Okay, the risk is higher, but return is higher. And so in this environment where term deposits are paying quite high because the rates are quite high, it's, it's a really good time to have cash.

It is. Look, you know what? I think that's probably enough for today, I think.

Good on you, Jess.

We've covered some really interesting stuff and I'd love to pick this up again next time and we can cover.

I'm marking, I'm asking what you're kicking. I'm picking up what you're putting.

Oh, you're hilarious. All right, thank you so much, Scott. You have a wonderful day and we will see everybody next time.

Over and out.