Head injuries, debt free calls and neo banks

Crown 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. My name is Jessie Edge, finance broker and head of people and projects here at Crown Money and I'm joined by CEO and money guru Scott Parry. Hey, Scott.

Hey, how you doing?

Yeah, good.

Excellent.

As this is our first episode, I thought it would be great for our listeners to get to know you, Scott. So we're going to jump right in with some questions.

Shoot.

Okay, so how did you get into finance?

So I was running around as an 18 year old playing football over in Perth and suffered a huge head on collision with a teammate. We both knocked each other out unconscious. I was unconscious for about 10 minutes and then from there ambulance came into the field, rushed to intensive care. It was intensive, intensive care for four weeks. Had a blood clot, my brain, there was some severe swelling of the brain. They're about to operate and drill a hole to subside the swelling. Luckily my brain did the right thing and started to subside itself. And then from there I'd missed four weeks of university. I was studying commerce UWA and I called university and said, I'm out of hospital, I'm ready to come back. And they said, you've missed too much, come back next semester. Which is about six months away. What do you do for six months? You're 18, you don't have any money, you don't have a job, so you speak to your friends. And one of my best friends, his dad ran a finance company and he said, I'm going to go work for my dad. I said, can I just piggyback along with you for the next six months?

You just wanted to hang out with him for six months?

I wanted to be paid. I wanted to be paid. So we went there. I started just doing all the admin for this company and then started following his dad around on going on appointments with clients and seeing what he was doing, how he's doing it, started getting a few of my accreditations, got my licenses and then I started going around to people's houses and literally trying to show them how to pay off their debt. At 18.

So how did that go down at 18?

It was an uphill battle. You know, I didn't have pimple, I didn't have a facial hair, I was driving a VL Commodore and I was turning up to people's houses trying to tell them what to do with their money when clearly I didn't have any of my own. So I remember One time I rocked up to this client's house, knocked on the door and then all of a sudden I answered the door. They look at me and it was this look of puzzlement.

Where is your dad? Here, buddy.

They actually said to me, is your boss coming with you tonight? Just you. So it was just me. I went around and what I really sort of was forced to do is build a huge amount of trust, huge amount of rapport. And what happened was that every single time, by the end of that hour, hour and a half, I'd spent the client. They're really, really open to me, really trusting. And I'd won them over. So the defense and the body language when I first sat down versus an hour later, massive transformation. So that's how that started. Unfortunately, the clients weren't really taken care of post settlement. So we would set them up. The model was to charge them, I think it was four or $5,000, put them onto this line of credit with Citibank, and then send them on their way with their credit card.

And a line of credit is kind of like a gigantic credit card anyway, isn't it?

It's a credit card linked to your home equity. Yeah, for sure. So that was the strategy. And on paper, the graphs looked fantastic. You're going to be out of debt in seven years. And I honestly thought of Santa Claus going to these people, showing how to pay off a 30 year mortgage in seven years. The graphs on a computer software looked spectacular. And a year in, I was doing quite well. I was usually sort of helping at least two clients a week. And then from there, at the end of the year, had about 100 clients. And I thought, I'm just going to call these clients, see how they went. Made the first phone call. Hey, Scott here. Just wanted to check in, see how things are tracking. Scott, this has been a nightmare for us. What do you mean? We've blown up the credit card. That's maxed out. We've used all the equity in our home. That's maxed out. We're actually in a worse position than when you first saw us. And your company charged 4 or $5,000 for this. Ethically, I thought that would have made.

You feel really good.

I thought, you know what, they're probably just a bad egg. I'm going to call the other clients. So I called all the other clients. Same story, Same story. We're worse off. We've spent all of our money, we've chewed up all of our equity, our credit cards are maxed out. At that point I Thought, this personally isn't helping people, you're just getting them further into debt and you're charging a fee for that. So I said to that company, I'm out.

What was the difference between the on paper? If it worked on paper, why wasn't it working in real life?

Really good question. I wanted to know that as well. And I decided to call them all back for the second time. I mean, these guys weren't impressed with me at all. They weren't calling them twice. So I called them all back. So I wanted to know, where did this go wrong? On paper it looked spectacular, but in reality it wasn't true. And so the really sort of common theme throughout it, where it all went wrong was they didn't have the discipline or the accountability to make sure they got those results. And I assimilate it to a gym membership. If you get a gym membership, it doesn't mean you're going to get fit if you get a gym membership.

I've had my fair share of gym memberships.

We all have. I mean, every single person I know has paid for a gym membership and not necessarily gone every day.

It's a donation to the gym, it's.

A donation to the gym. They profit from our laziness. It's the model. So if you have a gym membership with a personal trainer, there is a very high likelihood you're going to get the results. The reason you have accountability and discipline. And that's really what I thought was missing and that's what they were telling me was missing. And so I stepped out of that company, stopped doing what I was doing and really just thought, I mean, I was only 19, so had a bit of time up my sleeve and I thought, okay, what can I be doing to make this foolproof? How can I save the clients from themselves? Because a lot of the time when we're our own worst enemy. So I thought, okay, I've got to build self discipline and accountability into this. How would I do that? And I came up with this concept of having obviously that home loan account where we manage it for the clients. They can see it, but they can't dig into it. And no credit card. So you take the credit card out of the equation, you start giving them some accountability and discipline built into their money and the management of it. And then from there that was really the pilot. I thought, I've got to try and find someone who's going to believe in this. I sat down with a group which basically became NAB or National Australia bank and said, guys with this great concept, I want to get clients out of debt in 15 years. They said, scott, that's a shit concept. We don't profit from people being out of debt in 15 years. I said, hear me out. What you want as a bank is people that pay every single month. Well, their income is hitting their home loan account. So like if they get paid, the loan being paid, they stick around. We speak to every client 23 times a year, which is super high touch every month, tracking their surplus cash flow, their equity position, and then from there we also want people to get more loans. And so as people pay down their debt, what they usually do will go to invest, whether it be in shares or probably whatever they feel like. We don't do any of that selling of the properties or selling of the shares. But it's something where they'll usually want to start moving forward financially. And if you put it back to that gym membership, it's like the person's lost all the weight. Now they want to start building that strength.

Yeah, they don't stop going to the gym.

And so it's just a different sort of training. And so from that perspective, I jumped in and thought, if we can get this funding line up, Nab said, we'll give you a 12 month pilot. And during that 12 month, we had the lowest arrears rate in all of Australia and was a sticky book. No one left and they were getting great results and so they extended that. We still have a funding line with.

Them 16 years later.

16 years later, fantastic.

So you decided not to go back to university, Obviously.

So my six months was up and something where I remember so Clearly, I was 18 years of age. And so the company I was working for, they charged $5,000. Then they received the commission from the bank and the trial from the bank. So I think the company I was working with was probably making at least six to seven grand per client. I got paid $750 out of that. But for an 18 year old, $750 is a huge amount of money, especially 16 years ago. And so when I was getting two clients a week, I was making 1,500 a week. As an 18 year old, I was looking at the university player like, no, thank you.

You're $1,500 a week. You're like, I'm going to pick up some chicks with this.

Oh man, I'm gonna go to the casino, I'm gonna start investing this. It was something where $1,500 per week at the age of 18, definitely when none of your Friends are making any money, they're all at uni, they're all. I was having a huge amount of fun. And so the one thing which I really looked at was I can defer. And so I deferred university. I think that deferred lasted 10 years. Get back there.

Unfortunately, do you think that crown and what you created is your calling and do you think you knew that early on?

I think my calling is to help people in any way, shape or form and to leave that person better off because of the interaction with me. And so I don't want anyone ever to say, I wish I'd never met that guy. Like, it's just for me, my worst nightmare. And so I look at how can I help people in any way, shape or form, and this has just been such a great way to help people with such a huge. It's the biggest debt of their life.

Yeah.

And I look at this and I don't know why not. Too many other people have cracked onto it. But business is really about if you help people get what they want. As a result, you always end up getting what you want. And so I was just sitting down with people and asking, what do you want to do financially? Most people say, I just want to own my own home. Like, I just want to be debt free. And that equals financial security. And if they own their own home and they lose their job or they sick or they injured, they're not going to lose their house soon. Super important for a family. And so I thought every single person in Australia is trying to get people into debt. Why don't we just focus on trying to get people out of debt? So it's a pretty crazy niche, you know, like everyone in Australia wants to get out of debt. No one in Australia is legitimately, ethically helping them get out of debt.

Which is just so bizarre.

Isn't it crazy?

And why is that? I mean, I know the answer to.

This question, but the reality is people in the financial services business and banks are profitable when people are in debt and brokers get paid a trial commission for every single loan, and that trial commission is a percentage of the client's loan balance. Now, you put your little mortgage broker hat on. What don't you want your client's loan balance to do if you're getting a percentage of it every month?

Don't want it to go down, you.

Don'T want to go down. So as a result, there is no benefit at all in the broker's eyes to get that kind of debt faster. It actually gives them A pay cut. Whereas my mindset was well the better the client does, more they pay off their debt, the faster pay down their debt, the faster in a position to look at investing, they're going to need some more debt to invest. So the better they do, the better we do.

Plus it's the right thing to do.

Yeah, I mean big, big believer in what goes around, comes around and that I think has been one of the key reasons why we've been so successful for 15, 16 years is we've literally just said let's just help people and you are paid and remunerated in direct proportion to the amount of lives you impact. And so if you just worry about helping people, the money always follows.

What do you think about banks?

I think banks are cake. They're the old world, they going to have a huge battle uphill. There's new neo banks coming in now which are game changers. They don't have legacies.

What is a neo bank for people that don't.

Good question. A Neo bank is a, let's call it an E bank. You know, they're an online bank, they don't have branches, they don't have ATM machines everywhere. They're just using technology and fintech financial technology to really create a banking structure which is so streamlined, so efficient to a point where it's going to change the game. The banks are going to be left like I've always had a saying is in life it's not the big eat, the small, the fast eat the slow and the neo banks are fast and they eat these, the profits slow. Big banks, the slow moving big banks, you know to turn that ship is huge. There's so much compliance and red tape. These neobanks are just set up from day one with technology because these banks have been set up 50, 100 years ago. They just got so much legacy they can't do and be as nimble as what these neobanks are.

So and some of what the neobanks are doing is pretty interesting.

I mean you look at like, let's look at time to get a loan. So today a normal bank, you see the bank, you put an application in around about two weeks, you've got the approval.

Oh it's not longer, it's not longer generous.

You're then signing loan documents and then you get those back to the solicitors and then you settling. Four weeks would be a great outcome. Yeah, a great outcome. These neo banks, I could be sitting with you right now, we do an application on the computer, you it's approved in eight minutes, the loan documents are sent to your email directly instantly, you sign them on your screen and your loan settles tomorrow.

Incredible.

Like four weeks versus tomorrow.

Complete game changer.

Complete game changer.

So when is this all going to be coming?

In 2020. Yeah, like this year.

The future is now.

The future is here. This is a brand new decade. This is the new world. I'm so happy that there's someone taking it to the banks. I've had a duopoly or whatever you want to call for as long as possible. Now the game is about to change and I'm super excited for not only the fact that these clients are going to be helped more, but they're actually going to be with a group that actually wants them to be doing better financially. Whereas banks are the opposite.

And the Neobanks, we're talking about faster turnaround times, lower fees, if not no fees, better interest rates, returns on your savings accounts. And just like the insight based on their technology that you're going to have into your spending habits and just where your money is going and just the way that we can structure our accounts, it's just, it's revolutionary and it's, that's the power of technology.

And they help you reduce your expenses. Like this Neobank. One of the big ones, which I'm a huge fan of, is Vault. And so what Vault does is it will scan your bank account, look at all your direct debits, and if you're paying $600 every quarter for your gas bill, it's going to send you quotes on three other providers for your gas, your electricity, your broadband mobile. Like it's helping you save money in your everyday expenses. So yeah, with AI and big data, I think it's limitless.

Okay, I think we might move on to the next question. I think we've gone a bit sideways, as we tend to do. What's your favorite part of your job?

My favorite part of my job is every 23 days I get to call a client and say, jess, congratulations, you now paid off your house. You now have all your income in your savings account to spend and invest however you want the rest of your life. You're financially secure. And what their tonality is when I give them that news. I mean, there's so many like are in disbelief. Other ones start giggling. I mean there's, everyone reacts differently to it. So for me just to be able to give a client a call and say, congratulations, you've now paid off your house forever, it changes your financial family tree. You've got all your income to put towards your. Super towards investment holidays.

A lot of people don't think about it, what would I do if I didn't have my home loan debt? Like, you don't never have to pay rent again. You never have to pay a mortgage. Like, you own your own home. And a lot of people don't stop to think about that because we've been convinced by the banks that you will always be in debt. That's what a mortgage literally means until death. But we have to explain to clients that this is the value of investing your time and effort into paying your homeowner faster. Because you are setting yourself up and your family for life if you do it. It's a pretty powerful thing.

Yeah. And being able to actually see how their life changes and how the weight is off their shoulders and how they can choose where they want to work and how much they want to work.

Yeah. Retiring early. Hello.

It just gives you choices. You know, that's a lot of people say, what's money to you and what's success? And I just think it's just the ability to choose to do what you want, when you want to do it. And without a mortgage repayment, I mean, you start putting even 50% of your mortgage repayment into investment and spend the other 50% your mortgage payment in lifestyle, you're going to have a better quality of life. You're going to have a greater nest egg. And once you get that to a position where it's spinning off enough passive income, where it's basically covering your living expenses, that's called financial freedom. That means we never have to work if we don't want. We can go donate time to charities, do some work which is going to help other people.

Awesome. What has been the biggest challenge that you've faced over the last 16 years?

Wow. It's been so many torpedoes. The amount of times I thought, I'm out, I'm done. Honestly, it's just relentless. I remember the first few years, I thought, we're going to close at least every three or four months, where just something kept popping up and then gave us some light at the end of the tunnel. I mean, I've had many conversations we had about, okay, that's it, shutting up.

Shop, shutting up shop, we're done.

I mean, it's just torpedo after torpedo after torpedo. For me, it was. I mean, obviously the compliance coming in is just, you're doing more work now that they're trying to chop what we get paid. I mean, we've dodged a huge bullet There with the labor government not getting in. For me it's really just the education around people and thinking interest rate is the lowest interest rate is the cheapest loan and when actual fact the shortest term is the cheapest loan. And so if you've got a 15 year loan at 3.69% it's cheaper than a 30 year loan at 2.99%.

And that's a really hard concept for us to understand because we are told the exact opposite our whole life by the banks, right from the beginning of your Dolomite account. Like it's all about interest rate when it's just not.

Yeah, it's as a result trying to re educate someone is probably being the biggest challenge. And I think everyone's looking at the wrong number. Everyone's trained to look at the interest rate. You should be trained to look at what's the total interest payable in this loan, what's the total cost of this loan. And so when you look at the total cost, that is how much money is coming out of my bank account versus a percentage in terms of rate, we're just being unfortunately directed down the wrong path. So look at the total cost loan, not the interest rate. The shortest term equals the cheapest loan. And getting that message across to people has been very challenging.

Hmm. What's one piece of financial advice you wish someone or yourself had given you when you were 18?

I wish someone at the age of 18 had have given me the raise app where every single dollar I'd spent from the age of 18 was rounded up to the nearest dollar and my spare change was invested into an index fund or an ETF which tracks the top 200 stocks in Australia, the top 500 stocks in America from the age of 18. Imagine every single time you spent you're investing incredible and with compound interest. The earlier you start, the earlier you stop working.

That's great advice.

So that's what I wish.

Another great piece of Fintech.

Yeah, for sure, absolutely. You know, I mean so for my son, I've just had a baby and I thought okay, what can I do? What would set him up financially? And so for me it's something where people have all different sort of strategies for their kids education and bits and pieces. And so I thought I'm just going to put $500 a month on the 5th of every month into this raise account which is invested into these ETFs which is an index fund which tracks the top 200 and top 500 stocks in America. And it's going to Then compound every single day and your dollar cost averaging. So one month, if the market's up, that $500 is not buying as much of the share market. The other month when the market's down, that $5 buys more of the share market. So your dollar cost averaging, so there's no risk because you get the average return over that 10, 15, 20, 30 years. So $500 per month on the 5th of every month. And I thought, okay, when I'm going to give this to this guy, I'm not going to tell the kid that this is happening. Obviously it's going to change the way he acts.

Please don't listen to this podcast, Leon.

Yeah, So I thought 18, too young. I mean, if I was given a huge amount of money, 18, I wouldn't have been smart about 21, still too young, 30. So on his 30th birthday, I'm going to present him with this check if they're still around in those days. And I would have invested close to $180,000 over that 30 year period. And the fund projection should be 650,000.

Incredible, isn't it?

Imagine getting a check from mum and dad on your 30th birthday. You had no idea it was there for $650,000.

Yeah, but the way that property prices are going, that might even just be a deposit, to be honest.

Might be able to buy the shed. So that is true. That is true. But it's better than nothing, no?

Absolutely. What an incredible gift that'll be. That'll feel pretty amazing to give to you.

Yeah. So, I mean, if you're a parent, you can do the same. Set up a raise account for your kid and just put money. It could be $10 a week. Yeah. Doesn't have to be $5 a month. I mean, that's just what I'm doing because I've been lucky enough to be in a successful financial position. But $5 a month?

Absolutely.

It all helps.

And just the roundups, the small amounts, little bits here and there that you don't even notice, like that's what adds up.

Every client who jumped onto raise has built up 2, 3, 4, 5 grand and hasn't even noticed it being built up. They're just like, oh my God, it's really a two, four grand.

Wow.

So it's been incredible.

Last question. So at cram, we have a monthly client success lunch where we discuss, you know, successes that we've had with our clients over the previous month. So can you please tell us your most recent one?

So the Most recent one was a client who's been with us for six months, bought a house, $650,000 mortgage, he's 60 years of age. Man. When you're taking on a 30 year mortgage at 60 years of age, scary. There's huge problems because the banks are going to look at how you're going to be paying this off after you retire. What's your exit strategy? But the saddest part is, is that usually what happens when people retire with a mortgage, 60% of people retire with a mortgage is they cannibalize their super fund and take money out of the super to pay off their home loan. And that means their lifestyle in retirement has been significantly reduced, the quality of their life is reduced. And so your superannuation should be there for your lifestyle, not to pay off debt. And so this guy was 60, 650.

Sorry, just to jump back, just quickly. A lot of people say that, oh, it's okay, I'm just going to downsize. But that's not actually the way it's happening nowadays, is it?

Definitely not. People are trading, people are buying a better quality house in a better location on a small piece of land for the same price they sold their place for. So they're trading smaller house, but it's.

Same price, better location.

Yeah, for sure. So that's what I'm seeing is people are trading, they're not downsizing. I mean, there's exceptions to everyone. I'm talking about over the last 10 years on average with all the clients I've spoken to, they're trading.

That's what you've seen. Yeah. So anyway, this client.

So yeah, so $650,000 in debt is 60 years of age. So I just spoke to him and said, mate, you've been on the Crown money management program for six months. Do you know how much you paid off your home loan principal in the last six months? And he said $100,000. I said, that is incredible. You've paid $100,000 off the principal in six months.

What is the average Australian payoff in a year?

About $6,000 a year. And this guy's doing 100 grand in six months.

What a result.

So I said, if you keep doing this, you're going to get to 66 years of age and have your house paid off in full, which is when you want to retire. And it means all your super you can keep to fund your lifestyle as it should be, not retire.

And they're not scrimping like it's not difficult for them to do this program, they haven't been really, really struggling on the program, trying to get pay off this hundred grand. It's been all very straightforward for them.

I mean, they just tell me what they want to spend. We then settle up, structure it perfectly for them. Their income works for them rather than for the bank. They're conscious, they're spending and as a result all the surplus comes off the principal and that mortgages are compound interest in reverse. So your super fund, every single month you're getting interest on interest on interest and it's going up and it snowballs beautif. That's why super funds grow so well. Whereas your home loan is compound interest in reverse every single month. As your debt gets lower, so does your interest payment and that means more money comes off the principal. And so in that first year, it's not as fast as the second year. Thirty years and the snowball gathers momentum. So in the fifth year, his mortgage repayments can be $600 per month. The rest of his income comes off the principal. And that's why they're taking 100,000 plus off their home loans in a year.

What a result. That's awesome.

Yes. They're so like it's going to change their life in retirement, the quality, everything, it's going to make such a difference.

I bet they wish they had met you sooner.

I hear that a lot. I really do.

Fantastic. I think that's all we've got time for for today.

Just warming up.

Thank you so much, Scott. It was great to chat with you. Looking forward to next episode next week.

Bonoir.