Lending to friends - yay, or nay?

Welcome to today's episode. I'm joined by Scott Parry. How you going?

Very well, thank you.

That's great. And Chelsea Burton, great to have you back.

Thanks for having me.

Lovely. Now, today we just wanted to have a quick chat about the financial impact of COVID but from a household level, not from an economy level. And what we've actually seen is some quite positive outcomes from COVID haven't we?

Yeah, definitely. It's been a big range. I mean, I remember, like, very early days, we've got a huge number of clients, sometimes three, four, five clients a day, calling in, saying, scott, I've lost my job. What am I going to do about the mortgage repayment? Everyone at work is freaking out. And I was really quite pleased to be able to turn around to them and say, hey, John, Mary, Rick, everything's going to be fine. You've got $22,000 in emergency savings which you've worked hard to build up over the last 12 months or 18 months, or you've got $72,000 in savings. We had one client who built up $120,000 in savings using the program and I said, you don't need to go back to work for four years and.

You'Ll be in the same position, four.

Years worth of living expenses and loan repayments up your sleeve. And he's like, really? I said, yeah, really. He said, everyone else at work is freaking out. I said, because they've been spending what they're earning. They've got card debts, they've got credit cards. You've been disciplined and been sacrificing. And now these emergency savings are there for this exact emergency.

Yeah, because, I mean, quite often when we talk about paying down a home loan, it's just to reduce your debt. So you want to be debt free as quickly as possible. But the other side of it is it's an insurance policy. It protects you in the event of these major catastrophic things happening. And it could be something happening in your family and you need to take some time off. It could be an event like this where you lose a job or are made redundant, whatever it may be. But this protects you and gives you time. It buys you time, it buys you.

Peace of mind as well. I mean, everyone is always of the mindset, okay, what happens if X happens or what happens if Y happens? Or irrelevant, you're financially stable and secure. If you've got $50,000 in savings in the bank, like, nothing's going to rock your boat. So that's why we're so big on step one, save $2,000. Step two, save one month's worth of living expenses and loan repayment. Step three, save three months with living expenses and loan repayments. So once you start to build that buffer, that peace of mind factor for a lot of females especially, they just feel safe and secure.

Yeah.

And you don't need a global pandemic to be the reason that you need an emergency buffer.

Yeah.

Things happen all the time. It doesn't have to be that big. So having savings in the bank in case you lose your job for two months or get sick or something is.

So important, so essential. Yeah, absolutely. And I think that, you know, a lot of people coming into the pandemic, if they already had that buffer, that was really fantastic. If they didn't, families are really feeling it. Like they've really realized the importance of savings. And. And what we have seen is so many people saving more throughout this last year. And, I mean, a lot of that is to do with, you know, expenses going down. We're not actually going out and doing anything because we don't have a life anymore. But I think we've also, you know, you've felt that kind of fear, like you've had that moment of, oh, hang on a second. I do actually need to have some money set aside in case I lose my job or in case one of us gets sick or in case something happens. What are you guys hearing from, you know, some of our clients?

Well, I mean, the fact that news articles at the moment are reporting that the amount of credit being extended to families in Australia is reducing. I mean, that's amazing. It means that people are actually proactively paying off debt so that they have more savings, and then they're actually using their own money to go ahead and buy things. And our clients seem to be saving a lot more money than they used to be.

Yeah. It's awesome to see, isn't it?

Oh, it is. I mean, we had one client who used to get Botox all the time.

Yeah.

And then she couldn't get Botox, and now she's decided, okay, I don't need that anymore.

And she's happy about it. And we can actually tell she's happy because she can smile now. So it's great. But I think that that's a really good thing to kind of talk about as well, is, like, the changing spending habits of people. I think a lot of people have had a bit of a reality check the last 12 months and gone. Do I really need these things in my life? Is it really important?

Yeah. Exactly. I mean I know I used to get my nails done all the time and now I don't.

Yeah, I didn't need that. But one thing, I mean at the beginning in the first six months we did see a lot of people going out and doing those bigger kind of purchases like cars which I thought was quite unusual. I mean caravans is now because everyone's gonna travel locally so you can kind of see that. What are your thoughts on people buying caravans right now?

Everyone's doing it. So one of my best mates started a caravan business in January. I mean talk about flukes.

Good time.

That was January before the. Yeah, so I mean he's just doing insane numbers and what a business model. But I think caravans are great. You can actually rent them out and actually make them dollar productive or an investment camplifier somewhere websites where if you're not using a caravan, rent that let other people use it, get the income from it. Therefore you can claim that interest as deduction because it's an income producing asset. So it becomes literally like an investment property on wheels. Doesn't grow obviously but does produce some cash flow and you can turn your pastime or your lifestyle into a semi smart financial play. Not the smartest obviously. I mean certainly not going to be making too much money on a caravan. Apparently they do hold their value quite well I've been told. So yeah, I mean I'm not a caravan guy but I think that not your style.

You're more a camper aren't you? Like you like to go rugged and.

10 I'm under the stars.

Under the stars as in a five star hotel?

No, I mean I think caravans are great for families. They're the perfect ability as long as you're using them. What I don't like peel by caravans and they sit there and they don't use them 100% but if you're getting the value out of them, you're using them and the memories that your kids are going to remember for sure. Yeah they're always going to remember those caravan road trips and they do actually.

Hold their value quite a bit because they don't have as many, they don't have an engine, they don't have any much electronics and stuff like that. So there's nothing you need to kind of maintain if that makes sense. So it's just a structure and the structure tends to hold its value because it stays relatively okay. Like it's nothing you have to do to it.

No. Is that true? Depending on the value of the caravan. I know some of our clients buy them at 30,000 and some buy them at 100,000.

Yeah, they're pretty different caravans. That's like any kind of decision like that, you've got to, you know, be, you know, really kind of think about how much do I really need to spend on a caravan, how much are going to use it? Like we've talked about before, the cost per use, like, you know, and how much value are you going to get out of that caravan if you're going to be spending every single weekend in it? Maybe a hundred thousand dollar caravan is worthwhile. I don't think it is personally, but.

Yeah, and I mean the cost per use, you're taking into account the resale value. You don't get zero back from it. If you spend 100 grand, you might buy it for 100 grand but resell it for 80 grand. And so it's really cost you 20 grand for those two years or three years, however long you've left it there. I think the other factor here which has been really interesting during this whole pandemic is people's savings rate have gone up tremendously. I mean, the amount of credit card debt in Australia is nearly halved, which is phenomenal.

Amazing. Such a good thing to see, which is really good.

You just take entertainment and impulse buyers out of people's budgets, of course they're going to be having savings. So that's really what the pandemic did. It forced us to reduce impulse buyers because we're not out and about and our entertainment expenses were really cut down and alcohol was up, but everything else.

Was down, like dramatically up, wasn't it? Dramatically.

The bottle lower around the corner from us said that they increase their profits by 700%.

We do know how to drink in Australia.

You can invest in Tesla or a bottle shop.

Yeah, A or B.

So the savings rate, I mean the average Australian, the data coming out of the Australian Bureau of Statistics at the moment is the average Australian family saves $900 per per month. We're very happy. Our average client at Crown on The program saves $2,245 per month. So huge benefit to being on a program, what that comes back down to is just the structure and the discipline and the accountability that we bring to the table. And when you've got your average client saving $2,245 per month and that's how much equity they're creating their property, they can either A, retire faster or B, invest quicker and just move forward financially. And we've always been a big proponent about progress equals happiness. And I think if you're making that sort of progress compared to the average bear, you've got to feel happy. There's nothing that frustrates people more than working their guts out 9 to 5 or 8 to 6, whatever hours they're doing. And they're actually not moving forward. They're spinning the wheels. And that there is what creates resentment. And I think for us and our clients, the fact that they're moving forward at such a rapid rate and not they're paying off their house in under 15 years. I just had a spoke to a client on Thursday who just paid the house off. It was just in over 11 years. He's 35 years of age, debt free for the rest of his life, got great income and just sort of spelling out what your new world looks like without a mortgage repayment. It's insane. There's no more budget for shopping. Buy organic, buy the best. I feel you can. Grab whatever you need. Go to the Crown every month, grab babysitters. Just treat yourself. Buy a beautiful place down on the coast to turn it into a lifestyle. So when you want to go down there, you've got your own beach house, but when you're not using it, it's on Airbnb. So it's renting out and bringing great cash flow. And you're also getting the capital growth. Everything's possible now because you don't have a mortgage repayment. So it was such a weird mindset for them to flip because they've just been so ingrained in the program and for them to now feel that there is no limit, no weekly spend amount that they've got to stick to. Just a mental thing they got to rewire. And I said it's going to take a while, but once you get there, it's like, wow, this is now about seriously fun.

Because they've got to change their goal. Like the goal for so long has been, I want to pay off my house. It's like, you've paid off your house, so what's next? And for a lot of people, that's actually a little bit kind of daunting almost. So you kind of like, I don't know where to go next.

I just said, just stop thinking about having to pay anything off. Just watch your savings account grow. What a feeling to actually have cash in your account grow each and every week. It's just so fun. Foreign for them. So, yes, I mean, mind blowing. They have done such an amazing job, but that's really what I get out of bed in the morning to try and help more people have that feeling.

And I think as well, like, you know, through Covid a lot of people have started to build up their savings a little bit and felt that feeling of what it's like to have that financial security and have less of a burden on their shoulders. And I feel like people really need to run with this now because it would be so easy to fall back into the trappings of life before to go and blow money on things that you don't need to impress people you don't like. We've all heard that before. But I feel like I really, really, my one wish is that people move forward with this same mindset and say, okay, I do need to save. And they look into something like our program where it's like I want to pay down debt and I want to pay it down quickly. I want to have this feeling now for the rest of my life. I don't want to just have had this kind of this financial miracle that everybody kind of had over the last year and had a little financial reset and then they go back to their old way again. I think that would be the most disappointing.

There are two camps to people. There's people who suffered incredibly like they were self employed, had a little cafe which obviously got decimated. And so there's people who have suffered being absolutely decimated on a financial basis because of COVID But on the other side of the ones, well, I'm hearing there's people in Perth who are getting their JobKeeper payment 750 per week and there hasn't been coronavirus in Perth pretty much ever. The golf courses in Perth are booked out. And so that's just a crazy thing of this government. They haven't actually state specific given the money to businesses based on how much Covid had an impact on broad stroke. Everyone in Australia is entitled to jobkeeper if your business is down 30%. There's guys in Perth who started ABN, did two or three jobs for a painter or something, haven't used the ABN since and then have been on the 750 per week just because they had that ABN open because their income is down by more than 30% based on last year. Crazy. That's just so much government money going to waste where it should be going to the people who really do deserve it and really do need it. And those are the people like the self employed people who have put their life savings and life work into these cafes or restaurants that have been Forced to close and been crippled. Those are the ones I feel for. So not everyone's had a financial miracle. There's been some people that's been an absolute disaster. And I think the thing that we haven't spoken about enough as a country is the ripple effect or the collateral damage of COVID It's not the virus, it's the suicides. The domestic violence is. These are the people who have suffered the most.

Absolutely.

So not to get all negative on that.

Yeah, that went dark quick.

I'm just saying that it's about every. You gotta have black to see the white.

Yeah, absolutely. And we are so fortunate. We're so fortunate that we even live in Australia, full stop.

Massively.

We're so fortunate that, you know, no one in our immediate groups have had Covid. Like, how lucky are we that we can say that a lot of people around the world cannot?

Yeah. I mean, if you live in US or the uk, you know someone who's got Covid and you know someone who's died of COVID like, that's just how rife it is over there. So, yeah, we're very lucky. We live on an island. We're very lucky. We can just close, close up and just do us. Which I think is just going to be a great opportunity to see your own country. You know, everyone's so focused. I'm going to Europe or I'm going to America. No, go to Australia.

Australia's amazing.

Yeah.

So much going on.

Please don't come here right now.

You just don't know how much Australia's got to offer. Like you can go into the national park where the Kakadu and just have this incredible experience versus you could be dropping yourself onto a beach, into some rainforests. I mean, it's got everything for everyone. So I'm super excited to see more of Australia.

Absolutely.

There's so much of Australia I haven't seen and I'd love to.

Absolutely. And I kind of feel like there's. Yeah. Again, like we were talking about, there's a lot of these kind of silver linings that have come out of the last year and there's definitely a lot of negative, like, negative things. Absolutely there is. But there's a lot of things that I kind of hope we do keep a hold of and. Yeah. Start to travel.

Australia. Working from home.

Working from home is very, very nice. Definitely. But yeah, some of the financial stuff that we're talking about, like realigning our goals and our values and just saying what. What's really important to me, you know, what do I really want to spend my money on? And making those decisions from a. From a better perspective.

When you're trapped in a house for 234 days, you have a lot of time to think about what makes you happy.

Not that anyone was counting.

And you do get to a point, okay, what makes me happy? I'm just going to go and do that. I mean, the amount of people who have left the cities now and those regional areas where those property prices are doing 20% in the last six months because the demand is there. Everyone's like, I don't need to be in the city anymore. I want to live near the ocean or want to live in nature. And so.

Which is amazing.

Isn't it beautiful?

It's great for everyone who's pushed that button, said, that is what's going to make me happy. And just make sure happiness is your North Star.

What was one thing that through Covid, that you kind of said was, once this is over, I would like to.

Not get stuck in Melbourne winter ever again.

Chelsea, what was one thing that you thought about?

I just want to get away somewhere.

Yeah. Just anywhere. I want to get out of my house.

What about you?

We actually kept a whiteboard with a list of things, and every time we thought of it, it was like dinner parties with friends. I just wanted to have friends over at my house. Long lunches with workmates. Hey. Hey. Speaking of, we might have to go now.

That's a great idea.

But, yes, I think that's probably enough for today. Great conversation. Thanks so much for joining me, Scott and Chelsea, and looking forward to next time.