Money quotes

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 by CEO Scott Parry.

How are you, J Train? Very good.

That's good.

To today's session.

Nice one. So what have we got on today?

Today, folks, we have some absolute pearls of wisdom from this book that we've read. It's called the Psychology of Money by Morgan Housel. It is something where I've lived and breathed the psychology of money for 20 years and just can never stop learning. I'm just fascinated by the way we think, why we think the way we think, and that affects what we spend and where we spend it and how we spend it. So, yeah, looking into the minds of all of us and just trying to impart some knowledge from Mr. Housel.

Yeah, I love that. That's great. Let me, let me kick us off. So the first quote from the book, money's greatest intrinsic value, and this can't be overstated, is its ability to give you control over your time. We love this one. It's so true. And we've said it so many times, like, it's just money gives you choices. And the one thing you can never, you know, get back is your time. It's the most valuable resource you have. And so the ability to kind of, you know, set yourself up financially so you have control of your time. It's just the greatest.

Yeah, it's the most precious currency of all time. And especially with kids. Kids just spell love T, I, M, E. And so be able to have that time with your kids or buy your time back and be able to spend it with your kids or family doing. Doing things that you like doing way like doing them is. Is that true? Through freedom. So we want you guys to be in control of your time. And the first step or the first domino that's going to happen is for you to pay that mortgage off. The fast you pay your mortgage off, you've got all your. The average Australian now has close to 40% of their income going towards mortgage repayments. So imagine getting a 40% pay rise. That's what we're talking about.

Yeah, just not having to pay rent, not having to pay a mortgage. Like you just. You are living in a house that's paid for. It's just what a freedom. I think it leads into. Another quote from the book, which we love, which is the highest form of wealth, is the ability to wake up every morning and say, I can do whatever I want today. And that is absolutely the truth. Like, I think we, we often talk about that, you know, in terms of families having. Like when you're deciding if you want to stay home or not, like whether you want to work or not. For a lot of people it's not a choice. Like you have to. Whereas if you can put yourself into a financially strong position, you've got the choice, hey, I love my work, but I want to go part time, or hey, I love my work, I'm going to be there full time or I don't want to work at all. I just want to support my family and do whatever I need to do. So choices.

Money. Buy more money. Better quality choices.

Yeah. All right, what about the next one?

To show people how much money you have is the fastest way to have less money. Bit of a catch 22 Bango. I mean this comes under our quote saying just drive the cheapest car your ego can afford. Actual wage. It's just something where a lot of people unfortunately bury themselves in debt. And that's just to be able to show to people who don't really care how good you're going, when in actual fact you've just got car payments coming out the wazoo, you've got high interest, credit card debt just to look like you're rich. But I've always said to people, do you want to look like you're rich or do you actually want to be rich?

Yeah, if you've ever met a genuine millionaire, they, they don't look like a millionaire. Nobody that's worth that much money is super flashy, like showing their money off to everyone. They're usually super understated anyway. Like it's, it's usually the people that have an average amount of money that trying to make themselves look like they've got a lot of lot of money. And it's just. Yeah, I think it all. What I love as well is this next one where it says savings can be created by spending less. You can spend less if you desire less and you will desire less if you care less about what others think of you.

Powerful. No one actually gives a shit. They don't. You think that they care about what you're driving, they just wish that they were driving that. But they certainly don't wish you got a car payments that, that goes on. We had a chat with a client earlier this week. This client's got fourteen hundred dollars a month car repayment. So what are you doing? Is. Oh, well, sort of. Our Derek is not as Good as it used to be said. Yeah. Because you've got a $1400 car loan. Like what are you doing?

It's a literal handbrake.

Yeah. Like all the car boys said the most, the biggest car accidents happen on a showroom floor. Like you don't understand. When you're buying something that goes down in value, it's all good if you can do that with cash. But if you're getting debt and paying interest, that seventy thousand dollar car doesn't cost you seventy thousand. It costs you ninety thousand dollars because of all the interest. But it's actually worth, worth around about 50% of what you paid for in four years time. Like the dumbest thing you could possibly do. And I know you guys out there have got car loans. It's just you've got to swallow the pride. I know it's never ever easy to hear this, but just think about maybe selling the car, paying off the car loan and getting a $5,000 car, paying cash with that and not having cars and just eating that humble pie. It's not forever, but it's just going to make such a difference to your cash flow.

That's the thing. It doesn't have to be forever. And you can make choices now and in a couple years time when you're feeling a bit more flush, your debt's like halfway down or whatever it may be, go and get the nicer car if that's what you really desire. But all about making the smartest decision, like you said, that your ego can handle.

Yeah, we have doing well with money has a little to do with how smart you are and a lot to do with how you behave.

Oh, we have seen this so many times. I can't tell you the number of, you know, high level, kind of white collar workers that we have that would be deemed, you know, smart in our society who are absolutely atrocious with money. Like as much as they're earning, it's going straight back out again. And they've got car loans and credit cards and you kind of go, wow. So it's definitely not about smarts. It's about behavior. It's about your spending habits. It's about you automating your finance. It's about you, you know, just setting things in place so you can take those slow, gradual steps towards that financial freedom.

I've got a lawyer who earns $440,000 a year. Sat down with him, in our eyes, he would be smart. He's earning $440,000 a year. He was spending $460,000 a year, 20,000 credit card debt. How's this guy spending 460 year? We went down, changed his structure, got his income working for him, he's now got a savings rate. And that's why, actually that was the one reason why I bought Savings Rate in the crowd is because he was paying 40 grand a year off his home loan. And I was thinking, oh, that's actually pretty good. 40 grand off the home loan, one year. And then I sort of referenced that to his income. I said, hang on, that's horrific. So, yeah, salary. And so that's when we bought the savings rate and said, okay, what percentage of your income are you keeping? I don't care how much you earn, how much you keep is everything. And so that's where the savings rate was born because of this guy. And so from that perspective, it's really about the right structure. And you guys are on the cheapest loan in Australia where your structure is designed to have this loan paid off in 10, 11, 12 years, not 30 years. And you're not refinancing every 3.9 years like every other Australian and resetting the loan term back to 30 years. And that's the biggest error people make is they refinanced for a cheaper rate and all of a sudden their loan term goes back to 30 years and they're restarting another marathon. So structure is everything. But that structure that we've built is there to bring basic those good habits, the accountability, the check ins. You've got a path, you know exactly where you are and where you should be.

Yeah, love that. It's not about smart, it's about your behavior. What about. Yeah, this is a really interesting one actually. So like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It's volatility. Fear, doubt, uncertainty and regret, all of which are easy to overlook until you're dealing with them in real time. This is like, it's, it's so true with any, in any investment, you know, asset class, there, there's going to be fluctuations up and down, you're going to have tough times, you're going to be facing high volatility, you might be, oh my God, I'm about to lose my money. And you might, you know, make a really bad investment and regret that afterwards. And that's, that's part and parcel with investing, full stop. I don't know anyone, anyone who has a completely clean slate of investment where they've gone, oh yeah, every investment I've ever made has gone up in value. I've just sat pretty and everything's just, is just doing amazing. It just doesn't happen.

That comes back down to your time horizon. That really sort of levels the playing field and the sort of mindset to avoid the volatility, fear, doubt and uncertainty and regret is to dollar cost average. And what that means is putting a set amount of money into an investment every single week, fortnight, month, every quarter. So it's consistently investing on a regular time horizon and it's investing the same amount and it's irrelevant what that price is because you're going to get the average over that total investment term.

Yeah.

And so dollar cost averaging is one way to basically reduce that fear and doubt because if the market's going down you're like, oh, I'm getting more of the market or getting more of that property for my, my buck. The other idea is to look at everything on a 10 year horizon as a minimum, you thinking you're going to be able to make money off any investment within 10 years and judging off a month or a year, I really feel you're going to sort of have a lot of fear of voluntarily in doubt, especially with the market that we're in at the moment. So having a 10 year time horizon saying it's irrelevant what the price is doing until that 10 year mark and at that point that's when I'll review everything and work out whether or not this has been a smart investment or a flop or lemon. So look at a 10 year time horizon and dollar cost average into whatever investment you feel comfortable with. Some clients put money into the index Funds or the ASX 200 which is top 10 stocks in Australia. Some clients put it into property, some clients put into bitcoin, some clients put into gold, silver, everything. I mean some clients even put into those collectible cars. Yeah, so everyone's different. But if you've sort of got a passion about something and like diamonds for example, or clients have bought pink diamonds because they knew the diamond mine at Argyle was closing and so they said I'm just going to buy pink diamonds. Because supply versus demand, once they're not making anymore, then the supply dries up and there's still going to be the demand there. So yeah, it's my mom. What she does is she just dollar cost averages into investments which she uses a brand and so we wrote down a list of everything that you use. She loves Apple Watch. So she invests in Apple, she loves Coca Cola, she invests in Coca Cola, loves Facebook. So she invests in Facebook, she loves Qantas, she finds other quantity, so she invests in Quantum. So everything that she was actually using in her life, she goes, I'm a customer of these businesses. I want to buy a share in these businesses which I'm using and therefore I'm an owner or part owner of that business. And so my money is going into businesses which I already support. So there's so many different ways, shapes and forms. I'm not going to give you any financial advice. I'm just saying these are what some clients are doing. But find your, your specialty, find what you feel comfortable or interested in and then sort of run with that.

I think as well, you know, is diversification as well is saying there is a whole range of different investment opportunities out there and don't necessarily pigeon your hole to pigeonhole yourself to. And that dollar cost averaging in one investment, do it across multiple investments and just say, okay, cool, I'm building a portfolio here and that's going to minimize your risk. We know that certain assets will go up when other ones go down. Like that's just a, you know, a common correlation there. So just, you know, being mindful of, okay, spreading your money over different investments and that will reduce your volatility and risk there as well. But the other one is investing in debt and we've talked about this a couple of times and people, people often don't understand that that is a genuine investment. Absolutely. Investing in your debt, it's a guaranteed return, tax free because interest saved is interest earned. So especially with rates as high as they are right now, putting money in your home loan and sitting it off there is, is an awesome strategy.

Well, what's better than that? I mean, right now let's say your home loans are 5, 6%. To be honest, you've got to get like a 9% return from another investment because you're take tax out of it. So if you're not getting 9% guaranteed return in whatever other investment you're putting your money into, maybe it is the best investment available at the moment with the lowest amount of risk, no tax, it's not going to go down. It's a guaranteed mathematical equation. Like Jess said, interest saves, interest made. And I take a guaranteed 6% right here, right now.

Totally. Like, you know, for me personally, I put a lot of money, I pulled money out of the market, put it on my home loan, but it's there ready to go. When, when things turn around, you know, when everyone's really starting to sell, that's when I'll start to buy hopefully. But yeah, having that money ready to go when things start to change, that's, that's a really good position to be in as well. Anyway, let's move on to the next one.

It's not, I mean when I say wealth is hidden, it's income not spent. And so wealth is an option not yet taken to buy something later. It's very lies in offering you options, flexibility and growth to one day purchase more stuff that you could right now. So I mean that there is really just that delaying self gratify or instant gratification, just making sure you got that long term perspective and giving yourself that sort of peace of mind, saying I'm going to be working towards that future goal and when I do hit that goal, then I can be doing X, Y and Z. It's very, very important to set milestones, celebrate those wins. So when you do get there, you've got a motivation to get there. But then you can celebrate and grab that trip to Hawaii, whatever it may be that you can't afford now, sort of on your wish list or your bucket list to do.

Yeah, love that. Yeah, this one is, it's moving on from what we said before. Compounding only works if you can give an asset years and years to grow. It's like planting oak trees. A year of growth will never show much progress. 10 years can make a meaningful difference and 50 years can create something absolutely extraordinary. I think. You know, like we've said before, compound interest is one of the most powerful things that you can use and it's about the consistency, consistently investing and reinvesting the earnings over a significant period of time. You can do that. I mean, you're doing that with your kid, with Leon right now, aren't you?

Yeah, I just wish my dad did that with me. He didn't. I think we learned from our parents what we don't want to do more than what we do want to do. And one of the things which, which I learned really early in this industry and having this as a job was to be able to set an investment in your early sort of years. And letting time do its thing just gives you such a huge advantage with that snowball starting to grow. And so, I mean I went through this with a lot of clients when we're sitting down and said, okay guys, just to put this into perspective, there were two brothers, one was Ben and one was Kevin. And Ben put two grand into his super fund from the age of 18 to 27. So around about eight or nine years he invested two grand every single year, not a month, a year. And so he had about 18 or so grand invested. He never touched it from the age of 25 onwards. And his brothers thought, okay, I'm start doing that same strategy. Put two grand every single year into his super fund from the age of 25 to 65. And the guy who only put in 16 or 18 grand at the start and never invested afterwards beat his brother, who put in 2 grand for like 30, 40 years by around about $700,000. And so that the earlier you start, the better it is. And so for me, I imagine for your kid, if the day they're born, you start putting money into an account for them every month or every fortnight, every week, and then just letting that compound out until they turn 30, 40 years of age. They have no idea it's there. Eventually it's just going to be this huge snowball which is just gathering momentum. And if you can do that for your kids and also for yourself, everyone's, oh, I'm pretty too old now. No, like you're going to regret. Just start now. And so superannuation is your best compounding. Like you guys have all got super. You can see your statements. It's growing, growing, growing. And that's because it's compounding and has allowed to compound. You haven't taken it or accessed it, which I'm sure you all would have if you could have. That is why it is there to save you from yourself. And that if you can start salary sacrificing on our system, about 5% of your gross salary into super, once you've sort of achieved some of the goals, some of the steps that we get you guys to start paying the debt down, but then starting to increase your contributions into super. Those clients who follow that strategy, by the time they've got to retirement, there is no way they could have spent or will be able to spend all the money they have before they die.

Love that. Fantastic. They're probably about all for today, I reckon. Yeah, yeah, lots of little nuggets of truth there, I think, you know, underlying themes of, you know, wealth is a lot to do with behavior. You know, it's all about the, you know, difference between your income and what you're spending. And what you're spending is, is very much dependent on what you're trying to prove to other people.

So source psychology, it's 80% psychology, 20% your actual income. And so I'd much rather deal and work with a client who's earning 60 grand a year, but saving like 15 grand a year than the $440,000 lawyer who's spending 460. Yeah, that savings rate of that client earning 60 grand a year is like 25%.

Yeah.

So it's all about what you keep, and it's just about calling it tight. And as this sort of environment gets tighter and tighter, we're all feeling the squeeze where shopping is going up, our bills are going up, everything's our interest is going up. And so this is where you've really got to batten down the hatches and just try to build as big of a surplus or a safety net or emergency fund as possible. So when things do turn and there is some green shoots appearing, you can start to basically get some upside and participate in the rebound. So from our perspective, it's. It's really, this is a time I call economic winter back down hatches, call it tight. We're not buying any investments at the moment. We're not going out and buying a property portfolio. We're not buying all these different asset classes unless you're dollar cost averaging into it. But you're not going to go jump 100 grand into the stock market right here, right now.

Yeah, absolutely. Well, thanks, Scott.

No, thank you, Jerry. It's been a pleasure as always. We'll talk soon.

We'll see you next time. Bye.