Why weren't these lessons taught in school?

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 am joined today by absolute superstar SJP Scott Darrah Parry. How are you today?

Tip top, thank you for asking. More importantly, how are you?

Oh, just brilliant. Do you know what? The sun was shining on the weekend I got my hands in the garden. I was like, yeah, here we go, there's some blue skies. I'm just feeling like we're coming out the other end of this deep, dark winter that we've had. I'm feeling energized. They'll probably last a few days and that's it. But you know, I'm so positive now.

Live in now. To be able to live in now, you've got to have set yourself up a lot earlier than now and be doing the right things in the right order financially. And so what we sort of want to run through today is just some of the guidance that we probably should have been taught at school around money that we weren't. And I mean, let's be honest, most teachers aren't financially free. They're not writing the curriculum and as a result of that, that hasn't been changed for a long time is super outdated. And why we're still teaching kids about geography when Google Maps is always going to be there blows my mind. But these are the things we should have been taught. Now, first off the rank, never ever buy a brand new car unless you are already a millionaire. It's a, it's a luxury. Like we've always done the studies saying you buy a car three to four years of age. I've already taken a 30 to 40% hit that most car accidents happen on a showroom floor. And so it's a depreciating asset. Obviously if you're taking out debt for this, then you're paying interest on a depreciating asset, not to mention all the taxes and fees. And it's going to be something where you're going to lose money on that. So invest in assets and then have the assets be able to fund a new car if and when you hit that million dollar status. But you should never be buying a brand new car unless such a hard.

One because me included, it's such a hard one because it is so attached to our ego. It's such a physical representation of what we class success. And so for a lot of people, they think that I have to have this brand new car because it's going to tell all the people around me that I'm doing well, that I'm successful and it's. And so you really have to detach from that. And you have to say, okay, you know, my favorite quote of yours is only buy the car that your ego can afford. It's a good one. It's a cracker.

It is a good one. It's just something where so many people just try to look rich. And that's a problem. You're not rich. Stop trying to look at actual wage. And it's something where the sort of numbers going around it, you should be sort of not spending any more than 20ish percent of your gross salary on a car. Like is the sort of ballpark figure. So if you're 100 grand a year, that's a $20,000 car. If you're on 200 grand a year, it's a $40,000 car. So that's really sort of weight you should be looking for in terms of your bandwidth. But the next point is buying index funds or ETFs. And a lot of people don't know what they are. That is like a basket of the top companies in that country or in that sector. And so for example, if you were to buy there's an index called the s and P500. It's the top 500 companies in America. What are the top 500 companies in America? Well, it's Google, it's Amazon, it's Facebook, it's Tesla, et cetera, et cetera, et cetera. So buying all those companies, if you buy this index in Australia, the top 200 companies, it's like all the banks you've got, all the mining companies, like you've got Wesfarmers, those sort of groups own the Coles, Woolworths. And so just saying the dollar cost average into that a little bit every single month a week is even better. There's some like micro investing apps I'm using for my kids to set them up. I use one called Raise R A I Z another one called Bamboo B A M B O O. And so I set them up on my phone, they round up and they're sort of doing these recurring investments. And so they're just buying these index funds like your super is buying index funds. That's what your super does. But to be able to do that outside super so you can actually have access that money before you retire is pretty handy. But just starting early and that's, and.

That really kind of leads into a very. One of my favorite concepts is pay yourself first and so what that means is you get your salary and you should be starting this from the day you get your first job. And it's absolutely something that I will be making my kids do. I will be forcing them to do it, whether they like it or not, is that you pay a percentage of your income into an investment first. Okay. Before you pay anything else, that is your priority one, you say, this is my number one priority with my money is investing this portion. And you can set the amounts, but get that working for you immediately. And then everything else, the rest of your money goes towards your bills, your lifestyle, your nice to haves, whatever it may be.

Yeah, let's call it mest. I mean, the government has taken 10% of everything, so why don't you take 10% of everything for yourself? And so avoiding impulse ending is another real key one which we should have been taught at school. And impulse spending is any spending that you haven't consciously thought of. And as a result it's called an impulse buy. And so these can just derail like the best of best financial plans. And if you can't control these impulses, usually the people with a credit card are hitting it. You look at credit card debts, most of those actual purchases have been an impulse. What's the opposite of an impulse spend? It's conscious spending. I know exactly what I'm looking at buying. I know what I'm going to be spending for this. I've mapped it out and I've planned it. I'm consciously spending, I'm not just tapping it and thinking, I'll feel like this now.

Yeah, 24 hour rule. So always set yourself a 24 hour rule that if you want to buy something and you haven't been thinking about it for a while, you want to buy something you've seen, you're like, that's awesome. Really buy it. You must sleep on it. So. So you must come back in 24 hours. And we're not living in a time where you know you're going to see something where you can't buy it again because it's so rare or you can't find it again or whatever. With online shopping you absolutely will be able to find it again. So just walk away from the purchase, give yourself 24 hours and if you really like it the next day, then you can consider it like 9 times out of 10, just sleepy on it. You realize, actually I don't really need that. There's plenty of other things that I want to spend my money on instead for sure.

I mean, I Think one of the key things why clients are paying off the house, or a client of ours pays off the house every 24 days is we just help with the impulse buyers. I mean what we're very good at is like stopping the bulk suppliers, taking them out of people's budgets, trapping that surplus and having it sit off the principle of your bad non deductible debt. And so when you take impulse buyers out of someone's budget for you, man, we're talking thousands and thousands of dollars. And as a result of that, they're better, their interest is lower, they're moving forward, they're creating equity and everything lines up. I think another key just on this whole some point is like growing your wealth. And you need to own either one of these to grow your wealth. You can't save your way to wealth. And so you've got a lot of people who have that scarcity mindset where they keep just putting savings away into a bank account. It's not in keeping up with inflation, you're losing money. And so you need to be growing your wealth needs you to be buying either like real estate or stocks, companies, why not the companies that you're already using and businesses or a combination of all these and so on. People like all real estate, obviously that's investment properties. There's fractional property investing. Now stocks, you can dollar cost average in you can. There's different sort of apps to help you buy stocks or index funds or ETFs and then businesses as business brokers. I mean we have a lot of clients pay off the house. Like now what I want to do is just stop my job and buy a business that's running and has someone managing it and just collect the cash flow off it. And it's not a crazy like that. When you say business, I mean these are even the smallest of smallest businesses. It could be anything from a car wash, it could be a subway. I mean all these different sorts of businesses out there. So you need to be buying assets that spit off cash flow. Everything I just spoke to you about then spits off cash flow. Companies pay dividends that said profits. They then distribute those to you, the shareholders throughout the year. So the Facebooks, Google, the Amazon, the world make money and then they pay that as a dividend or percentage of it through to you, your businesses. While you've got a manager in there spinning off, you're taking the catch finder sort of where the business is doing around about 250 a year. He's put a manager in there then he pays the manager 80,000 a year and so he's earning 170,000 a year. The spread between profit and what the manager's taking, which is amazing. In real estate, obviously you've got property. Property goes up in value, but also the rent goes up. The cash flow, the positive again. So more the rent covers a mortgage and it washes its own face and it starts paying you to own it, which is phenomenal.

Anything else that we should have been taught?

Yeah, debt. We should have been taught about debt.

Mm, that's right. And the number of people that we make that don't fully understand how home loan works and absolutely don't understand how you can be cutting it in half. Like, and you shouldn't be stuck on a 30 year mortgage. You absolutely should. Nobody should be paying their mortgage for 30 years. So. And it's kind of sad. And even just all parts of kind of your financial picture, you know, the wealth creation which you've been talking about, like insurances, protecting your family, just all of those sort of even tax. We just, there's so little we learn in school about these really important aspects of our financial life.

Yeah, debt's crippling, you know, I mean the biggest hurdle to anyone's financial future is their mortgage. And so now mortgage repairs are taking 30 to 40% of people's salaries. And I always say to a client, when they pay the house off, you got a 36 grand or 42 grand or however, whatever your mortgage payments are per year pay rise like it's phenomenal. And so the fasting get out of debt, the quicker you get your cash flow back and all your income in your hot little hand to put towards lifestyle or more investments or half and half or whatever it may be. But getting out of debt is and should be the number one focus for most Australians because everything changes once you no longer have a home loan repayment. Emergency funds, I mean, I don't think we're ever talking about emergency funds. We should be in a position where we should have a three months worth of life loan repayments and living expenses. Step one, once you've achieved that, then you move to the next step, which is six months worth of living expenses and loan repayments. So no matter what happens to you or your family, you're not going to be rocked financially, you're stable and that gives you a huge amount of peace of mind saying, no matter what happens to us, we're going to be okay. And that's financial peace. And then from there we start to move forward towards Freedom. Once we've achieved that stability part there. So emergency funds are key. I mean, we just had, unfortunately, a client pass away yesterday, and she's like, my husband's just passed away. What I do. Like, we've got funeral costs, this, we've got that. I said, that's what these emergency funds for is for these exact moments. Yeah, thank God. And she was thinking. She was unbelievably grateful. Like, with her husband dying the next day. She's like, this is literally. I'm just. Thank God that you're here to help me with this, because I don't know anything that he was running with in terms of. Obviously, partners sometimes got different accounts and bits and pieces. And she was just one of those people who, hey, he deals with money. And I just work and spend and do what it may be. So, yeah, it's just those emergency funds. There's always emergencies in life. That's what I've worked out.

Yeah. And they don't have to be the big ones, and we can be little ones as well. Your car breaks down, all of a sudden you've got a $2,000 mechanic fee out of the blue. Like, you don't have that money there. Then you're putting yourself further into debt. Credit cards or personal loans.

And it's just, yeah, same for bet bills. I mean, sort of things happen, you know, they just happen. This is about, when will they happen? And I think probably the last thing we should have been taught at school is more around planning for the future. You know, no one knows where they are, where they should be. Are they head, are they behind? Everyone's just floating around with no sort of set direction or target to aim at. And so I think it's really important to have what I call a freedom number. So what's the amount of money that I need to accumulate before I can basically take the foot off the pedal and chill? I think if people knew what that number would be, they'd be like, okay, this is what I've got to do. I know what I'm aiming at. And so some people say it's going to be around about 25 times your annual expenses. So if you want to map that out and say, okay, I'm spending in just living expenses, 50,000 per year times 25 goes to 1.25 million. As soon as you have $1.25 million in assets. This is not your family home. This is assets. That's your superannuation fund. It's savings, it's shares, it's equity, and Property, investments, et cetera. Once you have $1.25 million, that's your freedom number, you can stop working. And so how do you get to that? Well, they always say there's this 4% rate. And so 4% of 1.25 million is 50,000 per year. So it's going to cover your living expenses and not chew into the 1.25 million. And so no doubt if that 1.25 million is invested, some years it's going to be generating more than a 4% return. But you can give it a 4% return pretty easily in the term deposit at this point in time. So just having that number. Okay, what amount of monthly living expenses on the premise, you're debt free. Obviously this is very important. You can't debt repayments out of this. So back to number one, you must be debt free. But as soon as you have paid your house off, as soon as you've got that freedom number, which is your annual expense or your monthly expenses, times 12, times 25, whatever that figure is, once you have enough that in liquid access, investments, super cash, whatever it may be, you're good to go. You don't need to be trading your time for money anymore.

Yeah, yeah. And that's, and that's a lot of people think I have to, I have to work until retirement age. Like that's, you know, what I've been told, that's the number, that's my benchmark. And it's like, absolutely not. And I really like the idea, you said, of having the number, the amount, and that's when you get to retire. Nothing to do with age.

100% towards that. Yeah, that's so true. Like everyone's, what are you going to retire? Six or seven? Like it's not an age. No, no, you're going to retire when you've accumulated more money than you could spend before you die. Which means there's no point accumulating more money or trading your time for money when you already have more money than what you can spend with the rest of your time. Yeah, like that's it, you've got it. There's no more accumulating because you can't even spend what you've got.

Yeah.

So go and start spending it on experiences, ideally.

Yeah. Travel.

Yeah. I mean, like, surely there could just be some subjects at school around that.

Which is, I think, like, you know, at the end of the day now it's up to parents, like, you know, you got to take the responsibility of passing on this information, this knowledge, this insight and help guiding your kids. And look at it. It's hard to, you know, sometimes the kids don't want to listen, but anything that you could pass on will just be invaluable. I think, number one, pay yourself first and then, and then just teach them everything else that you can.

Yeah, that's it. You're so true. Like, your kids are watching you. They're not listening to what you're saying. They're watching you.

Yeah.

And so if they see you fighting with your partner about money or expenses or bills or the credit card, they're watching this.

Yeah.

And you starting to create their money blueprint.

And if you're making impulse buyers and, you know, buying brand new cars and looking for status symbols like that, they're gonna, they're gonna be watching that as well. All of it matters. So, yeah, start with setting the example and then pass the wisdom.

Yeah, it's a super fast. I just had a client last week where she's very driven. Very driven. She's on like 225, 230 year. He's sort of more helping out with the kids. He's around about sort of 80,000 a year. She's working away three days a week. So he's got the kids by himself. And so they've got a few investment properties. They've got a sort of like smallish mortgage move 4 or 500. And like, I could see the strain on relationship. You know, he's. She's so tight and focused on money because her mum came from a scarcity mindset. She's always like, tight. I'm like, this guy's a flush. You know that with the income's like 300 grand a year.

Yeah.

Mortgage is like 500 grand. But she's everything they're doing. Oh, we shouldn't have done that. We shouldn't have gone out for dinner with our friends or we should. And he's like, oh my God, can we just live in an hour, please? So classic spender versus classic saver.

Yeah.

And. And so we was having a chat and wow, this is very icy. Just you can feel the friction between them. And then I just said to her, obviously your money blueprints come from someone. So who in your family was the tight scarcity? She goes, oh, my mom was, et cetera, et cetera. I was like, yeah, that makes sense. And so that's her blueprint. But she just needs to feel that she's ahead and everything's gonna be okay. And so I said to her, like, it's kind of A bit of a curveball here, but you've got these two, like shed, two units, two apartments. And I said, you're two of us. But they're units. There's no dirt, there's no land component to them. So they're not going to grow as much as what you would if you had a big piece of land. So bit of a curveball here, but why don't you just sell your two units, pay off your house, live debt free for a few years and then go buy some quality blue chip located investment properties with large land components. But you're free. You don't have to work away anymore, you don't have to sacrifice family.

What did she say to that man.

The husband, just like stamping his feet, clapping his hands. You know, this is what I've been saying for years. I said, you are going to be ahead of everyone. You know, no one, you know, even younger than 40 owns their home before the age of 40 like you are. And then you can work like close to home, have every night with the kids. And so for these people it's, it's a big identity shift, you know, I.

Mean if you're working, yeah, it's almost like you, you gave them permission. Almost like, it's almost like she needs permission to take the, the foot off the pedal and say, okay, I do have enough, I do have more than enough. And now I get to choose the lifestyle that I want. Like and that is, I want to be more with my family.

Yeah, 100%. So I could just say she was like rocks. I mean a little bit sort of anxious, nervous energy. Like, like she's been grinding her whole life, you know, her whole life earning that sort of money at that age. Like you worked super hard to get to that point and so to be able to be told you don't have to do this anymore. Yeah, it's a huge, huge curveball. So I said there's a game plan. We need to sell these properties, pay off the house before you leave. Obviously, let's get a pre approval for investment just to see what your borrowed capacity would be on that higher income with no home loan debt, secure us unbelievably high quality property and then you can do whatever you want, you're free for the rest of your life, which is insane. So yeah, if you do get it right and you do start early, these are the things that happen. Like yeah, you get choices, choices, better quality choices and so not have to work really after the age of 40 because you did a few things but It's a pretty insane opportunity.

Wow. That's awesome. All right, well, thank you so much, Scott. Very, very thank you so much. Yeah, everything we should have been taught at school.

Love it.

All right, well, we'll see you again next time.

Absolutely. Take care.

Later, Sa.