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Chapter 1: What does the five-year test reveal about my financial future?
Welcome to How Do They Afford That, the podcast that peeks into the financial lives of everyday Australians. I'm Michael Thompson. I'm an author and the co-host of the business news podcast, Fear and Greed.
As always, I'm with Canna Campbell, financial planner, founder of Sugar Mama TV, the financial literacy platform covering YouTube, podcasts, Instagram, threads, TikTok, and of course, my co-author on our upcoming book, 12 Months to Financial Freedom, available for pre-order now. Hello, Canna. How are you? Apprehensive. Why? Because this is one that looks to the future, today's episode.
Basically, we're looking ahead. We're looking specifically five years ahead.
Yes.
Right? We're gazing into the financial crystal ball, if such a thing exists, and asking three questions, right? If nothing changed in your circumstances and in the way that you manage your money and all of those kind of things, where would you be? If you made small changes to your money, where would you be?
And then if you made some big changes, some big overhauls, some big moves, where would you be in five years? What would your money look like? What would your lifestyle look like? How much better, without meaning to kind of cast a judgment on this prematurely, how much better would your life be if you took control of your money now and did something better? Let us jump straight into it.
If you did nothing, right, in five years, where would you expect to be? My default kind of assumption on this would be to say that you'd be in the same position as you are right now, but could you actually go backwards because of inflation and everything?
Well, assuming nothing's changing and that's because you're doing nothing and you're continuing to bury your head in the sand, you're quite right. You know, you could be going backwards. Yeah. You know, you look at inflation, think about the cost of living, the rising cost of living, thinking about the lifestyle creep and also all of those missed opportunities. Yeah.
So even if your income stays the same, your money still buys less. So you could very easily be going backwards, and a lot of people are experiencing that right now, to be honest.
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Chapter 2: If I do nothing with my money, where will I be in five years?
It's just going, okay, do I need four streaming platforms? Maybe I can get rid of one. And then you're saving yourself 20 bucks a month, maybe. Exactly. Okay. Next.
Building up an emergency fund. So I can't remember off the top of my head, and my apologies for this, but it's something like 40% of Australians can't come up with $2,000 in the event of an emergency without having to use a credit card or borrow money from the bank or a person. So just having emergency money, ideally north of $2,000, but obviously it reduces that emotional stress and anxiety.
But it also means that you're not going to be creating new debt in your life. And we've spoken about this before. When you have toxic debt, like... you know, outstanding buy now, pay later and credit card debt. It can really impact your mindset and attitude and quite often trigger more and more spending because you think, oh, well, it's $2,000. I may as well make it $3,000.
You can almost come up with excuses to get deeper and deeper into debt. And having emergency money so that if something happens, you feel financially resilient because you go, wow, okay, I need new tires. Okay, phew, I've got $1,500 in very expensive tires. I've got $800 saved in my savings account. I can fix up and get the new tires and get back on the road again.
It doesn't impact your life beyond the actual problem.
Okay. And so that one is kind of linked to the first one, isn't it? That you would potentially do it through a regular savings plan.
Yeah, absolutely. Separate savings account, nicknamed, just start. And even if it starts with $1, like it begins and it's nicknamed. So every time you log into your internet banking, you are reminded as to what that is you are working on and why.
It just gives you so much peace of mind.
Like, I mean, I had to rebuild our family savings, Tom and I, together from scratch. And it was like getting started again is actually really the breakthrough of stress going, okay, yes, it's annoying, but we have to do this. And it's a sign of responsibility and financial maturity as well.
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Chapter 3: How can small changes improve my financial situation in five years?
All right. That's number two. So we've got investing properly and then aggressively paying down debt and, of course, the home loan. That could have- a massive effect, not just in five years time, but chances are you'll actually see the greater impact in 20 years time when all of a sudden you're mortgage free instead of kind of 30 years.
And the cool thing about this is you can start to actually see the turning point of go, when you log into your internet banking, you see your mortgage and how much interest you've paid and go, wow, already the impact of this has already saved me $80 per month in interest because I'm making more aggressive repayments. I'm watching the principal come down. So the interest therefore reduces as well.
Yeah, ripper. Okay, number three.
Okay, this is, I guess, comes back to the heart of making things actually happen, and that is obviously having the income to actually increase the mortgage repayments or to start investing.
All right.
So asking for a pay rise or perhaps looking at, you know, seek and just going, okay, well, perhaps I need to look at changing jobs. You know, we all know that the best pay rises come quite often from changing different organisations.
Mm-hmm.
So it may be a point of going, all right, I've been in the same company. I think I've hit my earning capacity, that ceiling perhaps. I think I need to look at jumping ships if I really want to improve my financial well-being as well as, of course, my career path and the value that I'm contributing and what I'm learning and where I am up with my training and education and experience.
So maybe it's a pay rise. Maybe it's a change in job. And maybe it's actually something on the side. You know, you do some consulting on the side, some freelancing. Yeah. You know, something that you're interested in and passionate about that can give you that extra money that can help up the ante with your financial strategy.
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Chapter 4: What are the most effective small changes I can make to my finances?
Okay, number four.
So this is doing a bit of a revamp of your financial system. So looking at the engine, looking at what you're doing, and looking at where you can really improve the efficiency. So reviewing the budget, reviewing the cash flow, reviewing the amount of accounts that you've got and what account is doing and whether it's actually working for you. For a classic is if you've got, say, holiday savings.
Perhaps that holiday savings doesn't sit in an online savings account. Perhaps your restructure and revamping is maybe putting that in the offset account so it's saving you interest against your home loan. Or perhaps it's looking at the money that you've got to set aside in savings for a rainy day that you know you don't actually really need as much in that account.
You go, okay, well, let's start doing something different with this. Maybe we can invest it. Maybe we can use it in
invest into a side hustle using that looking at the whole efficiency as to what is working for you and where you want your money to go and to obviously to start growing and of course like what can you automate that takes away that list of things to do so it's very very easy you know and doing this on a regular basis you know goes without saying it's essential and it allows you to then see even more opportunities and jump on those to improve your own your actual financial trajectory
All right, last one, number five.
No surprises here, but looking at some serious superannuation contributions, taking advantage of those legal tax efficiencies that come with super, looking at the underlying assets within your super, is your superannuation money invested for the long term? Does it match your risk profile? Does it match the appropriate risk profile for where you are at your life cycle and life stage?
So looking at the fees that you're paying, whether it's cost effective, whether it's the right superannuation account for you, looking at projections.
So really looking at where you can actually almost organically grow your wealth, but also grow it at a more efficient rate by tweaking little things within the engine to make it work more smoothly and get your money working for you and growing for you.
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