3 money mistakes to avoid | Summer Series

Bryce: [00:00:40] Welcome to the Get Started Investing Summer series where over six episodes we are going through six steps to help you set up your finances for 2023. From budgeting and savings habits, emergency funds and superannuation through to common mistakes and how to set up the ultimate core portfolio, this series will have something for everyone. While we are licenced, we are not aware of your personal circumstances. All information on this show is for education and entertainment purposes. Any advice is general advice only. Now my name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:01:11] I'm very good, Bryce. Excited for this episode. We are more than halfway through our super supercharged. Our money is sorted. Our emergency fund is building. 

Bryce: [00:01:21] My goodness. 

Alec: [00:01:22] Too good. 

Bryce: [00:01:23] 2023 shaping up. 

Alec: [00:01:24] But you know what happens when you're feeling good? 

Bryce: [00:01:27] You get two major mistakes. You make mistakes. 

Alec: [00:01:31] And we've been there and we still are there. We are still making mistakes. And we wanted to talk about some of the common mistakes. Learn from where we've gone wrong so you can do better. 

Bryce: [00:01:41] Yes, we've got three mistakes that we've made on our money journey over the years that hopefully we fully share our experiences, that you can have a think about avoiding them in 2023 and beyond. 

Alec: [00:01:53] And I think it's really important that we normalise talking about mistakes, and I think there's a lot of credit to be given to some of the quote unquote influencers out there that really normalise talking about money. Because our parents even asked when we were younger, grew up with financial experts, being experts and being perfect. And it made this whole world so intimidating because you felt that you didn't know what you were doing and you were going to get it wrong. You were going to lose money. But the fact of the matter is, everyone makes financial mistakes. But that's okay because you can make plenty of mistakes and still build serious wealth by getting the basics right. 

Bryce: [00:02:30] And you're going to find that some of these mistakes that we're talking about here have formed the basis of some of the episodes that we've spoken about over the last three weeks. 

Alec: [00:02:38] So normalise talking about financial mistakes. 

Bryce: [00:02:41] Admit them.

Alec: [00:02:42] Admit them. Yeah, let's get into us. Do it. So, Bryce, what's the first mistake?

Bryce: [00:02:46] First mistake? Ren is not having a money plan. Now, that could be.

Alec: [00:02:51] Scary enough, so. 

Bryce: [00:02:53] Yeah, so that's why we've done episode number one and two, because we've learnt from our mistakes and have put actually some meat on the bone. And not having a money plan I think is the first mistake that people make. Getting everything paid into one account and then just not keeping on top or understanding where their money is going. 

Alec: [00:03:10] Okay, so talk to me. What where did that go wrong for you? 

Bryce: [00:03:13] So before I think it's become clear if you have joined us for the first time, welcome. But for those that have been on the journey for a while, it's become clear that I love a good Excel spreadsheet, but that hasn't always.

Alec: [00:03:23] Keep saying Excel. 

Bryce: [00:03:25] Google Sheets. Yeah, because.

Alec: [00:03:25] It's like the Dyson or Coke effects, you know, like they've become the brand name.

Bryce: [00:03:30] So where has this gone wrong? For me, the biggest thing that led me to get on top of this was that I was I was trying to save trying to save for an overseas trip, trying to save, you know, I was at uni and it didn't generally have a lot of money coming in anyway, but was constantly finding that I was getting towards the end of a paycheque and realising I've spent all my money and then needing to withdraw all my savings. And it was this constant cycle of put money away, bring it back, spend it all, put money away, bring it back, spend it all. And it just became quite mentally, I guess, challenging because you never feel like you're getting on top. And the reason for that was that I wasn't actually tracking where I was spending any of my money. And I think the biggest lesson from that is, just as we've said multiple times, is to understand where your cash is going. And have a plan for it. Be intentional. So look, that that's really what led me to probably going over the top and tracking it too closely for a while, but I've normalised that somewhat. 

Alec: [00:04:34] Fair enough. 

Bryce: [00:04:34] What about you in terms of. 

Alec: [00:04:36] So not having a money plan, one big thing for me, it was just having one spending account. So in the first episode of this series, I spoke about how I've got money in, money out. And for me that was really important because money out then allows me to say where my spending is going, not not like my rent and stuff like that. Just like the general stuff day to day, how much I'm spending on coffees, ubereats, subscriptions, all that stuff. Because back in the day when I only had one spending account, it would just get unruly. Like all the boys rent was coming in for the share house I was in, my pay was going in there, you know, if people owed me money or whatever, it was going into that account as well. And then my spending was going out of that account, but also transfers to brokers to buy shares, transfers to our landlord and stuff for rent. Sometimes I'd say I'd spent like ten grand in a month when I'd only been paid five in salary. It's just because everything was going in and out. You know, like if people owed me money or, you know, the rent was coming in, all that stuff, I had no idea what was going on. And you'd look through and you'd be like, What? Everything in isolation makes sense. Yeah, but there's no coherent picture being developed here. Yeah. And so separating out, creating a second transaction account and getting all the money going into the money in account, but then transferring spending money into money out account means that the money out account is now a view of where money's going and I can bank there up. Still doesn't let you properly classify transactions. Separate story, but at least I can start to build a picture of okay, where am I actually spending? Hmm. So for me that was a, that's an example of how I could have done a lot better and how I fixed it. Hmm. 

Bryce: [00:06:36] Sorry. Mistake number one. Not having a money plan, but I feel like at the crux of that for both of us is really not having any idea of actually where your money is going in the first place. To then be able to build a money plan, get on top of it, understand where your money's going. Second one, run credit cards.

Alec: [00:06:52] Yes. And bad debt in general. 

Bryce: [00:06:54] Yes. 

Alec: [00:06:55] We've both had credit cards in our time. We have. 

Bryce: [00:06:57] I still have one. 

Alec: [00:07:00] Yeah, I still have one. But it's on my list to cancel because I don't use it any more. I got suckered into the idea that you need a credit card to build a credit score. 

Bryce: [00:07:11] I think that's not true in Australia. 

Alec: [00:07:12] Yeah, I don't think it's true. Yeah, but I just haven't got around to cancelling it. I don't spend anything on it. 

Bryce: [00:07:18] He's probably getting slugged the annual fee, probably. 

Alec: [00:07:22] As we said, we still make mistakes. That wasn't even the example of mistake I have here. 

Bryce: [00:07:28] Okay, so I'll address credit cards because I did get one in university because I didn't have a proper money. Like, you know, I was sort of getting on top of it through uni but got it because there were some of those expenses that I wanted to pay for and I didn't quite have the cash flow to get on top of it. And the bigger thing, so I got a card and then stupidly would then be like, Oh, well, you know, what's another hundred bucks on beers or bit bits and pieces here and there. And the worst thing that I did with that credit card was use it for just dumb consumer spending stuff that I'm just like, there's no investment or anything made on a credit card is stupid. Spending got in the hole to the tune of about about $5,000 and then just, you know, university. That's not enough paid off. Hmm. But my thinking with this in hindsight was like, if if you can save to pay off a $5,000 credit card, you have it in you to save $5,000. You just got to flip that and just change the vibe of needing something now to saving for it and just actually doing it when you have the money. Yeah, yeah, yeah. That's just you have the capability to, to save the $5,000 to pay off the card so you have the capability to actually manage your money. Good on you, Tech, but just stay within your line. 

Alec: [00:08:41] Yeah. And some people need credit cards because they are, you know, surprise expenses. They don't have the emergency fund. And we get that. That's not what we're talking about here. We're talking about people who are like Bryce at university shouting rounds of beers on his credit card as an idiot. Yeah. If investing is delaying consumption today so you consume more, can consume more in the future. Credit cards are the exact opposite of that. They are bringing forward consumption today. So you are deprived more in the future. Yeah, because it's going to come on by. Oh, yeah, yeah, yeah. So just don't get in that spiral because it becomes a spiral. Yeah. Similar example, not a credit card per say, but an example where an interest rate can come and bite you. So I bought my laptop through Apple's interest free programme. Yeah, yeah. 

Bryce: [00:09:31] Through latitude. 

Alec: [00:09:33] Latitude. Yes. For some reason, I don't. I must've lost track of. I thought it was two years interest free. Oh, 24 months. Yeah, I think so. When I was doing my tax return late last year, I had a look at the latitude debt and I found something very surprising. So, so. Bryce. Yeah. So what I found was that the interest free period had expired. 

Bryce: [00:09:58] Oh, no. 

Alec: [00:09:59] Yes. So I had set up direct debit and it just was like for the two years or it was interest free. It was just direct debiting. Well, I needed to direct debit every month. I could see it in my bank account, wasn't really thinking about it, would check it every now and then. And by now and then. I really mean then. And anyway, since the interest free period expired, what was happening? I just took an example. Month 31.56 direct debit it. So take it from my account to pay my monthly account. Then they added $19.02 interest back on plus a 4.95 account fee plus $0.62 in miscellaneous. As phase, those three numbers equal 2459. So I was paying them 31.56 and they were then adding 2459 back onto the account, which means net I was only paying 6.97 off a month.

Bryce: [00:10:57] Oh my goodness. On what? A computer. Probably worth 1400 bucks or something? 

Alec: [00:11:02] Yeah, something like that. 

Bryce: [00:11:05] And so how long that was going for?

Alec: [00:11:08] Cause latitude. Kindly tell you, if you keep paying off the minimum with interest, like with the interest being back out of back on how long it will take you to pay it off. And it was something like eight years and it was something like you'd pay $900 in interest. 

Bryce: [00:11:23] Oh, my goodness. Yeah.

Alec: [00:11:25] So I saw that. Thankfully, I saw that. And I just paid the full lump sum. I was just like, get latitude out of my life. So say a light. I've paid it off. 

Bryce: [00:11:35] I use paid it off. Yeah.

Alec: [00:11:36] It's like I don't need this. 

Bryce: [00:11:37] Yeah. Because the mistake is. Yeah. I mean there's not much you could have done about that anyway really. Even if you were on top of it, you would have just hit that point and had to make the decision around, do I just pay it off now because I'm going to start to pay interest? Yeah. Or I'm just going to copy it because I've hit my two months interest free. 

Alec: [00:11:55] So I think there's a few things to unpack there. My understanding of the deal was I would pay 24 equal monthly repayments to get me to zero. Yes, that was the way it was. 

Bryce: [00:12:07] That's what. Presenter: That's how I understand it. 

Alec: [00:12:09] But it's clearly not the way it operates. Clearly they let you pay not much through the 24 months and then interest kicks in and it's great business for them. 

Bryce: [00:12:19] Yeah, well, I mean, $32 a month over two years is not the value of a computer, if you think about it. So I don't know what I don't know how they came up with that figure. But anyway, so anyway. 

Alec: [00:12:31] That was on me. But that was stupid of that. Yeah. The second thing is the direct debits in my bank account didn't look any different when it was when it rolled over to interest. Gotcha. So it's not like you could say I'm paying interest now. Yeah, maybe there was an email. Didn't say it. They probably go to my junk anyway. But it's a reminder that if you have debt and you've been pulled in by a, you know, interest rate period, or if you've got a savings account or something and you've been pulled in by a bonus period, or if you've got a credit card and you got pulled in by bonus points or whatever it is, if you've been pulled in by the marketing gimmick, that's okay. But you have to be on top of it because otherwise you're paying $25 in interest and paying $6 off the principal. 

Bryce: [00:13:16] Absolutely. But Irene, well, before we get to the third one, we're going to take a very quick break, but we'll be right back. So when not having a money plan. Credit cards and bad debt in general. For the first two lessons or mistakes that we've made, the third mistake is around lifestyle creep. Now, what do we mean by lifestyle creep that is increasing your expenses as your income also increases so that the net result at the end of the days, you're not actually saving any more. You're not actually putting more into the stock market, you're not actually putting more towards your home loan. You're just spending more in line with whatever money is coming in, in addition to your income or whatever it may be. Yeah, something that you should try to avoid as best as possible to give yourself the best opportunity to maximise your savings and investment opportunities. 

Alec: [00:14:10] Yeah, yeah, yeah. Avoid lifestyle creep now so you can enjoy lifestyle later on when you retire somewhere. 

Bryce: [00:14:20] Spitting lines over here. So this is something that I look back on and go, God, I would love that opportunity again because I was fortunate enough during, you know, corporate career at Woollies to get bonuses, fortunate enough during uni to get have those casual jobs and you get those sort of meaty tax returns every now and then. And in hindsight, they were opportunities where it was money that was coming in. That wasn't part of my plan, wasn't part of whatever it may be. And I would have loved to have just put it straight into the market or straight into a savings account. But in most cases, I reckon, particularly in my early days, I spent a large chunk of it. Yes, that's my mistake. And then similarly, as you get a paycheque from a great job or if you just out of uni and you've moved up from the glossy or whatever you were doing, rent your first full time job. It is exciting to get some decent cash coming through the door, but this is where it's super important to have that plan to make sure you're not just spending more in line with extras that's coming in. 

Alec: [00:15:22] Yeah, yeah, 100%. Now, there's examples of plenty of examples of lifestyle creep where it's not good. Shout out to our mate who upgraded from a Honda Jazz to an Audi Q5, C7 one of the keys. That's a classic example of lifestyle creep. Yes. But it's okay to increase your expenses if that's something that is important to you. But it's just being intentional. Again, a focussed intentional knows where your money's going, be okay with where it's spending. So actually we should apologise to our mate because maybe he hated the jobs. 

Bryce: [00:16:00] He always did. 

Alec: [00:16:03] Like one example for me, the classic example of lifestyle creep. I went back and looked at my rent from two years ago. I was paying $225 a week in a share house. Now I'm paying $400 a week. Wow. Yeah, that's a lifestyle. 

Bryce: [00:16:18] That's lifestyle creep. But a bit unavoidable. Like you've chosen to live there and the circumstances have kind of changed. 

Alec: [00:16:28] Yeah. Living well, living with less people. Yeah.

Bryce: [00:16:32] In a great area by the age. But it is. Yeah. That is an example of, of lifestyle creep, but it's also just other things where it's like, you know, you might get an extra $500 from a pay rise a fortnight. So you feel like you can have that additional two or three Uber eats meals that you might not have been able to afford last time, or you feel like you can shout the extra round of drinks with your friends or you. 

Alec: [00:16:54] Shop at Harris Farm 

Bryce: [00:16:56] Exactly, exactly. So it's all those small things that come in to lifestyle creep that add up that you should definitely be aware of. And yeah, I look back at some of the instances, not necessarily from pay rises, but just additional sums of money coming in, tax returns, bonuses, those sorts of things that I would have loved to have been more diligent with. 

Alec: [00:17:15] Yeah, I think the best example of lifestyle creep in my life is actually something that you do though. Okay. You've moved from fitness first to Australia's most expensive gym. 

Bryce: [00:17:26] Yeah, but I don't pay for it. 

Speaker 2: [00:17:29] It's for.

Bryce: [00:17:30] It's a free shout out to locker rooms if I was paying for it. That is a classic example of. Yes, okay. Yes. But anyway, Ren, we've always been closing with three K actions. So what should we take from this to actually put into place? 

Alec: [00:17:47] So number one is a pretty simple one. Stay within your limits. Yeah. And if you have credit card debt or debt with a really high interest rate, focus on paying that off. First number two, stay on top of your bonus interest rate periods. No interest free periods. Those gimmicks are everywhere in the financial product industry and that's fine. And plenty of people have actually done really well by gaming the system. You were talking about in an earlier episode, how you would move your savings from savings account to savings account to take advantage of the bonuses but just be might be aware of when those things. Run out. Don't do a may and get screwed by apple in latitude. Yes. Allegedly. No. I screwed myself. To be very clear. They did nothing wrong. It was on May, but as the second one came on top of that stuff. And then finally, I think the third action is a random month. So my bank CommBank goes back two years online, go back two years. Or if your bank goes back further, choose a random month and look at how much you spent and what you spent it on. Compare it to the most recent month where the cost blown out.

Bryce: [00:18:59] Hmm. Good one. 

Alec: [00:19:00] Is it like me where your rent has gone up significantly? Have you not noticed all the price increases that Uber and Menulog have been pushing through? And you've seen that bill creep up. Where's the cost? Because I would hazard a guess that most people listening have seen some lifestyle creep without noticing it. So it's important to pay attention to it. 

Bryce: [00:19:22] Well, three mistakes we made and some of the key lessons from it. But then next two episodes, we're now turning our attention to investing because we've got our money sorted, we've sorted out superannuation, we've got a bit of an understanding of some of the mistakes we've made and now we're at the point of saying, Great, I've got some cash that I want to start actually building in the stock market. So we're going to talk about the core element of your portfolio and how to get that going before turning our attention to automating it all. So we're going to pick it up in the next episode. But a reminder, sign up to the get started investing email at Equity Mates. Equitymates.com/contact where each week we're sending out some written information with tools and resources to accompany these episodes. You'll find that all. 

Alec: [00:19:59] On our website. And if you're looking for more, you can always pick up the get started investing book. You can see we've got a consistent naming theme going here available on Amazon book Tokyo or your local bookshop. 

Bryce: [00:20:10] Love it and we'll pick it up next episode.