Ask an Adviser: Jacob McCudden “Should I be paying off my HECs faster?”

 

Bryce: [00:00:15] Good day, Equity Mates. Welcome back to another episode following our journey as we learn to invest. Now, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. Now, for joining us for the very first time, a massive welcome. Welcome to the Equity Mates community. Welcome to the journey of investing. If you're still getting up to speed, we suggest you go and check out our Get Started Investing podcast to get you all the basics and then come back and join us on this show. Now, while we are licensed, we are not aware of your financial circumstances. So please, any information on this show is for education and entertainment purposes. Any advice is general? But with that said, my name is Bryce and as always, I'm joined by my equity by Ren. 

Alec: [00:00:56] How are you? I'm very good, Bryce. Excited for this episode. We are bringing back a segment we launched earlier this year. Ask an Advisor and we have a good friend and a great advisor, self-described great advisor. 

Bryce: [00:01:12] One of Australia's leading. Yes. Now we know that financial advice is expensive, Ren. But over 70% of our community in our most recent survey said that they feel like they would benefit from having one. So they Ask An Advisor series is designed to bring the advisors to the Equity Mates community to you to give you the opportunity to ask your questions. And it is a pleasure to welcome to the Equity Mates studio. As we said, one of our friends, but a certified financial planner. Jacob McCudden. Welcome, Jacob. 

Jacob: [00:01:43] Thank you. Bryce Thank you. Ren Thank you for having me. Pleasure to be here. 

Bryce: [00:01:47] So Jacob works at back to back financial planners and is well versed in all things financial planning. And today we're going to be unpacking some some things that Jacob reckons we get wrong. Or what are some common misconceptions, a bit of a this or that game and then closing out with community questions. We'll be looking at how to invest 10,000, how to pay, should we be paying off hacks plus many more. Now Jacob, on your website it says in your little bio description, financial planning is not all about managing money. It's really much more than that. It's about uncovering your client's hopes, dreams and unspoken fears and providing them with valuable guidance, counsel and support when they need it most. [00:02:30][43.8]

Alec: [00:02:31] Before we get what you've said, I want to understand how do you uncover your client's hopes, dreams, and unspoken fears? Is it like, can you do it for Bryce get us? Let's figure out what's going on in his head. 

Jacob: [00:02:42] All right. We can. Might be the easiest way to do it. My way is do a test run with Bryce.

Bryce: [00:02:46] Okay. 

Jacob: [00:02:47] I see you've come see me. You've come in here wanting to talk about money. And I'm going to start the conversation by saying, let's not talk about any of that right now. What's important here, Bryce? What are you trying to achieve? What are your objectives? What are you hoping to get out of this? Don't worry about money, but what is the actual end game? 

Bryce: [00:03:03] The actual end game is having complete control of my time and not having to be and not having to wake up knowing that there's a commitment to earn a paycheque. 

Jacob: [00:03:15] Okay. And why is that important? 

Bryce: [00:03:17] Because time is the most valuable commodity we have. 

Jacob: [00:03:21] Indeed. 

Jacob: [00:03:24] You're not Wrong. You're not wrong. Okay. So it's all about time getting time back. So having more control. What what does that look like to you? What would that mean? 

Bryce: [00:03:31] It genuinely would mean me waking up and being able to dictate my day, hour by hour, not having to wake up and know that there's a calendar to go by or anything that is been in my calendar that I don't want to do. 

Alec: [00:03:45] Okay? Basically, I just don't want a job. 

Jacob: [00:03:47] I'm hearing, that from you.

Bryce: [00:03:51] So where was it? Where does it lead from there then? Like how does that then translate? 

Jacob: [00:03:55] And then, you know, and down the rabbit hole you go. Because I think in that kind of way it's into what you started with. You know what? It's one of the big misconceptions. You know, I think a lot of people come into a financial planner or advisor thinking, we're only going to speak about money that way. Some sort of investment guru that you come into the asset and everything will be solved tomorrow, which obviously is not the case in any way, shape or form. And I mean, I like to start the conversation with, yeah, let's forget about money, because money is the means to an end, right? Money is kind of nothing in its own right. It's what's actually important to you about doing that. And of course, investments and building wealth and being smart with your tax and all this other stuff. There are ways to get there, but what are we actually trying to get to? It could be buying our first home. It could be helping our kids through private education or buying their first times or or being able to take that extra holiday in retirement or whatever it is. Because if we just focus on money and wealth and we get a bit too stuck in the weeds and I mean, that's what a good adviser, a good planners that help you do to navigate that. But at the end of the day, it's really important with any kind of planning, not just financial planning, personal training will probably do a very similar thing. They start with what are you actually trying to get out of This Is it I want to lose weight or I want to get fit for a competition or whatever it is. So unless we're really clear on that objective up front, it's hard for us to make a plan because the plan is what gets you. Might it be that we need to know what babies to begin with? 

Alec: [00:05:14] So I guess that's the biggest misconception when it comes to financial advice and financial planning. And that's probably a good segway into where we want to go to start this episode. For so many of the Equity Mates community, myself included, I think Bryce included. We've actually never stepped into a financial planning as office and had that initial meeting and gone through the process. And so I'm sure we all have heaps of misconceptions about what goes on and like how it all works. So what are some of the biggest ones you say the biggest misconceptions, or I guess what do people get wrong when they approach you or another financial planner? 

Jacob: [00:05:54] Yeah, really good question, Ren. I mean, one of the big one, the big obvious one is the sort of you have to have a lot of money to be able to sort of get financial advice. A lot of people sort of think, well, you're going to be wealthy, right, to get a financial planner, otherwise what's the point? But of course, that's not the case. You know, we can start with clients who are just starting out with, you know, not much going on in the way of finances, but it's about mapping out that journey over time. And we often say to clients, you know, if you're looking to sort of get rich quick, I'm not the person to say, but if you're looking to build wealth slowly over your working life, then let's have a chat.

Alec: [00:06:26] Check on that. Like a lot of people probably hear you say that and they're like, but it is expensive to get a financial adviser. 

Jacob: [00:06:35] And this is the commercial reality, I suppose, of the industry. And in a perfect dreamworld, which of course we don't live in, everybody would get financial advice and everybody would benefit from it. But of course, that's that's not the case. There is that there is a cost of entry. And I think realistically, a lot of that is obviously driven by regulation and compliance. But, you know, I'd have to say probably a minimum cost of entry point is probably these days something out of 2 to $3000, which for most people where that's where they're starting out. It may not that just may not be achievable or it may not be economical. So we do have to be realistic. But sometimes, you know, that's generally the cost for a full financial plan, which is personal advice, very detailed, very comprehensive. But if that's not if we're not at that stage and we do have to be realistic, then everybody's at that point. Now we can still tackle it. And otherwise it could just be a general consultation where we're providing more generalised advice, charging you for the hour or 2 hours or what have you that might be, you know, three or four , five hundred bucks on what that. So it's still not nothing, but it's a much more palatable cost. But of course that's not giving you a detailed financial plan. That's more of a general sort of guidance pointing you in the right direction. These are the kind of, yeah, you're on the right track. We need to keep working on this. And in a few years time when we're kind of advice ready, we call it, you know, come and see me and we can start to tackle this. And part of being advice is also mentality. You've got to you've got to want to receive the advice. In fact, we are very much like a co-pilot. We're not in the driver's seat. You're in the driver's seat. So if you're thinking we're just going to take the wheel, that's not what we do. We advise you and give you counsel and guidance for you to be able to make informed decisions because it's your money at the end of the day.

Bryce: [00:08:10] So just to make it clear, the two or three grants that you're paying for a detailed financial plan, is that a one off? And then if I'm with you for ten years, the subsequent nine years, it's just the consultation fee.

Jacob: [00:08:22] It's good question, Bryce It depends. Some clients, it would just be that one off cost and they might not need an ongoing relationship. They might not be in a position to be able to afford that or it might just not be appropriate. Some people are pretty savvy with their money and sometimes just need help solving a specific problem, something that's a bit unusual. Maybe it's a tax issue or there's been some sort of life event, like a death or a divorce or a marriage or what have you, that they need advice around that moment, in which case they may know ongoing costs. From the financial advice perspective, you just pay for that as an issue from when you need it. Others will benefit, engage with sort of an ongoing retainer sort of service where they're paying an annual fee. I wouldn't necessarily be quite as high as their one off initial cost. It might be sort of 50, 60% of that, but they pay that ongoing and that's for sort of sort of more the ongoing relationship in the Council and keeping the plan on track, so to speak. So clients who want a bit more support along along the way, they may benefit from an ongoing review service clients who just need sort of ad hoc advice for specific specific things or they're more savvy, they might benefit from just paying for this guy. So we can kind of cater to any model. And I suppose a key difference with us, although more advice firms are doing this now, but 5 years ago was sort of groundbreaking is that we just charge a fixed fee to our client. So basically whatever we have to do, there's a lot of work involved. We're going to obviously charge you more. If it's really work, it'll be less, but we don't sort of charge percentage based on assets or things like that. It's not like you have to have a lot of money and then that's how your fees are paid or anything. We don't play that game. We just don't think that's the fairest or most transparent way to do it, because a very small percentage cost which most people don't appreciate can actually add up to be a very significant cost to that. Whereas we just think, look, the fair approach is it's going to take is X to get the job done. Obviously there's a profit margin for the business. We are for profit business at the end of the day. These are the course, we would have charged you to make that economical. But also, I believe that family puts our interest in line with the client. You know, we make our money from defence, we charge our clients for the services we provide them. So we want to do a good job at that, to retain our clients and making sure they're getting ahead and and seeing the progress they're making. Because of course, if they're not demonstrating value, what's the point? And I agree with, if not reading the value, what are we doing?

Alec: [00:10:34] So Jacob, Bryce very exciting life moment for him. Coming up, he and Harriet are looking at buying their first house and I'm sure that is a very common, I guess, client type that you say walk through your doors. So what do people get wrong when they're in Bryce's position looking to buy their first house? And how do you steer them? 

Jacob: [00:10:56] Yeah, look, I mean, probably the first thing I see a lot of is that what we're going to pay for the house, what our price range is, is driven by what the bank's going to like this. So, like, let's not forget the bank is in the core business of lending money. That is how they make money. And if there was no government regulation, I'd be given out lines left, right and centre. So often when you're getting knocked back by the bank or it is showing less than you thought, it's not because of them, it's because they have to apply certain prudent obligations to make sure they're lending responsibly. And that falls on the bank, not the borrower. But even then, you know, there's what the bank will lend, which in my view is perhaps somewhat irrelevant for what is actually affordable and right for you. So it doesn't mean we have to take it right to the limit. It doesn't mean we have to do nowhere near it. It just means it's a fact. But it shouldn't be driving the whole decision. We shouldn't just be going, well, the bank will ban this, so therefore we can buy a property for that. So that's our price range. No, we need to look at our budget and go, well, how does that affect our the goals and objectives? Because the more we borrow the more repayments are going to be and then of course the less resources we have for other things like investment portfolio or Super or whatever it is. 

Bryce: [00:12:03] I was talking about this last night, it's actually a massive surprise to me. I don't know if surprise is the right word, but it's it was alarming. 

Alec: [00:12:10] It's disappointing. 

Bryce: [00:12:11] It's disappointment. Yeah, because I think I found this out when we started the journey of getting pre-approval and those sorts of things, the way in which you delivered information on what your borrowing capacity is versus the way you're delivered information on, can you actually afford this is completely different and it's just it's bullshit. And I think like it leads to people seriously overleveraging them sometimes to the point where, like, you can understand why people are getting into trouble with this mortgage cliff at that point. But the conversation is not around. Let's start with your cash flow and figure out what you can afford to pay. It's let's start with multiplying your combined income by an arbitrary five times. And I'm telling you that that's how much you can borrow. It's like the difference between what you can borrow and what you can afford to pay is two completely different things. 

Jacob: [00:13:06] Yeah, and I'm not sure sort of how far in the process you are, but, you know, I'd say from my view it's an obviously done it myself as well. But it's it's quite transactional and you don't kind of get all the information to really make a proper decision. At the start. You drip fed little bits and pieces. It's buried in some massive contract. It's all very opaque. But the problem with that, I suppose at the end of the day, you know, the bank that's their business today, to sell loans and to have loans. That's how part of the way they make money. And even with using a mortgage broker, which I fully support, again, they're there to help broker that deal and get you a good deal. But what neither of those parties are doing that a financial planner can assist you with is more let's look at the strategy, what's actually the right amount of debt for us and do we want to be taking out a 30 year mortgage and taking 30 years to pay it off? Does that actually align with what? Because that's what it would be if we just go to the bank. But if we want to be debt free in 15 years or we want to start building stuff for our kids and our future kids or whatever, in ten years, we need to plan all that out. And that's where comprehensive personal advice is. Even if it's two or three grand to get it done, it should be seen as investment because we're not just planning for the next six months. We're potentially planning for the next five, ten, 30 years around long term savings in our super, you know, making sure we're going to buy a home, let off in time, be debt free, all these kind of goals and objectives. So I think having that holistic view and actually strategically planning it through before we do the deal is worth the time because for most people, for many of us, probably everybody on this call is that it's probably the biggest expense we're ever going to have the interest on that online. So spending, you know, a few months or a few hours to put the effort in and get it right can make a massive difference over a 20 year sort of line 

Alec: [00:14:49] What about once you actually buy the house like a lot of chat about buying your first home and maybe you're just not in that world yet, but what about the managing it ongoing you know a more offset account, surprise costs, all that stuff. What should Bryce be thinking about once he actually beholds this with his little paddle up at The auction and nail supply. 

Bryce: [00:15:13] What is it called? Drawdowns or withdraw? 

Alec: [00:15:15] I don't know. Asked Jacob. 

Jacob: [00:15:17] I mean, yeah. Okay. So a couple of things. I suppose. The first thing is buying and selling homes. Apart from the first time, even though that said, it's still a cost. It's expensive business, right? You've got conveyancing costs, you've got potentially agent costs, you've got the stamp duty being a massive one of the most people after they've probably exhausted the first time concession. So you don't want to be chopping and change at homes probably any more recently than any more frequently than say five years because there's a lot of costs involved in those transactions. So if you're not if your heart's not fully in it, you're not fully sold on that property, don't buy it. You know, don't rush into that massive decision unless you are fully sure that that you can see yourself living here for at least kind of five years minimum, in my view. Now, that might change. A lot happens and things might have to change. But if we're going to go into it with that idea, that's probably going to hold us in better stead than rushing in and just feeling the pressure of the option of putting in another bid. We don't want to be pushy. No big decision like that. Once we're in and once we've got the line all sorted and so on. Something I see. I suppose if you can get I guess just you know, frills, basic lines and they'll typically have the cheapest interest rate but they don't have any of those bells and whistles like the offset accounts and sometimes not even redraw and all the rest of it. For most people though, that's probably fine. I mean, offsets are a great tool, but if we're not really going to be using them, we're probably going to be paying a premium because often those additional features like offset account, the ability to redraw and so on, whilst sometimes they'll charge an annual fee for them, often it's more reflected in a slightly higher interest rate and it might only be ten basis points, 15 basis points. So the average joe. well it doesn't seem like much, but again, that sort of margin over a potentially a 30 year mortgage could literally be tens of thousands, if not hundreds of thousands of dollars over the life of the full loan. People really struggle wrapping that around just the exponential nature of compound interest. And when you're on the receiving end of that, when you when you borrow money, it can be a significant cost. So it's all well and good to have those offsets and so on. And they're good tool to help manage lines and so on. But we've got to be thinking ahead and going, we actually need this stuff. Are we really going to use it? Because we can always refinance down the track and get them right?

Bryce: [00:17:24] So what about superannuation, particularly for people our age? What's something that we we get wrong or a common misconception? 

Jacob: [00:17:31] Look, I think for a lot of people on on always quite surprised when particularly younger clients come in and they just have literally no idea. Zero. And now that's not their fault. Like to be fair to them, it's barely spoken about in school, if at all. I mean, a lot of people come out of state of high school and they they've got a tax plan, but they have no idea about taxes, they don't understand super, most of them, if they're going into uni, also don't understand HECs and so on or helped it and how that's going to work. I think it's just, oh, I can enrol in whatever and doesn't cost me anything, then all of these things obviously have a cost. So coming back to super, it just complete lack of understanding. It's a bit of a black hole. What money goes in. I don't even pay attention to it. But the thing is, as we know, it's long term investing. The sooner we do something about it, even if it's just minor improvements, very small improvements over that long term can be massive differences. So things. 

Bryce: [00:18:23] Such as what. 

Jacob: [00:18:24] You know, just being in a bad fund, you know, I've just been in the fund that my employer put me in for the last ten years, never looked at it. I mean, half of the time we can immediately get a better or improve result for the client and lower fees and better returns by just moving to what I would say is a fairly average or standard fund. But they're just in some crappy old fund that some employers set up and it just may have thought about it. But you ask them, you know, you had 10,000, 20, 50,000 in a bank account, you be paid attention to it. You've probably got that amount, if not more, and you super fund and you don't even look at it. 

Bryce: [00:18:56] What's one of your favourite super funds? 

Jacob: [00:18:59] I won't get that specific. But I mean they've got a Lot of good ones. There's a lot of good ones out there and you'd know the more you would have seen them, you would have heard of them, you would know them. But that said there's also a lot it dots. 

Alec: [00:19:11] Yeah, what are some dots. 

Jacob: [00:19:11] Well. 

Alec: [00:19:12] Name and show. 

Jacob: [00:19:13] More recently to got well the government's done this they're now making the mandatory 40 minutes you're reporting on their returns and things and the low performing funds have to identify themselves to the client i.e. the member send them a letter saying that the identified as a crap fund. The member's probably going to take that. No, I need to do something about this. And that was in response to the Government recognising that members were fairly apathetic about it. But if the fund had to tell them you are in a bad fund by the government's own fairly, generous definition, they're probably more likely to get out of that fund. And we're seeing a lot of fund consolidation, which I don't mind. So I don't want, you know, we don't want an industry where it's just two or three massive funds, but, you know, ten or 15, that's fine. The 50 or 60 we've got, it's too many. And as you guys would know, a lot of these big funds, they take really big positions in big projects for long time periods. They need scale. And if you don't have scale, if you're a tiny little fund with a few hundred million, it's not enough to effectively manage that money. Whereas a fund with billions of dollars, with solid inflows and all the rest of it, you can get access to investment options in things that those other small funds can't, and your members will be rewarded for that. So there is definitely a shared benefit for everybody in the fund to be in a larger fund, generally speaking. 

Alec: [00:20:29] Well, Jacob, we've got a little bit of a game, this or that. And then on the other side of the break, we want to get to some questions from the community, including one around paying off your HECs and should you be paying it off faster, which I know is front of mind for a lot of people with indexation at the moment. But let's get to this game called this or that quick fire. We're going to give you two options. You choose which one you prefer. Okay. Give us a quick reason why or don't, up to you. 

Jacob: [00:20:59] All right. 

Alec: [00:21:02] All right. All right. So we'll start with what is obviously a big question for a lot of young people who are thinking about the money they saved and how they want to deploy it. Property or shares. 

Jacob: [00:21:14] For investment purposes. Yeah. 

Alec: [00:21:15] Shares, well, not certainly not for living purposes because shares are terrible accommodation for. 

Jacob: [00:21:21] Yeah, that's definitely shares, 100%. Shares. 

Alec: [00:21:24] Oh really. Okay. That was more strident than I expected. Why? 

Jacob: [00:21:28] Well, in my mind, I'm thinking investment property is the alternative. There are a lot of reasons. One that common perception properties always go up. Obviously they do not to where obviously I would normally over leverage because just of the nature of the property value you have to borrow so much to get it. And it's just no diversification. You know, it's one property in one city, in one suburb, on one street. And if one little thing changes, that's totally out of our control. That could be the end game. You know, government wants to build a nuclear power plant or something like that. That could be the end of that property value. So I don't like them for that reason. Whereas shares and not specifically direct shares, but equities perhaps is a better word, highly diversified, easily low cost, easily managed. I don't have to think about it. No issues with tenants leaving and just high diversification, instant gratification over thousands of potentially thousands of companies and bite sized stocks.

Bryce: [00:22:20] I don't think I've met anyone who loves a Vanguard product more than Jacob. All right. Next one this. This or that. Payoff debt or invest the money.

Jacob: [00:22:38] Depends what kind of debt is. If it's consumption data, it's we're talking credit cards and personal lines. Definitely debt. If it's investment debt, then go the other way. Invest potentially borrow more. 

Alec: [00:22:47] Nice. It's all right. Invest in super or outside of super. 

Jacob: [00:22:54] Depends on your timeframe, I suppose

Bryce: [00:22:56] Okay let's say let's say our age at our age. 

Jacob: [00:23:00] Again depends on your time plan and if it's a long term investment, if the investment term aligns with the super access term, i.e. I'm not going to need it until I'm at least 60 and 100% super, you will not get a better tax deal in this country. Nothing you can't and could construct in the Cayman Islands outinnovate superannuation. But of course we can't get that money back. So if access and liquidity is more important outside of super, then we just pay more tax on it. But if we know that we're not going to need that for 30 years or 20 years or ten years or whatever, 100% super. 

Alec: [00:23:31] On that point. So right now you can start to access your super when you're 60 and then like the full preservation age or access age or whatever, 65 years. Correct me if I'm wrong, but like that that's going up over time. And when you're advising clients who are in their twenties and thirties like that, no one thinks it's going to stay there, or at least I certainly don't. What do you guys ?like? What would you tell someone who is sort of 30 and, you know, you're saying now if you don't access it until you're 60, but like what will that be when? Where?

Jacob: [00:24:06] Yeah, good questions. At the moment for simplicity, it's basically 60 at the earliest. If you've retired or 65, doesn't matter if you still working or not. But already the age pension age is pretty much 67. It's currently is still in its transition window, but it will be 67 very soon. So I think it's a bit of a no brainer that that 65 will very soon in time become 67. Is it typically used to max the 65? So the age pension one's going out but the super one hasn't. So I think they'll just notch that to 67 by the time we get to that age. And I was a betting man on site, it's a very good chance to be more like 70. Yeah, because of course we're working longer and all the rest of it. So and of course the government's only giving you all these massive tax breaks because they're trying to incentivise you to save for retirement. Hence why they're so restrictive on the rules that if we're going to give you all these tax deals, you ain't getting that money back until retire or until they do something silly with money, ask nothing. But you might say that again. I'm not with the pandemic. But anyhow. 

Bryce: [00:25:08] I'm Jacob. Final one, Bombers or Swans.

Jacob: [00:25:12] Is there a third option? If I had to. If I had to pick one, I'm going to say Swans just because I'm New South Wales. And also I'll pick any non Victorian club.

Bryce: [00:25:23] Oh, you live in the ACT. 

Alec: [00:25:28] Jump On the bandwagon, Jacob. Yeah, Jacob lives in ACT but supports Brisbane.

Jacob: [00:25:35] I'm going to say on Saturday you're playing here against 

Bryce: [00:25:38] Oh, nice. after the break, we've got a couple of questions from the Equity Mates community, as Rent has alluded to a lot of them around HECs and how to invest sort of $10,000 just to get your thoughts. So we're going to get stuck into that straight after this break. All right. So we encourage the Equity Mates community to send in questions as part of the as part of the Ask an Advisor series. As as we said at the top, advice is expensive. We're bringing the advisers straight to the community. So to to kick it off. First question, how would you think about investing a just a $10,000 chunk of money? 

Jacob: [00:26:12] Okay. And of course, everything I'm discussing is totally general. So it's not personal advice any way, shape or form. Probably a bit more information than that, but just draft up my hand. If it was just 10,000 for something longer term and I didn't want to be actively involved in it at all, I would be going through it based probably depending on the investment term. Likely higher growth index fund, generally through an ETF would be the simplest way to access it. 

Bryce: [00:26:38] And I guess the follow up to that would be, all at once? Or how would you advise? 

Alec: [00:26:43] Yeah, like lump sum 

Jacob: [00:26:46] I mean, sometimes we talk about dollar cost averaging. I think the I think the jury's out on that, to be honest. If we look at the actual data as to whether that successful or not, if I had a lump sum, if markets were particularly volatile at the time, maybe I'd break it down a little bit. In that example, I'd be more inclined to get the 10,000 investors straight away, and then I'd be sticking to some sort of, if we can, regular investment being made a hundred bucks a month or whatever to keep that going. That's your on going dollar cost averaging. 

Alec: [00:27:12] So Jacob, one that we've alluded to before, and it's certainly top of mind for a lot of people, it's actually really front of mind and it kind of pisses me off a lot because somehow Bryce manage to pay as HECs before me and I still have hexed it. And so when I look at our zero, he's actually taking home more pay than maybe even though we have the same salary. So I guess the question for me, you know, indexation, I'm not sure what it got indexed out, but because inflation is high, everyone's hexed it rose a fair bit or more than it has over the previous few years. Is that a reason to pay our HECs debt off faster or what's the strategy and the thinking around HECs? 

Jacob: [00:28:01] In my view, no, not at all. I might have a bit of a wry view on this perhaps, but the indexation doesn't bother me at all. I don't think there's, in my view, unless you've got money coming out of your ears, there is no benefit in repaying that loan, say to any of this new but other commitments that should come first. They should all take priority over the HECs. There is no interest, right? It's an interest free loan from the government. So I can't do better than that. And we get hung up on this indexation. But as perhaps you guys will understand, and I'm sure many of your listeners would, that it's nothing if inflation is 2% in my loans being indexed at 2%, it's exactly the same. So I put that another way. If my investment is returning 6% but inflation is at three. Investment is only returning three. So we work that out is what we call the real cost. So you take off the indexation away from it. So the other benefit with Hex of course is there's no mandatory repayments other than your income tax, your hard times and you've lost your job and whatever those extra repayments will stop, they're not going to come out and they only get higher and higher as your income gets higher, which I guess when you think about it from a more kind of way, way off field here, but from a bigger societal view, these loans are extended to help people get education, to get jobs and become productive. Members of society can contribute, and only if they're generating that income will they be asked to repay the loan. I think that's fair enough. I mean, ideally, one could argue it should be free as a total investment better system, because if you said, alright, well let's sack HECs, if they're still going to be loans, it'll go totally private and we'll be ending up in a US type scenario where you're dealing with a commercial lender you're making, it's whether you've got income or not and you're paying an actual interest rate on that loan, which will be higher than the true cost of money by inflation. Now people are getting hung up because inflation's obviously going to be quite high recently. So the indexation is going to be a lot higher than normal, but that's not going to happen all the time. You know, you look back at what it was and one could make the argument that, sure, it's going to go up quite a bit. Now they go back to Covid times. They probably didn't buy much at all, if any, because inflation was nothing. We're in slight deflation for a bit there. So, I mean, it goes both ways. But no, I don't think unless that's the only thing left, only debt left. And we've covered everything else. That's only when I'm looking at making extra tax repayments. 

Alec: [00:30:19] The I assume the one exception would be if the money that you would take to pay off your debt you just blowing on nights out and stuff like that. 

Jacob: [00:30:29] Yeah No that's totally different. 

Alec: [00:30:31] Yeah. The assumption, the assumption is that money is going to pay down other debt or being invested. 

Jacob: [00:30:36] Correct. Exactly. Right. Right, exactly right. Yeah. 

Alec: [00:30:39] As well. Then I should probably stop going out and nights out and pay off my HECs debt. 

Jacob: [00:30:44] Oh, how about this? Equity Mates just say nothing and then you won't have to make any extra payments. 

Alec: [00:30:49] Don't you Bryce any ideas? 

Bryce: [00:30:51] I would just reduce the salary. Hold on. 

Alec: [00:30:56] This is why you need a financial adviser. 

Bryce: [00:30:59] All right, Jacob. So we've got the final one that's come in from the community. What are some of the consistent strategies that you see some of your longer term wealthier clients put in place? 

Jacob: [00:31:10] Look, the Things that I'd say lock out, the clients who are doing well, who are doing the best sort of outcomes are ones who do who get the the simple stuff right. Get the basics right. They've got a budget and they're not they're not big spenders. They're not they're not out there just wasting money. They know money has a value. They've worked hard for their money, so they're smart with it and they consciously choose to sort of figure go things today to put money aside for the future. That's the thing. If you can't do that, there's very little we can do. But once you get to that point, once you've got those good savings habits and you sign, go keep building up the savings. Now what can I do? That's the next part. They're always looking to do something else. They don't just rest on their laurels and go, Oh, we'll just pay off the mortgage, put it onto the mortgage, nice and simple. Maybe that's the best thing. Maybe it's not. But they're open to going well. Should we consider investing? Should we considered maybe even borrowing more money, which sometimes sounds counterintuitive. Should we consider doing a bit extra into super or perhaps some combination of all of the above so they never just sit back and go happy with that? They are always looking for the next sort of strategy, a way to keep improving their position over time. And then probably lastly, they're really stick. I know it ain't going to happen in a year or two years or honestly, even five. It's going to take ten, 20, 30 years. But they had faith in the plan and the strategy, and if they stick to this, they just can rest easy and know that once I get to retirement or whatever the goal is, if I stick to this plan, it's going to get me to where I need to go. So they don't have to sweat the small stuff. 

Alec: [00:32:34] One thing you mentioned there, Jacob, at the start of that answer was they have a budget. I'm interested to know how you think about budgets, how you advise your clients on budgets. Do you have like a preferred method that you try and get all of your clients to do? Or what if someone comes in and they just have no grasp on their spending and stuff like that? What's Yeah. How do you approach it? 

Jacob: [00:32:55] Yeah, good question. Do we have a sort of way that we do it? No. And I think the issue with that is when you try and force a set way on people, they're not going to stick to it, they're not going to follow it, and the whole thing doesn't enjoy it anyway. So what was the point? You've got to find the way that works for them. And for some clients. That's the, you know, getting out the Excel spreadsheet that really detailed. They're tracking everything down to the cents and to be honest, I'm one of those kind of people that's me, that's what works for me, right? Whereas others, they kind of do the complete opposite and they just work it back. They go, okay, well, we hear them say, pay yourself first. So it's like, Well, we put you on a budget. He's your 200 bucks a week or whatever it is, spend that on whatever you want. I don't care. Knock yourself out. But that's all you're getting. Because all this other stuff, you know, that's our mortgage, that's our side, that's our regular savings plan. That's a bit of extra salary sacrifice for super or whatever. So you make them kind of just work around the fixed points, if that makes sense. Whereas if you try and get those kind of clients to create them, it doesn't really happen because any extra cash just gets spent. But if you sort of come back and get Rodney, it's like you got a pay cut. He's going to live with this. They can start to find a way forward. So you've got to be flexible and you've got to just be able to learn your client and understand them and ask them how they manage money and all this sort of stuff and then make a view on what do I think is probably the best way to get them to do it. And that might change over time. But at the end of the day, you've got to have some sort of system, something I believe in. I mean, technology so good these days, a lot of the time you can get it's built into your bank app and so on. So it's tracking your expenditure on that. 

Alec: [00:34:29] So don't get me started on CommBank spend tracking. 

Jacob: [00:34:38] Not that one in particular. There's something else as a bare minimum At least that is something. 

Bryce: [00:34:42] Final question was is there a moment or a strategy that you look back on and you're like, Wow, that was amazing. Or That really surprised me. 

Jacob: [00:34:53] Yeah, it's probably been a few of those. I'm trying to think of like, what would be a good one? I mean, like I'm in Canberra, so we've had a lot of clients who have been sort of related to the public service and had some of those old superannuation schemes that are not available anymore. I've been pretty surprised sometimes with the outcome of those in terms of how simple changes to effectively a formula can result in a huge difference in someone's retirement benefit. They've been particularly surprising, but others I think are probably just the changing clients. Like I've definitely had some clients by at the start thinking, I don't know if I can get these guys across the line. I know where they want to go, but I just don't think they're going to be able to get with the program. And then, you know, a couple of years go by and then three or four years go by and you actually change where they're starting to get it now. So some clients get it straight away, others take a few years. But when you start to see those kind of people saying back to you the sort of values and ideas you've been telling them the whole time, and it's almost a bit like by in the later stages, they're you know, you say they might remember all we do. Nacional explained back to you exactly why I'm doing that, because we got the tax deduction next wanted. It feels quite fulfilling that you guys are getting it now because that's you know, when not there is do it for you. We're here to help you understand and empower you even five years. You know as much about it as I do. My job is done.

Bryce: [00:36:14] Love it. Well, Jacob, for anyone listening from the Equity Mates community wants to touch base with you and perhaps use your services, what's the best place for them to go? 

Jacob: [00:36:22] Yeah. Thanks, Bryce. Probably the easiest place would just be our website, which I just google back to back. Financial planning is on the websites. Just backtobackfp.com.au. You'll see on there bit of information about us everything you need to know our bios and so on that Bryce spread out earlier and if you'd like to get in touch, obviously our contact details are out there. You can just drop an enquiry at the website and we can take it from there.

Alec: [00:36:41] And to my eternal disappointment, there is no photo of Jacob on the website back to back with another adviser, but I will be lobbying for that branding arm. 

Jacob: [00:36:53] I've got to say Saatchi Fido exists 

Bryce: [00:36:59] Ok now Jacob, each year we run the Equity Mates Media Awards and one of the awards is Expert of the year and you are automatically in the running by appearing on the show as part of our expert interviews. Now it's it's voted for by the community at the end of the year. But to help them understand a little bit more about you, we would love to know if you were to win the glass trophy, beautiful glass trophy, where would you be putting it? 

Jacob: [00:37:30] Probably have to put another show up or something in here. 

Bryce: [00:37:33] To go with all your other awards. 

Jacob: [00:37:35] Back there so it's visible. Any time I'm doing a video call. 

Bryce: [00:37:38] Perfect. Right under the certification. It's lovely, Jacob. Thank you so much for your time. Pleasure. I really appreciate taking it. And I know that, you know, the community would have got a lot out of that. We covered a lot of ground. Make sure you check out the website if you would like to know more about the services Jacob and his organisation provide. But yeah, we really appreciate it. Thank you very much.

Jacob: [00:38:00] No worries, Bryce, Ren. Thank you guys so much. Pleasure to be here. 

Bryce: [00:38:02] And just a reminder, if you can please rate and review leave five stars. That would be really appreciated. It's a tiny thing that you can do for us, but it does have a huge impact. Coming up this week, we have the IG Psychology of Money series closing out with the third episode tomorrow, but Alec will be doing the second episode with his mentor, Andrew Page, on Monday, and we're off to the US.