Saving and investing during a cost of living crisis | Summer Series

Bryce: [00:00:29] Welcome back. To Get Started Investing this summer, we're taking a journey to financial freedom supported by CommSec, the home of investing. Over six episodes, we'll be talking about the practical steps that you can take today to set yourself up for that ultimate goal: Fire, Financial independence, Retiring early. So if you're enjoying your summer break or dreading heading back to work. Join us as we take the steps today to ensure that we can build the life we want into the future. My name is Bryce and as always, I'm joined by my equity buddy, Wren. How are you? 

Alec: [00:00:57] I'm very good, Bryce. Very excited for step three of our six step journey to financial independence. We're talking about fire, financial independence and retire early. But it's a divisive conversation, especially the retire early part. So let's focus on the financial independence part. Let's focus on giving ourselves choice. And then if you want to retire, that's a choice you can make.

Bryce: [00:01:20] Yes, that's right, Ren. And having the support on your journey is important, which is why we're really proud to partner with CommSec for this series. Investing and Building Wealth is a lifelong journey, as we're discussing in this series. Keep up to date with what impacts your investments through Complex Investing Hub. You can get to grips with the basics of investing, learn about different global markets, or find information and research on stocks and ETFs. Get $0 brokerage for your first ten trades for the Australian markets. When you sign up, visit CommSec.com.au for more CommSec T&Cs and other fees and charges apply now. 

Alec: [00:01:54] Nice one. Well now, while we are licensed, we're not aware of your personal financial circumstances. Any information on this show is for education and entertainment purposes only. Any advice is. [00:02:03][8.6]

Bryce: [00:02:03] General. Now what are we focusing on in today's episode? 

Alec: [00:02:06] Alright, well, in this third episode we're focusing on those baby steps that you can take to build wealth in a cost of living crisis. By the end of this episode, you'll know why it's okay to take it slow. You'll know which platforms let you start investing with just a few dollars. Have an idea of where you can generate some extra cash to invest. And we've got three actions that you can take into the year ahead. But as we've been doing in all of these episodes, it's important to remind ourselves that whilst it sometimes can feel lonely, we are not on this journey alone. There are thousands of people listening to this podcast trying to take those steps to build wealth and achieve financial freedom. 

EM Community: [00:02:46] Hey, equity mate. Well, I've got to say a big one for me and my partner in food because we love eating and we love eating delicious things. And so if we're feeling like we need to save, then that would be the first thing that we consider. And what it looks like is really just trying to cook, cook at home rather than eating out, which is a bit of a hard one. And we don't always get it, but that's what we try to do. 

EM Community: [00:03:09] So pay equity mates. So when I'm needing to rein in my spending, I do what most people probably do and cut discretionary things to maybe make a decision not to go out or eat at home or to not do something for myself. 

EM Community: [00:03:27] Hey, if really I'm a mad coffee drinker, so make sure I drink all my coffee at home. Likewise, if there's chances to meet people or meet up with people to make it so we gather at people's houses rather than making out the mark-ups at restaurants and bars going insane on alcohol. So not in limited areas, you know, seeing people, but limiting or controlling where we do see people. 

Alec: [00:03:49] All right. So, Bryce, this episode is all about baby steps. And I think the key thing that we want to leave this episode with is reminding ourselves why baby steps are still worthwhile steps. 

Bryce: [00:04:03] Keeping the habits, keeping that momentum, the psychological impact that it will have is super important. 

Alec: [00:04:12] So let's start with I guess, are both financial and psychological reasons and you kind of touched on some of them there, but why are these baby steps worthwhile steps? So let's start with the financial reasons. Why should we be feeling okay, even if it's small steps in a moment with times are tight? Why are they still worthwhile steps? 

Bryce: [00:04:33] So I think no doubt times are tougher and you're feeling it. I'm feeling it. But time in the market is our superpower. It is our only superpower and continuing in some small form when times are tough, taking those baby steps, pulling back where you need to, but consistently putting in any amount of money as often as you can is what really drives those long term returns. It's why we do a $100 challenge. To show that you can make a serious amount of money over 40 years by putting $100 in a month. Small actions today can really compound into meaningful returns over a long period of time. So keeping those baby steps going. Whilst it may feel difficult and it may be unachievable for what we were investing 12 months ago, pulling back to it to a level that is achievable is super important for the value of having time in the market. 

Alec: [00:05:34] Yes. So I've done a work. I've got a worked example here to give you an idea. So of just the compounding effect of time. So let's say you had 20 bucks a month to invest and you did that each month for 50 years. If you got a 10% return on that money. That's sort of the long term average of the stock market. You've got about $350,000. So 20 bucks a month, let's say you invested that same amount over half the time. So you did 40 bucks a month for 25 years. Same return over the 50 years, you got $350,000. Over the 25 years, you've got 50,000 like this. You've invested the same amount either way. You've done $40 a month, 12 months in a year, 25 years, 12 grand. So you've invested the same amount of money, but extending your time horizon just makes such a difference. So you can invest small amounts and let it compound away. That's why baby steps are worthwhile, because you don't need to start with a lot of money. You just need to start. 

Bryce: [00:06:41] Yes. Now, that's the financial part of why baby steps are important. But there's also a psychological element to why it's okay to start with baby steps. 

Alec: [00:06:53] Well, I think it's not just okay, it's great to start with baby steps, because building the mindset and the financial habits, even when you don't have a lot of money, as you start earning more, you have the mindset and the habits that will hold you in good step. 

Bryce: [00:07:10] Yeah, yeah. Regardless of how big the steps are getting that habit, I think it's just so, it's so crucially important because you're going to always feel like you have momentum regardless if it's a dollar a week, a dollar a month, $10, $100, whatever you can afford, getting into that habit and feeling like you're in the market and contributing towards that just gives you that positive mindset of at least I'm doing something. Yeah, and at least I have some sort of positive momentum and, and if you, if, if you need to tighten up and change it from $100 a month to ten bucks a month, that is perfectly okay and understandable. But it's just changing the steps that you are taking to what is suitable for your time, but trying to keep the habits you formed as long as possible.

Alec: [00:07:58] So I think when I think back to the way that I started investing, like I wish I had started with baby steps, like what I did was I saved up a chunk of money because I feel like I felt like I needed a certain amount of money before I could get started. And then I invested that in one stock and lost all of that money. Whereas what I wish I had done is rather than saving and saving and saving and eventually feeling like, okay, I've got enough money to get started, I wish I had just started with a few dollars here, a few dollars there. Now, granted, when we started, there weren't as many platforms available as there are today, so it was harder to get started with small amounts of money. But I wish that I'd been able to do that. And I also wish rather than buying an individual stock, I had just bought a market tracking index ETF. 

Bryce: [00:08:52] And I mean I'm not too dissimilar. My parents set me up that way and encouraged and I fast moves to buying individual stocks and and I think you got to do that you got to learn and experience it for yourself. But I just think to myself, imagine if we had the set up that we have now with the automated from paycheque through to investment in a dollar amounts that, you know, are far less than the 500, if we'd been doing that even five years ago, what difference that would have made. And I just I just think to myself, anyone starting their investing journey now, you're in an incredibly lucky position where, you know, through platforms like CommBank, you can automate investments and get in for low dollar amounts and just start plugging away. 

Alec: [00:09:38] So we'll put it this way if we live together in a share house in 2015 down in Canberra. If rather than investing in individual stocks and thinking we knew more than we did, we had just taken our money and invested it in a S&P 500 index ETF, just tracking the 500 biggest US stocks. Every dollar we put away, no matter how small, would have more than doubled in that time. And that's before any dividends we would have been paid. 

Bryce: [00:10:06] That's that's not even then taking into account the the value of that that five years in 20 years time.

Alec: [00:10:12] I know. 

Bryce: [00:10:13] The compound of that five years far out. 

Alec: [00:10:16] So if we think about that in the context of today, that was, what, eight years ago now? And that feels like a long time. Certainly feels like we've grown up a lot in that time. I've suddenly lost a lot of hair in that time. But it's really not that long. It is. I mean, if you think about where we're going to be in eight years and if, you know, wherever wherever you're listening to this, where you want to be or where you're going to be in eight years. Like just the baby steps that you take today, you're yourself eight years down the line will thank you. 

Bryce: [00:10:49] Big time. Big time. So again, before we move on to platforms that you can use to take baby steps, I just really want to hit on building wealth when your cashflow is squeezed and recognise that in times like this, your cash flow is going to be squeezed. I'm feeling it. You're feeling it, Everyone is feeling it. And so it's about focusing on your priorities. And that might just mean servicing your loan and maintaining your emergency fund. It might be pulling back on what you're investing 12 months ago to still investing, but at a level that is completely comfortable like that. There is no wrong. It's not wrong to feel like you need to pull back on some of the ways that you've been building wealth. Like that is perfectly okay and normal in a scenario like this. And there will be a point in time where hopefully things change and you can get back to where you are. But the point is that don't feel like us saying, you know, invest, invest, invest. Means that you have to be doing it. Recognise the times that we're in and adjust accordingly. 

Alec: [00:11:59] Yeah. And like last year, 2023, you know, I was trying to save for a house deposit and I'll rent got increased and the natural place, the natural I guess not fat, but like the place that could give in my budget was what I was investing. And so, you know, that rent increase came out of my investing amount so I could then keep trying to save for a house deposit as well as pay for that rent increase. It's normal. Like it's only going to happen more and more in our lives. You know, like you had a wedding a couple of years ago. I'm sure that your investing took a backseat as you were thinking about how am I going to pay for this wedding? Um, kids is certainly going to take a chunk out of our investing amount. And that's like that. That's normal. Like, and I don't think, you know, this is a particularly acute moment because of the cost of living crisis, but just life, the costs in life will be volatile. And so I think the main thing is not to anchor. So like I need to invest this much, otherwise I'm failing. It's just whatever situation you find yourself in. What are the baby steps I can take in this situation? 

Bryce: [00:13:16] How can I keep the habit? Now, when we're talking about taking baby steps, it's important to think about the best platforms to do so. There is no reason to go it alone on your investing journey, and CommSec offers the support and information to build your confidence and make the right money moves, start small and invest with as little as $50 through the CommBank app. Visit ComBank.com.au For more CommSec T&Cs and other fees and charges apply. 

EM Community: [00:13:49] Hey, I could be mates. So when I'm a little strapped for cash, the baby steps that I fall back on. Instead of kind of not going to social events, I would eat my dinner at home and then I'll go out and just have like one or two drinks, because I find that for me the most expensive thing is the dinner. So that's just like a little step that I can take to make sure that I'm able to still do all the social things I want to do, but not kind of overspend, especially if I'm feeling a bit pinched for cash. 

EM Community: [00:14:22] Hey, Equity mates, were the first things that I do. Not buying coffees out because buying coffees is really expensive and it really adds up. So I will, you know, try to try to go without during the day or just, you know, like I'll bring bring an aeropress or something if I'm in an office situation or just like have tea that's provided and, you know, trying not to buy lunch, just trying to get more organised to, to prepare food at home and, and bring that in, I suppose. 

Alec: [00:14:51] All right. Welcome back to the Get Started Investing Summer Series. We are on to episode three, our third of six steps, and this is all about the baby steps that you can take to get started. Even in a cost of living crisis. 2023 was a tough year. Interest rates going up, food prices going up, fuel prices going up. It can be really hard to know where to start and it can really be challenging to feel like you're doing enough. But I think what we really want to stress is like even those small steps, those steps that you might not feel are worth it. Those steps compound over time and steps that you may feel weren't worth it, suddenly feel very worth it in years to come. 

Bryce: [00:15:38] Yes, absolutely. So Ren, it makes you think there's opportunities out there that, you know, for us to save a bit, save a bit of extra money so we can try and keep investing, generate a little bit of extra money so we can keep some money in the markets. Are there any tools or resources that you've come across that you think are worthwhile to to save or invest a little bit? 

Alec: [00:15:59] Yeah. Well, I think the $100 challenge that we did throughout 2023 and we'll be doing again this year where we try and either earn or save $100 a month to free that money up to invest in the market. Like that is a whole series about the baby steps that we can be taking. Now, you then decided to do a Dropshipping business, and I'm not going to ask you how many sunglasses you've sold because we'll save that for the first hundred dollar Challenge episode of 2024. But that's not a baby step. But it's still a step. And, you know, starting a side hustle we're going to be talking about in a little a little bit later on. But I think throughout the course of the year, we've heard some really great suggestions on ways that you can save or earn a little bit of extra money. A few that come to mind for me, I was just going to the library rather than buying books. Obvious but underappreciated step. Someone rents their car park. They have a car park for their apartment building that they don't use. There are platforms that you can rent out to people that are looking to park in your area. Someone else rents their dresses. You know, they have dresses from weddings that they're not wearing regularly, so they rent them out. And I think she makes about 600 bucks a month. Renting her dresses like that is great. That's more than a baby step. That's like a toddler step. No, that's like it. Anyway, you get what you. There are a few that really come to mind for me on the saving side of it. What about any that stand out for you? 

Bryce: [00:17:31] So I'm a big techie guy, as you know. 

Alec: [00:17:34] Tequila. 

Bryce: [00:17:35] Do you love a bit of tequila as well? I think I spoke about this last $100 challenge, but I'm absolutely loving it at the moment. It's the eight club app.

Alec: [00:17:43] Oh, yeah, Yeah. 

Bryce: [00:17:43] Where you can find local restaurants and takeaway venues around you. And through the app you can get 30 to 60% off dine in or takeaway. If you're going to be buying from anywhere, you may as well jump on and use that. So I think that's an awesome resource. What else has sprung to mind there? There are plenty of apps that you can use for, I guess, discounts more generally for shopping. Oz Bargain is a great one.. And don't forget the Woolworths or Flybuys as well. We spoke on the show. Woolworths offers pretty significant discounts now to rewards members on particular items in the supermarket. 

Alec: [00:18:21] Now one that I haven't spent a lot of time on, I'm not a big online shopper, but for those that are big online shoppers, the cashback, there's a whole lot of platforms out there where, you know, they get, you know, X percentage from a retailer because they send the traffic that way and then they split that with you. You know, the Woolworths might give them 20% of a customer's order and then they give 10% back to the customer in cash. Yeah. So that's a good one to free up a bit of extra cash. And then for me, like some of the things that I really focussed on in 2023 were just getting the basics right so that all of the money saving clichés that I was kind of on again, off again doing, I really focussed on doing so, making coffees at work and at home rather than buying coffees. Last weekend I got charged 5.30 for a small long block from a cafe, which just shook me anyway. So that's one. And then also not eating out for lunch, I'm just making leftovers, bringing them to work, just those basic habits. One other one that I've been doing for health but has been a good money saving hack is intermittent fasting. Only eating in an eight hour window stops you spending money on food the other 6 to 8 hours straight through. So there are a few. There are a few ones that I've been focusing on. 

Bryce: [00:19:51] So let's close with three actions for 2024 to help you continue with baby steps on your journey to financial freedom. For me it starts with maintaining your habits where possible, but being realistic, keep putting money in the market where you can, even if it's a dollar a month. The psychological impact of you feeling like you're maintaining momentum and crucially, maintaining the habit we've spoken about the impact that that is going to have when time is your superpower. So maintain habits. I think, secondly, get the right apps to suit your investing. So small dollar amounts, low brokerage, well-diversified ETFs, look for the right apps. And then finally Ren, I think don't stress about it. I think you know, it is easy to and and rightly so, to feel the squeeze when it comes to cost of living at the moment but know that it's okay and that's just maintaining those habits is the important thing.

Alec: [00:20:48] So I think to close it out, let's just want to finish with one more worked example and just another reminder that even steps that you think might be too small to be significant really do add up over time. So I've got the money smart compound interest calculator here. Let's say you did ten bucks a week for 30 years. That's 100 grand at a 10% rate of return. You know, you've over 30 years, you've invested about $15,000, ten bucks a week over 30 years, but you've got 100 grand. Like it's really meaningful. Let's say you flipped it and you invested the same amount, but in a shorter time period, you did 30 bucks a week over ten years. So rather than ten bucks a week over 30 flipped around, you've invested the same amount, but you have 25 or you have 26 grand. So rather than having 100 you've got 26.

Bryce: [00:21:48] Serious. 

Alec: [00:21:48] Difference, it's just like the tiny steps that you take today over time compound. Have we made that point clear enough? 

Bryce: [00:21:57] I think so. 

Alec: [00:22:00] Alright, Bryce. We are officially halfway through our journey. We have just finished step three and as we continue on this journey, we want to say thank you to CommSec for supporting the series. Hopefully together we can show a path to how you can tap into the world of investing to build wealth over the long term. CommSec provides all the support, information and resources you need to build your confidence and make the right money moves. Sign up today to get $0 brokerage on your first ten trades for Aussie markets and invest with as little as $50 through the Conduct app. Visit CommBank.com.au for more CommSec T&Cs and other fees and charges apply. 

Bryce: [00:22:35] Now next episode we're talking about the millionaire next door.