Saving to Invest

Bryce: [00:00:32] Welcome to get started, investing a series of lessons to help you on your investing journey. This is for anyone who wants to start investing but isn't really sure where to start. Our aim is to make the markets accessible for you. My name is Bryce. And as always, I'm joined by my equity buddy Ren. How's it going, Ro? [00:00:50][18.0]

Alec: [00:00:50] It's very good, Bryce. We've made it to episode two, which I am very happy about. Yes. Yes, we have. [00:00:56][6.3]

Bryce: [00:00:57] And what an episode we have installed today. Last episode we spoke in part about some people using the excuse of not having enough money as a means or a barrier to investing. So that is why this episode Ren is all about to some of the tips and tricks we use to save, to invest and ways to manage your money so that you can ensure that you can start investing as early as possible without leading that frugal baked beans and white bread line. [00:01:25][28.4]

Alec: [00:01:26] I was going to I was going to bring that up. You are. You had a crack at people who were just trying to live their best life and not be working until the retirement age. [00:01:35][9.2]

Alec: [00:01:35] Yes, but in saying that, even though you don't support their movement, you do do support some of their practices. [00:01:40][4.8]

Bryce: [00:01:41] Absolutely. But look, I am certainly not one to put everything into investing. I still like to enjoy life. So I think we'll touch on a few ways that anyone can do that. [00:01:53][12.8]

Alec: [00:01:54] You have a few money, money chewing up vices such as? [00:02:00][6.3]

Bryce: [00:02:00] No. Anyway, so Ren, by the end of this episode, we will have touched on the rule of threes. [00:02:05][4.5]

Bryce: [00:02:06] How much money you need to get started investing, which we're often asked. And also a few top money saving tips that we employ in our life to help us be able to invest as well as enjoy life without baked beans and rice. [00:02:20][14.7]

Alec: [00:02:21] Unless we choose to have bake then. Yes. So do I. Kick us off. You're the saving expert of the two of us. [00:02:28][7.2]

Bryce: [00:02:29] I don't think that's true. I think you're pretty good. [00:02:35][5.8]

Bryce: [00:02:38] No, I mean, you make it out as if you don't save. But that's not the case at all. You're very good. [00:02:42][4.0]

Alec: [00:02:42] Yeah. Yeah. I'm more just sort of, you know, fast and loose. So it's just sort of happens. I feel like you would have more of a system. I do have a system. [00:02:50][8.3]

Bryce: [00:02:52] So my system is based around the rule of threes, Ren, which is spending, saving and investing. And I think the important thing to note is that I distinguish between my savings account and also my investing account. And the way I do that is my paycheck comes in. I work out what I need to survive for the week bills, you know, all that sort of stuff, rent the major things, Netflix, etc., etc. all of those fixed costs as well as what I'm going to need for some leisure. You know, I still enjoy a few beers and going out for dinner. So, of course, have to be factored that in. But then I make sure that I separate from what is left into investing and saving. And the reason for that is I think if if you pool everything into just a savings account, then it is sometimes psychologically harder to pull money out of that to put into investing, because you might be fearful that if you lose that, then you're losing your savings. So it's very important, from my point of view, to be putting money into the stock market that I'm not saving for other things in life because we all know that there are risks with putting money in the stock market. And, you know, you can lose that money. So I don't put money in there that I think I'm going to need in this sort of short term or really at all. I'm putting it in there knowing that it's going to be in there for the long term. [00:04:07][75.2]

Alec: [00:04:08] So if I have savings goals, it's aside from that, I want to flesh that out, that distinction between money to save and money to invest, because I think there's a lot to that. Yeah. But before we get into it, I want to start broad with your system. So three three buckets is a 33 percent, 33 percent, 33 percent or higher. What's the split? [00:04:27][19.5]

Bryce: [00:04:28] So by nature of the cost of living in Sydney? Honestly, I think I managed to save outside of bills and expenses about 40 to 50 per cent of income, and then that is split. [00:04:41][12.8]

Alec: [00:04:41] So what you're saying is you're at a really high wage. [00:04:43][1.7]

Alec: [00:04:45] You're one of the one percent. That's not all I'm saying. I live frugally... busted [00:04:50][4.4]

Bryce: [00:04:54] Yeah, I look from a percentage terms, but I also am keen on putting away as much as I can at this stage in life. So I try to limit my expenses as much as possible, if that makes sense. [00:05:05][10.7]

Alec: [00:05:05] It almost sounds like your self-denying fi. No, no, no, no. So this podcast isn't actually about investing. It's about this long, slow reveal as Bryce realizes he is actually a supporter of the fire move. Not sure it's going to be an expert exposé on his inner workings of his mom. [00:05:26][20.9]

Bryce: [00:05:28] Yeah. So Ren. So that's from. Point of view. That's what I do. And then I split. I think majority of the remainder at the moment goes into investing because realistically, all I'm really saving for at the moment are Christmas presents and Chopin Holiday and that sort of stuff. So engagement ring. [00:05:45][16.9]

Alec: [00:05:46] No, no. [00:05:46][0.9]

Bryce: [00:05:50] So, yeah, that's that's my approach. Do you do you follow before you into mine? [00:05:54][4.1]

Alec: [00:05:54] I want to understand yours because I think one, there's more of a system and there's probably more applicable. And it's also just interesting to learn how other people do it. Yeah. So when you do the split between your saving and your investing, are there any other parameters like do you have a certain savings number that you're trying to hit and then you don't you don't need to feel the need to go over it. We'll start there. Yeah. [00:06:17][22.7]

Bryce: [00:06:18] So up until maybe only last month. Majority of my savings was in going into an emergency account because I'm a believer that I should have about three months worth of total living expenses saved so that if we were to take equity rates full time or whatever it may be, I've got a lump of money to rely on. If I lose my job or whatever it may be. So I'd been saving that for a number of years. Finally hit that. So I think that was three months of total. So now that money can go in to probably put that into investing. [00:06:47][29.1]

Alec: [00:06:47] But what I do is I hope to see you save up three months worth of living expenses, which I think is a really good rule of thumb. I like that. You know, if you lose your job three months as includes Ren every year. I like that. So but. But you've got it. Yeah. And now you're going to take that chunk of money and put it in the market. [00:07:04][17.1]

Bryce: [00:07:05] Oh, sorry. In the flow. What was being allocated there. Yeah. Now it was going to say it's going to take all that stuff, you know. [00:07:16][10.9]

Bryce: [00:07:16] So now that saved up. I can put that aside, but I will always keep that in cash, as silly as it may be in this cash environment. I'll always keep that in cash just because it's there for an emergency kind of thing. I don't want to have that tied up in stocks or bonds or whatever it may be. And then I guess from a short term savings goal, I don't have a set amount in mind. I just know that, for example, we've got an overseas trip coming up or, you know, X, Y and Z. I want to have some money there available. If I need to go out and buy a new bike or whatever it may be, I don't really have an amount in mind. I just have a percentage of my income set aside to do that. And if it grows, it grows. If I dip into it, I dip into it, so be it. [00:07:55][38.6]

Alec: [00:07:55] So with that with that pool of savings, where what do you do with it? [00:07:59][4.1]

Alec: [00:08:00] Under the under the bed, in the back hole in the backyard. [00:08:03][3.4]

Bryce: [00:08:04] So at the moment it's in a high interest account, which also admittedly isn't great in this environment. But I know that I'm needing to draw on it at the moment. Look, going further on down the track, I think there's a few options. So, for example, raise or, you know, some of those micro financing apps that maybe you considered into. I know a lot of people use them as a savings mechanism just to sit money in there and have access to the stock market and your liquidity with that. You can get it out pretty quickly. [00:08:29][24.9]

Alec: [00:08:30] So what happens if you lose your job? Because the market tanks and Woolies are cutting heads and I've got my three months savings, but not if not if it's in a Razik separate. [00:08:40][9.9]

Alec: [00:08:41] So I've got the amount for emergency locked away. How many accounts have you got? I don't want to know. [00:08:47][5.7]

Alec: [00:08:48] So I think I think that's a good point, though, that people often think that savings are what they have in the market. But, you know, for you, your your emergency fund, you're not putting that in the market because there is a risk that it could the market could fall at the worst possible time. And then all the money you've saved in your emergency fund is for naught. So although you may not get a good return on that cash, you know, even in a high interest account, what you might be getting two percent. Yeah. The fact of the matter is it's safe. It's probably insured by the government depending on who you're with. But you would assume it is and worst comes to worst. It's there for you. So I think that's important because I know at least when I started, I thought, I'm saving all this money, I'm putting it in the market. [00:09:35][47.1]

Alec: [00:09:36] And then I lost 99 percent of it on Slater and Gordon and all of a sudden I didn't have any savings. [00:09:39][3.1]

Bryce: [00:09:40] Yes. It's an interesting point you make there. I do not classify what is in the market as my savings. How much of growing savings or where, you know, is coming out of your savings account of whatever. Yeah, but that's because in my spreadsheet, the way I think about it, whatever is in the market is not savings for me later on down the track. By all means, it might be classified as that because I'll probably be relying on it more so from a savings point of view when I'm in my 40s or 50s. But right now I completely have it out of my mind as something that I will access, because to me, savings is something that I will save up and then go and spend on something. Right. But the market is that's not how I trade it. It's something I'm going to put in there. See you later. [00:10:18][38.6]

Alec: [00:10:19] Okay. So that's that's your system. Anything else we need to understand about it? [00:10:23][4.7]

Alec: [00:10:24] No listing. What should I have asked you about your system? I have a spreadsheet I'm obsessed with. [00:10:28][4.8]

Bryce: [00:10:31] And I think for me, it all happens payday. Every single payday. I make sure that I sort it all out. I don't wait another day or so. I enjoy doing that. Send it across all the accounts and away. Yeah. What's your approach? [00:10:42][11.7]

Bryce: [00:10:43] You've got a bit more of a fast and fast and loose. [00:10:45][2.3]

Alec: [00:10:46] Yeah. So I guess in theory I sort of do the same as you. So I have a savings account that I use as a rainy day fund. I don't have a set number that's I want to have in there like that. I like that three month rule of thumb. It's one of those accounts where if I put 200 dollars in or 250 dollars into it every month, I get bonus interest on everything that's in there. So I try and do I get paid monthly, which is shocking. Yes. Yeah. Not a fan of it. Yeah. [00:11:17][31.5]

Alec: [00:11:18] So every month I take at least 250 dollars from my paycheck and put it in the savings account, which is in cash just so I can get that high interest, that bonus interest. So that's my rainy day fund. Then what I try and do is any of the money and I just really sort of ballpark some of those. But any of the money that I'm not going to need for the month, I transfer out of my spending account straight away. And so I have a couple of different investment brokerages set up just historically. I started with the bank I was with. I was with Commonwealth Bank. So I set up with them. And then over time, we found some other ones that we maybe prefer or might be shapefile, might give us access to different things. And so what I do is I try and transfer money out of my spending account as soon as possible and put it in my investment account. And even if I don't invest it straight away, it's then not accessible, not spendable without at least some effort and some delay to get it back into my spending account. So in theory, I guess I follow the rule of threes in a general sense. You don't have a spreadsheet, don't systematize it by you. I just I think the key thing for me around saving and investing is putting that money, making it difficult to access that money. For me personally, it forces me to be a bit more disciplined because then I have to wait a month until I get paid again. [00:12:32][73.8]

Bryce: [00:12:33] So I think what we've both identified is that it is important to, I guess, isolate or identify part of your paycheck, whatever it may be, monthly, fortnightly, weekly, to put toward investing in some form or the other. Because I think if you just say this is what I'm spending and whatever's left, I might go and invest, then you're not setting yourself up to, I guess, have that discipline to consistently put money into the market, which we'll discuss later is one of the biggest advantages you can have. [00:13:00][27.1]

Alec: [00:13:00] Yeah, I think your lifestyle flexes to match your paycheck. Yeah. And, you know, if you've got money sitting there, you find a way to spend it. So don't have money sitting there. But I think so. The other important thing is we both have identified the difference between saving and investing. Absolutely. I know as a beginner that wasn't a distinction that I took Haydock. So I think that's probably something that everyone can apply to their to their personal thinking. [00:13:24][24.1]

Bryce: [00:13:25] Yeah. Yeah. You don't want to be putting money in that. You are going to have to withdraw on in two weeks time because you've got a dentist appointment. That is not the way to do things in investing because as well. [00:13:34][9.3]

Alec: [00:13:34] We'll explain in the series like there's a really there's a benefit to investing for the long term. But if you're relying on that money and you withdraw it at the wrong time, it's the quickest way to disadvantaging yourself and potentially losing money. You have to be willing to lose whatever you put in the market. And we're not saying you're going to, but you have to be willing to. That's all you have to think about it, because that's how you give yourself the ability to take advantage of these long term benefits and that we'll talk about in future episodes. And that's a bit of a Taser favor for you. [00:14:04][30.2]

Bryce: [00:14:06] So Ren, one of the biggest questions we get around this topic and, you know, from investors right at the start of their journey is how much do I need to get started? You know, is there a minimum amount? Do I need it? You know, I don't have a thousand bucks or I don't have two thousand bucks. What's the point? I can't get started. How did you approach that? And I guess from your point of view, what is the minimum that you need these days to get started on your investing journey? [00:14:30][23.8]

Alec: [00:14:31] So even in the time that we started investing, the world has massively changed in terms of just how easy it is to start investing and to start with lower dollar amounts. So speaking from personal experience, when I started I was signed up with Commonwealth Bank because they were my normal banker. I want to lay a trade cost 20 bucks. Yeah. And so for me, I didn't want to put 200 dollars on a company and spend 20 bucks to do it. We couldn't actually even that would be too low for Commonwealth Bank. So I saved up a thousand dollars, just putting a bit of every paycheck aside. And, you know, there we were at uni. It was there wasn't a lot of money coming in and there were a lot of ways to spend it. We had a lot of free time. But I just it was something I wanted to do. And so I saved that. I got there and then made that first trade and lost it. But that's the story for another day when I read it. [00:15:22][51.0]

Bryce: [00:15:22] Yeah, that's true. That's true. Another day being the previous day. [00:15:24][2.3]

Alec: [00:15:25] But these days, you don't need that kind of money to get started. There's a lot of micro. Investing apps that allow you to start with next to nothing. Literally next to nothing. Company that came out of the states acorns, which in Australia is called Re's, literally takes your purchases and well rounded up. So you buy a coffee for three dollars fifty. It'll rounded up to four dollars. Take that 50 cents and put it in the market for you. There are plenty of other services like that which allow you to start with very small amounts of money. And then the cost of actually laying a trade has moved down as well. No longer do you have to spend 20 dollars with Commonwealth Bank. There's single digits, you know, spend to delay a trade. So what that means is that the amount of money you need to get started is much lower for May. I would say if you're just starting out, a great way to get started would be microfinance up and micro investing. And at the same time, just save a bit from your paycheck every time it comes in. So you can make that first trade, maybe as a rule of thumb where like, I like to say, your brokerage costs should be one percent of the trade. So if your brokerage cost is eight dollars, the cost of actually laying a trade is eight dollars. Maybe you want eight hundred dollars before you lay that first trade. But that's just a rule of thumb. It's you know, it's really dealer's choice. [00:16:41][76.0]

Bryce: [00:16:41] Don't panic if you don't know what Ren is talking about there in terms of brokerage costs and brokers, we will delve into all of that in a few episodes time. But I think the important thing to remember there is that there is really no minimum now that you need to really start getting access to the market if you want to start buying direct stocks through your broker, CommSec or ANZ or NAB trade. Generally speaking, the minimum is still five hundred dollars plus brokerage fee. However, there are now apps out there, as Ren said, that you can start with literally cents, five cents all the way up to whatever you feel comfortable with. So don't let money be a reason for not getting access to the market. There are many ways in which you can do it. So again, just get started, find what works for you. So Ren, you know, we've spoken about the rule of threes. We've spoken about the minimum that you need to get into the market. Are there any sort of major tips or tricks from your point of view to kind of package those two together to close out the episode? [00:17:41][59.6]

Alec: [00:17:41] My biggest tip or trick, which we've already touched on, is just get that money out of your spending account. That's that's number one. Another big one for me, and I think one that a lot of people will struggle with is the question around paying down debt vs. saving to invest. And I don't think you need to do one or the other completely, although if the debt is high interest, if it's, you know, credit card debt, I would say clear that off your books first. [00:18:09][28.0]

Bryce: [00:18:11] Yeah. And by all means, we are not giving advice here. This is purely just our own experience here. We're not financial advisors, so please go and speak to a financial advisor for your particular situation. [00:18:22][11.3]

Alec: [00:18:23] So for me, and this is speaking from personal experience, if credit card debt is at 20 percent interest, I'm not a good enough investor to make more than 20 percent in the market. So for me, I will do better financially by getting rid of that, as you said. That's just personal experience. That's not what other people I would agree with that Ren. [00:18:44][21.1]

Bryce: [00:18:44] And I think to go a step backwards is try to live within your means in the first place. [00:18:50][6.0]

Alec: [00:18:51] Cut those credit cards up. Yes. Don't take a call from your bank and block their e-mail. [00:18:56][5.4]

Bryce: [00:18:57] Yeah, I think that that's probably the most important part is don't live beyond your means. And if investing, you don't need huge amounts of money to do it. So don't feel pressured to set aside huge amounts that will put pressure on your life in other parts and force you to go and get credit cards or live frugally. You know, investing should not be about that. It's fun. It's enjoyable. And there's so many ways that you can do it now. So don't panic. If you are not in a situation right now where you think you can be putting 500 or 600 dollars a month or whatever it may be towards it. So I think you've stolen both of my tips there. [00:19:32][34.4]

Bryce: [00:19:33] My my my little tip, I think it always would be. Get a spreadsheet. Absolutely. Download Excel Google Sheets if you don't. [00:19:39][5.6]

Bryce: [00:19:40] I think my major thing Ren, as you alluded to, is discipline around the discipline side of things. Every paycheck that come in stick to it, just like investing over the long term, pays dividends and grows and grows the more disciplined you are. The earlier on at putting away money for investing, you'll soon find that you'll have a nice little nest egg and all of a sudden you'll be in a position to start putting some decent amount of money into the market. So too early you can figure that out. And what works for you that the better off you will be? Any closing statements from you? Ren around the tips and saving and for investing. [00:20:11][31.5]

Alec: [00:20:12] So I think saving is obviously a precursor for investing in a lot of instances where you need to have the right saving habits to then have the money to be able to put into the market. So that's why this is the number two episode in saying that if you're a shocking saver, don't. Don't feel like you can't take advantage of the market. There's so many apps, tools. Excel spreadsheets out there to help you. [00:20:39][26.5]

Alec: [00:20:39] And you know, you don't need to be price level systematized, say Price actually wanted to make this podcast a saving podcast. I don't think there's an update on that by now. [00:20:53][13.7]

Alec: [00:20:54] I think, you know, save one percent, save half a percent of your paycheck. It's still better than nothing and starts a journey that will eventually, you know, you'll hopefully you'll find a love of investing. Hopefully you'll say the money that you can make from investing. And once you understand the upside there, it'll be a lot easier to make some of the harder decisions around, you know, cutting out spending in your lifestyle, not getting the credit card, whatever it is. So don't feel like you need to be perfect at this before you move on to the next level. Absolutely. It's it's an ongoing learning process. And you know where we are very early in that journey. So, yeah. Yeah. Just get started. [00:21:32][38.1]

Bryce: [00:21:33] All part of the journey. So Ren, as always, great to chat. All things stocks, even though we didn't mention stocks in this episode. Great to chat. All things finance, I guess. Hopefully we've managed to break down another barrier to investing and make that markets a little bit more accessible to anyone listening to the show. If you want more information, head to equity mates dot com and also subscribe to Equity Mates Investing podcast and join us on the other shows. So without going too much further Ren, we will leave it there and chat next episode. Sounds good. [00:21:33][0.0]

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