Season 2 Episode 2: Building your personal wealth | talkBIG Podcast

In this episode of talkBIG, hosts Andrew, Young and Chris take on a topic many people want the answer to: "How do I get rich?" 

They approach the question with a blend of straight-forward advice on building wealth and entertaining quips about get-rich-quick schemes.Chris shares his insights into the strategy that goes into growing personal wealth, answering some common questions about thinking like a rich person. 

Learn about investment strategies, tips on how to save, hidden costs, safe versus risky finance management and when it's okay to indulge. 

Take a listen and subscribe to talkBIG on your favourite podcast platform.

 

 

 


Episode Transcript: 

VO: 

Welcome to the RSM talk big podcast, helping you invest well, understand money and achieve the best tax outcomes. Your hosts today are Andrew Sykes, Chris Oates, and Young Han.

Andrew Sykes: 

Hello everybody. And thanks for joining us once again for the RSM talkBIG podcast. I'm your host today, Andrew and I'm joined in here with your regular hosts Young...

Young Han: 

Hi everyone.

Andrew Sykes: 

And Chris.

Chris Oates: 

G'day everyone.

Andrew Sykes: 

So welcome. As I said, and thank you for joining us. Today, we're gonna talk about investing and making money and really, what rich people know and you should. We are going to talk about how to save, how to invest. Some tips on that and tips on making money, ideally over the long term. So, Chris. Where would you start, mate?

Chris Oates: 

Well, you start about looking at what are you actually doing with your income and having a bit of a structure around how you save. Because it is easier to save than make money. If you're disciplined and you're putting some money aside... You're building up your wealth over time. And there's a lot of different rules that are out there and ideas you look at. There's the 50, 30, 20 rule that a lot of people talk about, which is about putting some money aside like 50% of your money for what you need, 30% for what you want to do. And then your 20% is, well, there's your savings.

Andrew Sykes: 

So you spend say 50% on necessities. Yeah.

Young Han: 

Like the mortgage, your insurance, utility, your food... that you absolutely have to use.

Chris Oates: 

You can't live without those things.

Andrew Sykes: 

No, exactly. Right. And ideally 20% on savings.

Chris Oates: 

That's right. So if you've put, doesn't matter how much you earn, if you're putting 20% of that away. Before. And when you earn the money, don't try and wait per pay packet, don't do it at the end of the week - do it at the start of the week.

Andrew Sykes: 

So ideally you would say set up a direct debit into a savings account, something like a raise app or something like that, where it's gonna direct debit it as soon as you get paid.

Young Han: 

Or some employers, they actually offer you, um, if you wanted to split your payment into two different bank account. So that you don't even see the money coming in.

Andrew Sykes: 

Yeah. Because it is... I think it is very much a, a truism it's about not what you earn it's about what you keep.

Young Han: 

That's right. And also, you know, I think it's important that you should be treating yourself for the hard work that you've done. So don't be just like really stingy and put everything into savings. And you, you have no life because it's not gonna give you any joy, um, saving the money and, and improving your financial, um, you know, situation. And also, I really wanna say saving has no risk when you want to make money. The risk comes with you, but when you want to save, there's no risk apart from yourself, tempting to spend the money.

Andrew Sykes: 

Yep. And if you build a lifestyle after you've taken out your 20% or even if it's 10%, I think that's really important. Even if you can only save a very small amount. If you get started that small amount will grow.

Young Han: 

That's right.

Andrew Sykes: 

And then if you build a lifestyle around not having it... I, I know. And I've spoken to lots of people who look back and think, well, they've had pay rises over a few years and they can't understand how they used to live on so little and they still have no money, even though they still have pay rises.

Chris Oates: 

That's right. It's amazing. How used to you get... you get used to not having that money.  It might take a couple of pays or something to get used to it. But after a while, you don't even notice that it's gone. Then put it somewhere where you can't look at it and get really easy access to it. And you'll look at it after a year, couple of years; it'll be amazing how much you've actually got there.

Young Han: 

The key here is getting it started. Doesn't matter how much. Get started saving.

Andrew Sykes: 

Yeah. And I, I like to say, um, lifestyle expands into income. The more you have, the more you enjoy our lifestyle. We all love dinners and we love going out. We love our friends. We like to drive nice cars, et cetera. But I think if you said that first tip that rich people do is they save before they spend. And then they use the rest of that for lifestyle and time. That works with time as well. Most people get wealthy over a period of time. It's a long period of time. And if you're saving, if you save a hundred dollars a week... after a year, there's five grand, after two it's ten and so on. And you get the interest off that and you start to actually build a really good nest egg.

Chris Oates: 

Yeah. Unless you're the lucky one that wins the lotto... Yeah, it takes time.

Andrew Sykes: 

But did you know the research shows that 95% of lotto winners are in a worse position after five years than they were before they won lotto?

Chris Oates: 

That's very true.

Andrew Sykes: 

So it doesn't matter how big it is. It is really easy to spend it if you don't have discipline. And I think that's the other critical tip I would pick up on with savings as well. Young, you touched on it. There's no risk to saving. I think one of the key things is not losing money.

Young Han: 

That's right.

Andrew Sykes: 

 Rather than the kind of returns you're gonna get, it is don't lose. Chris, talk about it. You know, if you have a loss on, say you start with a thousand dollars and you lose 50%.

Chris Oates: 

You're down at 500, so you'd think, okay, you've lost 50%, but you have to make 100% now of what you've got left just to get back to where you were. Yeah. So you you're behind the eight ball and it's really hard to catch up. So having, as you said, not being too risky or being able to manage risk with what you do. It is really important.

Young Han: 

And you become very emotional. Just think about the gambling. The key is not to go to casino. Because you're never gonna win over them.

Andrew Sykes: 

Unless it's outta some of your discretionary spending after you've already saved.

Young Han: 

That's right.

Andrew Sykes: 

That idea of actually saving, making money slowly, and not taking a loss is really important to long term wealth.

Young Han: 

Where would you have your savings then? Would you put it in a term deposit or high interest account if that does exist anymore?

Andrew Sykes: 

I wouldn't put my savings into crypto. <laughter> I think there's been some damage done by that.  I have always just looked at conservative managed funds to get some share market exposure. And banks are still a great way to save, but, lower interest rates. Chris, you are the expert on where to save, where would you put your money?

Chris Oates: 

Well, if, if you've got a mortgage, you think about it. If you've got a savings account and a mortgage, the bank is charging you more interest on your mortgage than what they'll pay you on your savings account.

Young Han: 

Which is not tax deductible.

Chris Oates: 

That's exactly right. So what you could actually look at doing is you can get an offset account.  What that does is it just sits next to your mortgage and anything you keep in that, let's say you've got a mortgage of $100,000. If you've got $10,000 sitting in an offset account, you don't pay interest on $10,000 a year mortgage. So if your mortgage rate is 5% and outta the savings account, you're only going to get 1-2%. You can actually have a better saving by putting your cash in an offset account rather than trying to earn some interest and pay tax on it as Young said.

Andrew Sykes: 

Yeah. 'Cause that's the important thing, isn't it? A saving on your interest is not taxable income.

Chris Oates: 

That's exactly right.

Andrew Sykes: 

So you get 5% after tax effective return and you pay off your mortgage easier.

Chris Oates: 

That's right. You're paying... Actually, that means more of your repayment is paying down the principle of your loan.

Andrew Sykes: 

Yeah. And mortgages. And in particular with rising interest rates at the moment is right up there in people's minds. Anyone got any tips on paying the mortgage down quickly?

Chris Oates: 

Again, it's about being able to pay less interest. If you've got savings -or you can even operate your everyday account out of an offset account. It doesn't actually just have to be a savings account. Make sure that you are putting money into that. Every week, every fortnight; however often you get paid... When you first get paid for those first few days, your bank account's higher: you're actually not paying interest on that amount.

Andrew Sykes: 

So that's with that offset account, which is reducing interest. And if we remember the power of compound interest, it's exceptionally powerful over the long term. So even a few hundred dollars saved in year one is gonna make a large difference over the term of the loan. Isn't it?

Chris Oates: 

Yeah, definitely.

Andrew Sykes: 

Could be tens of thousands of dollars over the loan.

Chris Oates: 

That's exactly right.

Young Han: 

And I actually like the idea of using the offset account as your normal bank account, because you can access the money. If you put it in a term deposit, you're locked in, you can't access that money and you lose all the interest. But if you have it in the offset account, and you really need the money, you can still access it.

Andrew Sykes: 

Yup. Well, if it's in a term deposit, you're gonna pay tax on that interest and it's gonna be a lower rate than your mortgage. I think also the number one tip that I like, my favorite tip for paying off the mortgage quickly, is pay a mortgage payment every two weeks rather than monthly.

Chris Oates: 

That's right.

Andrew Sykes: 

If you work it out, there's 26 fortnights in a year. If you pay every two weeks, that's going to be equivalent to paying 13 months.

Chris Oates: 

And you actually make an extra repayment. So you are the first payment of the month. For the first fortnight, what you actually do is you are only paid 14 days interest on that amount. Rather than a full 30 or 31, however many days are in the month.

Andrew Sykes: 

Yep. So you're reducing your interest bill and you're getting that 13th payment in there compared to monthly. And once again, that can save tens of thousands of dollars over the life of the loan, and reduce your mortgage by years.

Young Han: 

And it also will discipline you to save more and spend less because you know that money needs to be paid in fortnightly.

Andrew Sykes: 

Yeah, that's right. So you provide for that first, before you actually start spending your money. So we've got our savings coming out first, then we've got our mortgage payment and then hopefully there's enough there to live on.

Chris Oates: 

That's right. Buy the groceries and go out for dinner.

Young Han: 

All right. The next, I think once we ticked all those basic boxes, then it will be more like, okay, I have  a bit of spare money. What I would wanna do is to invest it well.

Chris Oates: 

And that's that savings that we talk about, that 20% or 10%, it doesn't necessarily all have to go in to a savings account or the mortgage. You could actually be investing a little bit of that as well, so that you're not just doing the pay the mortgage. You're getting something that's growing over time outside of that. And there's a few, if you are putting away a bit every, every month or every time you get paid, it'll build up. Again, Andrew, you mentioned before the compound interest. If you earn interest, then the next year, the amount that you earned interest on, you'll start getting more interest and it'll keep growing and building up and getting bigger and bigger.

Andrew Sykes: 

So you're getting interest on your interest.

Chris Oates: 

Yeah.

Andrew Sykes: 

And that is really one of the big secrets of the rich - earning money while you sleep.

Chris Oates: 

That's exactly right.

Andrew Sykes: 

So earning money that you don't have to work for, which is really what your savings and investment portfolio does for you.

Chris Oates: 

And the other thing that people ask is: how long does it take to make money? Or everybody says: how long will it take me to double my money?

Andrew Sykes: 

How do we work that out?

Chris Oates: 

There's a thing they call the rule of 72. The interest that you receive from your investment, you actually divide. So divide 72 by that number. For example, if you are getting a 10% interest rate, then 72 divided by 10 is seven point two. So, it will take you 7.2 years to double your money.

Andrew Sykes: 

Which is not bad, but also if I'm getting about 7% a year... I'm gonna double my money every 10 years.

Chris Oates: 

That's right.

Andrew Sykes: 

And that's the power of the long term saving plan.  If you could double your money every 10 years, by the time you get to retirement, you'll have enough to retire on.

Young Han: 

Then why would you want to know about this? Because you want to plan it. When you're fresh out of uni, have a first job... eventually you'll get married. There are life milestones that you're gonna need the capital money- lump sum money. You can kind of start thinking about these strategies to plan your finance.

Chris Oates: 

And that's it, we call it wealth accumulation because you accumulate it over time. It doesn't happen- there's no overnight get rich quick sort of scheme. You do have to do it.

Andrew Sykes: 

Yeah. Unfortunately, most get rich, or get rich quick, schemes really don't seem to work. Do they?

Chris Oates: 

No, no, you... a lot of people have been hurt thinking they were going to make a lot of money in a month.

Andrew Sykes: 

Yeah. So if we talk about the long term,  give me an example, Chris. Say I've got a thousand dollars... and I think that's the other key thing too, is it's never too small to start. You don't need a big amount. So, say I had a thousand dollars to invest and another a hundred dollars a month. You've got an example there of what that looks like over the long term.

Chris Oates: 

So a thousand dollars goes in. Doesn't matter where you start or how much you start with, as long as you start. That's the key thing. $1000 you're putting $100 in a month. You look at over 20 years. And so let's say an average 8%. So a growth portfolio can get an average of 8%. Over that 20 years, you'll have put $24,000 in to your investment. The interest you have earned will be $39,000, almost double.

Andrew Sykes: 

Wow. That's quite a bit.

Chris Oates: 

Yep. So therefore at the end, instead of just putting $24,000 aside, you actually end up with $64,000. So, makes a lot of money for you.

Andrew Sykes: 

It does. And to me, that brings home the point that you're never too young to start. If you started doing that, when you were 20 years old. By the time you get to 40, you've got an extra $64,000. And hopefully you've had time to top that up along the way.

Chris Oates: 

And that's if you get a pay rise and you've got a little bit of extra money, so instead of putting the hundred dollars aside, could you do $150 or could you do $200? And then that just builds it up and up and up over time. And the big part of that is, again, we come back to the compound interest... You're earning interest on your interest.

Young Han: 

And there are other apps and banks are offering this program where they round up your spending for the week, and then they put it into an investment portfolio. So that you don't actually have to pick and choose which investment you wanna do. They just take the money out of your bank account and then they will invest it on the portfolio on your behalf.

Andrew Sykes: 

I love the idea of it coming straight outta your bank account because it just doesn't get noticed, ideally. Small amounts coming out, you won't notice.

Young Han: 

That's right.

Chris Oates: 

Well, the difference between you spending $1.50 or $2, you probably wouldn't notice the 50 cents. Whereas it's going into something. And the amount of times we tap our card and we wouldn't even notice that it comes out.

Andrew Sykes: 

And there are some really good apps that you can use now, or bank programs, which are micro investing, which will just invest very small amounts for you on a daily or weekly basis.

Chris Oates: 

And they will also let you put an amount into it as well each month. So you're putting your own amount in, plus a little bit every time you buy something at the shops.

Andrew Sykes: 

And once again, over the long term. I think the other thing that I've seen rich people do -and I think it's really important - is that they only borrow to invest or make money. They don't borrow for consumption.

Young Han: 

Such as?

Andrew Sykes: 

Cars. If you turned your car over, you imagine if you were turning your car over every five years. So you buy a $50,000 car and in five years, it's worth $20k. Over 15 years, you are dropping $90,000. Imagine if you could say, well, I'm gonna keep my car an extra five years. So that car, after the extra five years might go down to being worth $10,000. But you haven't gone out and spent another $50k and lost another $30k. If you can delay your changeover in cars, that means normally even if you buy your car with a loan, you're not buying the next one.

Chris Oates: 

Also, if you are thinking about borrowing to buy something else for investment, if you do take out a loan for your car, it will impact your borrowing capacity.

Young Han: 

That's right. But the other thing is that if you have a business or if you are in the occupation that uses a car all the time, so that you can claim those expenses against your income, then you need to sit down and then do the calculation to see whether it's worth actually getting a loan to do it. Because then that loan becomes a deductible loan for you. And then you probably wanna spend that money to pay off your mortgage, because that's not gonna be deductible.

Andrew Sykes: 

Yep. That, that is true. So swapping deductible for non deductible debt, in that case. It brings to mind a really good point: Should I go out and get a car loan or should I draw down on my mortgage? Chris? What do you think?

Chris Oates: 

So if you go and get a car loan, generally the interest rate's going to be a lot higher. So if you've been putting a bit of extra money into your mortgage and you've got a bit of space in there, your home loan might be 4% or 5%. But your car loan could be up to 11%, 12%, however much the banks are charging. So you'll actually save a bit more if you draw it from the mortgage.

Andrew Sykes: 

I would say my only caution with that would be, make sure you're not paying off your car over 30 years.

Chris Oates: 

That's right.

Andrew Sykes: 

So, if you're gonna do that, if you're gonna draw down on your mortgage for anything... my advice would be to make extra payments into it, to cover it off. So still pay the same amount as if you had a car lease.

Young Han: 

Mm-hmm.

Andrew Sykes: 

But you get the advantage of the lower mortgage. Other things that come to mind are, for example, holidays. Holidays drawn down on your mortgage. You could be paying for that week in Rome for 30 years!

Chris Oates: 

You'd want it to be a good holiday!

Andrew Sykes: 

You wanted to have a good holiday. <laughter>Yeah. The idea is that you're better off saving to go for a holiday than drawing down on your mortgage, where you can. Pay cash if you can. Put it aside a little bit 'cause you're gonna have to pay for it some time.

Young Han: 

And I've seen, and it's kind of common in Asian culture... they usually have the long wallet and they always have cash in it. We actually asked a person why do you wanna use the cash instead of the card? And he said, "I become more conscious about my spending." And when you actually spend the cash, like paper cash. He's more aware of, you know, that's the money that I'm spending. So he becomes more cautious. Whereas if you just use a credit card, it doesn't feel like how much you use. So you spending $500 in a note versus $500 on a card tap. It feels different.

Andrew Sykes: 

That's a really good tip. How easy is it to spend money when you have your card on your phone and you just have to double click the button, tap and walk away? You don't even really notice; it's that quick. So maybe the modern version of using cash is to actually put your card in the machine and type your pin in there. 'Cause you get to see the amount on the screen. And it actually feels like you're spending.

Young Han: 

I do that with my kids as well. They just think that this plastic card is magic and you can buy anything with it. So I started showing them the coins and the notes, and then what makes, you know, $10 and all that. So that they become more cautious about money and the actual materials that goes with it. Whereas if you use a tap they think that we can just buy whatever we want.

Andrew Sykes: 

And I think that ties in really with making a daily commitment to what you're spending. I think it's really hard to budget. Budgets are really hard 'cause if you budget and allocate to a particular area, you're not gonna not drive your car for a week. If your budget for petrol's over.

Chris Oates: 

That's right.

Andrew Sykes: 

But you can make a daily commitment to how much you're gonna spend and actually being mindful and conscious of your spending is a really important part of that.

Young Han: 

So with that, we mentioned about the 50, 30, 20 rule and 30% that you wanna use it for what you want. And for me, I've got two young kids, so I use it for when we wanna dine out. So, I'll go 13 o'clock for a Thursday because kids eat free! Yeah. I mean, it's the same thing. If you go on Tuesday,  you have to pay for everything. Whereas if I go on Thursday, I don't have to pay for my kids.

Andrew Sykes: 

Well, how hard is it to earn 10% on your money? So 10% savings is even better than 10% returned because that 10% saving is actually tax free as well. Yeah, it's even better.

Young Han: 

And if you're buying coffee a day, every. Get an app. You get a free coffee, yeah.

Chris Oates: 

Make sure you get the cards, get the apps. Yeah.

Andrew Sykes: 

 I think if we talk about daily commitment and mindful spending of money, I'd like to throw a challenge out there for people. Sit down and try and write all the spending over the last three days and then compare it to your actual bank statement. Try and remember how much you can spend or you've spent over that period of time. I think a lot of people would find that really tough.

Young Han: 

Oh, they do. 'Cause we just spend without thinking about, you know, how much you're actually spending. Like, buying a coffee a day for me at uni, I would never buy a coffee a day because that adds up. Whereas now, if you're working, buying a coffee a day, it doesn't feel like a big thing. But if you actually do the calculation, like if you buy lunch three times a week, multiply by two with your husband, that's quite a lot.

Andrew Sykes: 

Well, lunch now is $20 with a drink, $15 to $20. So that's - between a couple - that's $30 to $40 per week. So you could be spending a couple of hundred dollars a week on lunch- plus coffees.

Young Han: 

That's right. I'm not saying to sacrifice your lifestyle so that you always have to cook to save money. There's other alternatives. You can, you know,  buy those prepacked lunches that are $10 each. That's better than you spending $20 every lunch.

Andrew Sykes: 

And you get good variety.

Young Han: 

That's right.

Andrew Sykes: 

I had one yesterday, it was pretty good. And it cost me $12 instead of $20. And the other thing too around that, I'll tell you, I've gone down to the cafe near our office (and we've all been there) and I'm there paying $5 for an almond milk cappuccino or a long black, even worse, $4 for a long black and our office provides free coffee pods!

Chris Oates: 

Yep.

Andrew Sykes: 

And you kind of think to yourself: Oh, what am I doing here?

Chris Oates: 

And then there's two things. The office is actually claiming a deduction for the coffee cost.

Andrew Sykes: 

Whereas we're not, we're just spending our money. That also brings us into the last point. Which is about ourselves. Personally, the best investment we can ever make is ourselves and our income earning capacity. So, learning new skills, improving your job, doing better at work, trying to get pay rises is always the best investment generally. Because you've got that over your lifetime. How do you protect that, Chris?

Chris Oates: 

Yeah. So that's where you come into insurance. Things like life insurance, income protection... because if you've got a mortgage or you're paying rent -  the last thing you want to do, if you can't work because you are sick or injured, is be dipping into your savings and that money, that hard earned money that you've been putting away. So you can get paid a portion of your monthly salary, if you're able to claim on that. It protects you and means that you can actually keep achieving what you want to and not putting yourself backwards, just because you are unlucky or an unforeseen event came up. We see it quite often that people cancel their insurance or they haven't got the insurance. And then after the fact they say, geez, that would've been good.

Andrew Sykes: 

Yeah. It would've. And that's the thing is particularly if you're gonna borrow to invest, you don't want to be forced to ever have to sell your assets because you can't meet the repayments.

Chris Oates: 

That's exactly right. You always want somewhere to be able to live. When you're in a stressful time, you can take the extra stress of how do I pay for this away.

Andrew Sykes: 

Yup. And you don't always have to buy that either. You can go to an employer these days, a lot of employers will offer income protection, life protection. So that's one of the key things. That's how I talk about when investing in yourself. Select the right employer, who's gonna provide these kinds of benefits for you.

Chris Oates: 

That's right. If you are paying hundreds or even, in many cases, there could be thousands of dollars a cost. If your employer's paying for that, you could be putting that money aside for yourself. So that, it's a big thing. When people are looking at jobs now, what are the extra benefits? It's not just, what am I getting paid month to month? It's about what else can I get?

Young Han: 

And I would start early. Chris, can you give us some tips about , why it is important to start early? 'Cause your premiums can go really high.

Chris Oates: 

Yes. So, well the older you get the more expensive, the more risk you are, to insurers and having health issues. So if you start early, generally you haven't had the chance to have as many medical issues. So insurers look at you favorably. Quite often, they don't make you go for as many blood tests and those sorts of things as well. So it can be a bit easier to get insurance.

Andrew Sykes: 

When you're younger. So yeah, an important part. So key takeaways from this episode are: start saving, and make saving your first priority. Before you pay any other bills, pay yourself. 'cause you are arguably the most important person to you. Invest over the long term. Avoid losses. Look to reduce your interest where you can on your mortgage. And pay extra payments. Because it normally is a 20 or 30 year commitment. If we say compound interest is powerful and we think that saving is better than getting a return, saving interest on our loans is incredibly important.  And invest in ourselves and protect ourselves. Is that a good wrap up?

Young Han: 

Yeah. And just, just enjoy it. Just don't think that I have to do it and make an extra stress or commitment. Enjoy the journey, you know, get a joy and find the joy from savings and growing. So that it's becomes part of something that you enjoy doing.

Andrew Sykes: 

Thank you. Thank you, Young and Chris, some great views there on building wealth and what rich people know and what you should know. Thank you everyone for listening today. This has been the RSM talkBIG podcast. You can subscribe to our podcast wherever you get your favorite podcast. My name's Andrew Sykes and on behalf of RSM and the talkBIG team. Thank you very much for listening.

Young Han: 

Thank you.

Chris Oates: 

Thanks.

VO: 

Talk big. Create, save and protect with RSM.