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Debt Recycling 101: What It Actually Is and Whether It’s Right for You · She's On The Money

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  Speaker 1: My name is Tatasha Bamblet. I'm a proud First Nations
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  Speaker 1: woman and I'm here to acknowledge country t Glenn youan
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  Speaker 1: Ganya Niana, Kaka yah Ya bin ahaka nian our gay
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  Speaker 1: in Mbina yakarum jar dominyamiga Umagahawakawaman damon imlan Bumba bang
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  Speaker 1: Gadabomba in and now in wakah ghana on yakraum jar Watnadaa. Hello,
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  Speaker 1: beautiful friends, we gather on the lands of the Aboriginal people.
• 0:26
  Speaker 1: We thank acknowledge and respect the Aberiginal people's land that
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  Speaker 1: we're gathering on today. Take pleasure in all the land
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  Speaker 1: and respect all that you see. She's on the Money
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  Speaker 1: podcast acknowledges culture, country, community and connections, bringing you the tools,
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  Speaker 1: knowledge and resources for you to thrive.
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  Speaker 2: She's on the Money.
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  Speaker 3: She's on the Money. Hello and welcome to She's on
• 1:09
  Speaker 3: the Money, the podcast that's here to make sense of
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  Speaker 3: all the money things that don't really make sense at all.
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  Speaker 3: And one of those confusing things we get asked all
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  Speaker 3: the time is about debt recycling. Because it's one of
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  Speaker 3: those topics that feel like you'd need a financial advisor
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  Speaker 3: to even begin to understand it. That's crazy. We actually
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  Speaker 3: have one in our midst. Well, I used to be one,
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  Speaker 3: doesn't to be.
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  Speaker 4: I reckon.
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  Speaker 3: I can flog that dead horse. I think for the
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  Speaker 3: at least thirty more years.
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  Speaker 2: Okay, well that's good because I reckon, that's how much
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  Speaker 2: longer my career has.
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  Speaker 3: Oh, perfect at least, Well you might retire early, knowing.
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  Speaker 2: You Well, I did retire from financial advice, you actually,
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  Speaker 2: so anyway, Well, I'm excited, and of course we.
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  Speaker 3: Have ex financial advisor be Tory divide with us today.
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  Speaker 2: Hello, which is very exciting because I really love talking
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  Speaker 2: about debt recycling and I've been trying to get this
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  Speaker 2: episode into the mix for a very long time, but
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  Speaker 2: with like scheduling and like topic demands, it just hasn't
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  Speaker 2: it yet.
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  Speaker 3: Yes, now's our time to shine. I don't understand it
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  Speaker 3: at all. So I'm really sorry. That's actually a good question.
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  Speaker 2: That's good because I think, oh, we're going to have
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  Speaker 2: a mix of people listening to this episode today. So
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  Speaker 2: if you picked it up and you're like debt recycling,
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  Speaker 2: does that mean I can recycle my debt and like
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  Speaker 2: basically chuck it in the trash? And not have it anymore. No,
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  Speaker 2: I'm really sorry, this isn't the episode for you. But
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  Speaker 2: then there'll be people who have maybe gone down the
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  Speaker 2: TikTok wormhole of like debt recycling, and they'll have been
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  Speaker 2: in a way sold a dream because I feel like
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  Speaker 2: once I explain it, you might be like, wow, why
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  Speaker 2: doesn't everyone do this? And the reality is risk. So
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  Speaker 2: when I was a financial advisor, this was a very
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  Speaker 2: valid strategy that I used with a number of clients. Yeah,
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  Speaker 2: but not every client, even though on paper you might go, oh,
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  Speaker 2: but v that sounds so incredible. And I also want
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  Speaker 2: to say up the top, even though we have an
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  Speaker 2: official disclaimer on this podcast as well, this is not
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  Speaker 2: financial advice. Past performance cannot be a reliable predictor of
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  Speaker 2: future performance. And we're not saying that this is a
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  Speaker 2: strategy for everybody. We just want you to understand what
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  Speaker 2: it is and then if you're like, oh, that actually fits,
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  Speaker 2: this is one of those strategies that I would not DIY. Yes,
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  Speaker 2: So this is one of those strategies that if you're like, well,
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  Speaker 2: I listened to this whole episode and I got to
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  Speaker 2: the end and I thought, this is for me that
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  Speaker 2: means you're probably in the financial position to be able
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  Speaker 2: to afford advice, at which point I would say, please
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  Speaker 2: go and get advice on debt recycling, because if you
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  Speaker 2: do it wrong, you will be in a really terrible position.
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  Speaker 3: Yes, yes, absolutely, Okay, so we know for sure that
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  Speaker 3: it's confusing and it might not be for everyone.
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  Speaker 2: But for sal hadn't even explained what it is. We're like,
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  Speaker 2: it's not for you.
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  Speaker 3: It might be for you.
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  Speaker 1: What it is?
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  Speaker 3: I used to do it, but did you used to
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  Speaker 3: do it? So like elusive, so mysterious. So I guess
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  Speaker 3: let's start with the most simple explanation of what debt
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  Speaker 3: recycling actually is.
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  Speaker 2: Cycling is replacing non deductible home loan debt with tax
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  Speaker 2: deductible investment debt.
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  Speaker 3: But it's way more complicated than that. It's more complicated
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  Speaker 3: than that, and that.
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  Speaker 2: So like if you've got a home loan and you're
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  Speaker 2: looking at your mortgage and you're like, oh, let's pretend
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  Speaker 2: it's like five hundred thousand dollars. You can't claim that
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  Speaker 2: on tax, But what you can claim on tax is
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  Speaker 2: investment debt if you had it. Okay, Sometimes we use
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  Speaker 2: a debt recycling strategy to replace non deductible debt, which
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  Speaker 2: is your home loan, with tax deductible debt to build
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  Speaker 2: an investment for fait.
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  Speaker 3: Okay, okay, okay, okay, So I'll run you through the basics.
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  Speaker 3: Thank you.
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  Speaker 2: So let's backtrack a little bit. It's kind of like
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  Speaker 2: creating a mini business. So if I've got a business,
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  Speaker 2: my expense is inside my business before profit. We're not
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  Speaker 2: talking about profit because I have to pay tax on that.
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  Speaker 2: They are tax deductible. Yes, so I'm basically creating a
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  Speaker 2: tiny little business inside my home loan. That is going
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  Speaker 2: to mean that some of my costs now to creating
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  Speaker 2: wealth can be claimed on tax. It's like the investment property, right,
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  Speaker 2: so because it's an investment, you can claim the interest
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  Speaker 2: paid as a tax deduction because it was helping you
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  Speaker 2: generate wealth. And I think that that's quite sexy.
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  Speaker 3: Yeah, that's really really cool. Is how it works.
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  Speaker 2: Number One, you have to have a home loan for this,
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  Speaker 2: so you can't just debt recycle if you've got personal
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  Speaker 2: consumer debt, that's not going to work. You have to
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  Speaker 2: have an ow not occupy a mortgage, which is not
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  Speaker 2: tax deductible. So that's when you buy a house and
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  Speaker 2: you live in and you live in it, it cannot
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  Speaker 2: be your investment property. Yes, so that is already tax
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  Speaker 2: deductible because it's an investment property, and then they will
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  Speaker 2: put it on your personal tax return.
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  Speaker 3: Okay.
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  Speaker 2: Step two is pay down the loan and build some equity.
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  Speaker 2: So paying down the loan means that you'll own more
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  Speaker 2: of the property, so you might make extra repayments to
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  Speaker 2: reduce the home loan balotant's faster than it's required, So
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  Speaker 2: you might have thirty years and you're like, well, if
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  Speaker 2: I make extra payments, it will be done in twenty
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  Speaker 2: five years. And then once you've got equity, which I
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  Speaker 2: think is a concept most people understand. So say you
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  Speaker 2: own that five hundred thousand dollar property back, and you
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  Speaker 2: coughed up one hundred thousand dollars for your deposit. So
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  Speaker 2: when you go to the bank, they go, well, property
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  Speaker 2: is five hundred grand. You actually only need to grow
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  Speaker 2: four hundred thousand dollars from us. Well, you have one
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  Speaker 2: hundred thousand dollars in equity. You can't use that though,
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  Speaker 2: because that's your deposit amount. But then you start paying
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  Speaker 2: it back and let's say you're down to three hundred
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  Speaker 2: and fifty thousand dollars on your mortgage. But you've got
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  Speaker 2: this five hundred thousand dollar house, you might have fifty
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  Speaker 2: thousand dollars in equity. And that's where people might go, Wow,
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  Speaker 2: I can use my equity to buy another house. Yeah,
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  Speaker 2: and I don't need to cough up that deposit again,
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  Speaker 2: which is quite sexy.
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  Speaker 4: Right.
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  Speaker 2: Yeah, that's how people might build their investment portfolios through property. Well,
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  Speaker 2: instead of doing that, you then borrow against your own
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  Speaker 2: mortgage instead of for a house deposit to buy an
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  Speaker 2: investment property, you then borrow an equivalent amount against the
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  Speaker 2: available equity and invest that money in assets that produce income.
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  Speaker 2: So you might go and borrow that fifty grand from
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  Speaker 2: the bank, yes, and put it into the share market.
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  Speaker 3: I understand. I understand.
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  Speaker 2: So you're not buying property, you're not getting another mortgage.
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  Speaker 2: You're going, okay, cool, I'm going to borrow against that.
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  Speaker 2: I want my equity. I want my equity to help
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  Speaker 2: me build wealth, and I'm going to invest it into
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  Speaker 2: you know, for example, for you, you would pull it
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  Speaker 2: out and put.
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  Speaker 3: It on your share seas app. The way my brain's
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  Speaker 3: picturing it's like, you know, when you go to like
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  Speaker 3: Thailand and you want to borrow a motorcycle and you
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  Speaker 3: have to give your license to them as like a deposit.
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  Speaker 3: Let's say, yeah, my friend has given me one hundred dollars,
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  Speaker 3: and I've given them fifty cents as a deposit, just
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  Speaker 3: so they know that they can trust me. Whatever I can't.
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  Speaker 3: I can't touch that fifty cents. That's the deposit. But
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  Speaker 3: I've paid off thirty dollars of this one hundred dollars.
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  Speaker 3: So now with that thirty dollars, I can take it
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  Speaker 3: back literally exactly and use it for somebody or something else. Exactly. Okay, exactly,
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  Speaker 3: Oh my god, amazing, amazing.
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  Speaker 2: But the thing with that is then obviously, if you've
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  Speaker 2: pulled out your equity, yeah, your home loan is now
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  Speaker 2: back at four hundred thousand dollars. Yes, got you, which
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  Speaker 2: is okay, but we need to be very aware of that.
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  Speaker 2: This isn't like free money where you go, oh, I've
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  Speaker 2: got equity and I pulled it out, hurrah. Like when
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  Speaker 2: you pull equity out of a property, your loan is
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  Speaker 2: going to increase again. Yeah, so you would have the
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  Speaker 2: three hundred and fifty thousand dollars that is still owing
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  Speaker 2: on the house, and you would have the fifty thousand
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  Speaker 2: dollars that you've pulled out as cash, which would be.
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  Speaker 3: Chucked into the mortgage and in the mix.
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  Speaker 2: So your debt is back to four hundred thousand dollars,
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  Speaker 2: but you've now got fifty grand of cash that you've
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  Speaker 2: cashed out of that property that we can now use
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  Speaker 2: to build wealth.
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  Speaker 3: Okay, sitting to the site.
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  Speaker 2: Yeah, so yes, your debt over here is you know,
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  Speaker 2: still high, but we've got some flexibility and we've got
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  Speaker 2: some ability to create wealth. And for a lot of
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  Speaker 2: people who have home loans and I feel like I'm
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  Speaker 2: going off my life list, this can be a very
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  Speaker 2: attractive option because we're all trying to smash down our homes.
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  Speaker 2: Maybe you are trying to build wealth and you don't
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  Speaker 2: have any additional cash flow, but your area has increased
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  Speaker 2: in value over the last twelve months, and all of
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  Speaker 2: a sudden, you've got some equity and you're like, well,
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  Speaker 2: this might actually help me get ahead because I can't
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  Speaker 2: invest one thousand dollars a month, like we don't have
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  Speaker 2: that free cash flow, but we have some equity in
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  Speaker 2: our property and we could invest that and over the
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  Speaker 2: long term, this might come out in the wash in
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  Speaker 2: a way better Wayeah, once we've got that cash out,
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  Speaker 2: and we'll talk about the actual assets that you purchase
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  Speaker 2: in a minute. But you earn, you save, and then
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  Speaker 2: you repeat. So the investments, ideally, like in a perfect world,
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  Speaker 2: generate returns that you then use, along with any tax
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  Speaker 2: savings from interest deductibility, to further pay down your remaining
• 9:49
  Speaker 2: home loan. So you take that fifty grand, you put
• 9:52
  Speaker 2: it into your investment account. Your ETF on average will
• 9:56
  Speaker 2: perform it. We all know the Australian share market performs
• 9:58
  Speaker 2: at about ten percent. Ever ever, ever use that as
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  Speaker 2: a baseline. But let's pretend it performs at six percent, right,
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  Speaker 2: So that performs at six percent. You take that instead
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  Speaker 2: of reinvesting the dividends. You take that six percent, you
• 10:12
  Speaker 2: pay off your mortgage.
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  Speaker 3: So you withdraw it.
• 10:14
  Speaker 2: Yes, you pull that cash out and pay off your
• 10:16
  Speaker 2: mortgage and we start smashing our mortgage down again. So
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  Speaker 2: over time, that fifty thousand dollars that you've put into
• 10:24
  Speaker 2: the share market, you know, it's still fifty grand. It's recycling,
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  Speaker 2: it's making you some money. You're taking that money, you're
• 10:29
  Speaker 2: paying off your debt, and hopefully we get to a
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  Speaker 2: point where we have another fifty thousand dollars in equity,
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  Speaker 2: we can do it again and then have one hundred
• 10:36
  Speaker 2: thousand dollars in our share portfolio. So we're kind of
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  Speaker 2: swapping one debt for the other and cashing it out
• 10:41
  Speaker 2: in cash. We're paying back the original loan to make
• 10:44
  Speaker 2: sure that you know we're not screwing ourselves over. But
• 10:48
  Speaker 2: the six percent is important right now because our interest
• 10:51
  Speaker 2: rate is less than six percent. Oh my god. So
• 10:54
  Speaker 2: the debt that you're paying for, so if you've got
• 10:57
  Speaker 2: a good mortgage broker, they will be on it, it
• 10:59
  Speaker 2: will be deaf less than six percent. If not, come
• 11:01
  Speaker 2: and see Zella Money and we will fix that up
• 11:03
  Speaker 2: for you. But on average, we know that you will
• 11:07
  Speaker 2: kind of take some cream off the top of that,
• 11:09
  Speaker 2: be able to pay your mortgage back quicker.
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  Speaker 3: But the amount that you're making back from your investments,
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  Speaker 3: is that not taxable?
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  Speaker 2: Yes, but your interest payable on that now becomes tax
• 11:20
  Speaker 2: deductible because it's an investment. Oh so you're right, you'll
• 11:24
  Speaker 2: have more income, that's fantastic, but you'll also have a
• 11:27
  Speaker 2: tax deductible debt, whereas before you did.
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  Speaker 3: Not, Okay, So why would someone debt recycle? Good question.
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  Speaker 2: Number one answer is to make money, ye, right, Like
• 11:40
  Speaker 2: if we do the numbers on paper, even on the
• 11:43
  Speaker 2: back of an envelope, your interest rate on your homeland,
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  Speaker 2: let's pretend it's five percent. The average rate of return
• 11:49
  Speaker 2: of the Australian share market is ten percent. Yes, we're
• 11:52
  Speaker 2: not going to rely on ten percent. When I'm talking
• 11:54
  Speaker 2: about debt recycling, or when I was talking about debt
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  Speaker 2: recycling with my financial advice clients, I'm so conservative. And
• 12:01
  Speaker 2: I'm conservative because I never want you to screw yourself
• 12:04
  Speaker 2: over and I don't want to be party to that either. Right,
• 12:08
  Speaker 2: So we would always use numbers like six percent because
• 12:11
  Speaker 2: that's very conservative. When we're talking about the Australian share market.
• 12:15
  Speaker 2: You might see me say, oh, the average rate of
• 12:17
  Speaker 2: return is, you know, eleven percent for the Australian share
• 12:20
  Speaker 2: market over the last thirty years. But I really like
• 12:22
  Speaker 2: to rely on seven and a half percent when projecting
• 12:24
  Speaker 2: a very vanilla investment portfolio. But when we're talking about
• 12:27
  Speaker 2: debt recycling, because there's another layer of risk. There's your
• 12:30
  Speaker 2: home loan and your cash flow playing about I drop
• 12:33
  Speaker 2: it down again to about six percent, just to make
• 12:36
  Speaker 2: sure we're all merry and bright, like, I just don't
• 12:39
  Speaker 2: want anyone to be in a financial pickle. And if
• 12:41
  Speaker 2: the numbers don't work at six percent, then I would say,
• 12:45
  Speaker 2: please don't do it, because it's probably too risky because
• 12:48
  Speaker 2: if the market changes or we you know what the
• 12:50
  Speaker 2: interest rates have done recently. Yes they're dropping now, but
• 12:53
  Speaker 2: they went through the roof. Can you imagine somebody who
• 12:56
  Speaker 2: was like, Okay, this works for me, but only if
• 12:59
  Speaker 2: the share market returns eleven percent and then their mortgage
• 13:02
  Speaker 2: interest rate doubled, Like, oh no, that would be stressful.
• 13:05
  Speaker 2: They might have been forced to sell their home or
• 13:08
  Speaker 2: like change their strategy, or sell down their entire investment
• 13:11
  Speaker 2: portfolio that they've just invested money in when the market's off,
• 13:14
  Speaker 2: thus losing a heap of money so that they can
• 13:16
  Speaker 2: save the house, and they're in a worse off financial position.
• 13:19
  Speaker 2: We don't want that for our community back. So that
• 13:22
  Speaker 2: is why we're conservative. It's not because I'm like, oh,
• 13:24
  Speaker 2: just be conservative. No, It's because I'm trying to save
• 13:27
  Speaker 2: your asspect yep. Obviously, because you're making money in the
• 13:31
  Speaker 2: share market and you're taking some of that money and
• 13:34
  Speaker 2: putting it on your mortgage in addition to your regular repayments.
• 13:38
  Speaker 2: You will probably and I have to use words like
• 13:40
  Speaker 2: probably or maybe your can because can't say guaranteed, you
• 13:43
  Speaker 2: will probably pay off your home faster. Sure, runny in
• 13:47
  Speaker 2: it gives you the opportunity to diversify further than just
• 13:52
  Speaker 2: having property. You get to go into other asset classes
• 13:55
  Speaker 2: and build an investment portfolio sooner, because, as I said before,
• 13:59
  Speaker 2: if you've got a get you usually pretty hamstrung. But
• 14:02
  Speaker 2: let's be honest, like we are chucking all our free
• 14:04
  Speaker 2: cash flow there, especially in this economy. So to then go, hey, Beck,
• 14:07
  Speaker 2: have you got an extra five hundred dollars or one
• 14:08
  Speaker 2: thousand dollars to invest in the share market? You're like, no, Queen,
• 14:12
  Speaker 2: I have to pay off my mortgage first, and then
• 14:13
  Speaker 2: I'll do that. Yeah, totally say on the show all
• 14:16
  Speaker 2: the time. The value is time in the market, not
• 14:20
  Speaker 2: timing the market. So the sooner you get started, the
• 14:23
  Speaker 2: better off you are.
• 14:25
  Speaker 3: And so not both they say or lost does That's
• 14:28
  Speaker 3: what I was trying to think. No, got you, got you,
• 14:32
  Speaker 3: got you.
• 14:32
  Speaker 2: We also do it obviously previously mentioned to convert part
• 14:36
  Speaker 2: of the home loan interest into tax deductible investment interest.
• 14:40
  Speaker 2: That's going to lower your tax bill.
• 14:41
  Speaker 3: Money win.
• 14:43
  Speaker 2: Obviously, I want you to be in a better financial position,
• 14:45
  Speaker 2: and something like this could help to improve your long
• 14:48
  Speaker 2: term wealth creation. And the other thing, which is probably
• 14:52
  Speaker 2: a little bit more complex and something that people aren't
• 14:54
  Speaker 2: looking at, but I definitely do, is to hedge against inflation. Okay,
• 14:59
  Speaker 2: And just to like quickly explain that because I always
• 15:01
  Speaker 2: think it's really important, because I've probably said a million
• 15:04
  Speaker 2: times on the show, if you're just saving your money,
• 15:06
  Speaker 2: you are going behind. There is a concept that says
• 15:09
  Speaker 2: a dollar today is not worth a dollar tomorrow. So
• 15:12
  Speaker 2: if you are offering me a dollar back, I have
• 15:15
  Speaker 2: more value in that dollar today if I go, yeah,
• 15:18
  Speaker 2: just give it to me now than if you gave
• 15:20
  Speaker 2: it to me in a month or a year or
• 15:21
  Speaker 2: ten years, because the cost of goods and services rises
• 15:25
  Speaker 2: over time. So today, if I took that dollar to
• 15:27
  Speaker 2: the shops, I could buy more than I could do
• 15:30
  Speaker 2: with that dollar, not if it had any interest or anything.
• 15:33
  Speaker 2: It's just like a straight dollar in a year, yep. Right,
• 15:36
  Speaker 2: So a dollar today is worth more than a dollar tomorrow.
• 15:39
  Speaker 2: And we know that over time, inflation reduces the value
• 15:43
  Speaker 2: of money. So if you borrowed at a fixed rate
• 15:47
  Speaker 2: and then use that money to invest in assets that
• 15:49
  Speaker 2: actually grow above the rate of inflation, the real value
• 15:54
  Speaker 2: of your original debt decreases with inflation, while your investment
• 15:58
  Speaker 2: potentially increase, meaning that you're paying off tomorrow's debt with
• 16:03
  Speaker 2: today's cheaper dollar. Got you. We're using money that we
• 16:07
  Speaker 2: don't currently have to invest to be ahead.
• 16:09
  Speaker 3: In the future. It does sound like a good deal.
• 16:12
  Speaker 3: I mean, making money is good. Huh. So why are
• 16:15
  Speaker 3: you always saying that people who wanted it recycle shoud
• 16:17
  Speaker 3: get professional advice first? If it's like you know, it
• 16:19
  Speaker 3: kind of feels like.
• 16:19
  Speaker 2: A kind of logical because you're just swapping one for
• 16:22
  Speaker 2: the other, Right, Yeah, I guess you're paying interest on
• 16:25
  Speaker 2: your debt and you can't deduct that.
• 16:29
  Speaker 3: That's just a cost.
• 16:30
  Speaker 2: But on the flip side, you'll be making interest in
• 16:33
  Speaker 2: the share market. Yeah, well, swapping one for the other.
• 16:35
  Speaker 2: And I want to make money, and I'm happy to,
• 16:37
  Speaker 2: as we've said a million times on the show, happy
• 16:40
  Speaker 2: to pay tax because if I'm paying tax, I'm making money.
• 16:42
  Speaker 2: More tax I'm paying the more money I'm making and
• 16:44
  Speaker 2: that's a really good deal. People don't like talking about
• 16:48
  Speaker 2: tax positively though when they can't manage their cash flow,
• 16:51
  Speaker 2: because they go, oh my god, I got this big
• 16:53
  Speaker 2: tax bill and it's like, well, that tax money was
• 16:55
  Speaker 2: never yours to spend, but you did.
• 16:57
  Speaker 3: Now we're in a pickle.
• 16:58
  Speaker 2: Sure, so it sounds simple, and it sounds logical to
• 17:01
  Speaker 2: swap one for the other and go, what a clean
• 17:03
  Speaker 2: little switch a room money win. And when you first
• 17:06
  Speaker 2: hear about it, and that's why I said, some people
• 17:08
  Speaker 2: listening to this could have gone down the TikTok wormhole.
• 17:11
  Speaker 2: You might think, well, why isn't every single person doing this?
• 17:13
  Speaker 2: Why isn't everyone using their equity to get ahead? But
• 17:17
  Speaker 2: the reality is, debt recycling is a really high risk strategy.
• 17:21
  Speaker 2: There are so many different places along the road where
• 17:25
  Speaker 2: this could go wrong or this could fall off track.
• 17:28
  Speaker 2: In a perfect world, the return on your investments needs
• 17:31
  Speaker 2: to be higher consistently than the after tax cost of
• 17:35
  Speaker 2: your homeland.
• 17:36
  Speaker 3: Got you, got you, got you.
• 17:37
  Speaker 2: So let's say you're borrowing at I'm going to use
• 17:39
  Speaker 2: the same example numbers because I'm just a consistent early
• 17:43
  Speaker 2: Sometimes when I'm talking to ex financial advice clients. They're like,
• 17:47
  Speaker 2: I listen to your podcast sometimes and it's just like
• 17:49
  Speaker 2: going back in time, Like you still use the same examples,
• 17:53
  Speaker 2: And I'm like, don't out me, Like, I just have
• 17:57
  Speaker 2: my numbers in my head.
• 17:58
  Speaker 3: These things work.
• 17:59
  Speaker 2: So I've capt how things work at five percent and
• 18:01
  Speaker 2: at seven and a half percent. If you asked me
• 18:03
  Speaker 2: about six and a half percent, I'm like, those numbers
• 18:05
  Speaker 2: don't live in my head.
• 18:06
  Speaker 3: Shah No.
• 18:06
  Speaker 2: But let's say you borrow at five percent, right, just
• 18:10
  Speaker 2: to use round numbers and things that maybe Victory Devine
• 18:12
  Speaker 2: is comfortable with. And you're in a thirty percent tax bracket,
• 18:16
  Speaker 2: which most of us are after tax, that interest effectively
• 18:21
  Speaker 2: costs you only three and a half percent instead of five. Okay,
• 18:26
  Speaker 2: so you've dropped that interest rate from five to three
• 18:29
  Speaker 2: and a half percent, which sounds very sexy. Sure that
• 18:31
  Speaker 2: means your investment needs to consistently return you more than
• 18:36
  Speaker 2: three and a half percent per year just to break even.
• 18:40
  Speaker 3: Yeah.
• 18:41
  Speaker 2: So if the market for some reason one year was
• 18:43
  Speaker 2: completely off and your share portfolio returned one percent, maybe
• 18:46
  Speaker 2: you're behind, and that can be scary. But when you
• 18:50
  Speaker 2: have a good logical financial plan and backup options and
• 18:52
  Speaker 2: someone on your team helping to make sure that this
• 18:54
  Speaker 2: works properly not as much of an issue. But if
• 18:57
  Speaker 2: you're raw dogging it and doing it on your own,
• 18:59
  Speaker 2: I can promise that when that time comes, you're not
• 19:01
  Speaker 2: going to have that plan and that strategy in place.
• 19:05
  Speaker 2: If they don't, you're losing money, got you, And the
• 19:09
  Speaker 2: gap between what your investments are earning and what you're
• 19:11
  Speaker 2: paying in interest just don't add up, and you're not
• 19:13
  Speaker 2: actually in a better financial position. So unless your returns
• 19:17
  Speaker 2: BECK are comfortably higher than that over the long term,
• 19:22
  Speaker 2: debt recycling won't actually create a financial benefit, which is
• 19:25
  Speaker 2: why when I was a financial advisor, debt recycling wasn't
• 19:28
  Speaker 2: a short term strategy. It was always a long term strategy.
• 19:31
  Speaker 2: So we're doing debt recycling minimum ten years because you
• 19:35
  Speaker 2: know how I say, you would never invest in the
• 19:38
  Speaker 2: share market for less than ten years, because you know
• 19:40
  Speaker 2: the share market ebbs and flows. We need to be
• 19:42
  Speaker 2: able to smooth all of that out. And the only
• 19:45
  Speaker 2: thing that can do that for us is time. Yep,
• 19:47
  Speaker 2: you can't do it by picking good investments. Because Beck,
• 19:50
  Speaker 2: if you could just pick good investments, I'd be so rich. Yeah, yeah,
• 19:54
  Speaker 2: I'd be filthy rich. It wouldn't even need a podcast.
• 19:57
  Speaker 2: That's a lie. I'm a white girl with a podcast.
• 20:00
  Speaker 3: I need to keep it. You need it.
• 20:01
  Speaker 2: But even if that maths works on paper, real life
• 20:05
  Speaker 2: isn't smooth.
• 20:06
  Speaker 3: No, Like you know what It's like.
• 20:08
  Speaker 2: You can make a budget and then at the end
• 20:10
  Speaker 2: of the month, you're like, how did.
• 20:12
  Speaker 3: I blow that?
• 20:13
  Speaker 2: That is so crazy? I got invited out to drinks
• 20:16
  Speaker 2: four times and I went all four times. I'll get
• 20:20
  Speaker 2: back on the savings train next month. So it's not
• 20:23
  Speaker 2: that the share market is going to screw you around.
• 20:25
  Speaker 2: It's not that your homeloann is going to change. Life
• 20:28
  Speaker 2: is bumpy. Life is lumpy. What happens when life happens
• 20:32
  Speaker 2: and you have a child. What happens if you want
• 20:34
  Speaker 2: to say, for a marriage, What happens if you just
• 20:37
  Speaker 2: want to go on a big holiday or you want
• 20:39
  Speaker 2: to buy your partner a really fancy big Christmas gift.
• 20:42
  Speaker 2: Like life gets in the way, and we've already seen
• 20:45
  Speaker 2: zooming out and looking at actual economics, we've already seen
• 20:49
  Speaker 2: a lot of volatility in the global markets while Trump
• 20:53
  Speaker 2: has been back in power. It's psychotic, Beck, I know
• 20:56
  Speaker 2: you don't follow it. But like, girl, no, I know,
• 20:59
  Speaker 2: investment tea is piping over there, like it is so
• 21:03
  Speaker 2: interesting watching then basically set fire to everything. Sure, it
• 21:08
  Speaker 2: drives me insane, but also I can't look away. I
• 21:10
  Speaker 2: literally can't look away. So if we have another market dip, yeah,
• 21:14
  Speaker 2: your investments in your share portfolio could fall really sharply.
• 21:19
  Speaker 3: Sure, and while your.
• 21:20
  Speaker 2: Debt stays exactly the same, that doesn't necessarily put you
• 21:23
  Speaker 2: in the best position. Does that mean it's a bad
• 21:25
  Speaker 2: thing long term? No, because we build in a buffer
• 21:29
  Speaker 2: for volatility and all of that fun stuff. But that's
• 21:33
  Speaker 2: the core risk, right, Like you're using borrowed money to invest.
• 21:38
  Speaker 2: It wasn't cash that you go, it's down so tomorrow, Beck,
• 21:41
  Speaker 2: if you logged into your share portfolio and you saw
• 21:45
  Speaker 2: that your investments were down, let's pretendless speed dramatic. Your
• 21:48
  Speaker 2: investments are down fifty percent. Sure, you feel gross, right,
• 21:52
  Speaker 2: Like that's not good?
• 21:53
  Speaker 3: You're like shit, like arry.
• 21:55
  Speaker 2: Yeah, but like we're not going to sell because like
• 21:57
  Speaker 2: we know enough about investing to know we still own
• 21:59
  Speaker 2: the same amount of shares and over time it'll come back, right, totally,
• 22:02
  Speaker 2: But what if that money was borrowed? Yeah, you think
• 22:05
  Speaker 2: about the additional layer of stress that you've got. You're like, well,
• 22:07
  Speaker 2: what is stressful? I am now paying back the same amount. Yeah,
• 22:12
  Speaker 2: that I have to pay back for that money that
• 22:14
  Speaker 2: I borrowed and it's not even performing. That's even more stressful. Yeah,
• 22:18
  Speaker 2: right than just seeing your share portfolio go down. And
• 22:20
  Speaker 2: we need to take that into consideration. So when you're
• 22:24
  Speaker 2: using borrowed money to invest and when markets go against you,
• 22:29
  Speaker 2: that magnifies the downside, it makes it even worse. So
• 22:32
  Speaker 2: you still have to repay the loan. The loan doesn't
• 22:35
  Speaker 2: care about what the market is doing. They're like, no, no, no,
• 22:38
  Speaker 2: we had an agreement over here. You don't just get
• 22:40
  Speaker 2: out of paying interest because your market's down. That was
• 22:43
  Speaker 2: your choice, baby cakes. So even if your returns completely
• 22:46
  Speaker 2: disappear or worse go negative, that's all you. And that's
• 22:51
  Speaker 2: why I'm like, ah, it's a bit risky, it'll be
• 22:54
  Speaker 2: guaranteed to happen because I can almost guarantee. The comments
• 22:57
  Speaker 2: on Spotify today are going to have people being like,
• 23:00
  Speaker 2: dert recycling is amazing. I've been doing it for years.
• 23:02
  Speaker 2: I don't know why she's so negative. I'm not being negative.
• 23:06
  Speaker 2: I just need to tell you all of the risks
• 23:08
  Speaker 2: and put on the table a very clear picture so
• 23:10
  Speaker 2: you can make a decision that works for you. And
• 23:12
  Speaker 2: if it works for you, queen, that's because you're high risk.
• 23:15
  Speaker 3: That's cool.
• 23:16
  Speaker 2: But can you imagine all the really conservative people listening
• 23:19
  Speaker 2: to this going, Oh, I thought because it was my
• 23:21
  Speaker 2: home loan and it was like a bit more of
• 23:22
  Speaker 2: a conservative like solution. Sure, but in reality it's actually
• 23:26
  Speaker 2: more risky than just investing cash into the share market.
• 23:29
  Speaker 3: So what else do we need to be aware of?
• 23:32
  Speaker 2: You want me to be more negative? You want like
• 23:34
  Speaker 2: more like bata By stories. You're just like, you know what,
• 23:37
  Speaker 2: let's fire these people up in the Spotify comments.
• 23:40
  Speaker 1: Yeah, yeah, yeah.
• 23:42
  Speaker 2: Interest rate changes is a good one to talk about.
• 23:44
  Speaker 2: They can have a really big impact on your cash flow,
• 23:48
  Speaker 2: as we already know, because they directly affect whether debt
• 23:51
  Speaker 2: recycling is going to stack up financially or not. Like,
• 23:54
  Speaker 2: if your interest rate increases, right, you could go from
• 23:58
  Speaker 2: paying one thousand dollars a month on your mortgage to
• 24:01
  Speaker 2: twelve hundred dollars on your mortgage. Where is that extra
• 24:03
  Speaker 2: two hundred dollars going to come from? How does that work?
• 24:07
  Speaker 2: Is that meaning that you're like a little bit more
• 24:09
  Speaker 2: hamstrung because we've also further leveraged that debt, Like you
• 24:13
  Speaker 2: can't just pull out some equity at that point, like
• 24:15
  Speaker 2: it's already been used. So this strategy was very appealing
• 24:20
  Speaker 2: when I was a financial advisor, right like when I
• 24:23
  Speaker 2: was a financial advice which is so terrifyingly eight years ago,
• 24:29
  Speaker 2: like when I was really really in it whole decade
• 24:31
  Speaker 2: lettax try. Like I was looking at this the other
• 24:34
  Speaker 2: day because someone was like, how old is Zella, Like
• 24:36
  Speaker 2: how old is your mortgage working business? Because I feel
• 24:38
  Speaker 2: like it's been in the background for so long, And
• 24:41
  Speaker 2: I was like, oh, actually, let me let me have
• 24:43
  Speaker 2: a look, because like there's been some like business changes
• 24:45
  Speaker 2: over the time, like I've got new entities, so like
• 24:48
  Speaker 2: you know, if you look at my ABN, it'll be like, oh,
• 24:50
  Speaker 2: established in XYZ, it's ten years bick. That's crazy, I know,
• 24:56
  Speaker 2: like time flies when you're doing finance. But when I
• 25:01
  Speaker 2: was an active financial advisor, this was a very sexy
• 25:04
  Speaker 2: strategy for a lot of my clients because we had
• 25:07
  Speaker 2: a period of very low interest so from like twenty
• 25:12
  Speaker 2: ten to maybe twenty twenty one, you could borrow money
• 25:15
  Speaker 2: for like three percent. So home loans were like three percent,
• 25:18
  Speaker 2: and that's really sexy, even leveraged like share portfolio options.
• 25:22
  Speaker 2: Different conversation. They were really low interest and the markets
• 25:26
  Speaker 2: were returning more than seven percent consistently. The maths maths there, Yeah, totally,
• 25:31
  Speaker 2: that makes sense. I had lots of clients that would
• 25:34
  Speaker 2: be like, this makes sense and that type of gap
• 25:36
  Speaker 2: you go money in.
• 25:38
  Speaker 3: Yeah, I'm not sure.
• 25:39
  Speaker 2: What's going to go on this year with interest rates,
• 25:42
  Speaker 2: but we will see because we've seen them last year
• 25:45
  Speaker 2: drop a few times, but then the market got a
• 25:47
  Speaker 2: bit rocky. Trump's crazy, all of that fun stuff. But
• 25:52
  Speaker 2: recent peaks in interest rates have seen people paying even
• 25:56
  Speaker 2: seven or nine percent on their mortgages and they didn't
• 25:59
  Speaker 2: have a t or if no one signs up to
• 26:00
  Speaker 2: a nine percent mortgage going, oh a good deal, But
• 26:03
  Speaker 2: they were forced into it because their interest rates just
• 26:06
  Speaker 2: increased after COVID and then the numbers wouldn't have been
• 26:09
  Speaker 2: stacking up. So this is where a financial advisor steps
• 26:14
  Speaker 2: in and makes sure that you're financially sound. So I
• 26:17
  Speaker 2: know a lot of my clients because to be honest,
• 26:20
  Speaker 2: I'm just friends with them now. A lot of them
• 26:22
  Speaker 2: who were debt recycling during the like late twenty tens
• 26:26
  Speaker 2: through to twenty twenty one. Those people often wound down
• 26:31
  Speaker 2: their debt recycling plan because they were like, wait, interest
• 26:34
  Speaker 2: rates are going up, this is a little bit more risky.
• 26:36
  Speaker 2: We're not going to leverage that even further. Yes, we've
• 26:39
  Speaker 2: got a bit more equity, but we're not going to
• 26:40
  Speaker 2: take that out anymore. But they're working with a financial
• 26:43
  Speaker 2: advisor to make that financial strategy really work for them
• 26:46
  Speaker 2: instead of going, what do we do?
• 26:47
  Speaker 3: How do we do it?
• 26:48
  Speaker 2: Because everything sunshine and rose is when you set it
• 26:50
  Speaker 2: up perfectly. Yeah, but what happens when the market shakes?
• 26:53
  Speaker 2: What happens when things move? What happens when your leveraged
• 26:56
  Speaker 2: option isn't as good as it used to be and
• 26:59
  Speaker 2: you need someone there to help you through that. Because
• 27:02
  Speaker 2: now your borrowing costs are much higher. It is so
• 27:05
  Speaker 2: much harder for your investments to outperform the tax and
• 27:08
  Speaker 2: the fees and everything else associated. So you're not just
• 27:11
  Speaker 2: building in like oh yeah, it's cut clean. It's still
• 27:14
  Speaker 2: going to pay tax because you're making money on that investment.
• 27:17
  Speaker 2: It's still going to pay your loan repayments. We just
• 27:19
  Speaker 2: need to make sure it's all coming out in the wash.
• 27:22
  Speaker 2: And then there's the fact that it adds I would say,
• 27:26
  Speaker 2: a very clean level of complexity to your finances. No
• 27:29
  Speaker 2: longer is it cashing cash out if you are not
• 27:32
  Speaker 2: good at record keeping, and it is not like you're
• 27:37
  Speaker 2: not making clear and consistent records for your bookkeeper or
• 27:41
  Speaker 2: for your accountant. You probably don't have a bookkeeper unless
• 27:44
  Speaker 2: you're a business owner, but for your accountant, right, you
• 27:46
  Speaker 2: could actually lose the tax deductibility of the interest altogether
• 27:50
  Speaker 2: because you haven't tracked it well. And if you haven't
• 27:52
  Speaker 2: tracked it, we can't claim it. Yeah, okay, And if
• 27:54
  Speaker 2: I can't claim it because we haven't tracked it, what
• 27:56
  Speaker 2: was the point in bothering.
• 27:57
  Speaker 3: Because that was where the benefit was totally.
• 28:00
  Speaker 2: And I've seen that so many times because people just
• 28:03
  Speaker 2: don't keep clean records. And then it's twelve months later
• 28:05
  Speaker 2: and they haven't done their tax return and they're like,
• 28:07
  Speaker 2: I can claim a heap, and I'm like, cool, where's
• 28:09
  Speaker 2: the information? Sure, They're like I don't know, And I'm like, well,
• 28:12
  Speaker 2: if you can't find it, I can't claim it. Yeah,
• 28:14
  Speaker 2: I see, not that I'm an accountant, but like I've
• 28:16
  Speaker 2: had these conversations before with people. I'm like, well, you
• 28:19
  Speaker 2: need to take that to your accountant. They're not going
• 28:21
  Speaker 2: to claim it if you can't prove it. You can't
• 28:24
  Speaker 2: be like, oh yeah that was tax deductible cough. Like
• 28:27
  Speaker 2: the ATO doesn't put up with that Unfortunatelyause I'd be
• 28:31
  Speaker 2: pulling swift is left, right and center, and i would
• 28:34
  Speaker 2: say maybe like trying to wrap this up real quick,
• 28:38
  Speaker 2: but it's not quick because I really like talking about it.
• 28:40
  Speaker 3: I'm so sorry.
• 28:41
  Speaker 2: Maybe the biggest risk of all is that if things
• 28:45
  Speaker 2: go badly back, Yeah.
• 28:46
  Speaker 3: You're putting your home on the line, got you. Yeah,
• 28:48
  Speaker 3: that's true.
• 28:49
  Speaker 2: Like at the end of the day, it's not about
• 28:50
  Speaker 2: the cash flow, it's not about the benefit. It's the ultimately,
• 28:55
  Speaker 2: we're not just putting share money into the share market,
• 28:58
  Speaker 2: and if we lost, it would be a because like
• 29:01
  Speaker 2: life happens, and I'm not saying that's a valid outcome,
• 29:05
  Speaker 2: but like, you're leveraging against your family home. And I'm
• 29:07
  Speaker 2: assuming you bought your family home for the same reasons
• 29:10
  Speaker 2: most people do, and that is security. It is to
• 29:13
  Speaker 2: put a roof over your family's head. It is to
• 29:15
  Speaker 2: create that level of security that you craved. H Most
• 29:20
  Speaker 2: people who have properties that they live in aren't living
• 29:23
  Speaker 2: in them because they're like, oh, this is a great
• 29:24
  Speaker 2: wealth creation strategy, because your family home is not. A
• 29:27
  Speaker 2: wealth creation strategy can be because it might increase significantly
• 29:32
  Speaker 2: in value.
• 29:34
  Speaker 3: Back to access that value, you have to sell it.
• 29:36
  Speaker 2: Yeah, And like, if I've just bought my family home
• 29:38
  Speaker 2: and it's my dream family home, it doesn't matter whether
• 29:41
  Speaker 2: it's worth ten dollars or ten million dollars, I don't
• 29:43
  Speaker 2: want to move house. Yeah, I don't want to like downsize.
• 29:46
  Speaker 2: Downsizing valid strategy, but not for most people once they've
• 29:51
  Speaker 2: reached the goal of buying their dream home. Right, of course,
• 29:55
  Speaker 2: you're leveraging your biggest asset to invest, and that carries
• 29:59
  Speaker 2: very very real consequences if markets drop, or your situation changes,
• 30:03
  Speaker 2: or things aren't going as smoothly and as vanilla as
• 30:06
  Speaker 2: they could. So I would say, and this is why
• 30:09
  Speaker 2: I'm so not negative, but just apprehensive and want you
• 30:12
  Speaker 2: to have all of the like pieces of the puzzle
• 30:15
  Speaker 2: to make a decision. And that's why you should never
• 30:18
  Speaker 2: use this strategy just because it sounds clever, or because
• 30:21
  Speaker 2: you've watched a TikTok or because you're like, I really
• 30:23
  Speaker 2: want a huge tax break and this is so smart
• 30:26
  Speaker 2: it works out on paper. You need to fully understand
• 30:29
  Speaker 2: the risks and be completely comfortable with them before you
• 30:32
  Speaker 2: dive in.
• 30:32
  Speaker 3: So I feel like, let's take a really quick break
• 30:34
  Speaker 3: because I think that's a lot to absorb. And when
• 30:37
  Speaker 3: we come back, let's get into the juicy stuff. How
• 30:39
  Speaker 3: do you actually debt recycles successfully? Okay, we're back, and
• 30:47
  Speaker 3: so first half this episode we really got into the
• 30:49
  Speaker 3: nitty gritty of it. If you still unsure, I want
• 30:52
  Speaker 3: to know who does a suit and what other information
• 30:54
  Speaker 3: can you give us?
• 30:55
  Speaker 2: Okay, So there are two sides to this, and if
• 30:57
  Speaker 2: you want a debt recycle, you need to look at
• 30:59
  Speaker 2: both your financial situation. We need to have a look
• 31:02
  Speaker 2: at your personality and your behavioral type. And personally, I
• 31:06
  Speaker 2: wouldn't be considering it if it doesn't fit both. Okay,
• 31:09
  Speaker 2: So like, if financially you're like, oh, that makes sense,
• 31:11
  Speaker 2: and I really want to take a risk because I'm
• 31:13
  Speaker 2: not really.
• 31:13
  Speaker 3: A big risk take up. Nope, you're out. Okay, you're out.
• 31:16
  Speaker 2: It has to match both, and if it doesn't match both,
• 31:18
  Speaker 2: it's not your strategy, and that's fine. We'll find a
• 31:20
  Speaker 2: different one for you to create wealth. Sure from a
• 31:22
  Speaker 2: financial perspective, debt recycling might suit you, and I've done
• 31:27
  Speaker 2: a list so that I can smash it out for you.
• 31:29
  Speaker 3: Beck, Yes, it might suit you.
• 31:31
  Speaker 2: If you're a homeowner and you have available equity, yeap
• 31:34
  Speaker 2: white suit you. If you have stable, predictable income, if
• 31:37
  Speaker 2: you already have really strong budgeting habits, positive cash flow,
• 31:42
  Speaker 2: know what's coming in, know what's going out. You don't
• 31:45
  Speaker 2: have a budget, don't even consider this, sorry, Like, if
• 31:48
  Speaker 2: you don't know what's coming in and coming out, you're out.
• 31:51
  Speaker 2: You have to have an emergency fund. That's not a
• 31:54
  Speaker 2: legal requirement, that's a victoria requirement. If you do not
• 31:57
  Speaker 2: have an emergency fund, I will not allow you to
• 31:59
  Speaker 2: do this. In addition, you don't have consumer debt, Like,
• 32:03
  Speaker 2: you don't have high levels of personal or consumer debt.
• 32:06
  Speaker 2: So like you're not relying on a credit card because
• 32:09
  Speaker 2: that would go in direct opposition to you being good
• 32:12
  Speaker 2: at cash flow. You have a long term investment horizon,
• 32:16
  Speaker 2: so you're like, okay, cool, Like, I know this isn't
• 32:18
  Speaker 2: a two year strategy.
• 32:18
  Speaker 3: I know this is a ten plus year strategy.
• 32:20
  Speaker 2: And I'm in for the long haul and you can
• 32:23
  Speaker 2: afford to meet all of your loan obligations even if
• 32:26
  Speaker 2: the interest rate increases or if the market dips, like
• 32:30
  Speaker 2: and we need to map out both of those situations,
• 32:32
  Speaker 2: Like what happens if interest rates increase and you have
• 32:34
  Speaker 2: to pay more for your loan? Okay?
• 32:36
  Speaker 3: Could you still afford that?
• 32:37
  Speaker 2: And you go yeah, great, no worries like, I mean
• 32:39
  Speaker 2: you don't want to, but yes I could. And on
• 32:41
  Speaker 2: the flip side, what if the market dips and we're
• 32:43
  Speaker 2: not generating that income to pay off your loan?
• 32:45
  Speaker 3: Quicker?
• 32:46
  Speaker 2: What happens then I still financially sound you'd be like annoyed,
• 32:49
  Speaker 2: but financially.
• 32:50
  Speaker 3: Sound, Okay, we can go ahead.
• 32:51
  Speaker 2: Then from the personality and like the behavioral side, it
• 32:56
  Speaker 2: might suit you if you are comfortable taking on a
• 33:00
  Speaker 2: more risk, so like I would not be talking to
• 33:04
  Speaker 2: somebody about this strategy if they've never invested in the
• 33:06
  Speaker 2: share market.
• 33:07
  Speaker 3: I need you to have that experience before.
• 33:09
  Speaker 2: Doesn't mean you need to have invested thousands and thousands,
• 33:11
  Speaker 2: but I want to see that you know, you know
• 33:13
  Speaker 2: what the market does, how it works. You maybe have
• 33:15
  Speaker 2: toyed with it a few times. You might not have
• 33:18
  Speaker 2: had the cash flow to keep that consistent, but you're
• 33:21
  Speaker 2: comfortable taking on risks so that market volatility doesn't make
• 33:24
  Speaker 2: you panic or lose sleep. You need to be a
• 33:27
  Speaker 2: long term thinker and you're not going to be tempted
• 33:29
  Speaker 2: to bail out early when a downturn happens and you're like,
• 33:32
  Speaker 2: oh my god, this is not what I signed up for.
• 33:35
  Speaker 2: I know, you have to ride that roller coaster through
• 33:37
  Speaker 2: the low bit. That's how it works. You need to
• 33:40
  Speaker 2: be pretty financially disciplined. So I need to make sure
• 33:44
  Speaker 2: that you're not going to go and dip into your
• 33:47
  Speaker 2: investment loans because, like often, what we'll do is cash
• 33:51
  Speaker 2: out that fifty grand put it into an investment account,
• 33:54
  Speaker 2: because we don't dump fifty grand into the share market
• 33:56
  Speaker 2: all in one go. But that means that you beck
• 34:00
  Speaker 2: would have access to fifty thousand dollars in cash because
• 34:02
  Speaker 2: maybe we've decided to dollar cost average that money into
• 34:06
  Speaker 2: the market, and we're doing two thousand dollars a month
• 34:09
  Speaker 2: into the market until all of that fifty thousand is invested,
• 34:11
  Speaker 2: because we don't want to dump fifty thousand dollars into
• 34:13
  Speaker 2: the market on day one, Okay, but you would have
• 34:16
  Speaker 2: access to those funds. Can we guarantee that you're not
• 34:19
  Speaker 2: going to go and dip into those funds and be like, well,
• 34:21
  Speaker 2: what's two grand? It doesn't matter to fund your lifestyle
• 34:24
  Speaker 2: spending because I don't want you seeing it and being like, actually,
• 34:28
  Speaker 2: if we pulled that out, great, I know it's for investment,
• 34:30
  Speaker 2: but we could take five grand to go to Thailand
• 34:32
  Speaker 2: for two weeks.
• 34:34
  Speaker 3: It's not for you, baby, No, it's not for you.
• 34:36
  Speaker 3: That's okay, that's okay. Not everything is for us, that's true.
• 34:39
  Speaker 2: But educationally, we need to know about it, and then
• 34:43
  Speaker 2: it's your job to work out if that works or not. Yes,
• 34:45
  Speaker 2: And that's why I have to be like, would you
• 34:47
  Speaker 2: go and Dippy dip into that? Because if you would,
• 34:49
  Speaker 2: you're eating away at your returns and it actually just
• 34:51
  Speaker 2: negates the whole purpose of this entire exercise. Got you,
• 34:54
  Speaker 2: I need to make sure that you've got enough willpower
• 34:57
  Speaker 2: to reinvest the dividends and tax savings into your home
• 35:00
  Speaker 2: loan instead of spending them, because what will happen is
• 35:03
  Speaker 2: your investment portfolio is going to generate returns and it's
• 35:06
  Speaker 2: going to be dumped into a bank account somewhere. I
• 35:08
  Speaker 2: need to make sure that that money that's been dropped
• 35:10
  Speaker 2: into that bank account does go to your loan, not
• 35:13
  Speaker 2: you go, oh, did you see babe that we got
• 35:15
  Speaker 2: like five hundred dollars in dividends. Maybe we just don't
• 35:17
  Speaker 2: put it on the loan this month. Maybe we like
• 35:19
  Speaker 2: go and have a fancy dinner or do a staycation. No,
• 35:25
  Speaker 2: they're not for you to touch. This needs to be
• 35:27
  Speaker 2: a well oiled machine where everything that goes into them
• 35:30
  Speaker 2: non touchable. Everything that comes out of there goes back
• 35:32
  Speaker 2: into the system. Otherwise the system doesn't work. Otherwise you
• 35:37
  Speaker 2: are not debt recycling. So if you can't be trusted,
• 35:40
  Speaker 2: that's okay, But this strategy just won't work for you.
• 35:43
  Speaker 2: And ideally you're somebody who does value structure. So as
• 35:47
  Speaker 2: I said before, it needs to be a well oiled machine.
• 35:50
  Speaker 2: You can stick to a plan. You're not going to
• 35:51
  Speaker 2: self sabotage, you're not going to put yourself under stress.
• 35:55
  Speaker 2: And this literally only works if.
• 35:58
  Speaker 3: You know touchy, No, touchy, not touchy. We're not taking
• 36:01
  Speaker 3: the money out. That's a long term investment. We're not
• 36:03
  Speaker 3: taking out. We're not taking the cream off the top
• 36:05
  Speaker 3: of it. No, No, that's to pay your mortgage.
• 36:08
  Speaker 2: The entire purpose relying on recycling is to get that
• 36:11
  Speaker 2: fifty grand yes, example would be one hundred, could be
• 36:15
  Speaker 2: four dollars, yes, get that fifty grand into the share market,
• 36:17
  Speaker 2: build a share portfolio, and pay off your mortgage.
• 36:20
  Speaker 3: Quicker.
• 36:20
  Speaker 2: Yes, the other stuff that's not your business, you go
• 36:24
  Speaker 2: do that with your cash flow.
• 36:25
  Speaker 3: What about if you are someone who was listening to
• 36:27
  Speaker 3: those two lists, he kind of sounds like them.
• 36:29
  Speaker 4: What do they do?
• 36:30
  Speaker 3: Like, how do they set them up?
• 36:31
  Speaker 2: Well, you were shaking your head, So I'm assuming this
• 36:33
  Speaker 2: isn't a question where you're like, yeah, like.
• 36:34
  Speaker 3: That's so for me.
• 36:36
  Speaker 2: Yeah, cannot relate, but that's okay. Yes, first, not a surprise.
• 36:41
  Speaker 2: If that's for you, we're going to get advice. Yeah,
• 36:43
  Speaker 2: I'm so sorry to be that guy. This is not
• 36:46
  Speaker 2: something that you just do on your own. It is
• 36:48
  Speaker 2: a complex system that needs support, and I would very
• 36:55
  Speaker 2: highly recommend speaking to a financial advisor who fully understands
• 36:58
  Speaker 2: debt recycling. Ask them before you talk to them, because
• 37:02
  Speaker 2: some financial advisors are against debt recycling. Some financial advisors
• 37:08
  Speaker 2: do not believe in it as a valid strategy because
• 37:11
  Speaker 2: it incurs a lot more risk and they go not
• 37:13
  Speaker 2: on my books, Like, I'm not having you take that
• 37:16
  Speaker 2: risk as a client of mine. Absolutely not. I would
• 37:20
  Speaker 2: make sure that they do that. If you don't have
• 37:22
  Speaker 2: a good financial advisor, go to my website. She's on
• 37:24
  Speaker 2: the money dot com, and I will match you with
• 37:26
  Speaker 2: one at no cost to you. Literally, I will match
• 37:29
  Speaker 2: you like and I'm not just saying, oh, I give
• 37:31
  Speaker 2: you a reco Like, you submit a full form of
• 37:34
  Speaker 2: what you want to do. You tell me you want
• 37:35
  Speaker 2: to do debt recycling, and you tell me your income,
• 37:37
  Speaker 2: and you tell me like your savings and stuff, and
• 37:40
  Speaker 2: my team and I will look at that and match
• 37:42
  Speaker 2: you with the financial advisor that fits. Because it's really
• 37:46
  Speaker 2: hard to find a financial advisor these days. And I've
• 37:48
  Speaker 2: just got my little trusted panel of people that I
• 37:51
  Speaker 2: haven't added to in probably like four years. Maybe there's
• 37:55
  Speaker 2: one coming, but I'm making them work for that. Oh.
• 37:57
  Speaker 3: Absolutely.
• 37:59
  Speaker 2: You could even talk like preliminarily to a tax accountant
• 38:04
  Speaker 2: to confirm that the interest will actually be deductible in
• 38:06
  Speaker 2: your situation, because there are some situations where it's not.
• 38:10
  Speaker 2: And if you've already got an account, and you could
• 38:11
  Speaker 2: be up the phone and be like, hey, beck, I
• 38:12
  Speaker 2: was just wondering, think you about debt recycling, and they'll
• 38:16
  Speaker 2: have all of that information from your tax return and
• 38:18
  Speaker 2: like what properties you own, etc. To be able to
• 38:20
  Speaker 2: give you a pretty good idea of whether it's even
• 38:22
  Speaker 2: worth talking to a financial advisor. Next, let's be conservative.
• 38:27
  Speaker 2: It's cool to be conservative. Always use really realistic conservative
• 38:32
  Speaker 2: return estimates, not the best case assumptions, because it's so
• 38:37
  Speaker 2: exciting to be like, oh my god, like over the
• 38:39
  Speaker 2: last thirty years the Australian share market's return to eleven percent.
• 38:42
  Speaker 2: Let's base it on that. We under promise and we
• 38:45
  Speaker 2: over deliver, even for ourselves. So we know what the
• 38:49
  Speaker 2: average rate of return of the share market is. But
• 38:51
  Speaker 2: in my calculations I would always use a minimum of
• 38:54
  Speaker 2: six percent. I wouldn't really try to go above that.
• 38:57
  Speaker 2: If it doesn't work at six percent, I just don't
• 38:59
  Speaker 2: think you should be doing it. But again, what's my
• 39:01
  Speaker 2: opinion worth? Who knows and stress test your numbers. So
• 39:05
  Speaker 2: what I mean by that is, can you still make
• 39:07
  Speaker 2: your repayments if interest rates rose by two or three percent?
• 39:11
  Speaker 2: Can you still deal with this situation if your investment
• 39:15
  Speaker 2: overnight dropped by twenty percent? What would that look like
• 39:18
  Speaker 2: stress test is so important. And then we're starting small
• 39:22
  Speaker 2: and scaling up. So you might have fifty thousand dollars
• 39:24
  Speaker 2: worth of equity that you can access, you might apply
• 39:27
  Speaker 2: for a loan. And by the way, mortgage brokers can
• 39:30
  Speaker 2: do this, so my team at Zella Money can actually
• 39:32
  Speaker 2: help you access the funds. So beyond getting the advice,
• 39:35
  Speaker 2: you actually need someone to help you pull the money
• 39:37
  Speaker 2: out of your loan. And good mortgage brokers don't charge
• 39:41
  Speaker 2: you for that privilege. They'll like, restructure your stuff won't
• 39:43
  Speaker 2: cost you anything. The financial advice will load. Just to
• 39:46
  Speaker 2: be very clear, start small and scale up, so we
• 39:49
  Speaker 2: might work with you to go. Okay, Beck, we've had
• 39:52
  Speaker 2: a look. You can access fifty thousand dollars.
• 39:54
  Speaker 3: Worth of equity.
• 39:55
  Speaker 2: Let's request fifty thousand, but we're not going to use
• 39:57
  Speaker 2: it all at once. We just don't want to have
• 39:59
  Speaker 2: to reapply and reapply every time. We want to step up.
• 40:02
  Speaker 2: So the bank says, yep, no worries, Beck, We'll release
• 40:04
  Speaker 2: fifty thousand dollars of equity. We'll put it in your
• 40:07
  Speaker 2: offset tomorrow, so it's sitting there in your offset. We
• 40:10
  Speaker 2: might just leave it there for a long time and
• 40:12
  Speaker 2: we might just do five grand. See how we go
• 40:15
  Speaker 2: for a few months, and then have a little conversation.
• 40:18
  Speaker 2: This is with not your broker, this is with your
• 40:20
  Speaker 2: financial advisor. Yeah, about stepping it up and maybe over
• 40:23
  Speaker 2: the next twelve months we get that fifty thousand dollars
• 40:25
  Speaker 2: into the market. But it might not happen immediately. And
• 40:28
  Speaker 2: if they're a good financial advisor, that never dump fifty
• 40:30
  Speaker 2: grand into the market for you on day one anyway,
• 40:32
  Speaker 2: So don't go all in from day one. You might
• 40:35
  Speaker 2: want access to the funds and access to the equity
• 40:38
  Speaker 2: from day one, but begin with a very small investment loan.
• 40:42
  Speaker 2: Begin with small amounts into the share market and see
• 40:44
  Speaker 2: how it impacts your cash flow, see how it impacts
• 40:47
  Speaker 2: your mindset, and then you can build over time your
• 40:50
  Speaker 2: comfort and your confidence levels before like dialing up your strategy. Sure, okay, okay,
• 40:56
  Speaker 2: got you. And then obviously talk to a good mortgage broker. Well,
• 41:00
  Speaker 2: because a mortgage broker is going to set up the
• 41:03
  Speaker 2: right loan structure for you. So maybe you will talk
• 41:06
  Speaker 2: to your mortgage broker and use a split loan or
• 41:08
  Speaker 2: even a separate investment loan to keep like personal debts
• 41:12
  Speaker 2: and loans separate for your investments to keep track of
• 41:15
  Speaker 2: usage and have really clear tax deductibility like records, and
• 41:19
  Speaker 2: a good mortgage broker will be like, oh, beck, I
• 41:22
  Speaker 2: do this all the time, no worries, And it's so
• 41:24
  Speaker 2: funny because like we talk about this all the time
• 41:26
  Speaker 2: in our office. Like we'll have clients who want to
• 41:28
  Speaker 2: do debt recycling. We'll be like, so, have you got advice? Well,
• 41:31
  Speaker 2: who's your financial advisor? Just checking before we do this
• 41:34
  Speaker 2: that you're in a good financial position, because like, I
• 41:37
  Speaker 2: just don't want you in the worst possible position. But
• 41:39
  Speaker 2: if you're like ticking all the boxes, we've got the
• 41:41
  Speaker 2: right loan structure and the right strategy to make sure
• 41:43
  Speaker 2: it's clean and efficient and it does the right thing.
• 41:46
  Speaker 2: And then obviously you have to pick investments. It's not
• 41:50
  Speaker 2: as easy as like being like, oh, we got the
• 41:51
  Speaker 2: equity when bam, thank you, ma'am. Stick to And this
• 41:55
  Speaker 2: is not advice, but hypothetically, if I was going to
• 41:58
  Speaker 2: implement this strategy, I would be sticking to income producing
• 42:02
  Speaker 2: investments like shares or ETFs, because the entire purpose is
• 42:07
  Speaker 2: to use the income produced from those assets to generate
• 42:11
  Speaker 2: accessible income that is then tax deductible. So, like you
• 42:15
  Speaker 2: know how we've done podcasts before and you guys can
• 42:17
  Speaker 2: go look them up. We will even link them in
• 42:19
  Speaker 2: the show notes. But we've talked about like the difference
• 42:22
  Speaker 2: between an income producing ETF and a growth focused ETF.
• 42:26
  Speaker 2: If you are investing in a more growth focused ETF
• 42:29
  Speaker 2: and like over time it increases in value, that's great,
• 42:33
  Speaker 2: But where's the income to pay off the home loan
• 42:35
  Speaker 2: that we were implementing this entire strategy. For sure, I
• 42:38
  Speaker 2: want to get paid so I can pay off my mortgage.
• 42:41
  Speaker 2: Otherwise the strategy doesn't make sense. And that's where you
• 42:43
  Speaker 2: might really want to have a good chat with a
• 42:45
  Speaker 2: financial advisor to pick the right investments to complement your strategy. Yep,
• 42:51
  Speaker 2: because if I went all in on growth investments, so cool,
• 42:55
  Speaker 2: I'm looking at my investment portfolio, it's worth more. Haven't
• 42:58
  Speaker 2: been able to pay off any of my mortgage though,
• 43:00
  Speaker 2: And was that not the entire purpose? Yeah?
• 43:02
  Speaker 3: Got you.
• 43:03
  Speaker 2: I would then be forced to sell down some of
• 43:05
  Speaker 2: those assets to take some of that income.
• 43:08
  Speaker 3: And put it over there.
• 43:10
  Speaker 2: I don't want to sell my assets, no, So make
• 43:13
  Speaker 2: sure that you're doing the right thing for your strategy,
• 43:17
  Speaker 2: and then I just have to say it. Please, just
• 43:20
  Speaker 2: don't pick speculative stocks now. It's not the time to
• 43:22
  Speaker 2: focus on satellite. It's not the time to focus on
• 43:25
  Speaker 2: crypto or vacant land or non income producing assets. It's
• 43:28
  Speaker 2: not because I don't recommend them. It's because that's not
• 43:31
  Speaker 2: aligned to a debt recycling strategy. The entire purpose of
• 43:35
  Speaker 2: a debt recycling strategy would be to invest in assets
• 43:39
  Speaker 2: that pay you so you can take that money and
• 43:42
  Speaker 2: pay your mortgage money. Win for everybody. Absolutely, I said before,
• 43:48
  Speaker 2: be organized, be disciplined. This isn't for people who are
• 43:51
  Speaker 2: relaxed with doing their tax in that rhymed maybe I
• 43:54
  Speaker 2: should Oh my god, I'm going into children's books next.
• 43:57
  Speaker 2: Do keep really detailed records. Every will draw down on
• 44:01
  Speaker 2: the loan must be clearly linked to an investment. I
• 44:05
  Speaker 2: don't care if it's in a spreadsheet. I don't care
• 44:06
  Speaker 2: if it's written down on a big piece of paper.
• 44:09
  Speaker 2: You are making sure that you are tracking it for
• 44:11
  Speaker 2: your accountant. Because it's not tracked, it's not claimed. If
• 44:15
  Speaker 2: it's not claimed, why did we bother with the strategy?
• 44:17
  Speaker 2: And then I would say, making sure that we are
• 44:19
  Speaker 2: also reinvesting all dividends and tax refunds.
• 44:23
  Speaker 3: Okay, that's not for you.
• 44:25
  Speaker 2: That's not a new handbag, that is not a holiday
• 44:27
  Speaker 2: into your home, loan or back into investments. Do not
• 44:30
  Speaker 2: use any of the income that is generated from these
• 44:33
  Speaker 2: investments for your lifestyle spending. It's not for you.
• 44:36
  Speaker 3: Remember though, number one rule, no touchy, no touchy.
• 44:40
  Speaker 2: And then last, but not least, because I feel like
• 44:43
  Speaker 2: I've been a little bit randy at you for this
• 44:45
  Speaker 2: second half, because I'm like, the people just want the information. Yeah,
• 44:49
  Speaker 2: review and adjust regularly. Huh So you can't just not
• 44:51
  Speaker 2: set and forget. I'm so sorry. This is not a
• 44:53
  Speaker 2: set and forget strategy. And that's why I'm like, you
• 44:55
  Speaker 2: need to be consistently keeping records. You need to be
• 44:57
  Speaker 2: on top of this. This is not for people who
• 44:59
  Speaker 2: are not proactive with their investment plans. Check in on
• 45:04
  Speaker 2: your progress minimum every year, at least every six months,
• 45:09
  Speaker 2: or reassess sooner. If interest rates are changing, you're seeing
• 45:12
  Speaker 2: that on the news, make sure that it's still good.
• 45:15
  Speaker 2: Make sure that you're always checking what your bank is
• 45:17
  Speaker 2: doing in terms of interest rate increases or decreases. I
• 45:21
  Speaker 2: want you to be looking at your investment performance or
• 45:23
  Speaker 2: even if you're just like, lifestyle situation changes, what does
• 45:26
  Speaker 2: that look like should we put back on this strategy?
• 45:28
  Speaker 2: You know, maybe you get a salary increase and we
• 45:30
  Speaker 2: actually want to put more in just making sure it's
• 45:32
  Speaker 2: still working for us. And then if you need to
• 45:35
  Speaker 2: adjust your strategy, that's okay, but like, let's be aware
• 45:38
  Speaker 2: that that's going to happen at some point. If you
• 45:41
  Speaker 2: think that this is set and forget forever, you are diluted.
• 45:44
  Speaker 2: And that's why it is so popular for people to
• 45:48
  Speaker 2: use their recycling in cycles or in bursts. So we
• 45:53
  Speaker 2: might do this fifty thousand dollars, and yes, your equity
• 45:57
  Speaker 2: might increase over time, but let's not add to it
• 45:59
  Speaker 2: for a while. Let's wait until we're a little bit
• 46:02
  Speaker 2: more cash flow positive. Let's you know, not go all
• 46:04
  Speaker 2: in on day one. It gives you the ability to
• 46:07
  Speaker 2: adjust your strategy and keep things going over time. So
• 46:11
  Speaker 2: like people who debt recycle, maybe they were debt recycling
• 46:14
  Speaker 2: in twenty eighteen and they haven't done it since then,
• 46:17
  Speaker 2: they're like, yeah, we debt recycled.
• 46:19
  Speaker 3: We've got this share portfolio's plotting along.
• 46:21
  Speaker 2: Like the plan was to keep going, but the interest
• 46:22
  Speaker 2: rates changed, but now they might be like, oh, the
• 46:25
  Speaker 2: interest rates are going down, and they might be creating
• 46:28
  Speaker 2: a strategy to like now in twenty twenty six, debt
• 46:31
  Speaker 2: recycle again doesn't mean that you're consistently pulling from your mortgage.
• 46:36
  Speaker 2: We just make strategic decisions in the right direction.
• 46:39
  Speaker 3: So it sounds like it's a pretty good maybe idea
• 46:41
  Speaker 3: for some people and maybe not so much for others.
• 46:44
  Speaker 3: But I think, just yeah, for.
• 46:46
  Speaker 2: You, right, Like some people are like share markets not
• 46:49
  Speaker 2: for me, and I'm like, okay, they're probably the wrong
• 46:50
  Speaker 2: place to have that conversation, really, but it's not for you.
• 46:53
  Speaker 3: That's okay, that's okay, But.
• 46:54
  Speaker 2: I want to give you all the information to make
• 46:57
  Speaker 2: an educated decision that is in your best interest.
• 47:00
  Speaker 3: Totally. Well, I think it's a great place to leave it.
• 47:02
  Speaker 2: I agree, because I'm getting a sore throat, and to
• 47:05
  Speaker 2: be honest, I could keep going on and on about it,
• 47:07
  Speaker 2: but I really really think that this strategy can work
• 47:11
  Speaker 2: for some people. But it's probably not the magic solution
• 47:15
  Speaker 2: that is currently being made out on TikTok sure, and
• 47:18
  Speaker 2: it's not some genius solution that's only just come up.
• 47:21
  Speaker 2: It's been a very tried true tested solution over time,
• 47:25
  Speaker 2: talk to a financial advisor police.
• 47:26
  Speaker 3: Honestly, the most wise words come out of your mouth
• 47:29
  Speaker 3: all the time.
• 47:29
  Speaker 2: I don't know, I'm just so sure of it. Anyway,
• 47:32
  Speaker 2: let's leave it there before it all comes crashing down, guys. Also,
• 47:35
  Speaker 2: on that note, if there is a topic that you
• 47:37
  Speaker 2: want Beck and I to tackle, please leave it in
• 47:39
  Speaker 2: the comments below and we will see you on Friday.
• 47:43
  Speaker 3: Have a good week, bye, guys.
• 47:50
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