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'Expense Creep': The silent killer of investment dreams · The Money Puzzle

0:09
Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm
0:12
Speaker 1: James Kirby. Welcome aboard everybody. Now let me ask you.
0:17
Speaker 1: Are you good at making money? I expect so if
0:19
Speaker 1: you're listening to this show, But what about keeping it?
0:22
Speaker 1: Are you good at keeping it accumulating it? Because there's
0:25
Speaker 1: a difference, you know. It's interesting. I was asked to
0:28
Speaker 1: just the other day what was my favorite investment book
0:31
Speaker 1: of all time? And I said The Millionaire next Door?
0:34
Speaker 1: And someone said it's nearly thirty years old, that book,
0:36
Speaker 1: and I said, yeah, but their principles work forever now.
0:40
Speaker 1: Our Australian version of that book is written by a
0:42
Speaker 1: regular guest on the show, Jackie Clark. She wrote Stop
0:45
Speaker 1: Worrying about Money. She's also an advisor of course various levels,
0:50
Speaker 1: particularly at the upper level in financial in the financial world,
0:53
Speaker 1: to family offices and that, and she is my guest today.
0:56
Speaker 2: How are you, Jackie?
0:57
Speaker 3: I'm really well, Gimes. It's lovely to be back.
1:01
Speaker 1: Are you familiar with the book The Millionaire next Door?
1:03
Speaker 2: I'm not sorry, but you know what, that's.
1:07
Speaker 1: A very admirable answer because that means you didn't know
1:10
Speaker 1: about it, which means you wrote your book without knowing
1:14
Speaker 1: the principles which was put forward by mister Danko da
1:18
Speaker 1: Nko back in nineteen ninety six. But it strikes me
1:22
Speaker 1: that his view and your view are very similar. So
1:26
Speaker 1: just tell us about your working theme.
1:29
Speaker 2: I mean we I.
1:30
Speaker 1: Think most of our listeners are tuned in right.
1:32
Speaker 2: So they may may.
1:33
Speaker 1: Be better or worse, but they will be good at
1:36
Speaker 1: making money in their lives, particularly in their investments. But
1:40
Speaker 1: you have a continuing concern and persistent one in the book,
1:44
Speaker 1: which is about expense creep. I don't know where I
1:47
Speaker 1: come from on this one. I'm a bit skeptical about
1:49
Speaker 1: expense creep. I say to people, listen, you know, don't
1:52
Speaker 1: worry about don't worry about the avocado. It's not going
1:55
Speaker 1: to make it. The avocado toast is not going to
1:57
Speaker 1: make a difference whether you can buy the house or not.
1:59
Speaker 1: That's where I come from that maybe that's not healthy
2:01
Speaker 1: you telling me.
2:02
Speaker 3: Well, have I got news for you? To look at
2:07
Speaker 3: it like this? And maybe the best example I can
2:09
Speaker 3: give for you personally is so expense creep. I think
2:14
Speaker 3: of it as lifestyle creep, which you've no doubt experience
2:17
Speaker 3: and Probably the single easiest way to demonstrate this is
2:20
Speaker 3: by asking you if there's a difference in the wine
2:23
Speaker 3: you drink today to the wine you drink when you're
2:26
Speaker 3: a university Yes, and why is that?
2:30
Speaker 1: Because I can't handle hangovers like I used to be
2:32
Speaker 1: able to handle.
2:34
Speaker 3: So it's about the hangover. I wonder if, also, as
2:37
Speaker 3: your income grew from your poor university days, that you
2:41
Speaker 3: thought that you're entitled to actually drink something a little
2:44
Speaker 3: bit nicer. Yes, spend a little bit more.
2:46
Speaker 1: Your theory is that we fluat that we just incrementally
2:50
Speaker 1: every day and everywhere. It's not that we get up
2:52
Speaker 1: in the morning and see, I must spend more.
2:53
Speaker 2: It's just that easy too. A bigger spender is that it?
2:59
Speaker 3: Yeah, asolutely, And I think about for example, I always
3:03
Speaker 3: pick on Netflix, which is kind of relatively unkind of me.
3:07
Speaker 3: But when I started off with a Netflix subscription, you know,
3:10
Speaker 3: I often bing on to people about keeping a lid
3:13
Speaker 3: on subscriptions or checking them regularly. And when I started,
3:16
Speaker 3: it was eight ninety nine and now it's twenty eight
3:19
Speaker 3: dollars ninety nine a month. Now, that's that's not three
3:22
Speaker 3: hundred percent inflation. That's something that's something all together different,
3:27
Speaker 3: and so knowing the real cost of living is the secret.
3:31
Speaker 3: And I think that's where expense creep really comes home
3:34
Speaker 3: to you because you realize that you go from making
3:38
Speaker 3: food at home to maybe eating out. You've gone from
3:41
Speaker 3: eating out to Uber eats. Now we're talking today about
3:45
Speaker 3: a thirty percent increase on expense just by using the
3:49
Speaker 3: Uber service.
3:50
Speaker 1: I saw that if you get your food delivered instead
3:52
Speaker 1: of going down to the shop, it's roughly a third
3:55
Speaker 1: more more.
3:56
Speaker 3: So there's that, and then the progression on that, I
3:59
Speaker 3: think is also then go out, so there's a lot
4:02
Speaker 3: more of In fact, when I'm analyzing, you know, I
4:04
Speaker 3: talk a lot about getting people's financial house in order
4:07
Speaker 3: and knowing what it costs to open their front door.
4:10
Speaker 3: One of the things that I'm increasingly saying is how
4:13
Speaker 3: much of this Uber eats process, if you're like, is
4:17
Speaker 3: creeping into families lives. I'm sorry to use the word creep.
4:20
Speaker 3: But the other thing is look at the bigger lifestyle
4:22
Speaker 3: things like your house. You might have started off renting
4:25
Speaker 3: a studio flat when you're at college, and you progress
4:30
Speaker 3: to perhaps buying your first investment property or a unit.
4:33
Speaker 3: It might be a one bedroom, it might be a
4:35
Speaker 3: two bedroom. Then you go to a three bedroom house.
4:38
Speaker 3: You know, you might get married, you might have children,
4:41
Speaker 3: and things get bigger and bigger. So it's kind of
4:43
Speaker 3: a bit like the waistline with time. But so this
4:47
Speaker 3: lifestyle creep or expense creep just naturally occurs instead of
4:50
Speaker 3: the rent you've got the mortgage. The mortgage gets bigger,
4:53
Speaker 3: and I think that has a natural impact on all
4:56
Speaker 3: the things we do. You might decide to improve the
4:58
Speaker 3: car you've got because you can. So there's this sort
5:02
Speaker 3: of fine line between living very much for today, which
5:05
Speaker 3: is I think where expense creep is a real challenge
5:07
Speaker 3: for us to try and write size to be more
5:10
Speaker 3: aligned than with what your financial goals are.
5:13
Speaker 1: Okay, I mean I do like the fact that you
5:15
Speaker 1: have this measured, and it's very interesting. There's actually evidence, right,
5:19
Speaker 1: this is a survey folks that is just out actually
5:21
Speaker 1: about how using those services for food, it's the cost
5:26
Speaker 1: of your food by one third.
5:28
Speaker 2: So let's hang on to that for a moment.
5:29
Speaker 3: I think that would become as a bit of a
5:31
Speaker 3: surprise to people. But what I am saying is how
5:33
Speaker 3: increasingly uber eats falls into once you get beyond sort
5:36
Speaker 3: of rent, mortgage groceries. One of the next highest expenses
5:40
Speaker 3: outside of insurance becomes uber eats.
5:43
Speaker 1: But to play Devil's advocate on this, I always an
5:47
Speaker 1: accountant who lived around the corner when I was or
5:49
Speaker 1: whatever a teenager. He explained the notion of pennywise and
5:52
Speaker 1: pounds stupid to me. And it's really strong, you know.
5:57
Speaker 1: It was that the pounds that don't worry pennies look
6:00
Speaker 1: after the pounds of the pennies will look after themselves.
6:03
Speaker 2: That's sort of like folklore.
6:04
Speaker 1: Almost, but I think it's very strong. And as I
6:08
Speaker 1: said at the start, when someone says if they're say,
6:13
Speaker 1: first home buyer agent, they say to me, or maybe
6:15
Speaker 1: we shouldn't order the mash avocado or whatever. The old
6:18
Speaker 1: almost a cliche now at this stage.
6:20
Speaker 2: Whatever it costs twenty five dollars.
6:22
Speaker 1: But part of me, the rational part of me, actually says,
6:25
Speaker 1: you know, listen, just have it, because it's not going
6:26
Speaker 1: to make a difference whether you get a million dollar
6:29
Speaker 1: mortgage or a nine hundred and fifty thousand dollars mortgage.
6:33
Speaker 1: I mean, you might as well live. What do you
6:35
Speaker 1: think of what's your account of view to the how
6:38
Speaker 1: do you attackle.
6:38
Speaker 3: That It's easy for me to say now at my age,
6:41
Speaker 3: I start thinking about the consequence of the AVO toast,
6:44
Speaker 3: eating out every morning, and what that's going to look
6:47
Speaker 3: like at sixty and seventy when I want to retire
6:50
Speaker 3: or reduce how much I work. So I do think
6:53
Speaker 3: I dropped in that comment around financial goals, But I
6:56
Speaker 3: think financial goal setting is really quite critical because once
6:59
Speaker 3: you have the opportunity to sort of look forward a
7:01
Speaker 3: little bit, it might just change that decision making process
7:05
Speaker 3: you've got here. So I kind of like the philosophy
7:07
Speaker 3: because I don't think it's a nice way to live necessarily.
7:10
Speaker 3: In fact, I'm just almost finished reading the Morgan Housle's
7:14
Speaker 3: new book. Is it The Art of Spending or something
7:17
Speaker 3: about spending money? It's great and he wrote the Psychology
7:19
Speaker 3: of Money first. Yes, but I think it goes to
7:22
Speaker 3: this a little bit, which is sort of recognizing that,
7:26
Speaker 3: you know, it's okay to do things this particular way
7:29
Speaker 3: you've got you do have to enjoy life. But the
7:31
Speaker 3: reality is also recognizing this pattern what it might set
7:35
Speaker 3: you up for in the future, and do you have
7:37
Speaker 3: to adapt? And I don't want to end up not
7:39
Speaker 3: being able to have avocado toast. Where I'm sixty five
7:41
Speaker 3: or seventy.
7:42
Speaker 1: Five, I'm a bit more persuaded by that, Actually that
7:45
Speaker 1: you said to yourself. Listen, you know I work hard.
7:48
Speaker 1: You know I'll work at a high level. I work fast. Here,
7:51
Speaker 1: I am on the you know whatever, a public holiday,
7:54
Speaker 1: working whatever. And my reward for that is I have
7:57
Speaker 1: whatever I want, whenever I want, and that's not going
7:59
Speaker 1: to change. Problem is when you get to mid sixties
8:04
Speaker 1: someone says, well, actually, we don't expect you to work,
8:06
Speaker 1: you know, that much longer, and you set to yourself, jeepers,
8:09
Speaker 1: you know, I may have to settle for whatever. And
8:13
Speaker 1: it might sound good on paper, the income you might
8:16
Speaker 1: draw from your super ORR SMS effort, it won't be
8:20
Speaker 1: my friends anything like the headline number you're getting as
8:24
Speaker 1: a full time salary person.
8:25
Speaker 2: Is that, of course you're alluding to? Really? Is that?
8:28
Speaker 2: It's an interesting view of it.
8:30
Speaker 3: Yeah, look, it absolutely is. And you know where I
8:32
Speaker 3: see it most commonly, certainly at the moment, is when
8:36
Speaker 3: people are being made redundant. So there's certainly a fair
8:39
Speaker 3: chunk of redundancies happening around corporate roles, and I think
8:42
Speaker 3: it's like the brakes get slammed on. Usually people leave
8:45
Speaker 3: with the termination payment or something like that, so they're
8:48
Speaker 3: able to continue to find their critical expenses like mortgage
8:52
Speaker 3: and food and things like that. But actually then it's like,
8:55
Speaker 3: hang on a second. You can't keep running like this
8:58
Speaker 3: or you eat into that entire redundance, you know, payment,
9:02
Speaker 3: and where does that leave you? And how long have
9:04
Speaker 3: you got before you absolutely need to land. So the pressure,
9:07
Speaker 3: the stress, the anxiety of landing that next job. And
9:10
Speaker 3: similarly with people, you know, they talk a lot about
9:13
Speaker 3: gray divorce. Now, I was used to dealing with a
9:16
Speaker 3: lot of people in their forties going through divorce, but
9:18
Speaker 3: now there's this sort of huge perhaps trend wrong word
9:23
Speaker 3: for divorces happening in their fifties. And it's really similar,
9:26
Speaker 3: which as I used to live this way, well, hang
9:28
Speaker 3: on a minute. Now my retirement bucket looks like this,
9:31
Speaker 3: which is a little bit smaller. You know, how do
9:34
Speaker 3: I change? What do I need to change my lifestyle?
9:37
Speaker 3: So and that's when people sometimes for the first time,
9:40
Speaker 3: are actually realizing what to that penny wise argument, what
9:43
Speaker 3: things actually cost.
9:45
Speaker 1: Yes, so you can now take the opportunity to tell
9:48
Speaker 1: people your golden rules, which for sober because Jackie's going
9:54
Speaker 1: to tell you you're going to stop to stop doing
9:57
Speaker 1: what you've been doing.
9:59
Speaker 3: Yes, well, well, I mean the main thing for me
10:03
Speaker 3: is everyone's different in thinking of that concept of financial freedom.
10:10
Speaker 3: It has lots of different connotations to different people. And
10:14
Speaker 3: you can based on your money story, how you've grown up,
10:17
Speaker 3: whether you've come from that spend through family, whether you're
10:20
Speaker 3: a group of savers. These are all sort of things
10:23
Speaker 3: to recognize when you're looking at what financial freedom might
10:27
Speaker 3: look for you. But when I focus on conversation with
10:31
Speaker 3: people about getting their financial house in order, they've got
10:34
Speaker 3: to know what it costs to live their current lifestyle.
10:37
Speaker 3: And I'm not saying that's great, good to know, bank
10:40
Speaker 3: it and move on. I'm saying, what do we need
10:42
Speaker 3: to change to enable that future if you like to
10:46
Speaker 3: take shape? And what are the realities of the way
10:49
Speaker 3: you spend now, how would that look in five, ten,
10:52
Speaker 3: fifteen years from now? And how dependent on your income
10:57
Speaker 3: is that lifestyle?
10:59
Speaker 2: Right?
11:00
Speaker 1: Interesting, We're going to go to a break just before
11:02
Speaker 1: we do, because what we're going to do in the
11:03
Speaker 1: second half, folks, is we're going to pan this into investing. Okay,
11:06
Speaker 1: but before we do something that struck me there. You
11:09
Speaker 1: mentioned about the house people grow up in. I wonder
11:12
Speaker 1: is there an under estimated factor where people react. They
11:18
Speaker 1: grow up in a house where mom and dad spent everything,
11:21
Speaker 1: had paid no attention to the bills, and it was
11:24
Speaker 1: kind of chaos. They become frugal, and if they grow
11:26
Speaker 1: up in a house that's say, painfully frugal, they say, right, well,
11:29
Speaker 1: that was miserable and I'm going to spend spent.
11:32
Speaker 2: Do you think that's relevant?
11:34
Speaker 3: It is absolutely relevant. The question is do you reflect
11:38
Speaker 3: the same type of behavior and you see this coming
11:40
Speaker 3: into relationships often. So you could have grown up in
11:44
Speaker 3: that frugal lifestyle and you decide to live a life
11:47
Speaker 3: of abundance as an adult.
11:49
Speaker 2: Maybe abundant rather than abundance that too, but.
11:52
Speaker 3: You can see the clash of those styles and how
11:55
Speaker 3: that might impact every day decision and decision making. If
11:58
Speaker 3: I want an new tov, I want to lounge, I'll
12:00
Speaker 3: just get it. The money's in the bank, but it
12:02
Speaker 3: fails to recognize what the opportunity cost is I guess
12:06
Speaker 3: of doing or making choices that way? You know equally
12:10
Speaker 3: that kind of frugality can be so restrictive and take
12:13
Speaker 3: enjoyment out of your life. So I think we all
12:17
Speaker 3: have to say, hey, like I like to think of
12:20
Speaker 3: rewarding rewarding yourself is okay, But perhaps you reward yourself
12:24
Speaker 3: from meeting a particular savings or investment goal by doubling
12:28
Speaker 3: down on the savings or investment, not actually going and
12:31
Speaker 3: spending it then on a handbag or something else.
12:34
Speaker 1: Fabulous, that's really interesting. Okay, Now, folks, we'll be back
12:38
Speaker 1: in a moment and we'll have a look at the
12:39
Speaker 1: investor in this environment. Hello and welcome back to The
12:52
Speaker 1: Australian's Money Puzzle podcast. James Kirby here with Jackie Clark,
12:56
Speaker 1: regular on the show. We have been talking about what
12:59
Speaker 1: Jackie likes to talk about in part one, which is
13:02
Speaker 1: about behaving yourself financially and the rewards of that. Because,
13:07
Speaker 1: fair enough, on the show and in all financial media
13:10
Speaker 1: and investment media, we pay so much attention to making
13:14
Speaker 1: the money and very little to keeping it or not
13:17
Speaker 1: losing it. Now, let's look at in terms of the
13:19
Speaker 1: investment side of things. I want to ask you, you
13:22
Speaker 1: advise at a fairly high level some of the wealthiest
13:24
Speaker 1: people families in the land. What's their attitude towards investment expenses.
13:29
Speaker 2: I'd love to know.
13:30
Speaker 1: Do they say, no, I don't want to pay any
13:32
Speaker 1: fees or do they say I'll pay the fees if
13:34
Speaker 1: I get there? Is there such a thing as a
13:36
Speaker 1: consensus view at the top level on that.
13:40
Speaker 3: Yeah, look, I'd agree with the latter point. I think
13:42
Speaker 3: that money buys power, as we know, it also buys choice,
13:47
Speaker 3: and when you're in that game, one of the things
13:49
Speaker 3: we do often is we talk to multiple advisors and
13:52
Speaker 3: understand their fee structure and understand how they recognize their
13:56
Speaker 3: own performance and make decisions based on that. So, yeah,
14:00
Speaker 3: people are pretty careful at the top end, if you like,
14:03
Speaker 3: about the fees that they pay. And they may be
14:06
Speaker 3: also in a position because they have that buying power
14:10
Speaker 3: to get the best out of it. They obviously get
14:12
Speaker 3: much better rates than your average you know, entry level
14:16
Speaker 3: wholesale investor obviously retail as well.
14:19
Speaker 2: So can these people actually switch switch?
14:22
Speaker 1: If you like live they're talking to the ETF fund
14:25
Speaker 1: and they're arguing over like, you know, the second micro
14:28
Speaker 1: micro fee. And then are you saying that someone comes
14:31
Speaker 1: in the door and they say, look, We're a boutique,
14:34
Speaker 1: you know, corporate bond junk bond player in the US
14:36
Speaker 1: in New York, and we take we've had you know,
14:39
Speaker 1: look at our numbers. We've done twenty percent a year
14:41
Speaker 1: every year and we charge two percent plus twenty performance.
14:46
Speaker 1: And do they not and say okay? Broadly, like in principle,
14:50
Speaker 1: are they okay with those super high fees if they
14:52
Speaker 1: have super high retrants?
14:54
Speaker 3: Look, I think James, almost always you're balancing that against
14:58
Speaker 3: different objectives. So there might be a portion of income
15:02
Speaker 3: that's dedicated that way, another portion of investment, I should say,
15:05
Speaker 3: dedicated another way. I think it's fair to say a
15:08
Speaker 3: lot of people, particularly wealthy families, will take a risk
15:11
Speaker 3: on a certain share of their wealth. To what extent
15:15
Speaker 3: and into which markets that remains. It comes down a lot,
15:18
Speaker 3: honestly to the individual and their appetite for risk. I
15:22
Speaker 3: would generally say it's relatively high. But then again, a
15:25
Speaker 3: lot of Australian wealth is still heavily tied to active businesses.
15:30
Speaker 3: And you know, I'm a big proponent for sticking to
15:32
Speaker 3: what you know, and so you know that's where they'll
15:36
Speaker 3: double down and perhaps go on a more riskier approach
15:40
Speaker 3: as opposed to a market they don't understand, or if
15:43
Speaker 3: it's somewhere they don't understand, but they've got good intel
15:46
Speaker 3: on it, then you take a smaller investment and see
15:50
Speaker 3: how it performs.
15:52
Speaker 1: So for the every day investor, listen into the show,
15:55
Speaker 1: what's your view about expenses? Management expenses, running expenses, performance fees?
16:00
Speaker 2: What do you suggest that they should do about that?
16:05
Speaker 2: How should they approach it?
16:06
Speaker 3: Well, in terms of like a management expense ratio? I mean,
16:09
Speaker 3: as an investor, you have very little influence. You vote
16:13
Speaker 3: with your feet, don't you. So if you decide to
16:15
Speaker 3: go down the path of an investment that carries a
16:18
Speaker 3: high expense ratio, then so be it. There's not much
16:21
Speaker 3: you can do about that, and certainly is in a
16:23
Speaker 3: minority position. It's not like you can influence the management's
16:27
Speaker 3: decision on how they remunerate themselves or otherwise.
16:31
Speaker 1: Yes, you taken or leave it. But is there an
16:33
Speaker 1: area where you'd be more willing to absorb these higher fees?
16:38
Speaker 1: Are there actual areas?
16:41
Speaker 3: That's a tough question. I think it would maybe case
16:44
Speaker 3: by case basis, but I don't know that necessarily going
16:48
Speaker 3: for a higher return a higher fee makes all that
16:51
Speaker 3: much sense to at someone at a retail level, because
16:54
Speaker 3: I would question why you need to go down the
16:56
Speaker 3: path of maybe the higher risk asset in any case, like,
17:00
Speaker 3: would you be better off to go for a more
17:03
Speaker 3: market accepted return with a market accepted fee, Probably would
17:08
Speaker 3: be the right, especially when we're talking about investing your
17:11
Speaker 3: total life savings that could be a couple hundred thousand dollars,
17:16
Speaker 3: maybe a million dollars.
17:18
Speaker 1: Yes, exactly, what about But we're prepared. There's always the
17:21
Speaker 1: thing that comes up on the show where people say, yes,
17:23
Speaker 1: you're so careful about everything, and then you're happy to
17:26
Speaker 1: gear up big time to buy your home.
17:28
Speaker 3: Oh, it was a crazy Australian dream. You're absolutely right
17:31
Speaker 3: about that, you know. I had this conversation. What's interesting
17:34
Speaker 3: is I'm having this conversation a lot, and perhaps in
17:36
Speaker 3: the last week three great divorce people who I'm talking
17:40
Speaker 3: to for the first time contemplating spending the proceeds of
17:44
Speaker 3: sale of their family home purely invested. So basically go
17:51
Speaker 3: and rent because their life's expecting to change quite a
17:54
Speaker 3: bit in the next ten years. Maybe kids finishing school
17:57
Speaker 3: or at university. They know they're going to move a
17:59
Speaker 3: little bit, So they're thinking about that sort of constant opportunity,
18:03
Speaker 3: if you like. Plus there's the downsides of contribution from super,
18:06
Speaker 3: so another angle for them to up their super which
18:09
Speaker 3: is generally on the low side. I happen to be
18:11
Speaker 3: drawing the three women that are all going through that
18:13
Speaker 3: great divorce.
18:14
Speaker 2: And these divorces.
18:16
Speaker 1: Are they cashing out to get at funds and take
18:20
Speaker 1: a smaller home or are they cashing out and having
18:24
Speaker 1: no home that they own.
18:26
Speaker 3: Cashing out and having no home that they own. So
18:29
Speaker 3: their wealth is tied up predominantly in that family home,
18:33
Speaker 3: and the balance that they're going to take away, whether
18:35
Speaker 3: that's a million dollars or two million dollars, is going
18:38
Speaker 3: to be invested in the market under a manager, and
18:42
Speaker 3: they will derive a passive income from that court passive
18:45
Speaker 3: I call it passive, you might call it active, depending
18:47
Speaker 3: on how we go with that. And they will rent
18:53
Speaker 3: and not have a home.
18:54
Speaker 1: I worry about the deeper notion that the entire tax
18:57
Speaker 1: system is designed for people who do have a home.
19:00
Speaker 3: It's true in the context of your main residence exemption
19:03
Speaker 3: for capital gains tax, but beyond that, but the difficulty
19:06
Speaker 3: is having everything tied up that way. But I think
19:10
Speaker 3: this is actually learning a different way to live as well.
19:13
Speaker 3: That might create great flexibility for travel, sure, for different experiences,
19:19
Speaker 3: and perhaps when you and I guess we're talking predominantly
19:21
Speaker 3: great divorce in this moment, but also when you're in
19:24
Speaker 3: a bit of a state of flux, things have changed
19:26
Speaker 3: a lot for you. So give yourself some time. You
19:29
Speaker 3: don't need to lock into a particular suburb, go mortgage
19:32
Speaker 3: up again. You know, there's a lot of stress associate
19:36
Speaker 3: with these situation.
19:37
Speaker 1: So it's something did strike me that it did come
19:40
Speaker 1: up when we did a show on divorce, and it
19:43
Speaker 1: did come up that there's almost like a myth that
19:48
Speaker 1: the person who gets the house wins.
19:51
Speaker 2: Oh, that seems to me that you wouldn't agree with that.
19:53
Speaker 3: Just no, no, not at all. In fact, I just
19:56
Speaker 3: wrote a sub stack article on a week ago James
19:59
Speaker 3: to that point particularly, which is what I find is
20:03
Speaker 3: a lot of women go to push to keep the
20:06
Speaker 3: house the family home. But I think the reality of
20:09
Speaker 3: that is it becomes this sort of box, if you like,
20:12
Speaker 3: of all these memories that they don't serve you necessarily
20:16
Speaker 3: for the future, and so people end up asset rich
20:20
Speaker 3: and cash poor.
20:21
Speaker 1: An extreme version of it, right, and the people, the
20:23
Speaker 1: incidents and everything of the house.
20:25
Speaker 3: Absolutely absolutely And there's some brilliant cases in Eastern suburb
20:29
Speaker 3: Sydney families where wives have pushed really hard to get
20:33
Speaker 3: the house. Have they got the house, they couldn't afford
20:35
Speaker 3: a renovation or to fix up a leaky pipe because
20:39
Speaker 3: they've got no cash, but they've basically don't gone through
20:42
Speaker 3: the split and it's all ended in that house bucket.
20:44
Speaker 3: So I know, we've kind of gone down a bit
20:46
Speaker 3: of a It's.
20:47
Speaker 1: Very interesting that it comes back to the same sort
20:49
Speaker 1: of principles that you mentioned at the very start, which
20:52
Speaker 1: is knowing, you know, knowing how much you're spending and
20:54
Speaker 1: knowing how much you have and knowing.
20:56
Speaker 2: Where you're going financially.
20:58
Speaker 3: And choice, as Jane's one of the things on about
21:02
Speaker 3: a lot with people is having choice. You know, the
21:04
Speaker 3: context of financial freedom is about having choice. Having income
21:08
Speaker 3: is about having choice. So where you restrict that by
21:12
Speaker 3: tying cash up like you might with a home, then
21:17
Speaker 3: what choice does that leave you?
21:19
Speaker 2: Right?
21:20
Speaker 1: Okay, that's really interesting. We'll just finished on this issue
21:24
Speaker 1: before we go to questions with people who are making
21:29
Speaker 1: a decision something like we've we've described before. We normally
21:33
Speaker 1: I give this warning during questions and answer time, but
21:37
Speaker 1: obviously seek advice on an issue of lifestyle changes as
21:41
Speaker 1: dramatic as that. Okay, we'll be back in a moment
21:44
Speaker 1: with very interesting questions. Hello, and welcome back to The
21:56
Speaker 1: Australian's Money Puzzled podcast with Jackie Clark and James. A
22:00
Speaker 1: question from Brent be Orient. I'm looking for some assistance
22:03
Speaker 1: in understanding how cash ETFs work. This is really interesting, folks,
22:07
Speaker 1: because they are an alternative, of course to term deposits,
22:11
Speaker 1: and they're liquid, and they're accessible and the fees are low.
22:14
Speaker 1: So interesting one. Brent says, what are the risks with
22:18
Speaker 1: cash ETFs exchange traded funds? With the major providers, they
22:23
Speaker 1: appear to pay four percent in charge fees of only
22:26
Speaker 1: zero point one eight percent? Is this secure and easily accessed?
22:30
Speaker 1: Great question, never talked about it before.
22:32
Speaker 2: Tell us about them?
22:34
Speaker 3: Yeah, Look, I think what I like about this question
22:36
Speaker 3: is it that one of those ones that makes you
22:38
Speaker 3: pause for a moment. What I have saying is these
22:42
Speaker 3: cash based atfs, so primarily you think about liquidity, So
22:47
Speaker 3: you and I think of cash as very liquid. If
22:49
Speaker 3: you have a cash ATF you're going to wait maybe
22:52
Speaker 3: two days to get your money out. Now, that might
22:55
Speaker 3: not be a lot unless you're coming to something critical
22:58
Speaker 3: like a settlement or otherwise. I think that's really important
23:01
Speaker 3: to be aware of. And you know, honestly, if you
23:03
Speaker 3: look at the banks and other institutions, you might find
23:06
Speaker 3: that you're getting that right without any fee.
23:09
Speaker 1: Well you might, but you probably have to do quite
23:12
Speaker 1: an elaborate arrangement with one of the banks. By that,
23:15
Speaker 1: I mean they tend to be the accounts that are
23:18
Speaker 1: parasitsical for one.
23:20
Speaker 2: Of the better worlds.
23:20
Speaker 1: On top of existing accounts, you know what I mean,
23:23
Speaker 1: online only etc. You must open account and then you
23:25
Speaker 1: must open a second account which feeds off.
23:27
Speaker 2: The lower account.
23:28
Speaker 1: And they do pay the best in terms of that
23:31
Speaker 1: call rates in the market. I know that, but I
23:33
Speaker 1: think I best did before at best. While Brent says
23:37
Speaker 1: that cash ETFs are paying this, these are the big
23:40
Speaker 1: names and certainly those big names would have liquidity, so
23:44
Speaker 1: we don't have to worry about that.
23:46
Speaker 3: So did I stack up against the banks is the question?
23:49
Speaker 2: Yeah?
23:50
Speaker 3: And to what extent? So I've mentioned liquidity if that's
23:53
Speaker 3: not going to be an issue. There's no reason why
23:55
Speaker 3: you can't consider. I just think the catch all atfs
23:59
Speaker 3: may we aren't the best style of accessing atfs or
24:03
Speaker 3: kind of why they were created. Yes, like everyone will
24:06
Speaker 3: have a view on that. They're often very industry specific
24:09
Speaker 3: or a particular segment of the market or picking up
24:11
Speaker 3: all indices. I guess it depends a lot on your
24:14
Speaker 3: investment behavior.
24:15
Speaker 1: But you sound you sound madly enthusiastic about the CASHI
24:18
Speaker 1: TFS as an option.
24:20
Speaker 3: I'd be on the fence. I'd really going direct. Yes,
24:25
Speaker 3: it's really.
24:28
Speaker 2: All right, very good, terrific.
24:30
Speaker 1: Have you on the show again, Jackie, and thank you
24:33
Speaker 1: very much for the instruction, for the instruction on spending,
24:39
Speaker 1: which we past so little attention to on the show
24:41
Speaker 1: with all of them.
24:42
Speaker 3: Yeah, I think the key thing is wanting people to
24:44
Speaker 3: set meaningful financial goals, and I think once you do that,
24:48
Speaker 3: you create a better platform for recognizing why or how
24:52
Speaker 3: expense grover has affected your life and think about tomorrow,
24:56
Speaker 3: not just today.
24:57
Speaker 1: I thought your observation about if a financial goal is
25:01
Speaker 1: how much you want to live on when you retire,
25:05
Speaker 1: and you know from vast majority of people that are
25:08
Speaker 1: not going to make anything like they're made in their profession.
25:12
Speaker 3: And like, until you've had a redundacy event or something
25:15
Speaker 3: like that, you haven't even had a reality check into
25:18
Speaker 3: saying this. When this sort of money tree stops producing
25:21
Speaker 3: this income, what happens. Oops, I've created this huge lifestyle
25:25
Speaker 3: that's had you know, expense creep running through it. I
25:29
Speaker 3: just gave you one tiny, two tiny examples about your
25:31
Speaker 3: wine purchases and your Netflix. The extent to which they've
25:35
Speaker 3: increased is frightening. And you think that applies to everything
25:38
Speaker 3: in a household, electricity, utilities, rent, mortgage, you name it.
25:44
Speaker 3: And if the mortgage doesn't go up, the size of
25:46
Speaker 3: the mortgage does.
25:47
Speaker 2: Terrific. Good advice.
25:49
Speaker 1: All right, thank you very much, Thanks James, and let's
25:51
Speaker 1: have some more questions folks. The money Puzzle at the
25:54
Speaker 1: Australian dot com dot eu managed h