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Investing 101: Cash me outside (how bout dat) · She's On The Money

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  Speaker 1: She's on the Money. She's on the Money. Hello, and
• 0:13
  Speaker 1: welcome to She's on the Money, the podcast for millennials
• 0:16
  Speaker 1: who want financial freedom. On today's show, we are going
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  Speaker 1: to be deep diving into all things cash, which was
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  Speaker 1: one of our four investment methods that we spoke about
• 0:25
  Speaker 1: briefly last week, and by the end of today's show,
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  Speaker 1: we promise you'll know who cash is an appropriate investment
• 0:31
  Speaker 1: for who it certainly is not appropriate for, plus what
• 0:35
  Speaker 1: its benefits and limitations are, and just for a little
• 0:39
  Speaker 1: added source to top it all off, you like that I.
• 0:42
  Speaker 2: Don't like the name Vicki D, but I do like sauce.
• 0:45
  Speaker 1: Well, you will be answering questions about cash from the
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  Speaker 1: community members Carlie and Kate, which should be a bit
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  Speaker 1: of wholesome, informative fun, which we all could agree is
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  Speaker 1: the best kind of fun. Now, if you don't already
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  Speaker 1: know who I am, my name is Georgia Ki. I
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  Speaker 1: am a journalism student and a copywriter. Oh wow, fancy,
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  Speaker 1: and as always I'm joined by millennial money wizard Vicki D.
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  Speaker 1: Victoria Devine.
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  Speaker 2: How Hello, I'm well, it'd be better if you stop
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  Speaker 2: calling me VIPD. But that is all good. How about
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  Speaker 2: in our deep Dive episode we literally just deep dive
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  Speaker 2: straight in.
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  Speaker 1: Should we? Well?
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  Speaker 2: Absolutely? What is your first question?
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  Speaker 1: Okay, so v, what does cash mean? When we're talking
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  Speaker 1: about investment.
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  Speaker 2: Cash cash money? So cash investments, they actually include all
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  Speaker 2: of the money that's currently sitting in your bank account,
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  Speaker 2: in everyday savings accounts, in your term deposits if you've
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  Speaker 2: got them, which, honestly this type of investment, and we
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  Speaker 2: call it an investment because it is one. I know
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  Speaker 2: people are like, oh, I'm not investing. It's kind of like, well,
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  Speaker 2: you kind of are if you're saving and putting money
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  Speaker 2: away for a future purpose. Right, It's incredibly low risk
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  Speaker 2: and they actually have the benefit of potentially providing a
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  Speaker 2: pretty stable yet very minimal income in interest in the future.
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  Speaker 2: And I know last year we're really talking talking about,
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  Speaker 2: especially at the start of the year, about which savings
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  Speaker 2: accounts to go with. I know, a lot of savings
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  Speaker 2: accounts had like two and a half percent. You guys
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  Speaker 2: are really excited about it. And then there was all
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  Speaker 2: of this talk in our community about how the interest
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  Speaker 2: rate was going down and how disappointing it was, but
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  Speaker 2: it was actually just a sign of the times and
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  Speaker 2: what was going on, and that's actually what happens. And
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  Speaker 2: these things are actually cyclical, which means they go round
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  Speaker 2: and you know, things go up and things go down
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  Speaker 2: and things change. And I think that that's really important
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  Speaker 2: to take into consideration. A lot of people probably don't
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  Speaker 2: even think about money that they have in their bank
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  Speaker 2: accounts though as an investment or term deposits as an investment,
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  Speaker 2: but they absolutely are, and even compared to other investment
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  Speaker 2: types like the share market and the property market, cash
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  Speaker 2: whilst it does offer a pretty low return, with low
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  Speaker 2: return comes low levels of risk. Friends, and we'll actually
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  Speaker 2: do an episode on risk profiling because one thing it's
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  Speaker 2: really perfy. Like, if you guys like to know what
• 2:51
  Speaker 2: your minus brig's personality type is, let me introduce to
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  Speaker 2: you your financial type. Yeah yeah, yeah, maybe I can
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  Speaker 2: find a really fun way of like freeze resenting it.
• 3:00
  Speaker 2: Yeah yeah, and work on that. I'm going to work
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  Speaker 2: on that. I'm going to make us a survey and
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  Speaker 2: then at the end of the survey you'll tell you
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  Speaker 2: who you.
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  Speaker 1: Are brilliant, genius. Love it? Okay, So, b are these
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  Speaker 1: things investments because you potentially earn a return from the interest.
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  Speaker 1: Is that how that's why?
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  Speaker 2: Yes, absolutely, And at the end of the day, why
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  Speaker 2: are you shopping around for a different interest rate on
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  Speaker 2: your high interest savings account if you're not trying to
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  Speaker 2: make your money make money, and these things really change.
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  Speaker 2: Like I remember, way back when I was in high
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  Speaker 2: school having a savings account that had like nine and
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  Speaker 2: a half percent, like it was a term deposit. Like
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  Speaker 2: what can you imagine if someone guaranteed that if you
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  Speaker 2: put your money into a super safe environment in a
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  Speaker 2: term deposit, just didn't touch it, you get nearly ten
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  Speaker 2: percent return? Like that is wild.
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  Speaker 1: That is wild. But that brings me to my next
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  Speaker 1: question here, what is a term deposit? Because people are
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  Speaker 1: probably listening and thinking, I don't know what they're talking about,
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  Speaker 1: so talk to us.
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  Speaker 2: A term to osit is going to see your money
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  Speaker 2: locked away for a fixed period of time. So different
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  Speaker 2: term deposits have different periods of time. It could be
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  Speaker 2: three months, it could be six months, it could be
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  Speaker 2: twelve months. Some even have twenty four month periods, And
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  Speaker 2: in return, you'll receive a fixed interest rate that is
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  Speaker 2: generally at a much higher rate than you get from
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  Speaker 2: just a regular savings account. So this is generally for
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  Speaker 2: a longer term, and the longer the term usually the
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  Speaker 2: higher the interest rate. There are a few negatives. The
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  Speaker 2: main benefits are obviously high interest. Yeah, that's much better.
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  Speaker 2: Guaranteed income again, fantastic. It won't ever change even if
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  Speaker 2: official interest rates change, which I think is really great.
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  Speaker 2: I know a couple of my clients have got term
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  Speaker 2: deposits because at the end of the day, like I
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  Speaker 2: might talk about investment all the time, and you guys,
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  Speaker 2: no way adore the share market, like it is something
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  Speaker 2: I am so crazy about. But if a client has
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  Speaker 2: a really low risk risk profile, I'm not going to
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  Speaker 2: go put all their money in the share market. Like
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  Speaker 2: I do have clients that invest this way because it
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  Speaker 2: makes sense for them, and I think that's really important
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  Speaker 2: to put out there because I don't actually want you
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  Speaker 2: guys to think that the only way is the share market. Yeah,
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  Speaker 2: yes it is. You get higher returns, but with higher
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  Speaker 2: returns higher risk in some people are just not willing
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  Speaker 2: to take that risk. So it's really worth remembering too
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  Speaker 2: that with term deposits, if you need to access those
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  Speaker 2: funds and you have a term deposit, you actually will
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  Speaker 2: lose any of the accumulated interest you earn on it
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  Speaker 2: if you access it early, and you might actually even
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  Speaker 2: have to pay fees, so there could be a sting
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  Speaker 2: if you need to get it back for any reason.
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  Speaker 1: And just to clarify as well, term deposits are within
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  Speaker 1: your bank account. They're not on the ASX.
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  Speaker 2: Oh absolutely not. So a term deposit is usually with
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  Speaker 2: a bank, so you might have a term deposit with
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  Speaker 2: a different bank than what you usually bank with. All
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  Speaker 2: of the big four banks have term deposits at the moment.
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  Speaker 2: I mean, they're not that flash or crash hot, but
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  Speaker 2: that is the current state of the world, my friends.
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  Speaker 1: And okay, this is a fun little tidbit. I realized
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  Speaker 1: that I actually have a term deposit. Georgia, k you,
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  Speaker 1: I know, I'm actually savvy.
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  Speaker 2: Oh, you actually have an accidental term deposit, so.
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  Speaker 1: Rout of you. I've had it for like three years
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  Speaker 1: and it has earned me quite a decent little return.
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  Speaker 1: But I didn't realize that you get taxed on it.
• 6:00
  Speaker 1: That's yeah, you do, you do, and that is money.
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  Speaker 2: So important to take into consideration. And I had this
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  Speaker 2: rant yesterday actually, when we're putting together this script, was
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  Speaker 2: talking to Ryan about it. And I said, what people
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  Speaker 2: don't take into consideration is interest on a savings account,
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  Speaker 2: whether that is a term deposit or your regular high
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  Speaker 2: interest savings account. Interest is income. Yeah, and income is
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  Speaker 2: taxed at your marginal tax rate. So what you actually
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  Speaker 2: need to work out is your real rate of return.
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  Speaker 2: So that would be what is the interest rate after
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  Speaker 2: my tax is deducted. And the quick mass in my
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  Speaker 2: head is not working right now, so I do apologize.
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  Speaker 2: But let's say that you had an interest rate of
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  Speaker 2: like two and a half percent. Doesn't exist right now,
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  Speaker 2: I'm good luck, friends, but you had an interest rate
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  Speaker 2: of two and a half percent, but you're at the
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  Speaker 2: highest marginal tax bracket and you're paying nearly forty cents
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  Speaker 2: in the dollar four tax, Like, you need to take
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  Speaker 2: that into consideration when you're actually going oh great, two
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  Speaker 2: and a half percent, it's fantastic. It's higher than inflation.
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  Speaker 2: Once you take out that forty cents, you're actually only
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  Speaker 2: making sixty percent of that two point five percent return.
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  Speaker 2: And yeah, friend, you actually drop low inflation.
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  Speaker 1: Right, So that's the same with like every kind of investment.
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  Speaker 2: Yeah, absolutely, Like if you make a profit, you need
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  Speaker 2: to pay tax on it. When it comes to things
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  Speaker 2: like shares, and we obviously have a whole episode coming
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  Speaker 2: up on this. You don't have to pay a tax
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  Speaker 2: on your you know, you'll have to pay tax on
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  Speaker 2: your earnings, but on capital growth. So the growth in
• 7:28
  Speaker 2: value of the asset unless you sell it all dispose.
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  Speaker 1: Okay, so many questions there. We'll move along though, We'll
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  Speaker 1: save that for our share episode. So, crew, would you
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  Speaker 1: say this form of investing is appropriate for.
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  Speaker 2: So, as I said on the overview episode of this,
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  Speaker 2: like little mini series, we probably could have come up
• 7:46
  Speaker 2: with a sassier name, like we could have come up
• 7:48
  Speaker 2: with like the GM Investment Series or something like I'm
• 7:51
  Speaker 2: not cool, Like I'm just doing a few podcasts on
• 7:54
  Speaker 2: the shares, Just just a gal talking about money. What
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  Speaker 2: a surprise in twenty twenty one, given I did it
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  Speaker 2: all last year anyway. So cash is a really defensive
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  Speaker 2: form of investing, and we spoke about on the episode
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  Speaker 2: it being defensive and it's best for people who have
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  Speaker 2: goals in place for their money that are really hoping
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  Speaker 2: to achieve those goals over the next couple of years.
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  Speaker 2: So we're not talking like ten years in the future.
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  Speaker 2: We're talking about maybe you've already saved fifty thousand dollars
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  Speaker 2: towards your house deposit and you're planning on buying in
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  Speaker 2: the next two years. Like, I would not be putting
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  Speaker 2: that money into the share market. It's just too risky,
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  Speaker 2: Like what if the share market crashes and then you
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  Speaker 2: can't achieve your goal? Like that's that's silly talk. We
• 8:29
  Speaker 2: don't do that, shese on the money. We invest wisely,
• 8:32
  Speaker 2: and we actually understand all our asset classes so we
• 8:35
  Speaker 2: know when to use them. So if you're thinking of
• 8:37
  Speaker 2: buying property, probably unwise, but it's also a really good
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  Speaker 2: temporary option for your money while you're making bigger plans.
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  Speaker 2: So at the same time, it would be very naive
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  Speaker 2: of me to assume that everybody's ready to put money
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  Speaker 2: into the share market or different types of assets, or
• 8:51
  Speaker 2: you know, they actually have the capacity to do that.
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  Speaker 2: So it's a really great place for your money to live,
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  Speaker 2: earn a little bit of interest, hopefully, try and keep
• 8:58
  Speaker 2: up with inflation, and make sure that you're not losing anything.
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  Speaker 2: So what yields a greater return. It's also a form
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  Speaker 2: of investing that once you actually like let's talk about
• 9:07
  Speaker 2: retirement for a second, once you get really far down
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  Speaker 2: the track and you know we have invested over the
• 9:13
  Speaker 2: long term, and you know you've got this Like, let's
• 9:15
  Speaker 2: say you've got a two million dollar portfolio, Like you
• 9:19
  Speaker 2: might want to transfer a lot of your share portfolio
• 9:22
  Speaker 2: into a more defensive asset because there's gonna be less fluctuation. Yes,
• 9:27
  Speaker 2: you're going to get a lower return, but like I
• 9:30
  Speaker 2: would much prefer a lower guaranteed not guaranteed, but close
• 9:34
  Speaker 2: to guaranteed return on a very large sum of money
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  Speaker 2: than risking being in the share market during retirement and
• 9:39
  Speaker 2: maybe not having income one year. So I think it's
• 9:42
  Speaker 2: really important to understand that there are different phases of
• 9:45
  Speaker 2: your life where these assets are going to feature more
• 9:47
  Speaker 2: heavily or less heavily, depending on what you're up to.
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  Speaker 1: And you don't want it locked away either somewhere else
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  Speaker 1: if you are going to need.
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  Speaker 2: It absolutely a couple of years.
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  Speaker 1: Okay, So many people I know can get trapped into
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  Speaker 1: thinking that having your money safely tucked away into a
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  Speaker 1: savings account is it's good, it's safe. There's load risk,
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  Speaker 1: like you'll get a little bit of interest over the journey,
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  Speaker 1: But can you please explain the flaws in this line
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  Speaker 1: of thinking, because I can't be the only one.
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  Speaker 2: No, you can't be, and I know you're not. So
• 10:14
  Speaker 2: it was like a really great place to question for
• 10:16
  Speaker 2: you to ask, because it's half our community, exactly more
• 10:19
  Speaker 2: than half our comdanuity.
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  Speaker 1: I would argue, what we don't think about when we
• 10:22
  Speaker 1: do go off on that tangent of thinking is about inflation.
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  Speaker 1: So I wanted to ask you a little bit about
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  Speaker 1: how that plays into the decisions we should be making
• 10:30
  Speaker 1: when it comes to our money.
• 10:31
  Speaker 2: So let's just quickly backtrack and talk about what inflation
• 10:34
  Speaker 2: actually is Georgia, because I think it gets spoken about
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  Speaker 2: in passing a lot and people just go, yeah, inflation
• 10:39
  Speaker 2: happens to stuff over time, But like, what does that
• 10:42
  Speaker 2: really mean? So at the end of the day, like
• 10:45
  Speaker 2: let's say it was to the year two thousand and
• 10:48
  Speaker 2: the movie ticket, Like I remember going to the movies
• 10:50
  Speaker 2: when I was young, and it was like maybe like
• 10:52
  Speaker 2: six dollars fifty for a movie ticket. And now by
• 10:55
  Speaker 2: like twenty twenty, I go to the cinema and the
• 10:57
  Speaker 2: movie ticket's like twenty two dollars or something. Ridonculous. I
• 11:01
  Speaker 2: understand that, but you know, I'm still paying because I'm
• 11:03
  Speaker 2: going to do this. But that's that's the work of inflation.
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  Speaker 2: That is a price increase over time to match demand
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  Speaker 2: and salaries and you know the expectations of the world
• 11:12
  Speaker 2: at this time. It is not you know, the cinema's
• 11:15
  Speaker 2: taking advantage of us. It's them going, oh my gosh,
• 11:17
  Speaker 2: for us to actually provide this service to people, we
• 11:20
  Speaker 2: are going to have to increase our expenses because the
• 11:24
  Speaker 2: costs on is yeah, exactly, like maybe they're sourcing it
• 11:28
  Speaker 2: in Australia finally, or like whatever they're doing, everything is
• 11:31
  Speaker 2: more expensive and salaries have slightly increased, so they need
• 11:34
  Speaker 2: to make up for it. So like whether it's the
• 11:36
  Speaker 2: price of a movie ticket, a house, or like a
• 11:38
  Speaker 2: semester at UNI or whatever it is, these costs rise
• 11:42
  Speaker 2: over time. And sometimes these costs rise really quickly, so
• 11:45
  Speaker 2: like that example is quite dramatic, but like sometimes they're
• 11:49
  Speaker 2: really slow. Like it might be something that you know,
• 11:52
  Speaker 2: it might be a couple of cents every year, and
• 11:54
  Speaker 2: it's not as dramatic as the movie ticket example. For example,
• 11:57
  Speaker 2: like why are McDonald's cones not twenty cents anymore?
• 12:00
  Speaker 1: Are they still fifty cents?
• 12:01
  Speaker 2: No? Mate, I think they're like two dollars.
• 12:03
  Speaker 1: Ah, mac Is, I don't know.
• 12:06
  Speaker 2: They've let me down, Georgia. I can't eat soft serve,
• 12:09
  Speaker 2: but I also can't eat waffle cone. But it's not
• 12:12
  Speaker 2: that point. I just feel like I should have access
• 12:15
  Speaker 2: to a twenty cent cone for sure. I should be
• 12:17
  Speaker 2: able to ask my dad for twenty cents to get
• 12:19
  Speaker 2: a cone.
• 12:19
  Speaker 1: So you're putting that down to inflation.
• 12:20
  Speaker 2: Yeah, I'm putting that down to inflation, absolutely, But I
• 12:23
  Speaker 2: think you get my point. Price increases over time.
• 12:26
  Speaker 1: Now it's sorry to jump in their va. Does that
• 12:29
  Speaker 1: increase over time always? Or like if we're in a recession,
• 12:32
  Speaker 1: does that go down? Like what is the path?
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  Speaker 2: It can increase and decrease, But at the end of
• 12:36
  Speaker 2: the day, it's always increasing. At the end of the day.
• 12:38
  Speaker 2: Inflation happens over time, and each year, depending on what
• 12:41
  Speaker 2: has happened in that year, the rate of inflation might change.
• 12:44
  Speaker 2: So last year, I know that the rate of inflation
• 12:46
  Speaker 2: was one point a and previous years it was really similar.
• 12:49
  Speaker 2: It wouldn't be surprised if it, you know, changed in
• 12:51
  Speaker 2: the next twelve months based on the fact that we've
• 12:53
  Speaker 2: had a global pandemic. But at the end of the day,
• 12:56
  Speaker 2: these things work in really weird ways. You can only
• 12:58
  Speaker 2: ever calculate at retrospectively, so you can't calculate it into
• 13:01
  Speaker 2: the future because we can't predict the future, but we
• 13:04
  Speaker 2: can look at what has happened and like, how much
• 13:06
  Speaker 2: has the cost of goods and services increased over the
• 13:08
  Speaker 2: last twelve months, And that's how we kind of put
• 13:10
  Speaker 2: a number on it. So like, at the end of
• 13:12
  Speaker 2: the day, you're not here for an inflation lecture? Are
• 13:15
  Speaker 2: we going to be sick lecturer at a UNI or something.
• 13:17
  Speaker 2: I'd have so much fun. But can you imagine me
• 13:20
  Speaker 2: being given a captive audience and a white board for.
• 13:23
  Speaker 1: Two whole hours?
• 13:25
  Speaker 2: Oh, you guys would be sucked in.
• 13:27
  Speaker 1: Oh I think so. I think they'd be partying in
• 13:29
  Speaker 1: your hands with the wholetle savings at the end of
• 13:31
  Speaker 1: the day. You wait now reports later.
• 13:34
  Speaker 2: Oh my no, wait until I'm in my late seventies
• 13:37
  Speaker 2: and I'm like that little old grammar who's teaching finance
• 13:39
  Speaker 2: at the local r MIT. Like that'll be me. That's
• 13:42
  Speaker 2: my life goal. Anyway, How does this actually shrink your savings?
• 13:46
  Speaker 2: Like that's all you guys care about. So let's say
• 13:48
  Speaker 2: you have one hundred dollars in your savings account that
• 13:50
  Speaker 2: pays like let's call it one percent interest rate because
• 13:52
  Speaker 2: it's twenty twenty one, and after a year you then
• 13:55
  Speaker 2: have one hundred and one dollars in your account. But
• 13:58
  Speaker 2: if the rate of inflation is actually running a two percent,
• 14:01
  Speaker 2: for example, you'd actually need one hundred and two dollars
• 14:04
  Speaker 2: in your bank account to have the same buying power
• 14:08
  Speaker 2: you started with. So buying power is your ability to
• 14:12
  Speaker 2: purchase the same item with the same amount of money.
• 14:16
  Speaker 2: So like, obviously, if inflation has increased and the cost
• 14:19
  Speaker 2: of goods have increased, you are now in a position
• 14:21
  Speaker 2: where you can buy less. Does that make sense? So
• 14:24
  Speaker 2: you've gained a dollar, but you've lost some buying power.
• 14:28
  Speaker 2: So anytime your savings don't grow at the same rate
• 14:30
  Speaker 2: as inflation, you're effectively losing money. And that's the summary
• 14:33
  Speaker 2: of my.
• 14:34
  Speaker 1: Story, Okay, And so how does that play into the
• 14:37
  Speaker 1: cash side of things? So you're saying that we shouldn't
• 14:40
  Speaker 1: just leave our money in our bank accounts earning little
• 14:42
  Speaker 1: interest because it won't be able to keep up with
• 14:44
  Speaker 1: the rates of inflation.
• 14:46
  Speaker 2: Well, if we want to pull out another Victoria Devine
• 14:48
  Speaker 2: saying from little things, big things grow, and the same
• 14:51
  Speaker 2: happens with inflation. So like you might go victoria, like,
• 14:55
  Speaker 2: my money's still safe in that savings account. It's fine.
• 14:58
  Speaker 2: I might need one hundred and two two dollars, but
• 15:00
  Speaker 2: like that's not that much difference from one hundred and
• 15:02
  Speaker 2: one dollars. But over time, if that's your retirement plan,
• 15:05
  Speaker 2: you're literally going to be retiring with less money than
• 15:07
  Speaker 2: what you've saved. And that is a really bad plan.
• 15:10
  Speaker 2: And it is not, in this day and age sustainable,
• 15:13
  Speaker 2: and I think that there is and I'm very opinionated
• 15:15
  Speaker 2: about this because we as millennials and Gen X and
• 15:19
  Speaker 2: y's and whatever we are now, I don't know what
• 15:20
  Speaker 2: the next generation after that is. We are at a
• 15:23
  Speaker 2: deficit because historically people were able to save and that
• 15:27
  Speaker 2: would have been enough. It is now no longer enough,
• 15:29
  Speaker 2: and our futures are going to suffer because we think
• 15:32
  Speaker 2: that saving is going to get us to the place
• 15:34
  Speaker 2: that we need to get at. And you look at
• 15:36
  Speaker 2: it and you go, okay, cool. And I've used this
• 15:38
  Speaker 2: example a million times, and I use it so that
• 15:41
  Speaker 2: it is drummed into you guys. That's why I don't
• 15:43
  Speaker 2: give fresh new content on this you save five hundred
• 15:46
  Speaker 2: dollars each and every single month as a twenty year old.
• 15:48
  Speaker 2: By the time that you retire, you will have a
• 15:51
  Speaker 2: one point two million dollar investment portfolio, but you would
• 15:54
  Speaker 2: have only saved two hundred and forty thousand dollars. That's
• 15:58
  Speaker 2: what it would happen to different. That's like you're getting
• 16:02
  Speaker 2: nearly a million dollars for free for investing. I mean,
• 16:06
  Speaker 2: that's summarizing it really simply, but I think it's the
• 16:08
  Speaker 2: most impactful way to do it. Like you're choosing to
• 16:13
  Speaker 2: not put your future self first by not investing in
• 16:15
  Speaker 2: an asset that actually gives you good returns. Whereas if
• 16:19
  Speaker 2: we go back to that example, if you're losing a
• 16:21
  Speaker 2: dollar each year off your two hundred and forty thousand dollars,
• 16:24
  Speaker 2: and then the cost of goods in forty years when
• 16:27
  Speaker 2: we retire is so much more like you aren't going
• 16:29
  Speaker 2: to be able to afford to live. I'm sorry, that's
• 16:31
  Speaker 2: just the way.
• 16:32
  Speaker 1: Yes, Wow, Okay, well, I think you've sold shares there
• 16:35
  Speaker 1: and you will continue.
• 16:36
  Speaker 2: No not shares other investment.
• 16:37
  Speaker 1: Other investment assets, okay, and we will get to those
• 16:41
  Speaker 1: in our future episodes. And before we do move on
• 16:44
  Speaker 1: to more cash related questions, because I do have a.
• 16:46
  Speaker 2: Few more, or you've eat you're coming at them.
• 16:48
  Speaker 1: It is time for a quick word from the sponsors
• 16:51
  Speaker 1: of today's show. Okay, now, if you are new to
• 16:57
  Speaker 1: the podcast, please remember to check out our incredible Facebook group.
• 17:01
  Speaker 1: If I do say so.
• 17:02
  Speaker 2: I mean Georgia FI group. And we do think that
• 17:08
  Speaker 2: everybody in that Facebook group is my friends, and.
• 17:10
  Speaker 1: Of amazing there are a simple one hundred and twenty
• 17:13
  Speaker 1: six zerous ish people.
• 17:14
  Speaker 2: How many friends I have, guys?
• 17:16
  Speaker 1: Anyway, the point is that we continue these conversations in
• 17:20
  Speaker 1: the group. We've also got TikTok. We've got YouTube, We've
• 17:23
  Speaker 1: got Instagram. It's not just the I've gotten.
• 17:24
  Speaker 2: Back on TikTok in twenty twenty one, and I'm starting
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  Speaker 2: to create some new fresh content for you guys. Big plans,
• 17:30
  Speaker 2: I mean, not great plans, they are just TikTok. But
• 17:33
  Speaker 2: I feel savvy.
• 17:35
  Speaker 1: So we are running out of time here, v but
• 17:37
  Speaker 1: I wanted to quickly squeeze in our questions from the
• 17:39
  Speaker 1: Facebook group. So the first one is from Kate, who asked,
• 17:43
  Speaker 1: is it better to have cash sitting in an offset
• 17:46
  Speaker 1: account or a high interest savings account. I don't know
• 17:49
  Speaker 1: what an offset account is, so maybe start by explaining that.
• 17:54
  Speaker 2: Okay, so great question, and I actually get this a lot.
• 17:58
  Speaker 2: To me. Summary of this question is use your offset
• 18:00
  Speaker 2: It's a no brainer because right now your offset account
• 18:04
  Speaker 2: is usually going to have a better return than your
• 18:07
  Speaker 2: you know, high interest savings account. And I will tell
• 18:09
  Speaker 2: you why, Georgia King. An offset account is a transaction
• 18:12
  Speaker 2: account that is actually linked to your home loan. So
• 18:15
  Speaker 2: this is only going to work if you actually own
• 18:16
  Speaker 2: properly already, if you don't just tune out for the
• 18:19
  Speaker 2: next couple of seconds, I do stretch. I don't know,
• 18:21
  Speaker 2: but essentially you can use this account in exactly the
• 18:24
  Speaker 2: same way you would a bank account. But any money
• 18:27
  Speaker 2: that is sitting in your offset account right now is
• 18:29
  Speaker 2: going to offset the amount of interest that you're paying
• 18:32
  Speaker 2: on your mortgage. So if your high interest savings account
• 18:36
  Speaker 2: right now is paying one point twenty five but your
• 18:38
  Speaker 2: mortgage is sitting at you know, three percent, you're arguably
• 18:42
  Speaker 2: getting a better return having the money offset that three
• 18:45
  Speaker 2: percent you would have paid on cash into your mortgage.
• 18:48
  Speaker 2: Does that make sense? So to give you a little
• 18:51
  Speaker 2: bit more insight, because I love examples. Let's say you
• 18:54
  Speaker 2: take out four hundred thousand dollars home loan Georgia, and
• 18:57
  Speaker 2: then you deposit ten grand into your officet accoun So
• 19:00
  Speaker 2: instead of having ten thousand dollars in savings, you've now
• 19:02
  Speaker 2: got it in an offset account, still savings. You still
• 19:04
  Speaker 2: got the same level of accessibility to it. It is
• 19:07
  Speaker 2: still just as safe. So now what's going to happen
• 19:10
  Speaker 2: is you're going to be charged interest on three hundred
• 19:12
  Speaker 2: and ninety thousand dollars instead of the four hundred thousand dollars.
• 19:16
  Speaker 2: This happens for as long as you've got that ten
• 19:18
  Speaker 2: grand just sitting in there. But what does that actually
• 19:21
  Speaker 2: mean for you? So with that four hundred thousand dollars, like,
• 19:24
  Speaker 2: let's just make it a bigger number so it seems
• 19:26
  Speaker 2: more impactful because that's the way we work around here.
• 19:28
  Speaker 2: The interest rates sitting at five percent, and like that
• 19:30
  Speaker 2: loan term is for thirty years, which is standard mortgage terms,
• 19:33
  Speaker 2: and you keep that ten grand in your offset for
• 19:36
  Speaker 2: that entire period of time. I mean, I hope you'd
• 19:38
  Speaker 2: save more. You actually end up saving more than thirty
• 19:41
  Speaker 2: thousand dollars in interest, and that's more than your one
• 19:43
  Speaker 2: point twenty five on your interest savings account, and because
• 19:46
  Speaker 2: it's on a loan, you don't have to pay marginal
• 19:49
  Speaker 2: tax on what you make from Oh my god, so
• 19:51
  Speaker 2: much to learn brand exactly. So if you've got an
• 19:54
  Speaker 2: offset account, use it. If you don't have an offset account,
• 19:57
  Speaker 2: why don't you have an offset account on your mortgage?
• 19:59
  Speaker 2: If you're a.
• 19:59
  Speaker 1: Homeowner, is there a cap on it?
• 20:01
  Speaker 2: Some do have caps on it. In what you can
• 20:03
  Speaker 2: use and do it, you need to actually read the
• 20:05
  Speaker 2: pds of your product, and you know what, there are
• 20:07
  Speaker 2: some mortgages that don't allow for offset accounts, So you
• 20:11
  Speaker 2: really have to if you're going to get an offset account,
• 20:13
  Speaker 2: or you're thinking, Victoria, this actually sounds great. Why am
• 20:16
  Speaker 2: I not using it? Talk to your mortgage broker and
• 20:18
  Speaker 2: say that I really want an offset facility on my mortgage.
• 20:21
  Speaker 2: Because some home loans, like I'm just gonna call one
• 20:24
  Speaker 2: out here, Athena home Loans. They're really popular right now.
• 20:27
  Speaker 2: I actually get so so so many messages about Athena
• 20:30
  Speaker 2: and how they work, and like, oh my gosh, Victoria,
• 20:32
  Speaker 2: they've got such a low interest rate, and I don't
• 20:34
  Speaker 2: have anything to do with them. I'm not sponsored by them, Like,
• 20:36
  Speaker 2: this is definitely not me promoting them. I'm just using
• 20:38
  Speaker 2: it as an example. They are a really low interest
• 20:42
  Speaker 2: mortgage product, but they have absolutely no bells and whistles
• 20:45
  Speaker 2: and no ability to have an offset, and there's like
• 20:47
  Speaker 2: a whole range of things that I didn't personally want
• 20:52
  Speaker 2: in my mortgage, so I didn't go with them. And
• 20:54
  Speaker 2: I'm not saying that they're bad by any stretch of
• 20:55
  Speaker 2: the imagination. Like if you're just after a mortgage.
• 20:58
  Speaker 1: That is no US, no fuss, no frills, no frills.
• 21:02
  Speaker 2: Then sure, but you need to understand that were super
• 21:06
  Speaker 2: super low interest rates often comes you know, less ability
• 21:10
  Speaker 2: to be flexible and actually less bells and whistles. And
• 21:12
  Speaker 2: I know that that term probably makes it sound like
• 21:14
  Speaker 2: shiny things you don't need, but like a bell and
• 21:16
  Speaker 2: whistle that I would argue is really helpful for you
• 21:20
  Speaker 2: is something like an offset account if it works for
• 21:22
  Speaker 2: your personal situation.
• 21:23
  Speaker 1: Okay, I think that is going to be very helpful
• 21:25
  Speaker 1: for our friend Kate. Offset account sounds like the way
• 21:28
  Speaker 1: to go. The next question, it's from the gorgeous Carly
• 21:33
  Speaker 1: Kate and Carly, which actually, so this is kind of
• 21:36
  Speaker 1: what we covered before. But let's let's go over it again.
• 21:39
  Speaker 1: What are the tax implications and things to be aware
• 21:42
  Speaker 1: of when it comes to cash as an investment.
• 21:44
  Speaker 2: To summarize cash as an investment, you're just gonna have
• 21:47
  Speaker 2: to pay tax on whatever interest you earn from that.
• 21:50
  Speaker 2: You shouldn't be paying any additional tax on just having
• 21:52
  Speaker 2: money in the bank though, Like just because it's sitting
• 21:54
  Speaker 2: there doesn't mean you pay tax. You already paid tax
• 21:57
  Speaker 2: on it when it went into your bank account. So
• 21:58
  Speaker 2: you're not going to be double tax or anything by
• 22:00
  Speaker 2: having a heap of money in your account, but you
• 22:02
  Speaker 2: will be paid tax on the interest that is earned.
• 22:05
  Speaker 2: So back to our example. If you have one hundred
• 22:07
  Speaker 2: dollars in your bank account and over one year, you
• 22:09
  Speaker 2: earn one dollar in interest. So therefore, at the start
• 22:13
  Speaker 2: of next year, you've got one oh one dollars in
• 22:15
  Speaker 2: that account, you would be charged tax on that one dollar.
• 22:18
  Speaker 2: So if you're sitting at the marginal tax rate instead
• 22:20
  Speaker 2: of a dollar you made, let's call it close to
• 22:22
  Speaker 2: sixty cents instead of the full dollar.
• 22:24
  Speaker 1: Okay, So last question to wrap here the if there
• 22:27
  Speaker 1: was one thing people could take away from today's episode,
• 22:30
  Speaker 1: what would.
• 22:30
  Speaker 2: It be That potentially cash is not a good long
• 22:34
  Speaker 2: term investment. It is great for short term. It is
• 22:36
  Speaker 2: great when you get to the point where you actually
• 22:38
  Speaker 2: have a whole heap of capital or cash that you
• 22:41
  Speaker 2: want to sustain and not have it grow. But you're
• 22:43
  Speaker 2: just looking for a really low return, then sure. But
• 22:47
  Speaker 2: I think that if we are trying to achieve the
• 22:49
  Speaker 2: same outcomes in terms of investment returns that our parents
• 22:52
  Speaker 2: had when they were able to have, you know, savings
• 22:55
  Speaker 2: accounts that return fifteen percent or nine and a half percent,
• 22:58
  Speaker 2: like I was talking about before, Like, it's just not
• 22:59
  Speaker 2: a to us, and it won't be for a very, very,
• 23:02
  Speaker 2: very long term. Like I know that banks are even
• 23:04
  Speaker 2: looking at reverse engineering mortgages at the moment, so they
• 23:08
  Speaker 2: will potentially in the future talk to you about paying
• 23:11
  Speaker 2: you to have the mortgage. Like that's a whole other
• 23:13
  Speaker 2: episode we'll get to. But literally, crazy talk. I don't
• 23:16
  Speaker 2: see us getting high interest savings accounts at that level already. Arguably, again, you.
• 23:21
  Speaker 1: Heard it here first, cash is not necessarily king But
• 23:27
  Speaker 1: Georgia king Well said, Okay, So to keep this conversation going, guys,
• 23:31
  Speaker 1: we will be posting a little episode thread in our
• 23:34
  Speaker 1: Facebook group. So if you do still have questions after
• 23:37
  Speaker 1: today's episode, simply slap them in there and we'll keep
• 23:40
  Speaker 1: this conversation flowing now. Also next week on the show,
• 23:43
  Speaker 1: we will be getting to the bottom of fixed interest
• 23:45
  Speaker 1: which we know you guys also have lots of questions about.
• 23:48
  Speaker 1: So we will see you then.
• 23:50
  Speaker 2: See you then. Friends. It doesn't sound that sexy, does it.
• 23:52
  Speaker 2: I'm not gonna lie like, let's talk about fixed interests, guys,
• 23:56
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• 23:59
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• 24:02
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• 24:04
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• 24:11
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• 24:20
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• 24:23
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• 24:25
  Speaker 1: not consider your individual circumstances. She Is on the Money
• 24:29
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