Hi, and welcome to this week's episode of Money with Alpha. Today I'm wearing my calculator earrings, if you happen to be listening and not watching, because I will talk a little bit of numbers. And I'm going to be talking about why doing nothing is costing you money and your future. And that's— I'm going to be pretty— that's pretty blunt for me. And I didn't— I don't want to scare you, but at the same time, I do want to provide you some information that might light a little fire under you to get going with your money because The more time passes and you do nothing, the harder it is to catch up and the more you have to do. So you actually have to do less if you start now than if you wait and start later. So, because time is your friend. So there's a couple of concepts I'm going to talk a bit about today. I have spoken about them before, but I wanted to reinforce them because they're so important. The first one is compounding. The second one is income versus growth. The other one is the time of your life and the when and how to make changes to how you run your money as well. Because a lot of information that gets put out there is really kind of thrown at 20 and 30-year-olds, and things do have to be done a little bit differently when you're in your 40s and your 50s and beyond. And then finally, there's diversification and what that actually means. Because I had a conversation with somebody recently, a very intelligent person, and It was clear they didn't really understand that concept because they were coming from a place of fear. So I wanted to, to be able to delve into some of these concepts a little bit more and to put some numbers behind it so that you can see and hear what, like, actually understand what I'm talking about in terms of the power of it. So firstly, so generally what I'm going to be talking about in this episode is that concept of wealth building and investing, because it is really the only way to, to actually give yourself that level of financial independence, freedom. And security. So it's, it's, it's on so many levels it's important. And the fact that this isn't emphasized and taught when we're growing up is just, it's just criminal from my perspective. Because we're taught how to spend money, we're taught how to get into debt, and we're taught to just spend our lives paying off debt. And that is not the way to financial freedom. You can definitely use debt as leverage when it's good debt, which I'll go into when I talk about income versus growth, but it's— that's not the only part of the story. Investing and wealth building is absolutely fundamentally essential to being able to have a life that is comfortable and is what you want it to be. So there, there is a clarity element to all of this so that you kind of know the amount that you're heading towards, but the actual mechanical part of doing it, you can be doing that before you've even got complete clarity. Like, just start heading in that direction, and then you'll find the more you have, the clearer you get, interestingly enough. Like, the more discerning you have to be with your money in terms of where you invest it, the more you realize who you are as a person. Are you a bit more sort of capable of taking on a bit more risk? Or your confidence grows over time, or the benefit of diversification means that you can afford to take some more risks or to try something a little bit different. And that's, that's the journey that I've experienced over the last sort of 6 to 12 months is I've been on a certain journey for a period of time with my investing. And to be honest, I got a little bit bored. So I started to look at other things. I thought, oh, what else could I do? What, you know, what other things could I kind of look at and investigate and give it a try? And, and it's amazing what then happens when, when you start to do that, things start to grow even more, which is really nice. So I really, really want that for, for you and for as many women as possible. So the first concept, it's compounding. Now I did actually use AI to help me with some calculations here just to reinforce the message and also make sure that I can pull the information correctly without having to, and I certainly can't do this sort of calculation in my head either. So we're looking at over a 20-year period. So I often get that whole, oh, it's too late for me. I'm in my, you know, mid to late 40s or I'm in my early 50s. And my answer to that is, well, let's have a look at the statistics on how long we're living now. On average, we're living into our— as women, we live into our mid-80s, and men into their— also our late 80s, and the men are in their mid-80s. So if you're in your early 50s, you've still got like 30 years. There is still a substantial amount of time there. And in terms of income-generating years, there's still— well, depending on, on what you're doing and how much you enjoy it, you've still got at least like 10 to 15 years to continue actually earning. But the thing is, when you start, if you set yourself up in a way that you— and that's where the income versus growth comes in— that you've got assets that can actually generate income for you when you stop working, you can draw the income but keep the money there to continue growing from an investing and wealth-building perspective. So there's these very linear concepts that we get sort of, we see in the media that are just, they're only part of the picture. So that's why I want to try and bring it all together. So I'll just go back to the compounding before I go too far down any tangents. So just as an example, I'm looking at 20 years. We could do 30. 30 does like increase things exponentially, but let's just stick with 20 for now. So yeah, the share market over the last 20 years has averaged about 8 to 10% per annum in terms of year-on-year growth. And that includes like the huge dips like the GFC and even COVID. So even with those dips, the— if you just stayed invested throughout that whole period, you'd be making 8 to 10% depending on what you're invested in. Now that is a lot better than having the money in the bank. It's also higher than our interest rates in Australia, even though they feel really high. Investing in the share market is still going to give you a higher rate of return from a percentage standpoint than investing in like from a debt perspective, which is why a lot of people invest in property because the interest rates are still okay in that regard from a property investor perspective. It just feels harder when it's your home because it's where you're living, but you still have to pay somewhere to live. Anyway, I'm digressing yet again. So 8%, I'll do an 8% and 10% for you. So if you just put $50 a month aside over at 8% over 20 years, it's just over $29,000. $100 a month gives you almost $60,000. So it's Imagine having that extra cash. Like if you could try and get $100 out of your budget, and sometimes it's literally just a few subscriptions and maybe a little less food waste, a little less eating out. It is actually amazing how easy, like with my clients, like minimum we find without even trying is $300 a month. Like that's just standard. So it's actually quite easy once you really start to delve into it, but you have to have the visibility to do that. I'll talk about that a bit later as well. So that's just 8%. If it's 10%, then $100 a month gets you to just almost $76,000. Like, that's pretty nice to, to be able to have that kind of money. Imagine if you did nothing now, you wouldn't have that, but if you did, you would. And as you start to find ways to find that $100, it's amazing how easy it is then to try and find an extra $50. And if you're running your own business, you can— your business, you can work on ways to maybe sell more of a profitable product or service cull down to just like maybe your signature pieces, whether it's product or service, and then just start to really double down on the income and the profit-generating elements of your business. So then you can pay yourself a little more. So then maybe you can up it to $200 a month. So the the, the numbers then just double again and then you're at $150,000 as well. You know, it just, it's amazing the time value of money. And then you'll actually, but if you don't do it, you're actually losing money. Like you're not even just losing that, you know, $76,000, you're losing the benefit of, and for what, you know, you're just not going to have that in the future. So compounding is extremely important. And when it comes to investing, there's an old adage that says it's time in the market, not timing the market. Because that's the other thing too, like, oh, the markets, what's happening right now? I mean, I know what's going on because I look, but that doesn't influence my buying and selling. I don't sell at all, but that doesn't influence my buying timeframe. I literally just have an automatic investment that just, it just keeps like auto invest into ETFs. I picked 3 ETFs. I've set up an auto deduction every month at the same time and it just goes and it buys them every month and it just keeps ticking along. Some months it's up, some months it's down, but overall when I look over, because I do my own little performance reports every quarter. When I look over the last 10 years, because finally it's interesting, it's a little bit like, you know, watching your children grow. For the longest time you don't really notice it, then all of a sudden you're like, whoa. And people who haven't seen them for a little while just go, wow, you've really shot up. You're like, oh yeah, I guess you have, because it's that, you know, incremental change we don't necessarily see. So I've noticed that as well. Like, I sometimes go, oh well, this hasn't really grown that much. And then I look back, you know, 5 years ago even, and go, wow, that actually has grown quite a bit. And look at all of the, the dividends that I've had come in as well, which I reinvest. So it compounds too. So this calculation doesn't take into account compounding returns either. So that would give you an even higher return. So that's the benefit of compounding. Then comes the concept of income versus growth. So what we see, you know, when there's news and the market drops, even though we see, oh my gosh, it's dropped by like 10%, it's like, well, it dropped 10% about 3 months ago and it came back. So if you're watching me, I'm doing like a baseline. We're starting here and it goes up and then it drops 10% and then it goes up again and then the next 10% drop is not the same as the first 10% drop because it's gone higher since it started the next drop. So it's, it's like this incremental up. Sometimes it might dip back down again, but it will over time. When you look at the share trading charts, it does go up. And that's why they say when you're investing, it's 7 to 10 years minimum. So, and I'm talking about 20 here. So this is, this is for future you and future you will look back and go, thank you so much for doing this for me now. Because it means I have more choices and I can live more intentionally. I can take the holidays that I want. I can maybe go on that. And I know it might not sound appealing right now, but you know, that cruise, or even just, you know, I have never been a huge fan of, of just like the huge cruise ships, but the idea of a European river cruise, I would definitely like that. So that's something I'm going to do. Maybe not right now. Because I've got other things I want to do, but when I'm a bit older, because it just looks fun and relaxing as well. So that income, so that's, that's what happened, that's the growth part, but that's the value of the, the shares or the, the exchange-traded funds, the index funds that you may have. There's still income. So even though the price of those shares might fluctuate, the companies behind them are still operating, they're still producing goods and services. They're still making money and they're still paying dividends to their shareholders. So in some of those, you might have shares in like Microsoft or Meta or Nvidia or Alphabet or, you know, all these, all these different companies, whether they're software or income-producing like the Asian ones, like you've got Samsung and the other, some of the big Tencent and Alibaba, they're all still operating and they're still profitable just because their share price might reflect some perceptions about what they're doing. And sometimes it might be, you know, indicative of something not going well, but for the most part, it's just people reacting to things. It might be, you know, somebody announcing more tariffs that just makes the market dip, and then the tariffs get revoked. You know, there's all these sorts of things that we can't control that impact the share price, but the underlying shares and the companies behind them are still paying dividends, so you're still earning an income. And that's also where like investment properties, they'll have rental return, which is the income coming in perhaps in the sort of the first few decades, it's going to be negatively geared, which means that there's more expenses than income. But over time after those, there's a bit of a tipping point when you have a loan to pay where you're paying mainly interest and a little bit of principal, and then it'll start to shift and then it'll become the point where you're paying more principal than interest. And then it's a very quick downhill slide to zero, which is Great. And then by the time you get to retirement, if you still have that property, you can either sell it if you need the cash or you can live on that income, but the growth, like the actual underlying property will continue to grow. grow in value. So that's what makes property always so appealing, is that future state. You're not going to buy it to go, oh, I'm going to, you know, work hard to pay off this debt. Now you're looking to the future. The same thing goes with share investing as well. They're both similar concepts, just the execution's a bit different and the leverage is a bit different in terms of using debt to help you get there faster. So, but it's important to remember that there's income as well as the growth of the underlying asset or the price, which can fluctuate for shares more than property, but it's still there. Then there's the time of life decisions. So by that I mean, when are you going to need income versus the growth of the— actually, when do you need the income in order to survive or to live, or when can you reinvest it? I was having a conversation with a client yesterday who was going through a phase of life where even though they're a bit younger, they're taking a bit of a break. So they're not going to be working as much, doing a little bit of traveling in a campervan. So they need the income. So we're looking at what they're doing now in terms of, okay, well, what you have in terms of money needs to generate you an income so that you can live off that rather than having to work. And there's, you know, there's savings and there's a bit of an inheritance in there as well. So we're sort of looking at how to put it into places. And then, for instance, with the investing, it's like right now you would have the dividends paid to you because you actually need that income. But down the track, when you are working again and you've kind of resettled yourself and you're off in a different direction, you're not going to need that income as much. So you can have it reinvested so that future you can have the benefit of those compounding returns. So it's, it's time of life and the decisions that you need. Like I have all my dividends reinvested because I don't need the income to add to my taxable income to pay tax on. It can just go back and compound for me. Whereas my mother, who's in her 80s, does need that income because she's retired. So she doesn't have the dividends reinvested. So it's things like that, that just little tweaks and understanding it and being intentional with it and connecting it to what you actually need in your phase of life right now is very important. But it does get overcomplicated sometimes. But that's, that's that, you know, income versus growth. And that time of life part is very important. What is it that you want? Are you still looking after young children and that extra income would come in very handy? Or are you going back to work and you don't necessarily want to add to your taxable income right now? And that money, you can not see it and be able to live without it. Sometimes we get in this like, oh, I just, I just, I just need that just in case. But then the money just disappears because we don't really know what that in case actually is. And that's why I created the money pie. It's to help give that money a purpose so that it doesn't just disappear. Don't get me wrong, there are still things where it disappears, but less so. You know, we're human and there's things thrown at us every day. And there's things like, for instance, this week we had a flat tire on Sunday, took it to get repaired yesterday. Oh, we can't repair it. You need a new one. That's another $185 that I hadn't planned on. So, you know, there's things like that that just like crop up. And that's the second tire I've had to replace in the last like 4 months. So it's stuff, but you have money set aside for those things. So I don't need to worry about reinvesting my dividends because I know I've got money elsewhere for emergencies or unexpected expenses. So that's where the money pie helps you get a bit more organized. So that's the time of life. And then finally is diversification. So this is, this is one that I think is not really talked about enough and sometimes might be misinterpreted or misunderstood. So you can have investments, but that doesn't mean that your entire money situation— so if I look at your money as that pie, you're not putting all of it into investing. You keep some of it for emergencies, for the unexpected expenses when, you know, the tires burst or whatever. And then you keep some money aside. Like, for instance, my money pie looks like I've got money for unexpected things. So I call it buffer. It could be emergencies, whatever word works for you. I've got a slice for travel so that whenever I want to travel, I just pull money from there. And that's money— the higher the balance, the more I'm like, oh, I need to have traveled for a while. I've got money in there. So, so travel is mine. That's my fun fund. And then I've also got one for my daughter, and that pays for her current school fees, all of her activities, because she does gymnastics and circus and piano and all these things, but also for future school fees because she's in primary school right now. High school is going to cost more, so I've already— I already started saving about a year ago for high school fees in sort of— well, now it's 2 years' time, but it was 3 at the time. So that it's money aside for that. So that's that one. Then I have another one for invest. And so I have money to go into investments. And I think I feel like I'm— oh, and I have one for a bills overflow account. So whenever there's bills that come in quarterly instead of monthly, I put money aside monthly and we pay some annually. So January is like a huge month because all of the insurance has come due. So I spend the entire year saving for January essentially. So there, that's my money pie. So that when stuff comes in, I know exactly where it needs to go at the end of every month. And where that money has its home and what it's for. And then sometimes I'll have like a little bit extra leftover. I was like, right, that's going straight into the share account. And that's, that makes it feel so much more freeing and relaxing to know that I have a clear purpose and I'm not micromanaging it. It's literally those like 5 pie slices and they correlate to 5 different bank accounts or investment account. It just makes it so much easier. But that there's that diversification that I'm talking about is then you've got to make sure that you've got the cash reserves that you need to feel safe and secure. And that can differ for different people. And it also depends on what's going on. Like for instance, this client who wants to go and travel a bit, her security buffer is a bit higher because she's not earning any income at the moment. Whereas my security buffer is lower because I am still earning income, but that buffer is there to give me about 6 months, 6 to 12 depending on how good I am with budgeting, if I ever needed to, if there was no money coming in. So it's kind of like my income protection insurance. I'm self-insuring in a way, and I prefer to have that money in my account earning interest rather than paying an insurance company. That's how I look at it. So then the rest of it, excuse me, so that's usually I try and keep about 30% in things that are a bit more secure, whether it's outright cash or in sort of fixed income or things that are sort of more stable and more— I mean, sorry, more liquid, but more stable. And then the other 70%, at my stage of life right now, I'm like, okay, share market. Some things are a bit higher risk, some things are moderate. Overall, I'm a little bit more conservative anyway, so they're in slightly more moderate things. I have a few things where I've speculated a bit, but not like too out there. I was reading an article the other day where it talked about some investments where, you know, they put it out for investors and they're like, oh, we'll let you know at a later time what the actual thing is we're investing in. Like, what? Who does that? So I'm definitely not that speculative. So that's the 30/70 split that I work on right now. As I get a little bit older and I want to dial things back a little bit, that might come closer to 60/40, where maybe 40% is a bit more stable and 60% is still invested. But even my mother in her 80s, I've still got 20% sitting in the share market so that she gets access to more growth and more income potential. The 80%, however, is secure for her if she needs extra care or she needs whatever she needs is there. So that's— and we've had to rebalance that occasionally over time because the share market has grown to the extent where I was like, oh wow, this is a bit overweight now, we need to like bring it back to restabilize. So you do actually have to keep on top of it. It doesn't change hugely often. I check, I do a bit of a check every quarter because I do my performance sort of review of my, of what's going on. But, and it's literally the same thing every month, every quarter, sorry. It's, I just have to check balances, chuck them into my little spreadsheet, and then I get to see what's going on. And that level of visibility is actually really, really important. So on the visibility, because I used to use spreadsheets, which I actually don't really anymore. I use Prosperous. It's the app that I've developed specifically to do this. It gives you the visibility of the cash flow. So I pull my bank account, my credit card in there. And it shows me where I'm spending. Not always a surprise, but I have to admit for January, I was like, whoa, why was it so high? Then I realized all the insurances came in. Plus we booked a couple of trips and there was something else that came in and I was like, oh, okay. Yep. I get it now. Right. Yep, that makes sense. I was like, wow, it was even higher than I thought. But being able to see it made me realize and go okay, I get that now. Yeah, they were all conscious choices. Just when it all comes together, it ends up being a lot higher than you initially think it will be. So now I have that visibility of the cash flow and then I have my money pie so I can see where it's all going. And every month when, you know, money comes in, I, you know, I divvy it up based on my money pie. And then I've got my net worth where I just have to now plug in the balances at the end of every month. Update if there's any changes to rates of return, and then it can show me what's going on. And I'm like, this is great, makes it so much easier. And it's pretty. I like color, so I've made it colorful. So there's only— there's a little bit of work, like every month, or when— or every— you could do it every week if you wanted. When the transactions come in, sometimes the AI doesn't categorize them exactly the way I would like them categorized. So I just go in now and just update those, that part. Because the initial one probably took me about half an hour. Now it takes me like 5 minutes just to go in and update the categories. And then the net worth stuff, I do that once every quarter. But I can see it as regularly as I want because it's just sitting there. And then I can calculate other things. If you have a loan, you can go in there and you can play around with how quickly you can pay stuff off. So visibility is extremely important. And with the visibility then adds to your level of clarity when you start to see how things are going and you see what's possible. Because until you can see it, you don't even necessarily understand. Because I deal a lot with clarity, but then sometimes when I go to events, I'm like, oh, you know, we need to get clear on this. Oh my God, I'm not clear. How do I— like, why do we start with clarity? If I was clear, I'd be doing it. So sometimes you actually need that visibility first so that you can then start to become a bit clearer. So it is a bit iterative. And then comes the flexibility. That's where the money pie can flex with you as life changes. Your net worth calculator can help you flex around and see what's possible so you can make better choices and be a bit more informed so that current you can see what future you can be capable of. And that seeing that possibility gives you more motivation to work harder on the cash flow side, or be a bit more savvy and discerning on the cash flow side. So that— this is the cost of not doing anything, is not having access to all of this and not being able to build wealth and grow and, you know, manage your cash flow and see it. Avoiding it is just putting things off and it's going to make it harder and harder to do the longer you leave it. So the 4 things we spoke about today was compounding and the absolute value of investing and tapping into the power of compounding, being cognizant of income and growth, not just the growth in the, like the share market prices. Like think about it in terms of the dividends and the income that you can earn as well. Looking at your time of life and the decisions that you need to make in terms of, you know, do you take income or do you focus on reinvesting? And then diversification is also linked to your time of life too, to go, well, how much do I need to keep in cash? How much do I need to— or in stable assets? And how much do I need to should I invest so that I can have the benefit of both, and it gives you that balance. So I hope that wasn't too overwhelming. There was a bit there, you might need to replay it again, and feel free to reach out with questions. If you wanted me to delve into anything in a bit more detail, just let me know and I can always do an episode on that. So, and if you want to check out Prosperous, it's prosperess, so prosper with an E double S on the end,.net. It's available now and yeah, I, I love it. I've been using it and I'm enjoying it myself. So, and I've had some really good feedback as well. So you can check it out. It's got a free 30-day trial and see if it works for you. So with that, I'll leave you to have a wonderful week and I will catch you in the next episode.
