Season 3 Episode 8: How to set a realistic budget
IN THIS EPISODE
Is your budget just a spreadsheet you set and forget, or worse, avoid entirely? In this refreshingly honest and empowering episode of The Money Collective Podcast, Mel Pearce and Darlene Neu unpack what it really means to create a realistic budget in today’s financial climate. From the rising cost of living to the emotional load of managing money in relationships and families, they cover it all with their signature warmth, humour, and practical know-how.
Through real-life stories, financial truths, and a little tough love, Mel and Darlene explore why traditional budgeting often fails and how to shift your mindset to something more sustainable. You'll learn how to track past spending, link your budget to your personal values and goals, and build a system that actually works for your life stage. Whether you're rebuilding after a setback or simply want to stop feeling like you're “doing it wrong,” this conversation will leave you feeling seen and more importantly, equipped.
So, how do you build a budget that supports your life without restricting your joy? And how do you balance saving for the future with making memories today? Tune in to discover how to take control of your finances in a way that feels empowering, not punishing.
READY TO GO ON THE JOURNEY OF FINANCIAL WELLBEING?
- Know your cost of living by listing your expenses with our handy spending review spreadsheet: https://www.themoneycollective.com.au/resources
- Book a time with us to chat about money to ask questions and talk all things financial wellbeing, home loans, and more.
- Take action and uplift your own level of financial wellbeing with our online course: https://www.themoneycollective.com.au/onlinecourse
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Welcome to The Money Collective podcast. We're here to uplift your financial wellbeing. Your hosts are me, Mel Pearce and Darlene Neu. We are the co-founders of The Money Collective and together we have over 50 years of finance and banking experience. We provide the tools, information and guidance to better understand your money and feel confident making money decisions.
0:22
Hey everybody, welcome back to another episode of our podcast.
0:26
We're so happy to be here.
0:27
Yeah, I'm Mel and I'm Darlene.
0:29
That's Darlene.
0:31
Yep.
0:31
And we're here to uplift your financial well being and in all circumstances.
0:37
And we always start off with a bit of a truth on the podcast.
0:41
And I'm gonna go first, right, 'cause I want to because I wanted to say, yeah, we're here to uplift your financial well being.
0:49
But sometimes that can be tough.
0:51
And I would say that my truth at the moment is that I'm definitely experiencing at the moment and I'm 41 and my husband just turned 51.
1:05
Don't put the sad face on.
1:06
No, that's really nice.
1:07
No, it's, it's because I've got these predetermined beliefs of ageing 'cause I'm 54.
1:13
I know to do with that situation so bad about reading facial fingers.
1:17
I'm like, oh, you're so sad for I bet it's a very good point that you raise that I should not have that belief.
1:22
And I wish I didn't.
1:23
And I know rationally I don't wanna have it 'cause I wanna age is not a barrier.
1:27
It's not a barrier.
1:28
And I think that is what I probably need to hear more of that too, because like I have the, and I know that other people do have these thoughts that, you know, you work your *** off and you're really slogging it out and then you look at where you're going and going.
1:44
It's hard times, like shouldn't be hard times right now.
1:49
And I would say that our son, he finished high school last year, so no school fees for him.
1:55
We've got, our youngest is in year 11 at public school.
1:59
So that's not too much of A financial burden other than her general upkeep and demands on life.
2:07
That is a lot.
2:08
I've got a teenage daughter too.
2:10
Yes, so and yes, so I would say that there was 2 significant costs that aren't in our budget anymore.
2:17
So the school fees and his braces are paid off so awesome.
2:23
And then that's freed up like, I don't know, 1250 a month, That's a lot in our budget.
2:29
And I'm thinking, yes.
2:32
And like, even Percy, my husband, he's like going so where's that money gonna go to?
2:36
And I tell you what, that money's gone, mate.
2:40
That money doesn't exist.
2:41
It has been absorbed into the cost of living increases.
2:47
Like it is just gone.
2:50
And I know that a lot through this season that I've talked about.
2:55
I need to do my budget, done my budget, got my numbers.
2:58
I am all over it.
2:59
And I would say the other thing that if you've listened to any other previous podcasts that we've done, we've had other significant financial things happen to us in the last 12 months.
3:10
And I would have thought like in my planning and how I thought it would go, I thought 12 months, we can claw it back.
3:17
We'll have our, you know, be back, be more resilient, have our buffer back built in there.
3:24
And we don't.
3:26
And that is somewhat worrying.
3:28
And the other overlay that's going on for us.
3:32
And I'm just putting it all out there because I think that this pub is what it's all about being very much he once again, you should listen to all of our podcasts, of course, to know all about my private life and our money.
3:47
But he's a subbie and he does excavation and stuff.
3:51
And so self employed is what I'm getting AT.
3:53
And he hasn't been paid for over 4 weeks.
3:58
So he works with one company the majority of the time.
4:03
And he's also had some time off because they have asked him to have a little bit of time off.
4:09
So that is contributing to some of the stress in our household, I would say at the moment.
4:15
And I could see him like last week, he just stopped talking for a bit and and I just gave him that space and that car broke down.
4:28
So we have said to our son that he, this is his first year being an apprentice and we didn't help him buy a car.
4:37
So we want him to be, you know, resourceful and we want him to be able to do these things for himself because we want to build and empower his ability to save for things and buy things and not fix the problems for him.
4:50
And so we've said to him, you don't need to pay board, but you need to save 50% of his salary.
4:56
This was the deal that we cut with him with agreements from him and save for a car so that you've can save $15,000 in that first year so you can buy a reliable car.
5:09
And in the meantime, we have an unreliable car that he has been using.
5:15
It's just a bit of a beat up old Ute that he's been driving around getting to and from work.
5:21
And so that's been his transport method and that has transmission blew on that.
5:26
And so now he's been driving around Percy's every day because he drives his truck to work.
5:32
And so he's been able to pick.
5:33
We do have another vehicle, so that is fine.
5:37
Other than the fact that the other apprentice backed into it 2 days ago.
5:41
Well, good.
5:44
And I, I do well, I'm I, I do go through moments of stress, but at the moment I'm not.
5:49
It is what it is.
5:50
And I tell you what, talking about it and I, I know none of this is news to your ears, darling.
5:55
Yep.
5:56
But I wanted to share it and say these things out loud.
6:02
And I tell you what a problem shared is a problem halved.
6:05
Is that also definitely I and I'm not saying I don't know where it will go or where it will land, but if I do say, think that sharing it and having another ear and advice is helpful, depends on who that ear and the advice is coming from.
6:22
But I'm lucky to have that resource.
6:25
You.
6:27
Yeah, around me, yeah.
6:29
What I hear is people think, and we talk about financial well being is how you feel.
6:36
It's in your gut, like you know how you're feeling about money, but that doesn't mean that it's all rosy and you've got it sorted.
6:44
That that's not what financial well being is.
6:47
If, if you can sit in financial well being as a journey, it's not right or wrong.
6:52
And being able to vocalise, talk about it, normalise.
6:57
Because if we had a community and a culture where money wasn't a taboo subject and we could share and talk and support each other, then you know it all.
7:10
You work through it, but the problem is in our society is not enough people are talking about money in this way.
7:18
And so they're trying to solve the problems on their own.
7:21
So and, you know, that's what I could see in him last week, just the not talking, the shutting down.
7:29
And then I just gave him space.
7:30
He knew in a way I don't know how, you know, these subtle ways that we can let our partners know that we kind of know.
7:38
And then he did come to it, you know, and yeah, I don't know, it's just that balancing act.
7:44
That's it.
7:45
But I do wish more people would share their stories and the UPS and the downs and not pretend it's all OK and underneath just, you know, dying inside.
7:55
Yeah.
7:56
So that's what I, you know, if we can give one bit of advice from that is to, to, to share those stories and talk about it.
8:03
Because we collect information and we do a lot of financial well being workshops in community and in workplaces.
8:11
And 90% of people are feeling this way.
8:14
It's not 10%, it's 90% of people.
8:19
I feel some level of stress.
8:21
Yeah.
8:21
And it's just normal.
8:22
Like if we could just say, well, that's actually how life's meant to be and being able to sit in it not too long so we can proactively work through it and see what's going to be better for us.
8:34
But actually accepting that I'm not bad or I'm, I'm useless or I'm not good or I'm going to be, you know, what are people going to think of me?
8:45
Or just start talking about it, you know, with family and friends.
8:50
Because if you start, then if you're courageous, then you'll be surprised, I think, about what you'll get back in return.
8:56
That's right.
8:57
And it's not necessarily that you need to chop out or somebody else to fix your problems.
9:01
No.
9:01
And yeah, but it's.
9:04
Yeah, just having the strength to say it's actually not about about anybody fixing your problems, because I don't believe anyone can.
9:10
But it is about just by hearing those voices and not, you know, all that, you'll take on what you like to hear and what you don't like to hear anyway.
9:20
But just by talking about it makes you feel and think differently about it and you'll come up with different ways or solutions.
9:27
The other thing I heard was about Mel's son actually having a proper old car that breaks down, I think is really good for his resilience.
9:38
He's called it a reality check.
9:41
It is so good because The thing is what we do for our kids is pick them up, fix their problems, like you said, and they're not building enough resilience.
9:50
He's actually got to maybe see and you know, working through how you can fix the car so I can still go to work and then buy his own car.
10:00
But actually see, hopefully there's a thought that, Oh my gosh, if I don't have this car, how am I going to get to work?
10:08
I need to start thinking about solving this problem and getting my own wheels sooner.
10:15
I wonder because if he hadn't seen that and also the fact the because he's 18 and we live in the country and everyone wants a ****** old car that's going to break down BIG4 wheel drive that's fun on the weekends and a bit of a tinkerer that ain't going to get you to work every day.
10:31
And he came to us when he started saving the money and, you know, he got, you know, 5 grand in and he's like, what could I buy with five grand?
10:37
And we're like, no, no, no.
10:38
We are not facilitating that.
10:40
And then you're just going to keep running our cars into the ground.
10:43
That's not what we're here to help you with.
10:46
How's his savings going?
10:48
He's right on the mark.
10:49
So he's really good.
10:51
We he does it himself.
10:52
So we're he's managing in himself.
10:54
He's saving in his own bank account.
10:56
And we just check in from time to time.
10:57
How's it going?
11:00
And just keep that communication going with him.
11:04
All right.
11:04
Well, I'll move on to my truth.
11:06
But just before I do, I just want to put it out there that cost of living is hard right now, and you might be finding it difficult to make ends meet.
11:17
I just want to leave you with a thought.
11:18
You are not alone.
11:19
And if you haven't got somebody to talk to, you can certainly always reach out to us.
11:25
My truth today is I am going actually on an overseas holiday to Europe.
11:33
I'm very excited about that.
11:36
And I feel a bit guilty right now talking about it, but it's been a long time coming.
11:41
So we don't need to justify these things.
11:44
Too silly.
11:45
Isn't it all that overweight?
11:46
You know, it's like I I'm so sorry about your cost of living, but I'm going.
11:50
Yeah, right.
11:52
And you know what?
11:53
I'm, I'm, I haven't got it all financially sorted by any means.
11:58
There's ups and downs and choices and things that we make along the way.
12:01
So if you listen to prior episodes and my truth, I come from farming in Tasmania and I had land and once I unpacked my money story, I decided because it was all linked to my dad, I decided I was going to sell that.
12:20
I've done that.
12:22
And one of the properties I had sold.
12:25
So I had a bit of a windfall and it was like, oh, what do I do with that money?
12:31
And also in COVID, my 14 year old daughter, because we had a lot of time together in the house, said mum, mum, I want to go to Paris because that's what you know, every 10 year old wants.
12:44
Anyway, in those moments in COVID, I said when you're in grade 8 and grade 8 has come.
12:54
And I still inclined up.
12:55
No, I can relate to that because that's how we got to Canada last year.
13:00
But I said if my brother has a baby, my brother gets married, we'll go to Canada.
13:05
I actually think goals in those dreams are really good and we're going to talk about, and it holds you to that budgets, it really helps you put it in and you go and how else if you don't have a goal, Yeah, then how nothing happens.
13:15
That's right.
13:16
I do have some shares.
13:17
So I was prepared before I'd gone through this money story journey and selling land that and This is why really what I wanted to talk about like I would sell some shares and share those shares are part of my resilience backup plan.
13:31
But you, you do get and, and during COVID particularly, like how do you balance making quality memories today and how much is for the future?
13:41
So how much today and how much for the future?
13:44
And a part of financial well being that is an ongoing seesaw, I reckon.
13:48
You know, I think of it, it's, there is no perfect answer, the balance of how you do that, but it both are equally important.
14:00
It is very, very important to make great memories and have great relationship, relationships with the people that you love and you want to be with.
14:08
Because that's isn't that why we're here?
14:13
And then you also do want security and being able to do that in the future and the long term.
14:18
So there is a balancing act and depending on what stage of life you're in and what matters to you, how risk averse you are, so many variables and factors of how much you'll put on either part of that.
14:32
I certainly would have talked before on these podcasts, but don't put it all into the future without enjoying today, because I reckon that's one of hypothetically I'd love to do a PhD on it.
14:46
Probably very much linked to relationship breakdown.
14:49
So if you're putting everything away from the future and you're a really good saver, I would question how are your relationships going?
14:57
You know, vice versa too, because if you spend it all now and you're having fun times and then a hard time here and then you're putting pressure on the relationship for the future.
15:07
This is this is an ongoing battle even in my mind constantly about what the right today to tomorrow.
15:17
And generally speaking, I my money personality is a saver risk taker.
15:24
So constantly in my little brain, you know, they're edging against each other all the time of what to do, but not my one of my biggest values is family as well.
15:36
So you know, all of that goes on and you know, it, it, it is really hard to constantly, you know, balance out and make those best decisions.
15:45
So anyway, so luckily enough, one of the properties sold and dumb my sons ring fence some money, $50,000 can I do it for 50 grand?
15:57
I'm going, we're going six weeks.
15:59
So we're taking our two kids.
16:02
So again, the family memories for me.
16:04
Initially we weren't because our sons, 23, weren't going to invite him.
16:10
Sorry, Logan.
16:12
And then I just thought, I can't go.
16:14
This is my family unit.
16:15
I can't go without him.
16:17
And because of all the stuff I talk about kids and money and all that, building their resilience, doing their thing.
16:22
But I really wanted him there to have those memories.
16:27
You know, he's not married and has his own life.
16:29
Well, he does have his own life.
16:31
But, you know, how long will he come with us?
16:33
This is the chance.
16:34
So, yeah, so we're going for six weeks.
16:37
We're going to Europe, we're going to Italy.
16:39
I've got a fascination with Italy, a story for another day, Italy, France, Austria and Switzerland.
16:47
And I've got to map all that out.
16:49
But what I can say around money is I have been really strict with sticking to that budget.
16:57
When I say 50, that is has to be with contingency.
17:01
So I've budgeted, I've worked it all out.
17:04
I did my mapping where we're going to go, costed everything else out.
17:10
I've booked accommodation through Airbnb because I want it self contained.
17:14
I want to be able to cook.
17:16
So and I actually think that's better.
17:18
I mean eating out occasionally, but really I'm prior, prior travel.
17:23
That's where money can really get eaten up and you're not even eating healthy or good food all the time.
17:29
So I really do want to experience and have that ability.
17:33
So I worked out I couldn't spend any more than an exchange rates against me, 500 Australian dollars a day for accommodation and then I've got $500 a day on whatever else.
17:49
So that's got to do for food or if we go and see something or whatever.
17:53
So I have mapped it out to the NTH degree and I've got it all booked in the, you know, you're a rail car.
18:02
All that's been sorted.
18:04
I think I'm looking good.
18:06
I reckon I'm good.
18:08
I've probably got a few 1000 spare.
18:10
It will all come down to whether I can stick to $500 a day while I'm there, because everything else is pretty well paid for.
18:17
Yeah, we'll see.
18:20
We will see.
18:21
But yeah, I did that.
18:22
Look, I am a numbers girl, so I did do that on a spreadsheet.
18:26
So anyone planning a holiday, you know, I have a very detailed spreadsheet.
18:31
I haven't shown a million.
18:32
I'll show later.
18:33
I'll be impressed.
18:34
I had a holiday where we going to where we go, you know, from and to how many hours, how many, what it takes between and then what are the options?
18:42
And then I engaged all the family with what they'd like to do in each spot and then how many I had driving times, leaving times, wake up times arrived more detailed.
18:50
And then I thought I would like budget, like the daily spend.
18:53
I didn't.
18:54
I gave up.
18:54
I'm like, I'm not doing that.
18:56
Well.
18:56
Well, that's sort of must survive, but I I probably won't.
18:59
But Jen, like, at the end of each day, I want to.
19:02
You'll get a sanity check.
19:03
You'll know where you're going.
19:04
Like, am I up or down?
19:05
Well, it does.
19:06
You're gonna spend more.
19:07
And some days you're gonna spend less.
19:08
So that's how we got about it, you know, 3/4 soon.
19:11
And we're like, we're gonna go 5K over.
19:14
Well, let's deal with it.
19:15
Yeah, but that's the other thing, right?
19:17
You know, I if anyone was asking advice, you know, if you're going all that way and you're getting a chance to see things you may not ever go to again or what not you think about, you say, I'll do it next time.
19:30
How much money is it gonna cost to do next time?
19:32
You might as well suck up the extra 5 Cos this and do the thing, the feeling again.
19:36
Because like for me, I would say like growing up, I felt like it was like, no, we don't do that.
19:42
We don't spend money and it was always a no, one day we'll do that.
19:45
And so I've been really aware of that with my family, that that one day probably will never come.
19:51
And yeah, just being like, it gives you a completely different feeling of.
19:56
And this is the thing about money.
19:57
It's either you feel like you've missed out and you don't want to come home and go.
20:01
I wish I did that.
20:02
That's right.
20:05
And this is the balance again, because we need to, I like the that term ring fence again, like if we can ring fence that to those experiences and go, this is this, if we were ever to do it, now is the time.
20:16
But then we'll have consequences later, you know, because that money's got to come from somewhere and then you've got to pick it up.
20:22
So you think of and we're struggling to pick it up on the back end.
20:25
And you had some extra things that you know, happened as well, but it caused pressure and stress.
20:31
Would I take it back?
20:32
No.
20:32
There you go.
20:34
You wouldn't take those memories.
20:35
I wouldn't tunity back ever.
20:36
I wouldn't.
20:37
Yeah, I'm glad I did it.
20:39
So now it's just about more problem solving and planning.
20:43
And it might not be in the time frame that you thought, you know, maybe that's right.
20:49
Realistic, realistic, realistic budgets and goals, you know, and might be a good segue into that.
20:55
But you know, yeah, just extend them out.
20:58
Well, let's get started on that.
20:59
So the main thing, like you said, we want to talk about today is setting a realistic budget for ourselves.
21:05
So what we're talking about here is our everyday life.
21:09
So if you think about life as you know it right now today, and you want to go and set up a new budget for yourself, and today is day one.
21:18
What are you going to do?
21:19
What are the things that you need to do?
21:22
And I think it is a beautiful segue because you need to link your everyday budget to the goals that you've got in life and the values that you have.
21:30
So we're living that life that we like, but ultimately it needs to be realistic because we can want all of these things, but it needs to be realistic.
21:41
And sometimes we need to tone down some of the goals that we've got to make sure it is realistic.
21:47
Yeah.
21:48
And I think that's what I and it changes all the time to like life swings and changes and you need to be able to have that flexibility to go right.
21:57
Well, this is what it is at the moment.
21:59
Let's say cost of living has gone up and it's eating up more budget, which is leaving you less money to save, less money to pay down the loans that you've got, maybe prolonging retirement and things like that.
22:14
Maybe that's right, like the and other goals and aspirations that you have.
22:19
And that's probably where I feel myself, you know, like can kind of pull you down.
22:22
But we need to understand that it comes like that.
22:24
And also the thing about our economy and finance is that it comes in swings and roundabouts like it's a roller coaster.
22:31
So at the moment it might feel like you just have to keep swimming and we need to get through this and it might be a bit of batten down the hatches.
22:39
It's not going to be like this forever.
22:40
It is such a good point.
22:43
I we we can only control the controllables and you know, people just focus on what you can control.
22:50
Now, that doesn't mean it's all going to work out perfectly and you've got this.
22:53
I don't know, whatever your vision is that it's perfect because that wouldn't be perfect anyway.
22:57
But if you can't control so much of what's happening in your lives with economy and society, you can't.
23:07
So all you can work on is what you can and then not beat ourselves up when we don't get to where we want to be, but just focus on that compounding impact of keep going one step in front of the other.
23:22
Re Evaluating, you know, knowing your numbers, re distributing, that's it.
23:28
Or changing decisions, you know, on what you need to, you know, for now in the future, I think my goal is like your eyes wide open.
23:37
You need to understand what your financial position is.
23:39
You make your decisions and then you can't really beat yourself up over them.
23:44
And your situation is what it is.
23:47
And we can only do what we can do to improve it or survive sometimes or ultimately thrive.
23:56
That's it.
23:56
Our beliefs are really what is stopping us.
24:02
Look, ultimately it's all about beliefs because we get stuck in what we don't have or what we want or all the problems that we've got versus just dealing with the situation and, you know, doing as much as we can to give ourselves some, you know, the best chance.
24:19
We get drawn into the narrative that we've got going on in our own brains, which is a combination of everything that we have ever heard, seen, experienced to create those beliefs.
24:29
And it keeps us in these holding patterns and then we perpetuate it continuously.
24:34
So we keep the same behaviours happening and then the same fear cycle and the same guilt, shame, things keep recurring and we don't change.
24:42
But we need to kind of go, well hang on a minute, that's all a bit rubbish.
24:46
Like step out of it and look at yourself as if you're your best friend and whatever advice you want to give yourself.
24:51
Like seriously remove yourself from your own body and look at what is going on.
24:56
Because all it is is facts and figures and information and we want to be driving our decisions based on that information and not and the rest.
25:06
We kind of need to let go and throw out the window for a minute.
25:09
Not our perceptions of what everybody else is doing or good or bad or it's not.
25:14
It's none of that.
25:15
Yeah, we compare ourselves.
25:16
I should be, I'm 41, he's 51.
25:18
We should be have a house paid off and be on holidays in Europe.
25:23
Like you will look sideways and go and we don't know.
25:28
And this is the point of us sharing our stories with you because there's so much underneath.
25:32
Somebody going to Europe or somebody going to Canada or whatever is happening in somebody's life.
25:39
And there's so much more important stuff going on for most people then what the hell is happening with their financial wealth.
25:48
That's that's it.
25:49
And why we want that and linking it to our emotions or our our, again, our beliefs or our views of other people.
25:58
And none of that, if we come back to though the nuts and bolts of how to set a realistic budget, where would we start?
26:07
Well, I would start looking at your past spending.
26:10
So you need to get a, you need to get a snapshot of your life right now, like where the spending is going, right?
26:16
So you need to know, we need to understand how much behaviour change needs to happen.
26:19
If I am at this point right now and we have this much going out the door, like as far as our expenses go, I need to understand where that money is going and how much it's costing.
26:30
And then if I don't like where that money is going, I need to then make decisions about what areas because we can then see the line items about how much, what we need to change in what area, what category in life that we're spending to align that to our, the, the reason that is super important because what people always want to do.
26:51
And you know, out there, I'm sure you've tried to set a budget and I would ask you, have you set a budget before and has it failed?
27:00
Yes.
27:01
Yep, exactly.
27:03
So what really happens is the reason it fails is because again, of our beliefs and what we think we want, but it's not enough to change and understand our behaviours.
27:14
You've really got to go into looking at what you've spent in the past and where your money goes and you need to see it.
27:22
What I know is, you know, we sort of know and people don't want to do this.
27:27
We, we do this with people, people, this step is really, really hard.
27:32
It takes time.
27:33
It seems like a waste of time when you could just be moving forward, right?
27:37
And then the other thing is it's very triggering because in our in our bodies, in our head, we know I don't want to see how much like me, I spend too much on clothes.
27:47
And I know if I put it on a piece of paper, I'm going to see that number.
27:50
And that's going to be, oh, you know, and how hard because yeah, you don't need to be.
27:55
If I don't spend it on there, I can put it over there.
27:58
But then I've got to deal with that feeling when I see it.
28:01
But what I do know is by seeing it is very, very powerful because you can start to see the trade off.
28:09
So even though you may know or think, you know, doing the exercise and actually being able to see those lines and how much are in them is very powerful.
28:21
And the first step to making change.
28:24
Yeah, yeah.
28:25
So once you've got that, then the next step is to work out aligned with your values, where you actually want your money to go.
28:37
So this is back to the question of how much for now and what do I need to spend it on now?
28:43
So you've got your mandatory cost of living and then you might have discretionary, you know, fun money.
28:47
You might really value your friends and going out to lunch.
28:51
So if that's the case, you need to bake some money in for that.
28:53
So that's your fun discretionary money.
28:55
And then though, how much have you got leftover for the future?
29:01
That's right.
29:01
And where is it going to go?
29:03
Yeah, like maybe you do have a family holiday you really want to do and that is the utmost priority, I would say.
29:10
Have you got an emergency fund?
29:12
If you haven't got an emergency fund, I encourage you to focus on getting that first because the budget is under pressure if you don't have an emergency fund, because if you things happen, the car with the transmission, if you've got an emergency fund and you can draw that money out of the emergency fund to pay for it, yes, you have to work out how to build that back up.
29:37
But at least the money's there to deal with the emergency without messing up your budget.
29:42
And taking it from the food I'm supposed to eat over the next three months, you know, So really prioritising what your goals are.
29:51
And some of them might be more immediate.
29:53
Maybe you need to replace a car in the future.
29:56
Maybe you want to, you know, put some extra money into super, maybe, I don't know, a million things, whatever yours are what I do fine with people though, it's really hard to make them realistic and it's really hard to prioritise.
30:12
And sometimes we're all over the place with where we think our priorities are.
30:16
Really spend some time on prioritising what's important.
30:20
If you have four goals and you're going to put a little bit of money to each of those goals, it's going to take longer for those goals to come.
30:27
If you put it all towards one, get that done and then go to the next goal, that could be good or you might it, depending on your personality.
30:36
Do you know what that has been good.
30:38
I probably redo that the majority of the time, but then what I find is that the most important thing always gets replaced by another most important thing, another most important thing.
30:49
And then the long term goals suffer.
30:51
You know what I mean?
30:52
Likely outcome, isn't it?
30:54
So then it's the we want to pay off the home loan, we want to build our super, we want to have an emergency fund, you know.
31:02
So how do you do you smooth it out across those four, drop them all together or do you work on one at a time?
31:08
Well, it depends.
31:09
I would say that just depends on life at that point of time.
31:13
So I would say that I am at the moment we are just doing the minimum in the Super and the home loan space at the moment and building up the buffer again.
31:24
So that's our top priority for us at the moment.
31:27
But like I don't want it to be like that forever.
31:29
I want to get back to a more balanced situation so that I can hit my goals and I just keep those goals really clear in my mind for you know, yeah, they're the two things in my mind for our resilience is our superannuation and our home loan.
31:43
Yeah, yeah, yeah.
31:45
I think, I think they are very common ones as well.
31:51
And this really overlay it with your life stage because if you think about the future, what changes might be coming your way because that might change your priority list today.
32:07
So if, for example, if you, let's just pick a live stage, the kids are growing up, they're off your hands and the next 10 years, depending on your health, you know what, everybody's situation is different.
32:24
What is the likelihood of, of how that's going to go?
32:29
Like do you feel the urgency of having to put more into those things?
32:34
Or like if you were just starting out and having children now, for example, you might say, I'm just going to do the minimum and later on I can see things changing and picking that up.
32:47
So really consider even though things change all the time, it doesn't matter that it's going to change all the time.
32:54
What sort of life staging you, you know, have you got and what are the things that you can see coming in your future?
32:59
It'll help you make decisions for what you need to do today.
33:04
Like young couples that are getting together, they've saved up, say their first deposit, you know, they're very excited.
33:10
They're going to, you know, buy a house.
33:13
The next likely event that we see is that they're going to start a family.
33:18
So they've got double incomes maybe.
33:22
Well, generally both people work these days, double incomes.
33:25
They're squirrelling away.
33:28
You know, maybe one of their goals is to actually get ahead on that home loan for the first couple of years because they want to start a family.
33:36
And that'll give them some relief, you know, when they've got an extra mouth to feed and a little bit of time out of the workforce.
33:43
If you've got some, you know, extra money to cope for that period of time, it might extend the period of time that you can stay home with your children if you want to do that.
33:52
You know, everyone has their own choices, of course.
33:56
So really overlaying what your life picture and your stages are and what that means for your money future.
34:06
Goals.
34:06
Goals are challenging, but prioritising is very, very important.
34:10
Make them realistic because what you need to do is overlay that with how much money you've got to put towards those.
34:16
That's right.
34:17
So you have these goals all written out and then you're going to go back and look at how much money you've got leftover because you've done your numbers and you know how much money is leftover.
34:26
So you, you can, because you've done your past spending, you can go back and look at what's that mandatory amount is that is not going to change that mandatory cost of living based on your current lifestyle is going to equal a certain amount of money.
34:40
And that is gone.
34:42
And then we have the money that's leftover.
34:44
Like you were saying, you're going to have some going towards your everyday life still so you can enjoy it.
34:51
And then whatever's leftover is going towards those goals.
34:54
So for some people, there may not be any money leftover.
34:58
And what we're saying is the first thing you need to have is an emergency fund.
35:02
We also need to have rules around if you spend that money, how does it get back in there?
35:08
Because that money just doesn't magically come from somewhere.
35:11
It means another goal is going to have to be on pause for a minute to build back that emergency fund.
35:17
If there's money leftover, then where is that going?
35:20
Is it going to pay down your home loan?
35:21
Is it going into a savings account to buyer house, that might not even be a priority for you at all.
35:29
Is it going into another investment for your future, your superannuation?
35:35
And then we just need to be realistic about when life changes that those goals.
35:40
Every single time we make a choice in life, it's going to affect those goals and how quickly we're going to reach them.
35:46
And how.
35:47
So keeping a light on what those goals are so is so important so that you can keep working towards them, not lose sight of them.
35:54
They may be on pause for a minute, but we need to hope either re evaluate our goals and our life.
36:01
And that always comes back to our values.
36:03
Do we need all of these things?
36:05
Does it truly make us happy?
36:07
Is that what we want for our life?
36:10
I think that's a continuous question.
36:13
Is there anything else?
36:14
Yeah, I think setting goals are really, really important factor.
36:19
I can't, I can't stress enough how important a, a burning platform or a goal is because just by doing that, it doesn't actually matter whether you actually do that thing or not.
36:31
But by actually setting a goal, it will really help you do that trade off about where you want things to go.
36:39
And people are super resilient if they really want something.
36:43
And in, you know, my experience and certainly my finance career, generally people will find a way.
36:51
It's human nature, you know, that's what generally happens.
36:57
But if you haven't got a goal, then we don't even know what you're trying to do.
37:03
Yeah, It's it's it's the process of the goal.
37:08
So the goal setting is really important.
37:10
And then obviously you set your budget up to whatever.
37:14
I would.
37:14
It's had this thought that every goal comes with a cost.
37:17
It really does.
37:19
So even if you were decided to hit your goals super hard and you're in a relationship and you're doing it in Emmett any cost or whatever, what is the cost?
37:29
Maybe your relationship if you're relentless with hitting those goals like there is, it's going to cost you something.
37:36
It's going to cost you money.
37:37
It's going to cost you time or it's going to cost you energy or emotions.
37:40
Like there.
37:40
That's that's the the economy that we have in our in life.
37:45
It's beyond just money.
37:48
That's it.
37:48
So I think we just need to be aware of that.
37:52
It's going to cost something that the money has to come from somewhere.
37:58
So we can move on in one second.
38:00
What I would say is also, and I've touched on it, short term, medium and long term goals, yeah, really put all that in the mix, what needs to happen now.
38:10
And me, I would say immediate is like what really needs to happen right now, three and then mediums three to five years, like what's in this interim and then five years plus for longer term.
38:20
Yeah, looking into the future.
38:23
And then, well, I would just say the last thing is once you've set those realistic goals is to automate your system and commit to it.
38:30
And yeah, do that through your banking.
38:34
And that everything that we've talked about is inside our online course.
38:38
So if you go to our website at the money collective.com dot AU, we have got a fabulous online course in there that gives you all the tools and resources.
38:46
There's videos and we're taking you step by step through this whole process and the budget spreadsheet planner is like just the bomb.
38:55
It's amazing.
38:56
It really is because it will take you through the past spending, setting up a new budget for yourself and then help you set up the automated banking system as well.
39:05
That's it.
39:05
And you'll have those tools for life.
39:07
So it's all wrapped up in a bow.
39:09
You can work through all the steps at your own pace or in different orders, what depending on what your needs are.
39:16
But everyone, you know, we should be doing it just like we should be focusing on our nutrition and our diet and exercise.
39:23
Basically, it's the life.
39:25
So this will give you the tools to do it.
39:27
So yeah, if you haven't, yeah, go to our website, download it.
39:32
It's affordable.
39:32
It's $249.
39:34
What a great investment.
39:36
Yep, that's what I reckon.
39:39
Alright, so we just to finish off our last little segment is just something topical on, you know, a question that gets raised and Darlene and I are both mortgage brokers and what we see is people continuously borrowing to their upper limit.
39:58
So we call that their maximum servicing ability.
40:03
The bank does.
40:04
The bank does.
40:06
Have you capped out?
40:07
Are you borrowing the maximum amount?
40:08
And what are the pros and cons of actually doing that?
40:11
And what are the things that you need to think about when you're borrowing to your maximum level?
40:15
Yeah, that's it.
40:16
So should I push to my limit is the question.
40:19
And that's what I feel like we have done, like just bringing it back to me again, of course.
40:25
But like I would say that we're at our maximum borrowing limit and we always have and we've struggled to.
40:31
So I would say we've got great equity in our property.
40:33
We've been able to afford a better house and all of that and we've reached the benefit of the lifestyle of that property as well.
40:40
But it's been harder for us to pay down and it's been, it's a cause of, you know, that, you know, the, our budgets, it's always the most significant part of our household budget.
40:52
Yes, that's it.
40:53
Your mortgage will be, you know, the likely the highest expense line if you've, you know, got a house, even if you're renting, it's, it's a high expense line.
41:04
We've got to have a roof over our head.
41:06
So it's just what it is.
41:07
That and the food comes next generally.
41:09
So you, yeah, really there's a few things to think about, you know, whether or not I should push to my limit.
41:16
It's not a black and white answer, actually.
41:18
So it really depends on your total financial position and also your tolerance and your money personality.
41:28
And as if you've got a partner combined, you know, what does that look like?
41:33
Because if you push to the limit, knowing and forecasting, what does that mean and stress testing that with higher interest rates or lower, you know, because you don't know you can't control that.
41:45
So you might as well be prepared for it and see what that would do to your lifestyle to help you decide how far you push to the limit.
41:54
So are you saying to actually live like put the money aside for the home loan?
41:58
So work out.
41:59
So if the mortgage repayment's going to be 4 1/2 grand a month, put the 4 1/2 grand into a savings account is and you're talking to 1st home buyers.
42:08
Yes.
42:08
So if it's a first home buyer, start practising.
42:11
And so net, if you're paying rent, just what the difference would be between the rent and the mortgage.
42:15
Yeah, put it away.
42:16
That's right.
42:17
If you can't save that amount right now, then that's a warning sign.
42:21
Well, it is.
42:21
Or what are you prepared?
42:23
You know, we're talking about the budget and you know, you do a hypothetical, not even hypothetical.
42:28
Set the budget up like you're doing that.
42:30
What are you prepared to forgo to have the house and that will help.
42:35
You could work on different purchase prices to determine how that would feel.
42:41
You could practise different ones for a few months.
42:43
You could to try and find your comfort area.
42:47
You also need to think about because it's also not just for first time buyers, it's everybody really, you know, people want to upgrade their house.
42:55
Yes, you know what I was just thinking with what I do with a lot of my clients.
43:00
So we go through the exercise of setting the realistic budget.
43:03
They know their number and they know how much they can spend.
43:06
And then I tell them how much money they can borrow based on a 30 year loan.
43:10
And they will straight away know what type of house to pay based on the deposit they've got as well what they can buy.
43:17
And they'll go, they'll know whether that is within the margin that they were looking for.
43:22
They might go, right.
43:22
No, hang on.
43:24
Well, hang on.
43:25
First of all, we might feel safe.
43:26
That's great.
43:27
Full steam ahead, We're in the] or hang on.
43:31
We really need to adjust our expectation.
43:33
And this is once again being realistic.
43:35
We're not looking in the right price range.
43:37
Yeah, we need to adjust that.
43:41
No, definitely, if we talk about first not pushing to your limit.
43:48
So if you don't push to your limit, what do do you need?
43:54
Well, no, let's do the opposite first.
43:56
Actually, if you push to the limit, what are the things to consider that it's OK to push to your limit?
44:02
1 is that you've got backup savings.
44:05
If you've got backup savings and you might be on really strong incomes with disposable income leftover every month and you've got extra money leftover, but you're going to push to you buy you, so you've got backup plans, really evaluate your backup plans.
44:23
So that would be one thing to consider.
44:25
The second thing to consider, like I saw him before, what's your future medium?
44:31
I'd say up to three years.
44:33
What changes are you expecting in your life to happen?
44:36
Is money going to be freed up in the future or contracting in the future?
44:40
So if I'm having extra children, it's contracting.
44:43
If maybe the kids are leaving home, maybe it's maybe it's freeing up depending, maybe, you know, considering extra cost of living, as we said.
44:52
So think about those economic things as well.
44:54
What do we think the next three years is going to look like?
44:57
It does also come into thinking about what your income and your job skills are.
45:04
Do you think you're in an industry where your income is going to be going up or not?
45:09
Now?
45:10
Wages, if you work for somebody else, have been very stagnant in Australia for a very long time.
45:15
But if you're comfortable, you've got transferable skills, you know, you can see extra money coming on the horizon that might play into being able to, you know, move towards my upper limit for borrowing capacity.
45:29
If depending on those questions though, it might help you actually come down a little bit and you might have to compromise.
45:38
So it either says, OK, well I want to say I don't want to go to my upper limit.
45:43
So if that's the case, I need to compromise on maybe the location I want to buy, the type of house that I'm going to buy or I really want thinking of a couple I saw only last week.
45:58
They really know that they want to live in a more prestige suburb and they are not going to compromise on that.
46:04
They've got kids in school.
46:05
They've been renting a long time, so they are very clear they're going to save the extra money.
46:10
They don't want to stretch to the end limit, but they also don't want to go and compromise for a different style.
46:19
So and they are going to save harder.
46:21
So they've got a clear goal for a short period of time, another 12 months and it's 12 months later than they expected.
46:28
They are going to save more money to give them margin.
46:33
So yeah, that's what I would say.
46:35
You don't think about you go to your limit or not.
46:38
Yeah, no, that sounds good.
46:41
I could endlessly give you examples too of customers who are doing this and like it.
46:45
And it really always plays out.
46:47
So you got to really think about your money, personality, your risk level.
46:51
Will, will I be able to sleep well at night?
46:53
You know, if and if you're worried about it, just do the stress test, exercise or whatever.
46:57
Live it for a little bit first and really know your resilience plan, like you're back out.
47:02
Like if this happens, what am I gonna do?
47:04
If this happens, what are we gonna do?
47:06
Definitely.
47:06
You know, if somebody gets sick, what's what's the backup?
47:09
Do we need to think about having income protection, insurance, things like that?
47:12
What are our backups?
47:14
And if and you might have some social resources around you too with within family, you know, like will I end up homeless?
47:22
You know, what are the worst case scenarios and really play them through and go and know what the answers are going to be.
47:28
And not just yourself.
47:29
If you've got a partner, do it together and then hear what they've got to say because I'm sure it'll be different to what you're thinking.
47:36
That's right.
47:36
And find somewhere and there's probably going to be better ideas or you're going to understand whether because they might show more confidence or they may not.
47:43
They may show a more fear or stress around this, which may then help you determine where you know in your mind where you're happy and comfortable being because you need to do it together.
47:54
You both need to be comfortable.
47:56
Yep, Yep, very much.
47:57
And that doesn't have anything to do sometimes with what resources you have.
48:01
It's just that feeling of feeling safe.
48:04
It is where you're.
48:06
Yeah, that's right, safety level or your risk level.
48:09
That's right.
48:11
And then if you're pushing the risks and you're the money person, imagine, you know, if things aren't going well, what stress that might cause for you.
48:18
Yeah, as well.
48:20
So just really have a think about it.
48:22
And I know it's really hard at the moment to get into the property market and even maintain your house and paid off.
48:29
You know, those things are hard at the moment.
48:31
So it's always weighing up, you know, you've got to give it a go.
48:35
Let's just have a shot.
48:38
And to be honest, most people work it out.
48:40
That's it.
48:41
And it's not linear.
48:42
It's looking at holistically all those variables.
48:46
So life stages money, like income minus expenses, what's left over, you know, locations.
48:58
All those things I said.
48:59
The risk appetite.
49:03
Cool.
49:03
All right, Well, thank you so much for joining us today.
49:05
We always love talking to you and sing out if you need us.
49:10
Otherwise, we'll see you next time.
49:11
Next time.
49:14
At The Money Collective we provide financial wellbeing, premium coaching, mortgage broking and workplace financial wellbeing programs, which we couldn't do without the seamless support of our fabulous team. If you'd like to find out more, head to themoneycollective.com.au or our socials to take action and engage our services. In our Facebook group, join the conversation and help us break down the taboo around money. All content in this podcast is for educational purposes only and is general in nature. For tailored personal advice please seek out a professional.
This podcast provides general advice only. It does not take into account your objectives, financial situation or needs. Before acting on any information provided, you should consider the appropriateness of the information and the nature of the financial product in regards to your objectives, financial situation and needs. We recommend discussing your personal situation with a financial professional.
Podcast by:
MEL PEARCE & DARLENE NEU
Co-Founders, Financial Wellbeing Coaches and Mortgage Brokers
The Money Collective
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