Cura and welcome to this episode of Shared Lunch where we focus on Money Month, which is run by Sorted New Zealand. The theme this year is to pause and quite literally get your money sorted. So we thought we'd discussed something familiar to many, and that's you've managed to get on the property ladder. But now what How do you stop yourself from going backwards or standing still and
grow your wealth for the future. I'm Helen Madison and to help us with this conundrum, I'm joined by financial strategist and coach, the founder of enable Me, Hannah McQueen. Hi Hannah, lovely to have you in the studio. Thanks for joining us.
Thank you, Hannah.
That's harder than ever to buy a house, it seems at the moment. And I think you recognize this that times have actually changed when you decided to, I think, republish or update your book, kill your mortgage, and sort your retirement. So let's start with what's different today than perhaps a couple of decades ago.
Ultimately a couple of decades ago, provided you weren't bad with money, you were going to be okay in the end. So the conditions were favorable enough that you could almost drift towards financial success and being able to retire comfortably. As long as you lived within your means, as long as you delayed your gratification, you were going to be okay. And that was largely because the house prices to income prices were a lot closer than what they are today.
So in my granddad's day, let's say he bought a house, and let's say he earned fifty thousand dollars. The house cost one hundred thousand dollars hypothetically, So what that meant is that it was a lot easier to save a deposit because he didn't have to save as much of his income to come up with a deposit, which meant he could get onto the housing ladder very early. He was able to have a very moderate mortgage. He could become mortgage free within ten years, provided he wasn't bad
just being average. And then because he was mortgage free in ten years, he then had thirty five years to save for his retirement. So that was his condition. So then you go to my parents' day, where instead of it being a one to two ratio, it's a one to four, or to my day where it's a one to six ratio. So house prices are now six times the average income of someone, and practically that means that you need to save a lot, which means you need to get the deposit, which means it takes you longer
to save. Your mortgage is fatter, which takes longer to pay off. And if you're lucky and you're good with money, you may be mortgage free by retirement. But that assumes that you will not upgrade your home, or help your kids onto the property ladder, or do anything kind of moderately exciting that under those conditions you might be okay. But less than forty percent of kiwis are on track to do that, And so I guess ultimately that big ratio has changed, which sort of has made it very
difficult in other areas. But in addition to that, compared to my granddad's day, we've now got consumer debt, so short term death Like credit cards weren't even a thing back then. You couldn't even use a credit card, so now we can. Now we can buy things, pay for them later, we can buy things. We've just got so much choice. Not only were there no credit cards back then, but there are no cafes, so all these things that we enjoy and want to be able to enjoy, and
maybe should rightly be able to enjoy. It's making it easier to spend when the conditions are worse, so at the very time, because normally, when things are harder, you come at that by saying, Okay, well, I'm going to be better. But if we look at these generations that I'm surrounded with, conditions are harder, but at the same time we are worse, and that's something that needs to
quite seriously be addressed. Otherwise we're going to have people who either don't believe they'll get onto the property ladder, which is really concerning for young people, or aren't going to be able to retire safely, which has a lot of impact in other areas as well.
So, while Leboon's situation is different, is it fair to say that given that environment what you've just explained, people are probably feeling a bit stark. There's a bit of fog around what they should be doing financially to be smarter and to get ahead. Yeah.
Well, I think people think that I'm not bad with money, therefore there can't be any obvious areas I can improve. Therefore there's no point sort of going through that process of refinement. That seems to be the gist, And I think it's because they don't immediately see where their inefficiencies are, because a lot of them are more technical inefficiencies structure all to do with how they structure their mortgage and their key we savers, their insurances, their tax how their
money flows like that. Actually those are specialist areas, so most people don't even know what they need to know to do it better. So they just think, well, it feels about right, therefore it will be. And then the other half is most people don't know how to save successfully. They don't know what their target should be for savings, and so then all that we do is we think, okay, well, for success, I just need to earn more money. If I just earn more money, I'm going to be okay.
But what happens is as you earn more money that all that happens is that you get this lifestyle creep. You just spend a little bit more, and you feel okay about that because you're earning more money, but it translates to this really dangerous outcome of you're working hard and you're going nowhere, or you're not going getting ahead at the rate that you should indicative of your income, because I think we do you accept that the poor will always be poor and the rich will always be rich.
But it is the strength of that middle class who kind of don't identify as being super rich but earn pretty good income when they are not getting ahead. That is a problem that really needs to be addressed.
So if you're in that situation and you are feeling quite struck and you're not really sure what to do, what can what's the starting point?
Yeah, well, it's almost like you've got to hop on the scales, right, which is horrific. I heard a locker from a weight loss perspective that the worst part of any journey when you're going to get on those scales. But we've got to take stock of where you're at. We need to understand what you're aiming for. And most people don't even know how to set financial goals. They
don't even know what they should be aiming for. So again they default to, well, I just won't be bad, but we need to understand we you are, what you're trying to aim for, what you're actually progressing at. It's like there's no point having a goal unless you're tracking to it or understand your trajectory, and then we need to work out and can we do it better? And for most of my clients we can normally improve their savings rate by three hundred percent, like it's insane, And
these people are financially literate people. They earn good income, they're managing budgets in their day job. But on a personal basis, we often need a plan and structure and some accountability if we're going to stick to it.
Are there also things that you can do that more short terms, say like having an emergency fund, and then there's the longer term things thinking perhaps about your contributions to QBSABER for example.
Yes you can, but those are the sort of more tactical things, right like that that's not going to move the boat out any faster, And yes, I want you to be in the right key. We save a fund, contributing the right amount with the right provider, of course
I want that. That's sort of an inefficiency for most of us, But that a nice is still not going to get your mortgage paid off faster, and nor is it going to position you so you can help your kids onto the property ladder or whatever your goal is for you, And I think that's where people get sometimes fixated on the things that won't actually change the dial, and because the things that change the dial right, those are harder to unlock because it's often linked to behavioral change,
and that can be tricky for some people, especially when you overlay relationships. But I think the first back to kind of what are the things that you can do as part of taking stock of where you're at, you have to understand who you are and how you work with money, because that will determine what strategy is going
to be effective for you. Because if you are a saver, someone who naturally enjoys saving, which I can't even I can't relate to that at all because I'm a shopper, but they naturally enjoy doing that, how we would set a strategy for that person is very different to how we engage a natural spender. And neither of them are good nor bad. Like please don't attribute emotion to money, but depending on what you are, there is a different way that we need to combat or play to that
strength if it is a strength. And I think that's where some people come unstuck. They're not self aware with their own money tendencies, that their money beliefs that they tell themselves. All these things have more of an impact around what you're likely to achieve rather than your income level.
But also, I suppose often you buy a house, it's a pretty large asset. With someone else, you might have quite different money behaviors, and that probably is something you'd probably have to navigate. I mean, you must see couples in the situation all the time.
Yes, sometimes I think I'm more of a relationship counselor and a financial advisor. Yes, I think you've got the coupling right, Like, if you're a spender married to a spender, you're looking good, you're having a good time, you're probably going nowhere, but boy, you fun. And then you've got the saver married to the saver, which are just sort of tight, which is helpful, I guess. And then you've got that combo where you could be a spender and
a savor and that can be quite fraught. And I think when you first get together, it's probably cute and interesting and you're curious as to how they work with money and all of those things. But after a few years it's quite tiresome for everyone. Because the spender feels bad about spending and the saver is not making any progress and you don't understand why the other person is
how they are, and it creates friction. Not necessarily arguments the friction could be dealt with by not talking about it, Like friction doesn't have to be explosive. But that friction, if we go back to the science of propulsion, that friction, that disconnect slows down your ability to get ahead. And I do think it's well many my clients, half my clients are that opposite attracts financially, and so we've got to learn, well, how can we navigate that when you
both have you've had different upbringings around money. You see money differently, you spend differently, you're motivated by different things. How do we navigate that successfully so that you still like each other and obviously you still like me. So those are things that we take care to do. And I think it helps that I'm independent and qualified to comment on these things because there's a lot of emotion
that comes to these meetings. There's frustration, there's hurt, sometimes there's guilt, and you have to be able to work through that in a really constructive way, which is interesting because one of the most common pieces of feedback I get from clients is I wish i'd found you ten years ago. I'm sleeping better, and I can't believe you got away with saying that to my spouse, right, Like, sometimes you've got to just hear it from the right
person for it to be taken on board. So if I'm wanting to get fit, my husband's fit and I could take advice from him, perhaps I'm just I'm not interested in receiving helpful suggestions. And so even if he would say something that my personal trainer would say to me the exact same thing and without emotion, like, it wouldn't be like a jab, it would be really constructive
and kind. I'm just not inclined to engage with his feedback, but I will my personal trainer, And I think back to that self awareness kind of taking the pulse of where you're at financially, understanding yourself who you need to hear the information from so you actually take it on board is very helpful.
I'm in that spender saver relationship marriage if you like, and I totally concur with what you're saying. I could talk about it all day, but we won't. One thing I did wanted to talk about, though, was how much of a difference does it make with restructuring or structuring your mortgage. I mean, quite often New Zealand is I think most commonly fixed for two years and pretty much leave it and everything's being paid off at the same time. What do you say to that, Well.
Structuring your mortgage is important, and you're trying to balance a few things. So you want certainty I guess for a period of time, and the fixed interest rate gives you that certainty. But you also want the ability to pay off the debt without being penalized because you do need to pay it off faster, and you want the flexibility of being able to reaccess that money as well. So you're trying to balance those things. Before you can work out how to structure it. We have to first
maximize your cash surplus. So if you don't, if you're not saving at the moment, that suggests you don't have a cash surplus, and most people will, you'll sort of be able to identify whether you think you're sinking, floating, or flying somewhere along there around that spectrum. So we need to first determine is there money left over that we could put towards paying the mortgage off faster. If the answer is yes, great, that makes you better than most.
The next question is how do I maximize that? And once I've maximized it, then I'll work out how I need to structure the mortgage. If your situation, though, is that you don't have much money left over, you're kind of living paycheck to paycheck most likely, well paycheck to paycheck, but there isn't much growing out the side, perhaps beyond your Kiwi saver, Well, then we've got to take a different approach because we have to try and stabilize your position.
If you're already flying saving a lot, again, we still want to maximize it, but we're trying to fly you to your destination faster. So depending on where you're at, we want to first kind of squeeze out all the inefficiencies and try and get you. So we've got a plan to lift your savings rate to twenty percent of
your income, and not everyone can get there. For some of my clients, it has taken us more than a year to get to that level, and it's a combination of costs coming down and also working on strategies to lift income so that we do have that money left over. But that's the first thing that we're trying to do, and then we work out how to structure the mortgage. Now, typically, if I was to put numbers around this, if you're surplus, the money leftover could be increased to fifty thousand dollars
a year. I'm just plucking a number. Then I would link that into how I structure your mortgage. I would have a revolving credit facility that you don't have f poss access to, so it's not a transactional account, but it would be fifty thousand dollars overdrawn, and the objective is going to be to pay that off over the course of the year. Again, you don't have f poss access to that, but that becomes I guess, the propulsion to try and grow wealth when we move to the
next stage. But I've got to get you mortgage free first well, as part of the know how quickly I can get you mortgage free before I overlay the wealth strategy.
But there's a balancing act, though, isn't it. Because we often get the question should I be paying off my mortgage or should I be contributing to key wesaver, And obviously you should be contributing to key we Saver, But then it's how much and what's my emphasis?
Yeah, So, as a general rule, you contribute to key we saver if you're not in financial hardship, and you contribute up to the level that your employer matches. If you're self employed, there isn't that much of an incentive to contribute beyond what the government will unlock the attacks credit for you. But let's say it's three percent. So if you had money outside of that, then the question is, well, what do I do with it? Well, yes, you could put it into key we Saver, and I guess that's
a form of compulsory saving. But that is assuming that you haven't purchased your first home, I guess, And you don't need that money for retirement. I guess it protects it, it locks it in a vault for you. But for most of us, cerdainly the clients that I'm working with, I can put that money to work a lot faster and a lot harder than if it was left and a kiwisaver fund. So contributing up to the level your
employer matches absolutely could put that into kiwisaver. It's the extra contribution that I'm I'm wary of because if I can put that money towards paying your mortgage off faster, not only are we creating flexibility and financial resilience now that you can benefit, but we're creating equity and your property as well that we could recycle as a deposit for an investment property. And so then you've got kind
of three layers working hard for you. You've got your greater cash surplus, which increases your resilience, which means you can weather storms more comfortably. We've got your mortgage coming down, which is saving you interest costs, getting you mortgage free faster, and also creating equity in your home. And then we're tapping into that equity as a deposit for an investment property.
Those three things will outperform any qv saver investment kind of any day of the week, any extra key WE Saver investment on what your employer matches.
But the beauty of compound interest, obviously you need to be contributing something though, so that you can take advantage of time.
Yes, but yes, but I do think that the benefit of kiwisaver isn't really the compound interest, and it isn't really time. It's the fact that your employer is contributing, so you're getting one hundred percent return. That is the beautiful thing. The actual fund that you're investing in after inflation in some of those things might actually give quite a poor return, but getting access to that employer money
is the golden ticket for kiwisaver. So yes, having it locked up so you can't touch it is also helpful because you don't inadvertently fritter it away. But it's more that it's just locked up for a long period of time rather than the based performance of the fund, which is where I guess that compounding concept comes in.
What about trying to be smart with your money? And I mean there's the options, the shares, the savings accounts, better deals on your insurance, things like that. I mean, all of them probably have a part to play. But if you weren't just focused on your mortgage and you had other investments and you're quite diversified, what do you think then what could people be doing well?
I think it comes back to kind of the principles of wealth creation, where you want your money to work as hard as it can for the kind of balance of risk or volatility. So if we look at a mortgage, let's say the average mortgage rate, the three year mortgage rate at the moment is six point three five percent. So if you've got an extra dollar, you've got the question do I pay off my mortgage to save myself six point three five percent on what I've paid off?
Or do I put that dollar into something else, whether it's managed fund, shares, property, crypto, whatever we want to call it. So I guess the question then is, well, what is the return on these other investments, what is the certainty of that return, and what is the impact of inflation as well? Because we've got a balance these things,
and can I reaccess that money easily? When you're looking at a guaranteed return of six point three five percent guaranteed after tax saving, then that would be the equivalent of a guaranteed maybe ten per I can't do the math in my head, but let's say a ten percent return before tax, before fees and all of those things, which most investments, whilst they might perform at that rate over a long term, some might very few of them
perform at that rate on a guaranteed level. And so then you say, well, I need if I'm trying to get my money to work as hard as it can for as much certainty, which while you've got a mortgage, you need to be thinking more about the certainty of outcomes rather than the hopeful outcomes. We're not ready to diversify yet, because you've got this mountain of debt that we need to get under control, and we do want to get that under control before we even kind of
think about diversifying. And I think that's why some people lean to more property based assets whilst they have a mortgage, because they can reuse the equity they've got in their home or on the property that they're paying off and still grow wealth. Now, once we mortgage free, it's game on for diversifying to your other assets. But we really want to ensure we get certainty of return kind of
no matter what. And while interest rates remain high, it makes more sense in most instances to pay off that mortgage over investing in other types of assets because it just won't work as hard. But when interest rates drop, and we're kind of on the precipice of rates starting to drop, we're going to move. I guess the equilibrium
of that point is going to change. So you'll recall in COVID when interest rates went down to two percent, why would you pay off a mortgage under those conditions when you could get a lot more investing in other types of assets. So the first question we ask is what is the interest rate that you're paying and can I get a guaranteed return somewhere else? And if the answer is no, well then you should be paying off your mortgage.
What are some of the biggest mistakes? Then you see that people make. Is it what we spoke about at the beginning, that they kind of think they're doing the right thing and they're flaying along, saving a bit, spending this structuring their mortgage in a way that they think might work. Is it all a bit up to chance or what do you see?
I think a lot of Kiwis are sleep walking towards their retirement and there's sort of this hope that it'll be okay. And they were brought up by parents or grandparents where it was okay, so you could see why they would make that conclusion. But for most of us that isn't going to be the case. And so then
you say, well, what is it not being okay? Actually mean, because no one's dying as a result of not having their retirement, but the impact of not having enough saved for your retirement and key we save normally accounts for around forty percent of what you are likely to need for retirement. So it's helpful, but it's not the silver bullet. It's better than no bullet, but it's not the silver bullet. I've got to work out what to do with the rest.
So if you haven't been able to amass the rest of the money that you needed, then it just is going to mean, Well, you're going to need to downsize your home earlier, you might need to work longer, You're unlikely to have the retirement you want, or be able to help the kids as you expected. I don't think any of those things are literally the end of the world, but it is disappointing, I think for many of us when we know that we have earned good income, so
why is that our financial reality? But being prepared to confront that, especially when you have a partner who often is disengaged from finances. There's always one who's disengaged in the relationship. What I find is that when you hit around fifty age fifty for at least one of you, you are very conscious of the fact, well, I've got fifteen summers of income here that I need to maximize. And for many of us, knowing that we are going to maximize, it still isn't going to be enough. So
that's the brutal reality. The next question is what do we do about it? And there is always something that can be done, hands down.
The other thing, too, I suppose, is if you get a plan in place, if you do what you've just described, you probably have to review it reasonably often too, though.
Yes, I think well with my clients, I review it every three months because in my experience, you need milestones that need to be celebrated. Absolutely, But you get this little bit of creep that comes in, and even if you only have a one degree kind of shift in how you spend over the next fifteen years, that is the difference between did we save enough or not? And that's I'm conscious of that. People come to me for
that accountability, and I'm tracking savings targets, spending targets. I want you to have a good life, so I'm not trying to prevent you spending. But once we've got the number that you have allocated to whatever you need to spend, then let's commit to it. And most importantly, I'm then tracking your mortgage coming down faster, the pace that we're getting building equity, and how quickly we're growing wealth in addition to paying off your mortgage. Well I did, I
ran a half marathon on the weekend. Oh haggulation. Well that wasn't the reveal. But what was weird about this reveal is I wanted to do a particular time and I accidentally deleted my app on my watch in the shoot before you start. Oh is this crazy? So I was trying to work out how I was pacing. And the weird thing about this course is they didn't give you any milestones along the way, So they didn't give you you've run two k's or five, five k's or
whatever the case is. You only were told where you're at at the halfway mark. And so I was trying to I was just trying to get my bearings. I'm like, oh, this doesn't feel particularly good. And I could see a pacer up in front and they had their number how long they were going to take to run, and I thought, oh, they're running slower than what I was aiming for, but I can't even pass them because I'm like, this is terrible.
And so what turned out is I ended up passing the pacer on this hill and I said, well, can you tell me how far we've gone? And because my watch was saying six k's and they're like, we've actually gone nine k's. So then that completely changed things. And then I'm like, at what pace are you doing? And they're like, oh, we're not actually running at the pace that we said. We're running faster than our pace. And I'm thinking, you've got one job literally to stick to
your pace. Why are you off? But how that relates to finances, as for many of us, we feel like we're sort of we're caught in something and we're trying to get to the other end, and it is so hard to get to the other end where you don't know where you are relative to where you need to be, where you don't know the pace at which you're moving forward to work out if you need to improve or slow down, because it all comes home to roost at
some point. And I just thought that's how many people must feel financially or with any big goal that they just don't even know. So when you don't know, you don't get to celebrate. When you don't know, you don't know how to adjust, And for most of us it's just small refinements made quickly that will be the difference between whether we keep that cadence going or whether we
actually kind of burn out prematurely. And so it's hard, but I really believe structure, milestones, celebrations, support and quick adjustments are the key often to keeping your mindset strong, because I need your mindset in order to get through the.
Curveballs well said, looking at it being sordid month and people actually perhaps taking the time now to do that, I suppose the idea is that they not just look at it, but actually take some action and then make that action stick.
Yes, And that's the hard part. And I think if we can create that structure of accountability first telling you what's possible and then showing you how to hit it, I think that shifts a lot of people. But being there when it gets hard, because anyone is good on a good day, but very few people are good on a bad day, And when it comes to finances, we tend to have more bad than good. At least that's how we rationalize our lack of progress.
Thanks for joining us today, Hannah. We could have talked for hours. It's great to have you. Thank you very much for having me, and thanks everyone for tuning in. We're giving away two copies of Hannah's book, Kill Your Mortgage and Sort Your Retirement. You can find these details in the episode description. Great to have you watching and listening today to Sheared Lunch Until next time, Kakitiano.
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