] Tiffany: Hello and welcome to established wealth. My name is Tiffany. This podcast is for people looking to create financial freedom through property, finance, investing and everything in between. I'm joined by my husband and business partner, Toby. [00:34] Toby: Hello, I'm Toby. We are both property investors, mortgage brokers and financial educators. We strive to empower and educate people to understand their finances, enter and invest in the property market, and to set themselves up for the future and establish wealth. Hello and welcome back to the first episode of Establish wealth and I'm joined with Tiffany, my partner in both life and business. [01:11] Tiffany: Hey, today we're kicking off our first episode, diving into the fundamentals of financial empowerment and understanding your current financial position. This episode is the foundation of building a solid financial future and establishing wealth. Whether you're aiming to enter the property market, become mortgage free, or build long term wealth through property investment, understanding your finances is fundamental, most definitely so. [01:37] Toby: Understanding your financial position allows you to know where you are financially. It highlights and helps you chart a course to where you want to go and what you will need to do to get there. It all starts with knowing your income and expenses inside out. Let's discuss how you can do this. So you start by calculating all your sources of income for the month, from your salary to any side hustles or rental income that you got and note that down. Then you need to work out your monthly expenses. This means anything from rent, mortgage payments, groceries, fuel, car rojo, dining out subscriptions, insurances, electricity, water rates and if your car reggio is a yearly payment, then you need to divide that yearly payment by twelve and work out the monthly amount. I would even go as far as working out Christmas present budget, birthday present budget and divide that number by twelve. Work everything out that you might spend your money on and put that into a monthly amount. Once you've identified your monthly income and your monthly expenses, you can now determine your monthly surplus, meaning the money that you have left over after all your expenses have been paid for. [02:40] Tiffany: So when you do this, we strongly suggest that you print out your bank statements from the last three to six months and grab a highlighter. And whilst working out your expenses, highlight those expenses that are non essential expenses. I would honestly recommend to make this a date with your partner or book in time in your calendar. Grab a bottle of wine if that's what you're into, and do this you will be blown away with the amount of non essential expenses. If you have been struggling with money, this will help you identify why you really want to think about these non essential items you're spending your money on and if it's worth your financial future, or if this spending habit aligns with your values. Do yourself a favor and calculate those non essential spends and see how much you could be saving each month. It'll blow your mind. This money you could be putting towards your financial goals. [03:24] Toby: Yes, and speaking of goals, setting them is crucial. Whether it's building an emergency fund, paying off your debt, saving for a deposit or investing for your future, clear goals keep you focused and motivated, and with those goals you can create a budget tailored to you to achieve those goals. [03:41] Tiffany: Yes, a budget. Many people think that this means restrictions or limitations of your freedom. This is a huge misconception. Budgeting is a crucial skill for anyone looking to take control of their finances and build a secure future. A budget is your roadmap to financial success. It creates freedom and does not limit you at all. It liberates you and makes managing your money stress free, as all your money is allocated for a purpose. Creating a budget is not just about tracking your expenses, it's about aligning your spending with your financial goals and values and priorities. So once you have determined your financial goals, both long term and short term, and you've noted down your expenses, you can then categorise them into fixed expenses, bills, personal expenses and get a clear picture. Fixed expenses are things like your mortgage, utilities, phone bill, carreggio, birthdays and Christmas presents, insurance subscriptions, while personal expenses include groceries, dining out, entertainment and fuel. Based on your income and expenses, set realistic limitations for each category. Be honest with yourself and what you can afford and where you need to be cutting back. And don't forget to prioritize your spending. Make sure the essentials like housing and groceries are covered first. Then allocate funds for your saving goals and discretionary spending. Make sure you budget for things like birthdays and Christmas presents. Small contributions throughout the year can make these occasions stress free as you have the funds allocated and sitting there ready to be used. You don't have to be digging into your savings or stressing over where you're going to pull the money from. [05:10] Toby: And the best advice I can give for budgeting is automate everything. Set up your bills as a direct debit. Automate your banking transfers. That way you do not have to think about it. The money is allocated, the debits are set up to pay everything on time. This will allow you to minimize the stress you have around bills and money and it will give you the freedom knowing what you have to spend without having to think about it all the time. You can also use budgeting tools. Utilize spreadsheets or apps to help you track your income, expenses and create your budget. These tools can make the process much easier and more efficient if you want. [05:43] Tiffany: And really hold yourself accountable when it comes to your budget. Delayed gratification will be your best friend. Your focus should be on maximizing your surplus. Aim to create a budget that generates a surplus at the end of the month. If you need to cut back on those non essential items, then cut back so then you can move forward financially. You will thank yourself in the next three months for giving up those small non essential items and you will forget why you even like to spend the money on them. We're not saying you can't enjoy yourself, just do it in moderation and in a financially efficient way and create a budget around what you enjoy doing instead of dining out or getting Uber eats four times a week. Maybe try to cut that down to one or two times. If you enjoy a coffee on the way to work, add that into your spending. But do you really need three coffees every day? This could save you a lot of money over the next three months and that surplus can be used to build your savings for a deposit, pay off debt faster, or invest for the future. An emergency fund is like a financial safety net, providing peace of mind and security when unexpected expenses arise. Let's talk about how you can build an emergency fund into your budget. So to begin, you need to determine how much you want to save for your emergency fund. There are a lot of different opinions on the amounts that you should be aiming for in your emergency fund. We believe your goal, individual circumstances and financial situation will be different from the next person. So this decision is very personal to you and should be a number that makes you feel comfortable. That could be three to six months worth of living expenses or possibly just having $1,000 will make you feel empowered and you can revisit and change this number as life changes. Your emergency fund goal could be a specific dollar amount, like $10,000. Whatever it may be, start working towards it by allocating funds in your budget. If this is not possible in your current situation and there is no additional money at the end of your necessities, then that is okay. Learning this now will benefit you when you're in a situation that changes. Treat saving for your emergency fund as a non negotiable expense. If you do have a surplus, even if it's only small, allocate a specific amount of money each week or month towards your emergency fund savings goals. Make it effortless by automating your savings set up automatic transfers from your account to your emergency fund account. This ensures that the portion of your income goes directly into your emergency fund without having to think about it. Building an emergency fund takes time, so be patient and consistent with your savings effort. Celebrate milestones along the way, like reaching one months worth of expenses or hitting half of your savings goal. And if you ever need to dip into your emergency fund for unexpected expenses, that's okay. This should not carry any guilt or anxiety. This is exactly what its purpose is for, to help you in these situations and not have to rely on debt. But when everything is back to normal and you can replenish your funds, make it a priority. Adjust your budget temporarily to allocate more towards your emergency fund and until it is fully replenished. Having an emergency fund not only provides a financial safety net for unexpected expenses, but can also help you stick to your budget and achieve your financial goals. [08:40] Toby: Our fridge actually died recently and we had to dip into our emergency fund and it was, yeah, stress wasn't there. You knew the funds were there and we were happy to delve into them to get a new fridge. [08:49] Tiffany: And it came at the worst time. It was just after Christmas. We definitely didn't have the budget in our spendings account for a $2,000 fridge, but our emergency fund, it was right there, ready. [09:00] Toby: So now that you got that emergency fund set up and you have decided on amount to transfer into the fund from your surplus, it's now time to allocate the remaining surplus funds from your budget toward your other financial goals. Whether your goal is to pay off debt, save for a house, deposit for a dream vacation or invest in your future, knowing how to effectively allocate your surplus funds is key. So once you've identified your goals, prioritise them based on their importance and urgency. This will keep you focused and allocate your surplus funds effectively. Take a look at your list of financial goals and decide how much money you want to allocate to each goal. Consider your priorities and timeline for achieving each goal. For example, if you have a high interest debt, you may want to allocate more of your surplus funds towards paying off your debt quickly. Once you've decided how much money you want to allocate toward each goal, set up automatic transfers from your account. For each goal, I would only suggest having maybe two accounts, one for long term goals, one for short term goals. Now, just a few things I want to touch on here in regards to saving money. For the purpose of saving money, if you have a home loan, then you should not be having this money in a savings account. You should be putting all your savings or surplus into a free unlimited redraw facility where that money can actually benefit you most. Now, for people who do not understand the purpose of a free unlimited redraw, it allows you to deposit money into your home loan that actually reduces the principal on the loan, and by doing this, you minimize the interest charged to you. This saves you a lot of money in interest. By doing so, you reduce your loan term dramatically and it being a free unlimited redraw, you can access this money whenever you want to use on things like your family holiday or weekend away. Understanding that there is a significant difference between interest earned and interest saved, you will be financially better off by minimizing the interest charged on your home loan at 6.5% and you will save more money than you could make by having it in an interest savings account earning 5% interest. I'll go into this more on another episode. [10:50] Tiffany: Also, just adding onto that, if you're using your redraw facility instead of an offset account, the way it works out better for you is if it's sitting in your redraw. Essentially that money is yours sitting in an account, but it's reducing the principal amount on that loan and the interest charged. Seeing it in an offset account will only reduce the interest charged. If it is actually 100% linked offset account, more of that money that you'll be paying back will actually go towards the principal amount of the loan, reducing that debt faster. Just by having that money sitting in your redraw account and not in an offset account. [11:26] Toby: And your offset doesn't work. If you got the account there and you're there down the shops tapping away with your card and minimizing that money anyway, so. [11:33] Tiffany: Exactly. And interest is calculated daily on your home loan and then charged monthly. So they're not looking at your bank account every single day to see what's going in or out. And if they are looking at your bank account for a snapshot, it's only a one time access that they can see what's going on in there. And have you ever actually received interest back for using an offset? [11:55] Toby: Yeah, I doubt it. I've never known of a bank crediting you money for your offset. If you have an offset and you use it like that, then I'd be rethinking your strategy with your home loan. But stay on topic with this episode and keep on going. [12:08] Tiffany: Now, if you don't have a home loan and you're wanting to still put a portion of money somewhere for long term savings. Long term savings as in you'll be consistently saving and contributing towards that for next ten plus years. Creating financial freedom or creating wealth for yourself. You could look into purchasing a different type of asset like term deposits, ETF's, shares, bonds. These types of assets usually seem a bit unattainable, but with new investment platforms and apps for your phone, investing couldn't be any easier. You can start with as little as $0.01. We will dive more into this in the future episodes. Definitely do your research before making a decision and make sure you understand what you're purchasing and comfortable with where you are putting all your money into. [12:45] Toby: So yeah, determining what financial goals you want, allocating those funds towards those two accounts. If you've got a home loan, be putting your savings into that home loan. And if you do have long term savings or you want to build a long term savings account, I'd be yeah, looking at those platforms that TIFF mentioned. [13:01] Tiffany: And a very smart man once said, if you have debt, then you don't have savings. So strategically reduce your debt before you start to save. But before that, an emergency fund needs to be there ready for you, even if you have debt to stop you from falling back into debt. So I'd still structure yourself to be creating that emergency fund as you're paying down debt, but I wouldn't be saving for a big financial goal until those debts are gone. [13:30] Toby: Yep, 100%. Thanks for joining us and we'll see you next time on establish wealth. [13:35] Tiffany: The information just discussed is not to be taken as a vice. It is general in nature, meaning it does not take into account your own objectives, financial situation or needs. It is purely for educational purposes only.   Website www.establishwealth.com.au     Email [email protected] [email protected]   Instagram @Establish.Wealth @Toby_MortgageBroker @Tiffany_MortgageBroker