Season 1 Episode 4: The difference between financial planners, financial wellbeing coaches, and financial counsellors
IN THIS EPISODE
Listen to Mel and Darlene explore different professionals in the finance industry and unpack where financial wellbeing coaches fit, when you might engage one, and what exactly they can do for you.
They discuss financial planners and financial counsellors, and what the differences are between them, as well as money coaching and how financial wellbeing encompasses that but is far more holistic in its approach and outcomes.
Further examining the capability and resilience that form financial wellbeing, they touch on the concepts of scenario planning, the balance of power in relationships, and the fear emotion that so many people have around money.
RESOURCES IN THIS EPISODE
Discover your money personality and have a chat about it with your partner or a friend. Take the quiz.
KEY QUESTION IN THIS EPISODE
What is the ‘fixed rate cliff’ being talked about in the media?
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0:00
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 cofounders 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.
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Hi, it's Darlene and Mel back for episode four of our podcast. Awesome. Hi, Darlene. I'm so excited to be back. I feel like it. We're getting in the groove now, aren't we? Yeah, and it's part of our life. It's our new baby. I know. We’ve had so much fun, you know, in our recording so far. So yeah, we hope you're gonna have as much fun and enjoy the ride. Yeah, that's cool. So every episode we start off with our own truth. Yeah. So
0:52
we always talk about our financial wellbeing, what that means to us and that's our everyday life. So you just get a bit of our everyday life and who we are and what we do and you know, warts and all.
1:05
So I'm gonna, or do you wanna go first? No, you go. I go. Yeah, I'm going. Alright, so
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my daughter is 14 and she went away with a family this week for a bit of a holiday and they very kindly took her with them and I'm sure she's having a fabulous time
1:30
and well a few things. I gave her some money to take away with her. I gave her $150.00 for the week, the purpose being to buy some food and stay alive.
1:42
It is not what the money's been spent on.
1:46
So she sent me a few pictures. She's got her new Frank Green drink bottle. And if anybody. So tell us how you feel about the drink bottle. Yeah. Look not into brands personally and spending that much money on a drink bottle. And we've got a cupboard full of drink bottles at home, so I would never have done that. I know it is a sustainable drink bottle. OK. Australian brands. But yes, I understand. Hmm. Not doing it for me anyway. It's an expensive drinking vessel. Anyway, she's extremely happy and proud of it. So I I said congratulations
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oh good on you.
2:20
And she also bought a really nice jumper which actually looks a bit fabulous. So all the essentials to stay alive is what's happening for her. That's what she just won't eat for the next week. Oh she's eating very well someone else she's getting she's living the high life it's great. And then it also got me to thinking, cause I was looking at my Instagram reels last night and there was a meme that popped up and Oh my god, it triggered me because it was like, what you, how you treat your or your first child versus your youngest.
2:51
Yeah. So she's the youngest. And I've got another child who's 16. And I like, don't know if I would have done the same for him. I think I would have made him work hard. There would have been lectures about what you can't, Like the rules are different. And he would have had to earn that money big time. And then I just feel like I give it to her and there's and I'm like, haha, like it's just so easy. Yeah. So I don't know, I was a bit triggered by that
3:21
with you. Yeah, no, definitely. I I think it brings up lots of things, doesn't it? It brings up like, is it because you think you wanna do it perfectly? What you perceive is perfectly for the first one and you learn a lot of stuff along the way and you know, you do it differently for your second. Is that personality driven? Is it gender driven? I know! All of those questions. I have no idea. Like, I wish I had the answer to it, but I'm like when I was on Instagram, I'm like, these people are inside of my brain. How do they know, like that
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this is so relevant to me and then I've got my other child locked up at home and he's not on a holiday, he's got chores.
4:01
So I don't know the answer to that. All I'm saying, it's a bit of an awareness around those two things, how I treat my children differently, whether that's fair
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and also how I feel about when I give them my money. That's what they spend it on. Yeah. I think there's so many things that come up from that because, you know, one is if we give and this comes back to
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children and money, if we give our kids money, do we wanna have control about how they spend it and put our layers of values on it?
4:33
Like all do we give that money. I mean children, you have to. I mean, you know if they're going on a holiday or you know, you have to go on something. That's right, Yeah. That as long as they're fed and watered and they learn so much, like those things that she bought, she goes the whole on sale mum. And I'm like, she was like quoting me.
4:54
Oh, she's learning something. She knows how much a drink bottle costs. Yeah. Maybe not the earning potential. So I think so for the learning for me, I think I just and with what I wanna do with that awareness is what I do with both of my children. Hmm. And how I treat them. Yeah. Maybe you loosen up on one and crackdown on the other. Yeah. That's right. And let go a little bit on if you're going to give them money. It's their money. Yeah. That's exactly right. And just I think the mindfulness around it too, cause just by having these thoughts around
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those things, you know, might change something that we do for good. So yeah, it's great. My truth, this week is the old chestnut of the gym. Ohhh, what's been happening at the gym?
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So I prioritise
5:44
or try to prioritise health and it doesn't always work. But I've been going to a community gym that I love and I love the ladies that go there and I've been connected to that for, I don't know, maybe 8 years, a long time. So I love it. But I'm finding recently I'm not getting there. As much as I like, I love doing weights and I love the strength training. And yeah, so I pay really good money to go to the gym and have some personal training
6:15
and, you know, those type of things and, you know, comes a lot out of the budget. And then I am I gonna put a number on it, OK. I will put a number on it. I spend $300.00 a month. OK yeah, I'm doing it. So you're almost gonna say a week. Yeah, for a minute. So when you said a month, I'm like,
6:36
Yep, no, a month. Actually they've just re-jigged how they do it and they're offering. So it actually came down a little bit. It was closer to 350, so OK, 300. So I feel to get value out of that. You know how maybe we break things down or my logical brain breaks things down that if I go twice a week.
6:55
OK you know that's what is that. Yes. About 30 something. Dollars I have. Yeah. It's about 30 bucks a well, 30. Yeah, a session $35 something like that. And you feel like that's worthwhile. That is good bang for buck and it's good for you, good for your health. Exactly. And I like it because I I've got it. I like that it's there and I've got consistency you know when I go and that because I feel like I gave it up. I don't wanna lose that strength training. And I really like the gym and the and the people that I go
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to it with. So, yeah. So yeah, just feeling a bit guilty about not utilising that from, you know, how much it's costing me. But I'm not getting, you know, you know, I'm not looking after my health, more importantly. So hang on, did you say you went to the gym this week? No, I haven't been this week. That's the problem. And it's Thursday. Right. But do you know what? We have a session tonight, OK? At 5:30, I think. So I'm committing right now.
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I'm going tonight and then Friday and the weekend. Are you only gonna get the second session in? Are you giving up this week? I I think I'm just gonna fit the one in. OK. Yeah. Does that mean you do 3 next week? This is this also happens. And then you feel like you need to make it up and then that just becomes too much pressure. No, gotta let it go. Let it go. So yes. So next week, at least two sessions. But I'm going to go tonight. Yeah. Very good. OK. And have you ever let go of the gym membership? Like is it for those reasons? I haven't till about
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eight years ago, I'd never, never been to a gym. So it really wasn't my wasn't my bag. I always thought it wasn't. But I really love women in the community that sort of like minded people. So that's always kept me connected and once I understand the benefit of strength training that I feel like if it's I play tennis as well and I feel I've always played tennis and I feel like if I ever let it go I would. I would not. I would struggle to get back get back to it and then I wouldn't have anything to replace it with
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like yeah I I've stuck at it for that period of time and I plan to stick at it for life. Very good. Just when this happens you know we're just it's a bit self up a bit of accountability on Yep let it go and Yep you know what I very next thing I can do is go to the gym tonight. Yeah. That's it. Stay committed. Yep. It is good money spent right. You know it really is. I think also sometimes we feel that we don't. It's a bit like, health and money,
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I feel are the two things that we feel like we should nail ourselves because we just know they have to be done but and we shouldn't spend money on them. But really you what better places to actually spend money if you're looking after your health than you've got your fundamentals of money, right? I just
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it, it's logical. But I think, yeah, naturally we don't, we think we shouldn't have to spend money on those things. But there's also no right or wrong. Like everybody, you know, ideally be good if everyone valued their health and did things about it. But doesn't mean everyone necessarily needs a gym membership. Yeah, the membership. It's like doing your own thing. Go for bushwalks, do whatever you need to clean. Yeah, but spend the money on the things that you love that you increase the value of your life. Yeah,
10:15
so true. OK, so today our main topic that we wanna talk about is the difference between the space that we work in, which people would traditionally call as money coaches. Yeah, And we like to refer to ourselves as financial wellbeing coaches and we kind of feel like that sits in the middle of, at 1 end you've got financial planners and then on the other side you've got financial counsellors
10:45
as well. So we've got all these people in this financial money space who can help and support your life. But we wanna talk about the differences of each today. Yeah, that's right. And really unpack that, because
11:00
this middle space is really quite a new thing. Um. And we, we get asked all the time actually, what it is. And a lot of people think we might be financial planners, or counsellors. So it really is a good chance to unpack it and help you understand the differences. So do we want to start off talking about financial planning? Yeah, because I would say that that's the traditional space of money. And like, if you were gonna go and get some money
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advice, then you would talk to a financial advisor or a planner. Yeah, that's right. Or your family. Yeah, or your family. And The thing is, financial planning has gone through a whole lot of regulatory change over recent years. And it's because of that accountability of if you go to a financial planner and they tell you to invest in something and that's something doesn't work out, then they're on the line,
12:01
So basically that accountability is shifted to a financial planner advising you the wrong thing. Now. And also like there was a whole lot of like financial planners having fingers in the pie and selling your investments that were they were getting there getting, yeah, they were getting extra benefit from. So it benefited them by selling particular investments. Really. So they just made that space so regulated and the
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cost for financial plan is to operate in that space became really huge and the risks also increased. So we're talking, this has happened in the last five to 10 years, I would say probably 10 years where financial planners have been much more regulated. It started coming in,
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yeah, to this space I probably remember about eight years ago. And the requirements for financial planning also has increased as well, as far as education. So it's weeded out a lot of, a lot of financial planners have left the industry and the ones that have stayed, it's actually been harder for them to continue to operate. So they've actually, I would say that financial planning space has shifted much more and is geared towards assisting people who are in the
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close to retirement or in the retirement phase of their life where they're they've got a build up pension already and they need that managed. Yeah, really yeah, it has you know definitely moved. Because it's for when you're doing middle life, the costs of financial planning are great. So they by law need to give you something called a statement of advice to give you financial advice. And then you know, to prepare that and go through there's a systematic
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way they need to go through that takes a lot of work. And then obviously they're insurances. So yeah, they're their fee up front and then they're ongoing. Management is really expensive and so many, many times for middle Australia. So what we wanna call expensive, you know, it can be out of reach for a lot of people. Yeah. So people stay away and avoid it. Hmm. So I have actually been working with a financial planner and the I would say the benefit that I get is
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the tax and superannuation advice. Yeah, because my husband and I were both self-employed and because we didn't accumulate a lot of superannuation early in our lives. So how to maximise that? And my partner is also older than me as well, so closer to that retirement age. And there's so many things that I don't know about tax laws, superannuation laws, I have no idea. It's not my forte. So the benefit that I have from having that relationship I can see, but I can also see why a lot of people
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don't engage with the service as well. It definitely has its place and it's, it's you know can be really, really helpful. The two of the key things that financial planners can do, they can work with you and give you investment advice about where to put your money. And by law, regulatory, they can talk about your superannuation. And they also do, like, life and income
15:24
insurances. So those are the areas that a financial planner will look after. And then on the other side, Mel, financial counselling. Financial counselling is more so for those who are in hardship. So usually it's triggered by more of a life event, maybe a separation, divorce or a death potentially or something significant, like a loss of a job or something. Maybe you're nearly going to be homeless. That's right. You know, something's changing your life and you're no longer able to meet
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your obligations and usually it's around debts and liabilities. So you might have accumulated loans that you can no longer pay for or to maintain a lifestyle like or maintain your house. Housing is one thing. Or be on the very brink of that being imminent and not having a way forward or out of that. So that's right. And historically in Australia financial counselling is a not for profit,
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run by not for profit organisations. So that offer those financial counselling and that might sound go into debt negotiations with banks or lenders with you and provide you with counselling services as well for your mental health and also provide other services around housing and things like that because they'll be associated with some charitable bodies and things like that. Exactly. Yeah. And they might have funding from the government that helped them support run those agencies.
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Yeah. And I know that we're like, I suppose that's the scary thing about money that we're always like,
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like it's sliding doors moments like we could all end up in a situation like that. Or many of us anyway,
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because so many things aren't within our control. But I suppose that's where we fit into this middle space of how do you manage your everyday life. So with the money stuff, yeah, it's the more, to prevent that, definitely preventative and having those good you know, money management, financial skills and foundations to prevent those situations occurring. And also it is a bit of planning ahead though. So we talk about
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the one to five year period. So it's what you're doing now and really getting you know in place with setting goals and what you want and achieving, hopefully achieving some of those goals within the next one to five. Yeah. So let's dig into that a little bit then. So we're now talking about that middle space which isn't going to see a financial counsellor. You don't really need to see a financial planner yet for whatever reason. But hey, everyday life is feeling like it could be better. I would say that people who need a money
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coach is somebody who would need support around them and I think that 90% or 99% of population taken probably need support and accountability around us to set up systems and to become empowered to know how the system works around us and how our own money works. Yeah definitely. Well Mel and I are mortgage brokers by trade and we've been bankers for a long period of time. So we've worked in this space, but what you find is when
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we work with people
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through mortgage broking, those conversations come up a lot about what am I doing with my everyday money. And I feel like I'm not doing enough or something's changed and I feel like, you know, my savings are going down, you know, and you know, I don't. Yeah. I feel, I feel like I'm not in charge of my money. Yeah, I think too, it's like those, I think the people who reach out to us, there's those two different defined groups of people. So there's those ones who say
19:16
I feel like if I don't make some changes, some bad stuff, but I'm going backwards. Yeah, like, hang on a minute. This is not sustainable and we just need one small thing to change. Or I can see that I am not probably gonna meet my retirement goals and I'm gonna have to work forever. What am I doing, you know, while I'm still working? How can I maximise and make the most of this or make sure the worst doesn't happen? Because I need to make some changes and substantial changes and I need somebody
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to tell us what to do. So our word last year was courage. Because we realised that we needed to step into that space to help and support people, to tell people hard truths. Because it really is what they were coming to us to hear, weren't they? Yeah. And for us to be brave and not just go there there. Yeah. And like, call people out and say if this continues and show people you know, well, hey, your money's gonna run out at this point. Or that's right, or you can't achieve
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those goals and they’re just not realistic. You're gonna have to either scrap them or readjust them. Yeah and I think people innately know these things because that's why they're coming that that group of people are coming because they know if they continue it’s not working, it's not going great.
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so and yeah so that's where those hard truths do come out. And no it's really important and I agree I think some people know but they want like you know that money coach around them that can actually say those things and then yeah cause I think too like in a friendship situation right then your friends are gonna go. It's alright Darlene. Don't worry. Or we don't wanna invest too much into anyway cause it's a bit scary and not really qualified. I don't wanna upset you.
21:06
We were a bit scared about even saying that we're qualified to help people. There was work that we had to do. Go hang on a minute and then start practising saying, well, hang on, this is where you're gonna end up. This is what's happening. But it's always on to that person to make the change. Always. So we're not here to say do XY and Z and then you'll be perfect. It's well, hang on, no, this is the information, this is where it's leading you. And some people will continue, right? Yeah, definitely. And it's hard because for changing behaviours
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is difficult. Umm, yeah, I I yeah, so I maybe if we come back to like a definition of financial wellbeing and what it's made up of. So financial wellbeing is how we feel about our money. And then financial wellbeing, if you want to uplift your financial wellbeing, it's made up of two key components and one is financial capability. And that's about understanding how money works in your household, where it goes.
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And you know, you know knowing your number, you we talk about knowing your number, you know what, how much is left over after all your expenses and always spending all your spending exactly. And then it's also about capability though. It's also about understanding the financial system in which we work in and what products are available, how they work, how interest gets charged. If you use, you know, if you borrow money, you know how to repay, how to optimise those, how to,
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you know, reduce the amount of interest you might be charged. And really understanding the system that we're work in. So financial wellbeing really for us is empowering and about financial education so people can make their own decisions and you know, you know, work out what's best for them. We all really know. We just want information so we can make those best decisions. So that's capability. And then the other one is financial resilience.
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So financial resilience is about what happens if I have a big event that happens that impacts my money. What do I do in the case of so that my backup plans. Yeah. And I when we realised that this was a thing, right. So
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was it 12 or 18 months ago, We realised that maybe 12 months ago, I reckon longer. OK yeah. And then cause the research was saying so. So we have found this out that these are the two components of financial wellbeing right. So when we realised that resilience was in there and you went away with Angela who's on our team and wrote this long list of resilience questions about yeah, so all the things what would you do if, what would you do if? Do you remember some of the things on that list? Yeah. Yeah. So I mean
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the triggers are you know for example, if you
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you know economic events like you know the one right now is really relevant. We've had 12 interest rate rises. Has anyone ever planned for that and what would you do if rates went up really high? But some of the ones on the list you know are things like what if I lost my job, what if I got sick and couldn't work, you know for a year. Yeah, would you do and meeting retirement plans and goals and things like that. It was things that I didn't really wanna think about. So when I
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like it's really hard work looking at some of those doing that resilience work and I think if there's anyone else out there that's like me, we put it aside and we think, oht no cause I'm a bit of a Susie sunshine when it comes to
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planning for the future. I I just think I'm heading for the best. I'm, you know, I'm OK if it's probably even keel I'm shooting for hire. But if I end up like this, I'm OK. But I don't like thinking about those worst case scenarios. Hmm. I am. Um, yeah. It's hard. I don't know. There's a word that just says that I am.
25:15
I don't know. Just just think everything's gonna be OK. Ohe Yes. Our positive, optimistic, positive, optimistic. Yes. Yeah, Yeah, I definitely am all of those things. But just, yeah, take for granted. Actually, that's what it is. I take for granted that everything's gonna be OK. And my partner says that to me all the time as well. Like, oh, you take me for granted. You take this, you know my job for granted. Like it could just. And he. I think he's got that spin that is what if it's not? What if it doesn't? Yeah. And he has that fear
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simmering underway. And I think I push that away because I don't want to live my life like that. Yeah, definitely. Well, it's interesting because the studies show that there's a clear linkage between having better financial wellbeing if you're optimistic. So it's not necessarily a bad thing, but I still have to be realistic too. And I suppose it was harder for me to come do the work cause it wasn't natural, right? Yeah. Whereas I think some people are a little bit better at disaster planning than what I am. So for me to even look at that list and go right,
26:16
I've gotta do a bit of that planning and I think we bring that into our business better now like now that we understand that we go, well, let's have a resilience conversation. What if this happens? What if this does? What are we gonna do? What if we don't pull this off. Yeah, yeah. And it is worse scenario planning is really helpful. It takes away fear and look, it might only be 1% chance hopefully that that ever happens. So I just want to talk about that taking away fear peace room in it because I was fearful to do it right. So you have the 1st
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initial I'm scared to do the work, but then once you do it, it takes away the fear. So it's scary to do it and you have to get comfortable in the space. You know, that was true for me. I think it is for everyone. It's so easy not to look at something, you know when we are worried about that and if it happens, what will happen to us? But if you actually work through it,
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many of the time you know. Most of the time you'll work out what the solution is. And even if you don't have the solution right away, you know the position and once you know the facts, you can then put your head to the next bit. So I did this worst case scenario, and I so I thought, well, what happens if his income does stop? Something happens to him and he's not working.
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And then I did a whole stock take of our position, right? Like with the assets that we owned, if we sold cause he owns a truck and some machines and things. If we sold that and we sold our house and then how much money we had left over and then that was still enough to buy my situation, another house, which would be much more modest. But I actually looked at that and I looked at realestate.com and I thought if that happened, I'm actually OK with that. Like that is the reality of my situation. And then that was what took the fear,
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right? Yeah. It's like if that happened, I'm cool with that. Yeah. But some people write aren't in that situation. And everybody has a different fear level when it comes to the backup plans. And some people have got their back up against the wall already. Yeah, definitely. Like particularly like in a marriage breakup. That’s a really big one. Where they can't maintain and the house has to be sold and they don't have the means or mode to buy something else. Exactly. I actually think, and talking about a block,
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we're doing financial resilience planning. I think in, and I might be controversial here, in a couple relationship,
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it's actually really healthy to do individual scenario planning because if something happens and that relationship breaks up what would either of you do and have you worked those scenarios out? And I think people are way too scared to go there because they're saying you know are we thinking that we're gonna break up. It should be actually when things are really good, because then it takes that fear away. And I think, here is my philosophy, that'll probably strengthen the relationship and
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unlikely ever to happen. But people are too scared to do that work together. I can relate to that to like that's what those conversations have brought out in us, too and we compare ourselves too.
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And that's I suppose why financial independence within my relationship being important to me as well. I think it's really important for every person in every situation, you know, predominantly. And I'm gonna come back to gender. Women predominantly stay out of the workforce, raise their children. They might not keep their skills up, their work skills up. And then if anything happens they're not in a position. If they don't have enough money. Once the money is divided up to buy
30:03
another home, because they don't have job skills or enough to be able to borrow enough, then that that is a real issue for those people because - where am I gonna live? And that is why financial wellbeing is the lowest, which we've talked about in a previous podcast, around when women and gender and
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why women in particular have poorer outcomes. And then that also brings me to that imbalance in relationships as well around earnings. So and it's not always a gender thing. I've spoken to several men this week who are earning less than their female partners. So it doesn't even matter what the genders are or what type of relationship you know you're in. It's
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very unusual to have an exact balance in earning in a relation. It's almost I've never come across it somebody's earning more money than the other one and somebody may be earning no money and that causes psychological imbalance within particularly, well for the person who's earning less money not having the right to or thinking it usually is a self-thing that they don't have the right to have an equal say of where the money is being spent and what the choices are being made for
31:27
the future of the family unit. And that is perpetuates those feelings of inadequacy and so the best relationships that I see are the ones where the people are earning less but they may be the money manager like I love that combination where they're like yeah managing the accounts making the decisions. Definitely an equal seat at the table. You know all conversations, decisions around money understanding and their partner knows exactly because
31:58
I think sometimes you might be the money earner and then the other partner takes on the responsibility of the bookkeeping. But that doesn't mean that that's being passed on. And what I see in those relationships is the money earner still wants to make the decisions and they see the actual bookkeeping of it as a lesser thing like a task that has to be done. So and that still doesn't that's not equal. Equal means that both people know exactly where the money goes,
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how it gets distributed, and decisions are together around what we do with our money. Yep. So if we do that, regardless of whether you've decided to stay home and raise children or not, work as much is so important to do to be equal, you know? So yeah, it's irrelevant what you choose to do, right? Because there's no judgement here. Staying home to look after your kids. Yeah, that's huge. Yeah, but step up and push forward. Raise yourself up too.
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And that is hard and it takes time. Or you just need to put yourself out there. You need to listen to us an awful lot, right. Yeah, that's right. Yeah, that's, you know, first of all, know,\ your money. Build your financial capability and, you know, challenge and look at your financial resilience. Yeah, You know, that's financial wellbeing. Yep. Funny where this conversation has taken us. Yeah. Because we were talking a little bit about this yesterday, too. So, like, if you were to, like, increase those skills for yourself with a partner,
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like come back and say, hey, I know my number,
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that can be. We don't do that sometimes because we worry about how they're going to take and receive that.
33:41
And that's a fear. Yep. So this is that fear that we're talking about, too. So our money comes with so many fears. It does. But it's a bit like the old saying, if we don't do something differently, you know, nothing is ever gonna change. You've gotta do something differently if you want, you know, somebody else to respond to you differently. So yeah, I definitely, Yeah, get into it. And it does. That's what we'll uplift your financial wellbeing. And that, remember, that's how you feel about it. So it's not so scary. And you know you're not worried about what might happen because you actually know the facts
34:12
And then off the back of that you'll make decisions or what if decisions. Yeah. So let's just bring the conversation back a little bit like so to we're talking about this middle space of what money coaching is. So there's other money coaches out there. We refer to ourselves as financial wellbeing coaches. Yeah. And just on that though financial wellbeing is different to just a money coach. So when we think of a money coach we might think of budgeting. It's not just budgeting. It's a very financial wellbeing. coaching is a very holistic,
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type of coaching. It addresses both your behaviours with money understanding like that budgeting component, but then also goal setting
34:56
and you know and aligned to your values and where you actually want. It's very holistic. Life, life money coaching maybe. Yeah, Yep. Life money coaching with practical steps on how the system works as well and setting up a system that works for you. Yep. Yeah, cool. Alright. Was there anything else that you want to mention in there? No. I think, yeah that I hope you've got something out of that and we'll cover off in the future about the actual steps that we take as well in
35:27
financial, our financial wellbeing programmes as well. Yeah, definitely cause it could be something that you could you know tap in listen to us and start playing along with at home and doing you know taking on some of those exact strategies. Yeah, definitely will take you through our eight step plan through the podcasts. Yeah. Alrighty. So question of the week has come in and the question is, Darlene, what is the fixed rate mortgage cliff? What is that and what are people talking about all this
35:57
bank jargon and terminology. So again, you know, linking back to what I was just saying, this is key and how it links is because this is about financial capability, this is understanding all the words that you're probably hearing on the TV and in the media and have no clue of what they're talking about. So mortgage and if means, huh. Well, you might know what it means if you're one of the people who are on the cliff and you've already fallen off. Yeah. And that is so many Australians. So don't if you are in this position
36:28
it you're not alone, it's just how it is right now. Yeah that's a massive like they're billions of dollars. So what the mortgage cliff is all the fixed rate. So people who took out a really low fixed rate in 2020 usually or 2021 when the rates got down to as low as 2% or even lower. Yeah I've I think that that's the you know that we have people on was about 1.89 Yep. Hmm. So having a 1.89 interest rate
36:58
and that expires. So people were taking out two and three year fixed rates which are now expiring now in 2023 and lots of them for the second half of 2023.
37:11
And then what happens at the end of a fixed rate is you revert to the current variable rate which is now around 6%. So you're paying interest, you're paying your repayment in a calculation at 1.89 and then all of a sudden that's gonna expire one month and then the next month your payment is going to be at a 6% interest rate. And so we're seeing so many repayments have gone up by $1000 a month. Oh, easy. So on an average mortgage, where does that extra $1000 come from?
37:42
And the problem here is that, um, people can't when they took out the loan if they can't re-afford that loan again right now. So if we were to reassess your ability to afford that loan, the bank would not give you that money today if you went back and said, can I have that same amount of money. So all those people are pretty much stuck in loans. Yeah, that's right, that they can't necessarily afford. Particularly with the cost of living as well. Yeah, exactly.
38:13
Yeah. So The thing is I would how it's portrayed in the media is really scary and I think that puts the fear into everybody. And I would encourage everybody that if you're in this situation to step back because it comes back to financial wellbeing coaching and financial capability and it's about understanding your numbers. And it's your own lane, like whatever your situation is and your number, your income minus your expenses
38:43
with your new mortgage repayment in that, what does that mean? What's left over or not? And what adjustments do we need to make? If you plan for that even ahead, if it's, you know, you've still got some months out, You know, you need to start there. You need to work out what your new repayments gonna be and slot that into what your numbers are for your life to see what difference that's gonna make. And where is that gonna come from? Yeah. And what changes do you need to make to make that work? Yeah. What changes do you need? And those changes could be
39:15
OK. Well, we have to reduce our discretionary spending. It could go to gee, I need to earn more money or maybe I need to sell something, maybe I need to restructure you know some of my loans to give me some more cash flow for a period of time. There's all looking at all your situation realistically, you know with what are the best options for me to do to get through this? And you know coming through to interest rates
39:40
economically
39:42
there is projection that we're going to stay in these interest rates probably for a couple of years at the moment. That's the forecast. So we can't have wishful thinking and think it's gonna go back to two or 3% in six or 12 months. No, that's not gonna happen. So we need to plan and really start working through what that situation looks like for us. Yeah, that's right. So knowing your numbers, just put a number on it, work it out, and if you know somebody else who mentions this to you, you can
40:13
give them some great advice. And if we're ever in this environment ever again,
40:20
and particularly if you ever take out a fixed rate, is having some always being having that foresight on what is happening when that fixed rate comes off.
40:30
Because I remember you always gave good advice, which is a bit hard now in retrospect, but you were saying rates are going to get to 6% and the whole team, you've made us all start making our payments at 6%. That's right. And The thing is people think if I can just finish up people, when you hear about this mortgage cliff, it's bad, bad, bad, bad. It's actually not. If you've locked in for a period of time and you had the advantage of a low interest rate of 1.89 or 1.99 for two or three years, laughing! Happy days!
41:02
You've had that advantage now. And that is really about our money and our goals and managing our money because we need to manage and not always think that it's going to be 1.89 or 6%. We need to manage so we get consistency and that we can ride through these waves and we don't have to make those big adjustments. If we actually do more financial wellbeing planning, then we're in a position where we can, you know, they'll feel like a blip. It won't feel so huge
41:31
when you get those, those rate changes. Yeah, that's really good. Cool. Well, the last thing we wanna leave you with is a question heading into the next episode. Uh huh.
What's that question Mel? What is your money personality? We can talk money personalities. Next time we are gonna break that down. And if you look in the show notes, we'll have a link to our money personality quiz. So take the quiz and even have a chat to your partner about it. It'll hopefully be very enlightening. Yeah. See you next time.
42:04
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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