Hello and welcome to The Australian's Money Puzzle podcast.

I'm James Kirby.

Welcome aboard everybody.

Now let me ask you.

Are you good at making money?

I expect so if you're listening to this show, But what about keeping it?

Are you good at keeping it accumulating it?

Because there's a difference, you know.

It's interesting.

I was asked to just the other day what was my favorite investment book of all time?

And I said The Millionaire next Door?

And someone said it's nearly thirty years old, that book, and I said, yeah, but their principles work forever now.

Our Australian version of that book is written by a regular guest on the show, Jackie Clark.

She wrote Stop Worrying about Money.

She's also an advisor of course various levels, particularly at the upper level in financial in the financial world, to family offices and that, and she is my guest today.

How are you, Jackie?

I'm really well, Gimes.

It's lovely to be back.

Are you familiar with the book The Millionaire next Door?

I'm not sorry, but you know what, that's.

A very admirable answer because that means you didn't know about it, which means you wrote your book without knowing the principles which was put forward by mister Danko da Nko back in nineteen ninety six.

But it strikes me that his view and your view are very similar.

So just tell us about your working theme.

I mean we I.

Think most of our listeners are tuned in right.

So they may may.

Be better or worse, but they will be good at making money in their lives, particularly in their investments.

But you have a continuing concern and persistent one in the book, which is about expense creep.

I don't know where I come from on this one.

I'm a bit skeptical about expense creep.

I say to people, listen, you know, don't worry about don't worry about the avocado.

It's not going to make it.

The avocado toast is not going to make a difference whether you can buy the house or not.

That's where I come from that maybe that's not healthy you telling me.

Well, have I got news for you?

To look at it like this?

And maybe the best example I can give for you personally is so expense creep.

I think of it as lifestyle creep, which you've no doubt experience and Probably the single easiest way to demonstrate this is by asking you if there's a difference in the wine you drink today to the wine you drink when you're a university Yes, and why is that?

Because I can't handle hangovers like I used to be able to handle.

So it's about the hangover.

I wonder if, also, as your income grew from your poor university days, that you thought that you're entitled to actually drink something a little bit nicer.

Yes, spend a little bit more.

Your theory is that we fluat that we just incrementally every day and everywhere.

It's not that we get up in the morning and see, I must spend more.

It's just that easy too.

A bigger spender is that it?

Yeah, asolutely, And I think about for example, I always pick on Netflix, which is kind of relatively unkind of me.

But when I started off with a Netflix subscription, you know, I often bing on to people about keeping a lid on subscriptions or checking them regularly.

And when I started, it was eight ninety nine and now it's twenty eight dollars ninety nine a month.

Now, that's that's not three hundred percent inflation.

That's something that's something all together different, and so knowing the real cost of living is the secret.

And I think that's where expense creep really comes home to you because you realize that you go from making food at home to maybe eating out.

You've gone from eating out to Uber eats.

Now we're talking today about a thirty percent increase on expense just by using the Uber service.

I saw that if you get your food delivered instead of going down to the shop, it's roughly a third more more.

So there's that, and then the progression on that, I think is also then go out, so there's a lot more of In fact, when I'm analyzing, you know, I talk a lot about getting people's financial house in order and knowing what it costs to open their front door.

One of the things that I'm increasingly saying is how much of this Uber eats process, if you're like, is creeping into families lives.

I'm sorry to use the word creep.

But the other thing is look at the bigger lifestyle things like your house.

You might have started off renting a studio flat when you're at college, and you progress to perhaps buying your first investment property or a unit.

It might be a one bedroom, it might be a two bedroom.

Then you go to a three bedroom house.

You know, you might get married, you might have children, and things get bigger and bigger.

So it's kind of a bit like the waistline with time.

But so this lifestyle creep or expense creep just naturally occurs instead of the rent you've got the mortgage.

The mortgage gets bigger, and I think that has a natural impact on all the things we do.

You might decide to improve the car you've got because you can.

So there's this sort of fine line between living very much for today, which is I think where expense creep is a real challenge for us to try and write size to be more aligned than with what your financial goals are.

Okay, I mean I do like the fact that you have this measured, and it's very interesting.

There's actually evidence, right, this is a survey folks that is just out actually about how using those services for food, it's the cost of your food by one third.

So let's hang on to that for a moment.

I think that would become as a bit of a surprise to people.

But what I am saying is how increasingly uber eats falls into once you get beyond sort of rent, mortgage groceries.

One of the next highest expenses outside of insurance becomes uber eats.

But to play Devil's advocate on this, I always an accountant who lived around the corner when I was or whatever a teenager.

He explained the notion of pennywise and pounds stupid to me.

And it's really strong, you know.

It was that the pounds that don't worry pennies look after the pounds of the pennies will look after themselves.

That's sort of like folklore.

Almost, but I think it's very strong.

And as I said at the start, when someone says if they're say, first home buyer agent, they say to me, or maybe we shouldn't order the mash avocado or whatever.

The old almost a cliche now at this stage.

Whatever it costs twenty five dollars.

But part of me, the rational part of me, actually says, you know, listen, just have it, because it's not going to make a difference whether you get a million dollar mortgage or a nine hundred and fifty thousand dollars mortgage.

I mean, you might as well live.

What do you think of what's your account of view to the how do you attackle.

That It's easy for me to say now at my age, I start thinking about the consequence of the AVO toast, eating out every morning, and what that's going to look like at sixty and seventy when I want to retire or reduce how much I work.

So I do think I dropped in that comment around financial goals, But I think financial goal setting is really quite critical because once you have the opportunity to sort of look forward a little bit, it might just change that decision making process you've got here.

So I kind of like the philosophy because I don't think it's a nice way to live necessarily.

In fact, I'm just almost finished reading the Morgan Housle's new book.

Is it The Art of Spending or something about spending money?

It's great and he wrote the Psychology of Money first.

Yes, but I think it goes to this a little bit, which is sort of recognizing that, you know, it's okay to do things this particular way you've got you do have to enjoy life.

But the reality is also recognizing this pattern what it might set you up for in the future, and do you have to adapt?

And I don't want to end up not being able to have avocado toast.

Where I'm sixty five or seventy.

Five, I'm a bit more persuaded by that, Actually that you said to yourself.

Listen, you know I work hard.

You know I'll work at a high level.

I work fast.

Here, I am on the you know whatever, a public holiday, working whatever.

And my reward for that is I have whatever I want, whenever I want, and that's not going to change.

Problem is when you get to mid sixties someone says, well, actually, we don't expect you to work, you know, that much longer, and you set to yourself, jeepers, you know, I may have to settle for whatever.

And it might sound good on paper, the income you might draw from your super ORR SMS effort, it won't be my friends anything like the headline number you're getting as a full time salary person.

Is that, of course you're alluding to?

Really?

Is that?

It's an interesting view of it.

Yeah, look, it absolutely is.

And you know where I see it most commonly, certainly at the moment, is when people are being made redundant.

So there's certainly a fair chunk of redundancies happening around corporate roles, and I think it's like the brakes get slammed on.

Usually people leave with the termination payment or something like that, so they're able to continue to find their critical expenses like mortgage and food and things like that.

But actually then it's like, hang on a second.

You can't keep running like this or you eat into that entire redundance, you know, payment, and where does that leave you?

And how long have you got before you absolutely need to land.

So the pressure, the stress, the anxiety of landing that next job.

And similarly with people, you know, they talk a lot about gray divorce.

Now, I was used to dealing with a lot of people in their forties going through divorce, but now there's this sort of huge perhaps trend wrong word for divorces happening in their fifties.

And it's really similar, which as I used to live this way, well, hang on a minute.

Now my retirement bucket looks like this, which is a little bit smaller.

You know, how do I change?

What do I need to change my lifestyle?

So and that's when people sometimes for the first time, are actually realizing what to that penny wise argument, what things actually cost.

Yes, so you can now take the opportunity to tell people your golden rules, which for sober because Jackie's going to tell you you're going to stop to stop doing what you've been doing.

Yes, well, well, I mean the main thing for me is everyone's different in thinking of that concept of financial freedom.

It has lots of different connotations to different people.

And you can based on your money story, how you've grown up, whether you've come from that spend through family, whether you're a group of savers.

These are all sort of things to recognize when you're looking at what financial freedom might look for you.

But when I focus on conversation with people about getting their financial house in order, they've got to know what it costs to live their current lifestyle.

And I'm not saying that's great, good to know, bank it and move on.

I'm saying, what do we need to change to enable that future if you like to take shape?

And what are the realities of the way you spend now, how would that look in five, ten, fifteen years from now?

And how dependent on your income is that lifestyle?

Right?

Interesting, We're going to go to a break just before we do, because what we're going to do in the second half, folks, is we're going to pan this into investing.

Okay, but before we do something that struck me there.

You mentioned about the house people grow up in.

I wonder is there an under estimated factor where people react.

They grow up in a house where mom and dad spent everything, had paid no attention to the bills, and it was kind of chaos.

They become frugal, and if they grow up in a house that's say, painfully frugal, they say, right, well, that was miserable and I'm going to spend spent.

Do you think that's relevant?

It is absolutely relevant.

The question is do you reflect the same type of behavior and you see this coming into relationships often.

So you could have grown up in that frugal lifestyle and you decide to live a life of abundance as an adult.

Maybe abundant rather than abundance that too, but.

You can see the clash of those styles and how that might impact every day decision and decision making.

If I want an new tov, I want to lounge, I'll just get it.

The money's in the bank, but it fails to recognize what the opportunity cost is I guess of doing or making choices that way?

You know equally that kind of frugality can be so restrictive and take enjoyment out of your life.

So I think we all have to say, hey, like I like to think of rewarding rewarding yourself is okay, But perhaps you reward yourself from meeting a particular savings or investment goal by doubling down on the savings or investment, not actually going and spending it then on a handbag or something else.

Fabulous, that's really interesting.

Okay, Now, folks, we'll be back in a moment and we'll have a look at the investor in this environment.

Hello and welcome back to The Australian's Money Puzzle podcast.

James Kirby here with Jackie Clark, regular on the show.

We have been talking about what Jackie likes to talk about in part one, which is about behaving yourself financially and the rewards of that.

Because, fair enough, on the show and in all financial media and investment media, we pay so much attention to making the money and very little to keeping it or not losing it.

Now, let's look at in terms of the investment side of things.

I want to ask you, you advise at a fairly high level some of the wealthiest people families in the land.

What's their attitude towards investment expenses.

I'd love to know.

Do they say, no, I don't want to pay any fees or do they say I'll pay the fees if I get there?

Is there such a thing as a consensus view at the top level on that.

Yeah, look, I'd agree with the latter point.

I think that money buys power, as we know, it also buys choice, and when you're in that game, one of the things we do often is we talk to multiple advisors and understand their fee structure and understand how they recognize their own performance and make decisions based on that.

So, yeah, people are pretty careful at the top end, if you like, about the fees that they pay.

And they may be also in a position because they have that buying power to get the best out of it.

They obviously get much better rates than your average you know, entry level wholesale investor obviously retail as well.

So can these people actually switch switch?

If you like live they're talking to the ETF fund and they're arguing over like, you know, the second micro micro fee.

And then are you saying that someone comes in the door and they say, look, We're a boutique, you know, corporate bond junk bond player in the US in New York, and we take we've had you know, look at our numbers.

We've done twenty percent a year every year and we charge two percent plus twenty performance.

And do they not and say okay?

Broadly, like in principle, are they okay with those super high fees if they have super high retrants?

Look, I think James, almost always you're balancing that against different objectives.

So there might be a portion of income that's dedicated that way, another portion of investment, I should say, dedicated another way.

I think it's fair to say a lot of people, particularly wealthy families, will take a risk on a certain share of their wealth.

To what extent and into which markets that remains.

It comes down a lot, honestly to the individual and their appetite for risk.

I would generally say it's relatively high.

But then again, a lot of Australian wealth is still heavily tied to active businesses.

And you know, I'm a big proponent for sticking to what you know, and so you know that's where they'll double down and perhaps go on a more riskier approach as opposed to a market they don't understand, or if it's somewhere they don't understand, but they've got good intel on it, then you take a smaller investment and see how it performs.

So for the every day investor, listen into the show, what's your view about expenses?

Management expenses, running expenses, performance fees?

What do you suggest that they should do about that?

How should they approach it?

Well, in terms of like a management expense ratio?

I mean, as an investor, you have very little influence.

You vote with your feet, don't you.

So if you decide to go down the path of an investment that carries a high expense ratio, then so be it.

There's not much you can do about that, and certainly is in a minority position.

It's not like you can influence the management's decision on how they remunerate themselves or otherwise.

Yes, you taken or leave it.

But is there an area where you'd be more willing to absorb these higher fees?

Are there actual areas?

That's a tough question.

I think it would maybe case by case basis, but I don't know that necessarily going for a higher return a higher fee makes all that much sense to at someone at a retail level, because I would question why you need to go down the path of maybe the higher risk asset in any case, like, would you be better off to go for a more market accepted return with a market accepted fee, Probably would be the right, especially when we're talking about investing your total life savings that could be a couple hundred thousand dollars, maybe a million dollars.

Yes, exactly, what about But we're prepared.

There's always the thing that comes up on the show where people say, yes, you're so careful about everything, and then you're happy to gear up big time to buy your home.

Oh, it was a crazy Australian dream.

You're absolutely right about that, you know.

I had this conversation.

What's interesting is I'm having this conversation a lot, and perhaps in the last week three great divorce people who I'm talking to for the first time contemplating spending the proceeds of sale of their family home purely invested.

So basically go and rent because their life's expecting to change quite a bit in the next ten years.

Maybe kids finishing school or at university.

They know they're going to move a little bit, So they're thinking about that sort of constant opportunity, if you like.

Plus there's the downsides of contribution from super, so another angle for them to up their super which is generally on the low side.

I happen to be drawing the three women that are all going through that great divorce.

And these divorces.

Are they cashing out to get at funds and take a smaller home or are they cashing out and having no home that they own.

Cashing out and having no home that they own.

So their wealth is tied up predominantly in that family home, and the balance that they're going to take away, whether that's a million dollars or two million dollars, is going to be invested in the market under a manager, and they will derive a passive income from that court passive I call it passive, you might call it active, depending on how we go with that.

And they will rent and not have a home.

I worry about the deeper notion that the entire tax system is designed for people who do have a home.

It's true in the context of your main residence exemption for capital gains tax, but beyond that, but the difficulty is having everything tied up that way.

But I think this is actually learning a different way to live as well.

That might create great flexibility for travel, sure, for different experiences, and perhaps when you and I guess we're talking predominantly great divorce in this moment, but also when you're in a bit of a state of flux, things have changed a lot for you.

So give yourself some time.

You don't need to lock into a particular suburb, go mortgage up again.

You know, there's a lot of stress associate with these situation.

So it's something did strike me that it did come up when we did a show on divorce, and it did come up that there's almost like a myth that the person who gets the house wins.

Oh, that seems to me that you wouldn't agree with that.

Just no, no, not at all.

In fact, I just wrote a sub stack article on a week ago James to that point particularly, which is what I find is a lot of women go to push to keep the house the family home.

But I think the reality of that is it becomes this sort of box, if you like, of all these memories that they don't serve you necessarily for the future, and so people end up asset rich and cash poor.

An extreme version of it, right, and the people, the incidents and everything of the house.

Absolutely absolutely And there's some brilliant cases in Eastern suburb Sydney families where wives have pushed really hard to get the house.

Have they got the house, they couldn't afford a renovation or to fix up a leaky pipe because they've got no cash, but they've basically don't gone through the split and it's all ended in that house bucket.

So I know, we've kind of gone down a bit of a It's.

Very interesting that it comes back to the same sort of principles that you mentioned at the very start, which is knowing, you know, knowing how much you're spending and knowing how much you have and knowing.

Where you're going financially.

And choice, as Jane's one of the things on about a lot with people is having choice.

You know, the context of financial freedom is about having choice.

Having income is about having choice.

So where you restrict that by tying cash up like you might with a home, then what choice does that leave you?

Right?

Okay, that's really interesting.

We'll just finished on this issue before we go to questions with people who are making a decision something like we've we've described before.

We normally I give this warning during questions and answer time, but obviously seek advice on an issue of lifestyle changes as dramatic as that.

Okay, we'll be back in a moment with very interesting questions.

Hello, and welcome back to The Australian's Money Puzzled podcast with Jackie Clark and James.

A question from Brent be Orient.

I'm looking for some assistance in understanding how cash ETFs work.

This is really interesting, folks, because they are an alternative, of course to term deposits, and they're liquid, and they're accessible and the fees are low.

So interesting one.

Brent says, what are the risks with cash ETFs exchange traded funds?

With the major providers, they appear to pay four percent in charge fees of only zero point one eight percent?

Is this secure and easily accessed?

Great question, never talked about it before.

Tell us about them?

Yeah, Look, I think what I like about this question is it that one of those ones that makes you pause for a moment.

What I have saying is these cash based atfs, so primarily you think about liquidity, So you and I think of cash as very liquid.

If you have a cash ATF you're going to wait maybe two days to get your money out.

Now, that might not be a lot unless you're coming to something critical like a settlement or otherwise.

I think that's really important to be aware of.

And you know, honestly, if you look at the banks and other institutions, you might find that you're getting that right without any fee.

Well you might, but you probably have to do quite an elaborate arrangement with one of the banks.

By that, I mean they tend to be the accounts that are parasitsical for one.

Of the better worlds.

On top of existing accounts, you know what I mean, online only etc.

You must open account and then you must open a second account which feeds off.

The lower account.

And they do pay the best in terms of that call rates in the market.

I know that, but I think I best did before at best.

While Brent says that cash ETFs are paying this, these are the big names and certainly those big names would have liquidity, so we don't have to worry about that.

So did I stack up against the banks is the question?

Yeah?

And to what extent?

So I've mentioned liquidity if that's not going to be an issue.

There's no reason why you can't consider.

I just think the catch all atfs may we aren't the best style of accessing atfs or kind of why they were created.

Yes, like everyone will have a view on that.

They're often very industry specific or a particular segment of the market or picking up all indices.

I guess it depends a lot on your investment behavior.

But you sound you sound madly enthusiastic about the CASHI TFS as an option.

I'd be on the fence.

I'd really going direct.

Yes, it's really.

All right, very good, terrific.

Have you on the show again, Jackie, and thank you very much for the instruction, for the instruction on spending, which we past so little attention to on the show with all of them.

Yeah, I think the key thing is wanting people to set meaningful financial goals, and I think once you do that, you create a better platform for recognizing why or how expense grover has affected your life and think about tomorrow, not just today.

I thought your observation about if a financial goal is how much you want to live on when you retire, and you know from vast majority of people that are not going to make anything like they're made in their profession.

And like, until you've had a redundacy event or something like that, you haven't even had a reality check into saying this.

When this sort of money tree stops producing this income, what happens.

Oops, I've created this huge lifestyle that's had you know, expense creep running through it.

I just gave you one tiny, two tiny examples about your wine purchases and your Netflix.

The extent to which they've increased is frightening.

And you think that applies to everything in a household, electricity, utilities, rent, mortgage, you name it.

And if the mortgage doesn't go up, the size of the mortgage does.

Terrific.

Good advice.

All right, thank you very much, Thanks James, and let's have some more questions folks.

The money Puzzle at the Australian dot com dot eu managed h