The snowball effect of small financial decisions

In this week's Musing I talk about the compounding effects that small choices can have on your finances. How too often we stop at the one decision and pat ourselves on the back where it's the next decision that compounds the effect of the first decision that can make an enormous decision on your finances. 

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Transcript

Welcome to Mel's money musings.

When it comes to having great finances, often it's not just the one thing that you are doing well, but rather it's understanding what the next step is from doing that one thing. Because often when I see people deal with or wrestle with their finances, they're looking to do that one thing well, they're looking for, "Great, I know I should do that, give myself a big tick, and then stop." And instead having great finances, I believe, is a series of compounding small moves. But the problem for many of us is we don't have the financial literacy to understand the effects that those small moves can have. For example, let's think about investing. Certainly, at the moment when it comes to investing, I'm hearing from a lot of people that they simply don't have the money to invest. But what if you could find it from money you're already outlaying to your mortgage?

Let me explain. So, inside the My Financial Adulting Plan, next week we are going to be looking at the property module. And inside the property module, there's a script that you can use to ask for an interest rate cut. Now, we also support our MFAPers so that if they get knocked back, we show them, well, what's the next move? And what's the next move and what's the next move? And on average, as a result, they've been able to receive rate cuts of 0.5%. Now you might think, "Oh, 0.5%, is that really worth it?" Well, if the average Australian mortgage is around 640,000, that 0.5% over the lifetime represents $75,000 worth of interest. But most people aren't interested in lifetime savings. They're interested in what are the savings I can have today? So that 0.5% equals about $208 in your bank account every month. Now, for most people, they would take that and say, thank goodness, I'm going to use that for my everyday spending.

Or maybe a little bit of extras, that little bit of extra breathing room that I don't have now. But what if your next small move is to say, "Well, I didn't have that yesterday, so today I am gonna pretend like I still don't have it and I'm gonna invest that money instead and over the life of my mortgage for the next 30 years, I'm gonna invest that $208 a month." Now, you might think that's not worth it, but if I was to invest that regularly over 30 years at an average rate of return or quite a conservative rate of return, I will end up with more than $330,000. Now, that's from money that I'm able to find from Smart Decisions, but not just able to find, but I'm able to realise that, sure, I can just let that go, and $200 bucks, $50 a week, you'll just fritter that away.

You really will not notice that after a while, but $330,000 after 30 years, I reckon you're gonna notice that. If you are listening to this and going, "Yeah, but I don't know how to ask for an interest rate cut. I don't know how to invest." Then make sure you jump on the waitlist for the My Financial Adulting Plan. Doors open in January, and it's all about figuring out how to make those compounding small moves. Of course, if you do know how to do this, then my question to you is why aren't you? It's not about doing this one and then stopping, but every year it's putting these great things in your diary. If you ask for a rate cut last year, ask for it again this year. Finance isn't a one and done. It's those moves done regularly and often that compound to having a big result.