Uncensored Money Season Four: Money, Chocolate & Credit

Melissa Browne: Ex-Accountant, Ex-Financial Advisor, Ex-Working Till I Drop, Now Serial Entrepreneur & Author, Financial Wellness Advocate, Living a Life by Design | 05/04/2023


Show Notes

With Easter only a few days away, in this solo episode Mel talks about her love of chocolate and how she has mindfully created a system and rules around her chocolate consumption and how you can do the same with your finances. Plus she shares 3 parallels between the way we act with our finances and other aspects of our lives, like chocolate, exercise, relationships or even work.

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With Easter only a few days away, I thought that we would do a chocolate-themed episode. I mean, it is probably no surprise that Easter is one of my favourite holidays. Any holiday that is celebrated by the giving and receiving of chocolate has my vote. So I wanted to start this chocolates and money-themed episode with a declaration that my name is Melissa Browne and I am a chocolate addict. 

Honestly, I have no idea how people keep entire bars in their cupboards or desk drawers, and occasionally, every few days, just snack on another. I mean, to me that's entirely unnatural. That's because if I purchase a block of chocolate or a bag of chocolate, (notice there was no talk of a small bar there), it's with the understanding that it's probably not gonna make it past the next few hours, never mind the rest of the day. To me, the idea of drip-feeding chocolate so it lasts an entire week, or heaven forbid a month, is both ludicrous and fanciful. It is never, ever going to happen.  

Now, the difference between me and the rest of the world is that I know and embrace my chocolate addiction. I don't try to fight it, and I don't try to test my willpower by bringing chocolate into the house in large quantities or often. Instead, I work mindfully with my chocolate consumption and I have rules around it. So, for example, there is one brand, which if you follow me on Insta you'll know what it is, that I eat, and that's the only brand that I eat. 

That's because you can't buy it at service stations or grocery stores. So the only way you can purchase it is to go into one of those stores, and those stores aren't near me in the Blue Mountains. They're only when I go into the city once a week and then I have to physically go to the store. So when I go to the store once a week, I purchase a bag of chocolate and I consume it usually in the next few hours. Absofreakinglutely guilt free as a result, and I eat crap loads of chocolate happily.  

Now, what does my chocolate habit have to do with your finances other than creating the desire for you to go and spend some dollars and grab a quick snack? 

Well, quite simply, I believe many of us need to apply the same mindfulness to our finances. We need to understand our own predilections in exactly the same way that I understand this addiction that I have with chocolate and create a financial system in the same way that I created a chocolate system that serves us rather than sabotages us. So that we can behave with our finances completely guilt and stress free as a result. 

And what I wanna do is talk through three different ways, three different examples, where I believe I see it far too commonly played out in your finances, where there's not that mindfulness applied. And what I want you to do is start to think about the synergies that potentially exist in other parts of your life, whether that's food and chocolate, like me. Or maybe exercise or downtime or relationships or even how you behave in your job or at work, and see if you can find those same parallels between that and your money.  

Now, the first parallel is between chocolate and credit. And that's because in the same way that I believe that how I behave with chocolate is if I was to have it in the house, it is simply with the understanding that I would consume it quickly and with absolutely no willpower. 

The same is actually true for me in credit. If I have access to credit personally, it's with the understanding that I'm quickly gonna take that card up to the limit. And the truth is I believe that most people are behaving the same way. Maybe not for chocolate, for you, it might be a salty snack or something like that. But in the same way that if you have particular foods at home, it's with the understanding that you're going to have no willpower around it. It's the same with credit card in your wallet. The truth is not everyone can handle credit. I wanna suggest 90% of people can't. If you know your card or your cards will always be at their limit, then perhaps you should rethink whether you should have credit cards at all and move instead to having a debit card. 

Now, there's no shame in admitting you can't control how you deal with credit in the same way that I have no shame with how I behave with chocolate. I mean, if I was to say there was shame, it would be like me berating myself going, oh, Mel, you should be able to handle having chocolate in the house and be an adult. But why? Why not instead set myself up for success and be able to enjoy this thing that I love guilt free? It's the same for your credit. It's simply acknowledging you have no willpower when it comes to those extra funds and controlling the effect this has on your finances and your long-term goals. Or perhaps you can have a card, but it has a very small limit and it doesn't live in your wallet, so you can't be tempted to overspend.  

But the truth is, most of us, as I said, shouldn't have credit and we shouldn't have 'buy now pay later'. Because if you are here, even as someone that's a bit smug going, yeah, but I've never paid interest on a credit card and I've never paid any sort of fee on buy now, pay later, you have potentially already heard me talk about the theory and the research around this, but I'm gonna talk about it again. 

And that's because when it comes to credit, research shows that even if you don't pay a dollar in interest, you are going to overspend when you use it, for both buy now, pay later, and credit cards. And there are two reasons. So let's talk credit and digitised payment first. 

First of all, it's not your money, so therefore the pain it, the insular region doesn't light up in your brain so you don't feel pain. 

And this is already a problem with digitised payments, but it's absolutely amplified when it comes to credit, and researchers have found that that overspending is as much as 100%. But if I take it to recent research conducted by Citibank who offers credit cards, they found that it was between 12 and 18%. 

Now if a bank that offers credit cards is saying 12 to 18%, and independent researchers are saying up to 100%, you're gonna know that that 12 to 18% is the minimum. Now, I want you to think of that overspend as essentially being a form of interest, which means even if you've never paid a cent of interest on that card, you're paying interest because you're spending more than you intended to. You are overspending.  

And when it comes to buy now, pay later, if we go to Afterpay's own website, and interestingly, they have two different stats on two different sites. So the US site, it says that your average spend will go up by 40% if you use 'buy now pay later'. In Australia, it says that the average span will go up by 18%. It used to say 40%, but they changed it, which is a little bit strange to me.  

But again, there's an interest component through your overspend, and that's where I want you to understand. It's no different than you having chocolate in the house. And do you know how you have a bag of chocolate or you have a bag of chips or whatever your predilection is, and you just kind of, as you are distracted working on something or reading or chatting to friends and you just keep dipping into it and mindlessly eating. 

And then you look over and you go, oh my gosh, how did that packet empty? I don't think that was me. And it's the same thing. It's because it's mindless. There's no pain. Your insular region in your brain that feels pain doesn't light up.  

So what we want to do is create that pain, and we do that by removing our access to credit and having things like debit cards instead. So I believe for 90% of us it's simply having a debit card and having different bank accounts so that it's split. You know, in the same way that I don't have chocolate in my house every single day. I don't think we should be eating from the one bank account every day and then beating ourselves up because we are overspending. 

That's why I'm a fan of having, at the very least, a bills account, a buffer account, a savings account, and an everyday account. Automatic amounts go to the bills, savings and buffer, and you eat from the everyday account. When that's gone, that's it. It's rice and beans or you know, you figure out how you are going to live for the next few days. No different than when you first moved outta home or when you went to uni. Now I was, I remember eating rice with soy sauce on it for quite a number of nights or baked beans. I'm sure it's not nutritious, but you know what? It was frigging cheap. Or sausages or what have you. 

But again, we kind of get to this point as adults where we think, oh, we shouldn't have to do that anymore. Who said? Who said? 

So the first part when it comes to chocolate and credit is understanding how you behave. And how you behave around chocolate and credit and this willpower and that I believe that most of us shouldn't simply, shouldn't have credit. 

Or maybe you are one of the 10% that is totally okay with credit, but you know, you'll dip into your savings if a bright shiny thing comes along. So for you it's about protecting your savings so that you can't. There's no shame in admitting that you struggle to save or that you save. And then once you have a certain amount there, you just grab it and you head off to Bali or to whatever the thing is for you. You just see it as a honey pot that you have no willpower when it comes to bright, shiny things. Or by just telling yourself that you deserve it. 

And instead, it's about setting up your accounts and your investments accordingly, in the same way that I talked about that system for credit or my system for chocolate. So this might mean detaching your savings from any card that you have and removing the redraw access as you pay down debt. Or you might take more extreme action and lock up your savings in a longer term investment or in an account that you can't access within 24 hours.  

I think most people should have their savings in a different bank account than their everyday account and not have a card attached to that. That way, at the very least, it's gonna take 24 hours for you to transfer those funds, which means that you've got rid of that instant gratification, which chances are you'll go, ugh, fine. It's not worth it. You've created that pain. You've created that stop by at simply having in another bank and it being more difficult to access.  

Or the third sort of person is maybe you are a hoarder. And you've pressed pause. Now you are the sort of person who I believe is entirely unnatural and are still eating their chocolate Easter Eggs from last Easter. Or it's September and you're still eating them six months later. 

You are someone who feels comfortable when you have more, who want to hoard, for who it feels safe to have that money in the bank account, not in an investment, not in anything. Just sitting there in the bank, especially in an uncertain times. It feels right to simply keep building that cash and building that cash, to have those stockpiles if you like, despite the fact that if you simply keep money in the back bank, you are actually going backwards, kind of like the used by date on your Easter eggs. You know, there comes a point when you open them and you are all excited to eat and you realise they're a little bit white. They've kind of gone off a little bit. 

It's the same with just having cash. The average CPI or the average that the economy increases each year in Australia is around 2.15% Now. If I'm just keeping that in an interest in a bank account, generally interest runs lower than CPI, so that means that I'm actually going backwards. 

And just to give an example, so just say I had $20,000 in the bank now, which buys me $20,000 worth of stuff. But in 20 years time, I'm gonna need around $24,000 or even more, probably about $28,000, just to have the same amount of spending power as that $20,000 today. And that's the danger with simply just hoarding our money in the bank. 

I can give you a similar example. If you are someone just fixated on paying down your mortgage and that's it. You know, there's this old adage that we can't eat your house. In the same way that we can't just eat our chocolate Easter eggs, we wanna have other things as well. You know, there's no nutritious value in there. Yeah, they're great. You know, it can be great to own your own home, but we can't monetise, you don't earn an income from that, which means if you get to retirement, you'd better have a lot of in super because that's it. So I know a lot of people are pressing pause and simply paying down their home. I'm still a fan of paying an extra 1% as if the interest rates were up 1%. But then once we are doing that investing, because that way if something was to happen, I've, I'm starting to develop multiple income streams. 

Understanding how we behave with our finances in these three scenarios that I've described today is really akin to my acknowledging that if I'm gonna have chocolate in the house, I'm going to eat it in one sitting, so I don't have it in my pantry to tempt me. 

And that way I'm not in that cycle of eating it and then beating up on myself. Instead, I'm being kind to myself and living within what I know I can handle. You know, I believe more consumers should stop beating themselves up about not being able to control their credit card consumption or their lack of savings, or their inability to move beyond hoarding cash, that paralysis by analysis and feeling like it's never enough, and instead work with how they're naturally inclined to behave. Which may mean having a debit card instead of a credit card, or only having a limit of a thousand dollars and taking the card out of your wallet and using it for emergencies only, while you build up your buffer account. Or maybe it's keeping your savings in an online account in another bank that you can't access with any cards. Or maybe it's choosing a limit of cash that you are comfortable with, but you gotta put figures around it. Maybe that's three months worth of expenses or six months worth of expenses, or maybe even a fixed dollar amount such as $10,000 or $20,000. Figure out what the safety net feels right to you, but then once you hit that, it's making a plan for anything over and above that. Because sure, we can berate ourselves and tell ourselves that we should be able to handle. And we should be able to save and we should be able to get over our paralysis by analysis and pressing pauses on our finances, which really isn't helpful when the next credit card bill arrives and we are scared to open it because we know the card will be at the limit again. Or it's the end of another month and we've been forced to dip into our savings. Or it's another month and we have a whole lot of cash in the bank and that's it. Instead, my suggestion is that we choose to understand and embrace how we are likely to behave and work within those constraints. I think it's all about being kinder to ourselves. This approach is about being kinder to ourselves and being mindful about how we choose to interact with our finances. 

After all, when it comes to our finances, and let's be honest, all of our lives, most of us claim that we want choice. I believe it's time to actually have choice. The ability to have choice by setting up our finances so they suit our personalities and our predilection, rather than fighting against them. 

Inside the My Financial Adulting Plan, in week two you figure out your money type. Week five, you understand the habits that are right for you. It's one way of actually starting to figure out who you are financially, because finances are personal. And what we wanna do is figure out the approach that's right for you. 

And if you love this concept, then make sure you jump on the wait list which is in the show links below. I'll also put a link to the Money Type Quiz just so that you can start to have a, think of a different way of thinking about your finances.  

But my recommendation, look outside your finances and see how you behave. I gave the example of money and chocolate. I could have given loads more examples. You might look to food or exercise or relationships or more. And then once you figure out a pattern, it's looking back to your finances. Try to pick it there, and then creating a plan for how you can protect your finances from you and set up something so that it works with you and the strengths that are in how you behave. 

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