Uncensored Money Season Four: 5 Ways Your Finances Are In Trouble
Melissa Browne: Ex-Accountant, Ex-Financial Advisor, Ex-Working Till I Drop, Now Serial Entrepreneur & Author, Financial Wellness Advocate, Living a Life by Design | 17/01/2023
In this solo episode, Mel shares five ways your finances might be in trouble as well as what you can do to leave those bad financial habits behind.
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You might look at your bank account after the silly season spending or the January holiday you were just on, or the sales from Boxing Day that you splurged a little too hard on and think, obviously someone has stolen my credit card or hacked into my bank account. There is no way I spent that much. But the truth is our behaviour's not always financially smart. And while a week or a month or a holiday isn't necessarily going to derail you financially, the problem is if that you continue to carry that through the year you absofreakinglutely might find yourself in financial trouble, particularly in an era that we're in now of more and more instability, rising inflation rates, and rising in interest rates.
And if we look at the Hilda report, so that's the Household Income, Labor and Dynamics report consistently over the last 5, 6, 7 years, it has shown that less than 50% of Australians could answer the five basic financial literacy questions. And if you're in the rest of the world, especially if you're in a western country and thinking, oh, you know, stupid Australians, trust me when I say you are in exactly the same boat as research from every single Western country will show. I don't know if it's because we are disinterested. I don't know if it's because we've opted out or if we are unsure where to start because we are not taught financial literacy at school.
And because it's the start of the new year, because I don't want you to take those bad financial habits into 2023. We wanna leave them with Chinese New Year on the 22nd. We wanna park them and leave them there. I wanna give you five common ways your finances are in trouble that I want you to leave behind. And it's kind of like the frog in the pot, right? Where you don't realise the water's boiling. You think, oh, you know what? That's okay. That's not too bad. But I promise you that the consistency of those bad decisions, or even those poor decisions can mean that your finances will end up destabilised or even in trouble.
So I'm gonna give you my five biggest ones that I see.
Now the first one might be an obvious one; easy access to credit.
But here I'm not simply talking credit cards, although, let's be honest, that's easy access to credit. I'm talking about the tsunami of credit products that are now available from payday loans to those small high-interest loans, to personal loans, to store cards, to credit cards, to Afterpay Zip, Klarna, Buy Now, Pay Later.
And it means now that we're able to shop now and defer responsibility, and research consistently shows that we spend more when we use credit, and the minimum that we spend extra is 10%. Or if we go to Afterpay's own website, it's showing it used to be 40%, it's now 18%.
And part of the reason that we do that is because one, our brain views it as monopoly money. It doesn't think of it as spending your money. And what happens is the insular region, which is the region in your brain that feels pain, scientists have discovered that it doesn't light up when we use digitised payments like credit cards, like payday loans, like buy now, pay later. So we quite literally don't feel pain in the same way that we would when we're using a debit card, when we're using physical cash. So if you have more than one card, if you rarely pay off your card every month, or if you pay off your card with your savings each month because you overspent, then what I want you to do is to decide not to use credit. Make 2023 the year you decide not to use credit. Cut up the cards, shut down the buy now, pay later. Close the payday loan accounts and go old-school debit card instead.
And if you are going, ah, but Mel, the points. If your points are worth, say 3% of your spend and you are spending an extra 10% to 18%, and in some cases a hundred per cent, are the points really worth it or are you better off saving instead?
So easy access to credit is one of the ways that our finances are in trouble. And if that's you, I want you to be really honest and decide, is this something that I need to break up?
Number two is paralysis by analysis. Now this might seem like a strange one. Since when did not doing something mean your finances might be in trouble? I mean, isn't pausing a good thing? Isn't it that acting badly, that means we're financially worse off? Well, not necessarily. There is often so much information when it comes to how we should invest and save, that often we throw up our hands because it's too hard, or we hoard cash in our offset account or in our savings account, and we're unable to make a decision because there's so much data, there's so much clickbait, scary headlines that we genuinely don't know what we should be doing. And as I said, with number one, with financial literacy at an all time low, then it's even harder for us to decide what that right decision should be.
Or if your money identity isn't a spender, but rather a hoarder saver, then you may want the stability of money in your bank account and not wanna invest it. This was very much my hubby back in the day. When I met him, he had a whole bunch of cash in the bank and he was really at that paralysis by analysis 'I just don't know what to do' stage. And I had to sit down with him and say, I need you to quantify how much cash is enough. And he really struggled with that because it was almost like there's not a figure. Like, I can't, like it was a stressful question to him cause he couldn't answer it to me.
So if you are that person, it's about defining how much is enough. How much buffer do you need? For you, it might be six months worth of expenses, or it might be a figure of say, 10 grand or five grand or two grand. That number will differ to you. Once you've figured that out, be comfortable with that amount in your bank account. But after that, it's lazy and it's choosing what you are going to do about it.
To everyone else, it may seem as though you have your financial $hit shorted. So for these people that are hoarders, it can seem like you've really got it together cause you've got cash in the bank. You don't use credit, but I promise you, you'll start to go backwards if you are relying on bank interest only to secure your future. When inflation is higher than interest, which is almost always the case, you are going to go backwards. That's why I think we need to go back to the basics. How we get out of that paralysis by analysis is to start understanding why we behave the way we do when it comes to money, and to take the time to create a base of great financial literacy. Once we understand our money story, our relationship with money, and start to think about what we want out of life, once we understand about the different types of debt, investing in shares, investing in property, developing multiple streams of income, then we can start to design our finances to suit us and how we uniquely behave with money.
And of course, if you need a hand with that, if you are going, oh my gosh, that's me. But where do I get that from? Then that's what my eight week My Financial Adulting Plan is all about. You don't need to be in debt to join, although we will give you a plan to get out of debt. You don't need to have a whole lot of cash and not know what to do with it, although we will help you understand investing and figure out a plan that's right for you for that. You don't need to have a great income and nothing to show for it. You just need to have that willingness to want to do something to move you forward from where you are now. The doors are actually open now. They close on the 31st of Jan, so jump onto the links in the show notes if you absolutely know that this is something that you need.
Now, number three why your finances are potentially in trouble in 2023 is trying to keep up with the Joneses. Now, this is such an old, old, old problem. This is not something that we've invented in modern society. This is from a cartoon back in the 1930s. However, social media now has meant that the Joneses aren't your neighbours, but anyone that you are seeing on social. And they're potentially an influencer that aren't even paying for those things that they're hawking. They're receiving their products for free.
Add in a dash of comparison culture, scarcity mentality, and the ability to shop 24/7 and easy access to credit, and it can be a recipe for financial disaster. My solution to keeping up with the Joneses? Be excited about the path you're walking and create a plan for it, so that you are so excited and motivated to follow that so you don't want to deviate from that. Then, and this is a big one, unfriend, unfollow and unsubscribe from anyone and anything that's causing you to overspend. And then find people who inspire you in ways that don't involve you spending to make yourself feel better.
You know, there was a great research study done in Canada where it was people that had won a small amount of money in Lotto. By small, I'm still talking $150,000, and so it was enough to go out and buy a bunch of stuff, right? So it might be a car, it might be the big flat screen tv. Generally, it wasn't invested, so the researchers found it was almost always spent. And here's the interesting thing. The people that won the lotto weren't the ones in trouble financially. Cause once it was gone, it was gone right? But they found that those people that were in their vicinity, either their neighbours or friends, their rate of financial distress, their rate of financial problems where they're having to rely on counsellors, such went up exponentially. Why? Because they looked at the people that had won lotto and they wanted to keep up.
And that is what trying to keep up with the Joneses is all about. Throw in our easy access to credit and our paralysis by analysis when it comes to investing and it's really easy. Can you see how these things snowball? Where you are then unwittingly trying to keep up? And if you are someone that's not material and going yeah, but I'm not into stuff. This is not me. Really? How are you spending on wellness? How are you spending on holidays? How are you spending on your kids? What car are you driving? Where are you sending your kids to school? Start to think about where you are spending and are you trying to keep up? I've got a very good friend who needed to go to Europe very quickly after COVID so that he could post it on Insta. He's not a young man. I'm not freaking joking, and if you said to him, is this the reason you're going? He'd go, oh, no. But if was if he was honest with himself.
Now, number four is you are a wage slave. Now, too many of us are living off one source of income, spending most of what we earn and starting again each payday. And when Covid hit, it highlighted this as a massive issue because for those people that thought their businesses and their jobs were safe, because we'd been through such a great time our economy was strong. We just thought, oh, this is going to go on forever. Suddenly people realise, well, what if that income stream dried up? That one income stream that I'd been relying on, that I don't have savings or a buffer and I probably have credit for and a mortgage, etc. What then?
So what's the solution to being a wage slave? And you could be in business and still being a wage slave, let me just make that very clear, is a couple of things. First of all, you wanna set up your bank accounts so that you're not eating from the one large bowl, but you have a bunch of smaller bowls or smaller accounts. This might include an everyday account, a bills account, a savings account, and a splurge or fun account.
And then you wanna automate your income so that it's split between those accounts. And then, and here's the kicker, here's where it works. You only spend what's in your everyday account on your everyday expenses. So that's step one.
Step two is to start figuring out where you can find more streams of income. Ideally, you wanna end up with about six. So most millionaires have six streams of income. So this might include a side hustle, a part-time job, share investments, super, property, and more. I ran a free webinar last year, , I've actually run it over the last few years called 50 Ways to Find 10 K in 12 months. So I'll pop it in the show notes. So if you're thinking, I love this idea, I'd love to find more streams of income, that might help give you some ideas, give you inspiration for where you might find it.
But being a wage slave, if all you have is your wage, your home that you're paying off and some retirement, and that's it, then it all comes down to that retirement amount cause you can't eat your house. Your wage is eventually gonna be gone. Suddenly your superannuation is key. Your retirement money is key, but if instead you've got multiple streams of income, then suddenly you've got more choice, you've got more flexibility, and that's the key. That's one of the keys to having great finances.
Now, number five is you believe the media hype. This might sound like a really strange thing when it comes to five main ways your finances might be in trouble, but in a crowded 24 hour news cycle, the articles with the highest click sell advertising. And let's be honest, good news doesn't sell. Now, if we all had high levels of financial literacy and could see past the clickbait, we'd be fine. But you already know that's not the case. And that's why we need to cut out the noise much of the time, understand what we want out of life, what our money predilections are, and create a financial plan to suit a long-term financial plan to suit, and do something about it.
That means that when those short-term clickbait headlines come around inflation and rising interest rates and share market crashing and property crashing, we might look at those and go, huh, that's interesting. What does it mean for me at the moment? But because we've got this long-term plan, it means we can keep going towards it, cause short-term peaks and troughs don't affect that long-term plan.
Should we be worried about those short-term peaks and troughs in the market with interest rates, with inflation rising? Of course. But if you have that long-term plan, then they don't matter as much. And if you're closing in on retirement, then they matter less. So not believing the media hype.
So the question then is, who am I listening to?
And what I'm seeing is a) this trend of journalists wanting to create media hype, but also putting themselves out as financial experts when they're not, or marketers who are doing the same, who are putting themselves out as financial experts when they're not. So instead it's find those trusted voices that you can listen to so that you can dull the rest of the noise. You can be aware of it, but you're like, ah, I already know about that. Cause I've heard about that and this is just a culmination of what I knew. And don't just listen to one voice, listen to a number, so that you can start to get critical. So that you can start to filter it out and understand what you believe. It's like anything, right? You wouldn't just believe everything that everyone says. You wouldn't. You might not gel with everything that everyone says. It's good to have those different opinions. Even it's, even if it's so that you can start to really critically understand what it is you believe and why when it comes to your finances.
And it's helpful too in those dinner party conversations where people are basically vomiting and regurgitating those bait headlines, you then can go, huh, but have you thought about this? And when they come back at you, with that critical point of view, you've already heard it, you've already thought through it, and you're able to go, well, I'm not buffeted by that. And actually, here's what I think about that. And you're able to have really robust and interesting conversations about money and maybe even challenge some people's opinions in your life.
So these are just five common ways that I think your finances are in trouble. Easy access to credit. Paralysis by analysis. Trying to keep up with the Joneses. You're a wage slave and you believe the media hype.
In 2023, what I'd love you to do is choose to do something different. If one or five of these are an issue for you, then decide today, how are you gonna make sure that you are not taking them with you in 2023?