Off the back of the previous two episodes, Ryan and Terry summarise the insights covered so far on how conditions are changing for the average Aussie. Then they shift the focus to the concrete steps you can take right now to protect yourself from the change and uncertainty we’re all facing. If you’re wanting a roadmap for financial resilience for the next couple of years, stream this episode now.
What you'll learn
Terry: . Welcome back to the passive income project. Ryan has.
Ryan: Good to beat him. Eight, always a pleasure chatting. Yeah.
Terry: Yes, we’ve been talking about interest rates. We’ve been talking about the housing market with Chris Bates, and I think we’ve covered a fair bit of ground, but we wanted to put together a bit of an episode that kind of brings it all together and says, What do we need to action?
What are the steps we need to take to be able to do it? Because reality is the winds of change are here. They are blowing. And the average. We getting squeezed rights arising. We’re paying more for everything at the same time that markets are really unsettled. things are dropping, so we need to be getting on top of the
Ryan: Yes. it feels a little bit dramatic, but yes, I think there’s definitely change. And the perception of change even just that itself can be quite impactful on how we’re feeling about how we’re going. So we want to be doing what we can to definitely calm the nervous system at the moment.
Terry: Yeah. . So we’re going to be talking about the two biggest considerations for you. If you are looking to buy a home or you are already a homeowner and five steps within that, to be able to figure out what to do in this period of time.
Right? So. There’s some big rewards on offer here, right? there’s definitely uncertainty, but if you do this right, you can absolutely reduced the impact of that uncertainty and it doesn’t have to impact your relationships. It doesn’t have to impact your career and you can avoid the possibility things going wrong for you at a time where it’s probably not great timing.
what else do you think is really important about why this is something we need to think about and act on that?
Ryan: Yeah, I think it’s just keeping calm and makes the chaos. And so you can just carry on with your life, not get distracted by money so that you can bring your best self to work, bring your best self to relationships, all of those things, because as soon as things change and. Like we mentioned the episode we did together last media blows it up and it feels bigger than, than it actually is a lot of the time.
It distracts us, it pulls us away from feeling quite balanced. And so I think for me, that’s the big thing. And this episode is going to be about what are the things that you can. Not the things that you can’t, but the things that you can, and just being able to put your head down on those things.
like you said, you’re going to be okay if it does turn out to be, the worst case scenario,
Terry: Yeah. And there’s also opportunity in. And those people that are well-prepared and across everything, other people that can capitalize on that opportunity. So it might be that, somebody is a forced seller one week and you end up getting a bargain. You’ve got to have all your ducks in a row to be able to take advantage of those opportunities and then we’ll be around just because of how much and how fast things are changing.
So definitely reckon it’s a good time to actually be getting all that stuff
Ryan: yeah, for sure. And so you had a good conversation with Chris last episode and other conversations we’ve been having. What’s a big insight from that
Terry: Well for me, it’s just right now. You just want to make yourself as attractive as possible to the banks to ensure that you are not overlapping. At a time where every other cost is rising, because the reality is a lot of costs are rising, but you don’t control them. You’re not going to be able to control the cost of fuel.
You’re not gonna be out of control the cost of food, but if you’re overpaying for your mortgage, for debt that you’re going to be taking on already have, that’s something that you can control. So acting on what you can control is a great way to improve your wellbeing. Knowing you’re doing what you can do really.
Ryan: Yeah. And this is the cost that you can and you should control. the cost of getting it wrong can be tens of thousands of dollars in unnecessary stress. That future version of you. And, sometimes it’s just minor tweaks and changes. You know, the example Chris mentioned around getting discounts on your loans, especially if you haven’t reviewed it in the last year or two years, sometimes for people 3, 4, 5 years.
And so, if you haven’t done that since. 1st of January, 2020 was the last time you reviewed it. That could be the opportunity to get a discount at a greater right than the change in the interest rate or the catch. Right. And so, it’s a hard one because we also get desensitized to percentage.
Yeah, because you say a 0.2, 5%. You’re like, well, what does that actually mean? what’s that equate to but if you think about, let’s say you’ve got a $500,000 loan and you can negotiate a 1% discount by changing banks or even with your existing bank. That’s $5,000. A lot of people are working pretty hard for a couple of months or three months to save 5,000. To be able to make that small change and save yourself 5,000 that’s in one single year. Not to mention how that equates to over time. That’s a big deal.
Terry: that’s massive. We talked about it with, Chris, I call it the lazy tax and he called it the tax. That percentage is an abstraction, as you said. So we don’t actually see the real number. So if you don’t understand that it’s $5,000, not 25 basis points or 0.2, 5%, then yeah.
You probably get lazy on it, but it’s a one-time thing. Right? Get it sorted one time benefit from it going
Ryan: Yup. But then do it again in another year or two.
Terry: Sure, sure. Keep doing it. Okay.
I think about it, right? We’re all going to be working hard. over the next year, two years, three years, to be able to deal with this stuff. You might as well work hard on the right things and get a return.
Ryan: Yeah. It’s something that you don’t actually have to do necessarily either. And we’ve always been advocates for mortgage brokers and Chris is obviously a mortgage broker and mentioned the value of having them as well. And oftentimes you’re actually just asking your broker to do that. So you might have to sign a few forms. You might have to, show up to a couple of meetings or whatever it might be. But I’m sure you’re working harder on other things that getting that in is going to probably have the greatest reward if that’s the case. And of course,
Terry: And I reckon there’s a couple of reasons we don’t do it. because we’re uncertain about what it’s gonna mean for us. And we’re uncertain about whether it’s going to go our way and whether it’s worthwhile. So that’s why I wanted to talk about the two biggest considerations and actually go through some steps to make sure that when you do chat to your broker to refinance or to get that loan, all your ducks are in a row And you can be sure that you’re going to get the absolute best deal for you at the time. So do you want to talk about the two biggest considerations then we’ll dive into them.
Ryan: Yeah, for sure. And so the two things to really focus on here is one you’ve got services. Which is how much can you borrow? How much will the bank actually give you? The second thing is tolerability, which is how much are you willing to borrow or have borrowed as Well and I know your question for is tolerability a word when I wrote this down earlier, I’m not certain, but it makes sense.
Terry: Well, let’s go over that tolerability. that’s fine. Let’s go in.
Ryan: Tolerability bang, how Val you can tolerate it. And so serviceability, how much you can borrow. it’s thinking about basically the case that you make to the bank to be able to show them that you’re worthy of them giving You money.
Terry: you want to be wearing that short skirt showing the leg.
That’s what you want to be doing.
Ryan: Crepey Boston. Yes. you want to be wearing that short skirt for sure. And then there’ll be one which Chris mentioned last episode, which is something you just tick box. You want to make sure you do is, your credit score? he made comment that, I never really used to matter.
But now it does and banks are paying attention to it. And then someone at the source kind of being, dealing with that every day. And so some. make sure you’re making payments on time. If you have existing debt considering how much debt you have with the amount of or the number of different types of debt.
multiple credit cards, a personal loan, a car loan, stuff like that, basically the more different loans that you have, the greater, the likelihood that you miss one and how that mishap and that shows on your score. And then the other one you mentioned, which was done over apply.
So then I just go to people individually. I tried this fail, tried this fail because those failures have an impact on that credit score as well.
Terry: Let’s just quickly dive into that first one. Right? So let’s say I’ve got some debt and maybe I’ve also built up a bunch of equity over the last year or two in my house. All right. And I’m trying to refinance, it’s probably worth unlocking some of that equity to get rid of some of those loans.
Ryan: Yeah. this is something that we say a lot. Isn’t it? Where people have built. These personal loans, And they hell bent on reducing their mortgage number. And they’ll actually deal with accruing a credit card or personal loan
so that they don’t have to release equity and increase their mortgage. And do you know what this is? It’s called functional fixedness. it’s what happens when the brain, it narrows its thinking and it always has. When you’re dealing with money. So when they give people rewards of money, people’s focus, narrows, and they actually can’t think of a number of different ways to do things.
Terry: So they’re just locking in on these default patterns of thinking. And I’ve seen this in myself as well. and that’s why value. And I think you, everyone should value talking to somebody else about money because you are frequently just seeing it one way. And the other person sees it so much more clearly because they’re not in your scenario.
And that’s where the value of a broker They can act as a sounding board is massive because as you said, we see people coming in all the time and making that very simple mistake because it’s just, default way of thinking. Isn’t it?
Ryan: yeah, got a fancy word for everything I might add.
Terry: I like to know what’s going on.
Ryan: And really that’s something we say a lot, which is fixating on that. Bang the mocker with progress, the macro progress. Yeah. How much have I paid off on the mortgage? Sometimes it’s the investment. Sometimes it’s, salary is sometimes it’s just a feeling, but oftentimes it is the smartest thing to roll your debts together and put it onto your mortgage. So that for one, you’re paying a lower interest rate on that debt rather than.
10 15, 20%. You’re paying 3%, but also because there’s a less likelihood that you’ll miss a payment and have that accrue and impact your credit score. So is it Ockham’s razor that reduce the amount of moving pieces
Terry: Oh, come on. That’s a big word,
Ryan: throwing them back, I’m learning something from this.
Terry: right? That the simplest solutions
Ryan: There we go. So less moving parts, less likely to have it file as well. And it probably out of the pot of that too, rod is, if you do do that and you do go to refinance, you look better.
Terry: And so if you get a better. The amount that you can save on that better. Right. It probably offsets that. And then if you play at time, You’re way better off.
Ryan: Yeah, And then make, consider regression on the moon. So you’ve been paying off mortgage, but then you’ve increased your mortgage. They may consider that. But at the same time, most people that are selling debt are salespeople. They want to give that, even the bank they’re providing debt, that’s their main source of income.
So it means that your mortgage is actually. which makes you more attractive to them. So it may offset it there. that’s probably an important place to start. and the other part of that is I mentioned before having a bit of a considered plan on how.
pay that down if that was the case, but this more so for everybody is having proof of serviceability. And it’s one thing to just go through the process with the bank or through the mortgage broker to say, this is what the moving pieces are, and that’s how they do the calculation, which that’s going to be the primary thing, but then having the next.
Being able to prove that the debt you want to take out is okay, that you can fund it. And you can also still, live your lifestyle and not be too heavily impacted by it, even if there were changes. So to be able to show them here’s 12 months of my life, these are what my bills are. This is what that debt would cost as part of that.
This is the lifestyle we live. And how we enjoy our money. And this is a meaningful progress that we can still make on our other objectives outside of the home. If you can show that to them, even though maybe that initial serviceability, calc wasn’t as attractive or kind of reduced it if you can show them that proof it’ll go a long way in making a case for them to be like, oh Yeah. A fast and dirty line that I’m throwing.
This is something, I’m giving this to someone that is really considering the impact of change. for planning here,
Terry: That’s really important, right. Even if your forecast is not a hundred percent right. Think about what a communicates these verses pretty deliberate actually pretty considered. And they’re pretty responsible too, because they’re sitting down to think about what would this mean over this period of time.
So, what I’m hearing from what you’re saying is don’t just let them tell the story about you. You make sure you tell a story as well, and that’s that forecast.
Ryan: yeah, spot on,
Terry: one and the last one he was serviceability, I think in probably overlooked is get yourself a pay rise. that probably sounds really simple, but here’s the reality of the situation. It’s probably the best time you’re going to have the best opportunity you’re going to have to get a pay rise is right now.
And part of that reason for that is because it’s very hard to find. People right now in across all sectors, there is a massive shortage of people. And what you need to know is that particularly if you’re in an educated, sort of knowledge, work type position, it’s very expensive to replace you.
It’s expensive because finding another one of you takes time training. Another one of you takes time. if you’ve ever spent time with. And my is working in recruiting at the moment it’s eye watering, how much it costs for a company to find that next person it could cost anywhere between 12 and 20 grand.
And this is for mid-level people. All right. So it’s 12 to 20 grand to replace. Not including the time it takes to retrain you and then integrate you into the new systems, the new culture, all that sort of stuff. So you cannot believe how inefficient that is. So if you are somebody who has been putting the runs on the board, you’ve been working, you’ve been building up your career capital.
You need to understand this is the time you need to bank it. This is the time you want to realize it and get that game. You have a lot of bargaining. And there’s a window now for you to do it. And you’ve got a great reason it’s because everything else is getting more expensive and you need any moving with the Tom.
So if you haven’t got a 10, 15% pay rise over the last two years, guess what? You’ve gone backwards in, real terms. so you need to be thinking about that as a minimum. And so this is going to help on a number of levels, right? It’s going to help because it’ll help you service this stuff a lot better.
But number two, if you are looking to refinance again, makes you look a lot.
Ryan: Yeah. this is another loyalty tax. Ultimately
like if you think about the loan conversation before, which is, if you haven’t gone back and asked, then you might be overpaying on the interest. Same thing is True.
for Korea. There’s a lot of people that have built up personally. Like they’ve built up their worth within organizations.
And we think of it, like farming kind of done a lot of farming that needs to go back and harvest the crops and now be paid the dividends for that equity that they’ve built up as opposed to having that loyalty tax. but this is such a hard thing to do as well. I know for a lot of people, I’ve known for myself before.
It is hard to have those conversations. How should people go about.
Terry: Yeah. It’s a good point. It’s not simple. We say like, get a pay rise is a lot going into that. There’s a lot of power dynamics happening in this. A fair bit of time we could spend on it. So if you’re listening to this and that’s something you are interested for us to dig into there’s a bit we can chat about there.
But the easiest thing for you to do, and the reason we’ve been talking about getting on top of the cashflow stuff first is because believe it or not, that’s your best edge. If you come in knowing that you’ve got this big buffer and you don’t need the job and you can easily go and get.
You’ve got the bargaining power of the person who doesn’t need the deal is the person who has all the bargaining power. So put yourself in a position where you don’t need the deal cashflow again, get that buffer going. And frequently you’re going to find people pick up on that straightaway and you’ll get what you want, because you’re literally saying to them, listen, it might cost you 30 grand to replace me.
I’m asking you for a 25 grand pay rise, and guess what? You won’t have to spend any time retraining the person, and I’m going to keep moving in this direction for you. So it’s only. And you need to be doing it to look after yourself in this environment. Don’t let yourself get squeezed because of that loyalty
Ryan: And the reality is the squeaky wheel gets to. Business owners listening to this or hate that. I just said that, but the squeaky wheel gets So serviceability was as making yourself attractive, thinking about the credit score having that proof that you can service it and making that case beyond just the, basic calculations that are done as well as asking for a pay rise, potentially increasing your income, because that has a huge impact on how much you can borrow.
Ryan: The second one was tolerability that made up word. Maybe it is a real word don’t know yet. Some really key things here we’ve mentioned before about having a 12 month forecast. That is the most critical thing. This is, something that we do with all of our clients.
And especially when there’s that involved, it’s looking at it and going what are the next 12 months? What are the next 24 months? Even looking beyond that and seeing the ripple effect of it. But seeing what does change. And how can I find this balance between, covering the bills, enjoying my money, living that lifestyle, but also making meaningful progress.
And, if you’re a new buyer, you might be just replacing the existing rent, putting in the mortgage and seeing what that means. What’s the change. Does it squeeze my life? Well, is it okay. If you buying a second property, it’s including the rental income potentially, and the cost of the new debt and playing out the scenario and then, really for everybody, you should be looking at that and going, what does a 1% Roz or a 2% rise or even a 3% rise interest rates, maybe.
For the amount of progress I’m making on other objectives, other parts of my life, or how that it squeezes, you how I’m living right now. And so, playing out the scenarios, same, the actual impact of change has a huge impact. A monkey mind always goes to the extreme.
Now idea of change always gets just blown out. And so. From my own experiences. And I know for the experiences of our members, knowing the numbers always comes the mind. And so, really critical to know what does 12 months of your life look like? And sometimes that’s making assumptions about lifestyle.
You can be quite deliberate about bills and things like that, but more so spending the time on the life that you want to be. And the routines and habits and, eating out and drinking coffee and all of that stuff, seeing how that all paces together and then including those subtle changes or sometimes not so subtle changes of what that debt or interest rate change might mean. Real numbers really comes to mind.
Terry: yeah, it’s a good insight. Isn’t it? And I find it really interesting. It works both ways. a lot of the times people think things are going to be so much worse than they actually are. When you really understand it and we overact the other way to thinking everything’s absolutely fine. And you’re kind of not going as good as you could be, and you can make a few adjustments and everything can be sweet. So it does help because now you can actually start to prom. We say it before, as soon as you’re dealing with reality, now you can move forward. Constructively. If you’re not dealing with reality, then you’re probably dealing with the fantasy that the media is selling you and fuck that scary.
Ryan: Yeah. And you also just want to contextualize change. So if you focus on that change specifically like, oh, that’s an extra $500 a month or whatever that might be, but then if you put it into perspective of what does that mean over a year? Geez. Maybe. Saving 40 grand and I’m still wiping 30 K off the mortgage.
And that all looks okay. And I can actually just enjoy the ride still. it’s kind of just saying, what other things are we making moves on? Are we making progress on? And how big does this actually impact us on a more of a trajectory basis?
Terry: love it.
Ryan: And so doing that, what that does is it gives you a really good sense of how much can you tolerate and, you know, maybe there is an upper threshold and at that point you do need to think about what should I, or can I.
Well, do I need to focus on debt repayment to give myself a little bit more buffer at the moment? So that.
those changes don’t impact me and it’s all. Okay. knowing the numbers always come to this, but also knowing what to do does as well. It adds that extra layer of saying, well, if this did happen, then I’ll do.
And being able to consider the redundancies of that change as well. And so that’s tolerability. I think we want to probably also do a bit of a recap on this series in general, just kind of talking about interest rates and everything that we kind of covered together, as well as that conversation with Chris.
How would you summarize it? What are the kind of big takeaways for you?
Terry: Well, I think it’s a lot about, again, where is your locus of control? Where’s the focus? Is it out in that sort of circle of concern where you don’t really have any control because that’s where the news is going to be. That’s all going to be. Add in your circle of concern and that’s going to be impacting you and it’s making you feel like more of a victim.
And we’re trying to think about how do we contextualize that information out there so that. Can I guess see it for what it is. So we talked about the different stakeholders, the different groups and all their different incentives. So we know that the reserve banks got an incentive to make it seem like things are a lot worse because they want to manipulate our behavior and sort of Jawbone us and sort of coerce us to changing our behavior without actually having to make any changes.
But we also know that we’re in a lot more debt than we’ve ever been. So small changes create big ripple effects. The media is playing into this. They love these kinds of doomsday type scenarios because it gets clicks. and something that Chris added to that story as well was that we also need to understand that banks love talking about breeding fear as well, because it actually increases the frequency of transactions, which means more.
So we can’t be getting our information from these people and we need to be weighing it effectively, understand where the incentives are and understand that it’s in their best interest to have you panic don’t panic, move towards what you can control, move towards that circle of control. And that’s what we discussed in this episode.
Right? So we talked about these two concepts. Serviceability. We talked about tolerability. Get on top of your serviceability, make sure that you don’t have too many moving parts. Get on top of that credit score. Make sure that you’ve got a forecast as well, get a pay rise. So you look attractive to the banks because if you can do that, you are controlling the one thing you can control, which is how much you’re paying for.
And then the next part of it, which is what you were talking about there in terms of tolerability, really do make sure that you’re understanding what change means, mapping things out, and then looking at different scenarios. So you can calm that monkey mind. I think that’s absolutely critical. There’s a lot that you can do, and there’s a lot that you can get on top of really quickly.
So now I reckon now is the best time to do it. you would add to that
Ryan: nah, I’ll just love it. You just look down the barrel, then look straight into the camera and you’re like, do this, do that, think about this. That’s great. We’ve obviously started quite macro and looked at the different stakeholders, the different influences and the things that are kind of impacting, things could change or might change and where their incentives are.
And then we’ve gone quite micro, which is what can you actually do? What can you impact or influence and how do you make yourself attractive to be able to position yourself there? And And he’s hard to look down and go, where do I start? what do I actually implement first?
Or what should I be changing? and the forecasting that we talked about today, big core part of our program as well, making sense of that. So if you ever want help with that, we’re always here. feel free to, to jump on the site and booking the call. But yeah.
mate, good job.
what’s on next? Where are we heading?
Terry: So we’ve sort of tease this episode a couple of weeks ago, but we decided that we’re going to cover this interest rate stuff. Cause it was more pertinent. We talked about Jeff Booth. We talked about bringing on one of those macro expert to talk and give some more color to.
What we’ve discussed through that Bitcoin series and crypto, and it actually does play into what we’re seeing right now with regards to the global economy and things like that. And He has been so generous, I asked for an hour of his time and he said, we’ll take as long as it needs.
And it’s like talking to somebody from the future who lives in the future right now. And he says, this is what’s happening. And these are kind of stepping back into where everybody else is living in saying, this is how to think about it. I found it to be probably one of the best most enlightening conversations I’ve had, particularly on the podcast.
So I’m looking forward to sharing that.
Ryan: Yeah, If anyone’s looking for a book to read at Rady’s book of tomorrow. Between this episode and the next one coming out, you’ll have two weeks that’d give you such a good depth of understanding around his thinking and the way he’s seeing things and the conversation he’s having with people.
And then this next conversation, we’ll be actually diving into some of the things he talked about in that book. Isn’t it And then kind of going to the next layers as well. So that’s, I’m excited to listen to it.
Terry: Yeah, it might. It was unbelievable.
Ryan: And this is the guy that sits on the board of some of the biggest companies in the world. Might I add? This is not just any Joe blow. This is someone that a lot of business owners and experts leading big companies turn to for guidance.
Terry: if I was having to pay for his time for consulting, I probably would’ve lost our whole cash reserve in the
business. Put it that way.
Ryan: what a bankrupt is.
Terry: So might as incredibly generous.
Ryan: looking forward to it, mate. Good job
Terry: Cool chat soon.