Timing the market is impossible. Timing your life cycle is MUCH easier and extremely important when it comes to debt. In this episode, Ryan and Terry debrief the series and use three powerful tools to help you get the timing and serving size right.
Also In This Episode
Resources and Links Mentioned
Blog Post: Debt is a double-edged sword, here's how to wield it to build your wealth
The Ultimate Guide to Debt Recycling, how to pay of your home faster while building a passive income
UNLOCKED: Stepping into the 3rd Dimension. One of the most powerful modules in our mentorship.
Join the Private Podcast Community
Click here to access free courses and trainings, build new habits, and connect with us and others on the journey to financial self reliance.
Other links 👇
Money mentorship:
Click here to start putting what you've been learning into practice.
Corporate program:
Click here to find out more about our workplace program
Follow us on Instagram:
Click here to see behind the scenes of our business and learn more about personal finance in bite-sized chunks.
Timing the market is impossible. Timing your life cycle is MUCH easier and extremely important when it comes to debt. In this episode, Ryan and Terry debrief the series and use three powerful tools to help you get the timing and serving size right.
Also In This Episode
Resources and Links Mentioned
Blog Post: Debt is a double-edged sword, here's how to wield it to build your wealth
The Ultimate Guide to Debt Recycling, how to pay of your home faster while building a passive income
UNLOCKED: Stepping into the 3rd Dimension. One of the most powerful modules in our mentorship.
Join the Private Podcast Community
Click here to access free courses and trainings, build new habits, and connect with us and others on the journey to financial self reliance.
Other links 👇
Money mentorship:
Click here to start putting what you've been learning into practice.
Corporate program:
Click here to find out more about our workplace program
Follow us on Instagram:
Click here to see behind the scenes of our business and learn more about personal finance in bite-sized chunks.
Hey guys, welcome back to the show, terry. A couple of really deep, solid conversations there. We had Sarah, we had Goose, we had Bryce. I love that. There was a real diversity in the way guys are looking at you know how to use debt and, importantly, what role property plays in that as well. How are you feeling on the back of that conversation, man?
Speaker 2:Well, we've put this together over a sort of a few months and some of those conversations I had a little while ago. So I've gone back and listened to it all a little more at once and I have to say there's so many concepts we covered in those conversations and it was a little overwhelming all at once. So if you have kind of binged it, like people tend to do, you probably might be feeling like that. The whole purpose of this episode is going to be how do you sort of wrap it up in a bow, make it super useful, make it applicable, so that you can figure out what does this mean for you? But before we jump into what we're going to cover and how we can actually do that, man, like what other observations did you have in terms of, like, the different approaches and the people? Like, what's stuck out for you?
Speaker 1:Yeah, like I said, I feel like there was definitely a diversity in the way that guys are looking at it. Yeah, it was probably a fair bit of validation for us in terms of what we've been talking about in those first few episodes and the conversations we've been having as well, which was fantastic, but also just a few challenges in there as well. I love that Bryce talked about horrible, tolerable and productive debt, very much consistent with what we were talking about in terms of consumer debt, the hybrid debt, which helps you also buy a lifestyle asset that makes your life better, but it is debt itself as well as investor debt, that really productive debt that helps you buy assets and earn an income and that can grow in value. So I love seeing those things come through. Bryce's episode is the most recent one I listened to, so it is probably the one that stands out to me, but I also think what he was saying about really kind of zooming out. You know, you kind of naturally did this through that conversation where it's so easy to put a B exclamation mark next to right now, what's happening right now, and being like there's these things that are happening in the world that make you question whether or not things are going to be okay, and he really kind of forced you to go. Well, 20 years ago, when I was first buying my property, those things were still true. There was still geopolitical issues in the world, there was interest rate changes, there was a change of governments All of these things were still happening. It's just that those things are always true, so you can't expect that there's going to be a time when they aren't and that the future will be different, and so the fact that those things pass through and we continue on the journey is something that I think was really valuable, just to kind of zoom out, get that context and not, like I said, put an exclamation mark next to right now.
Speaker 1:Another thing I'll probably add is, again Bryce called out. You know he said shares are a better asset than property, which is quite interesting. Right, but it's actually the role that debt plays that causes the big difference between the two, and this is something you know, I know we've talked a lot about. It's kind of a noisemaker that so many people are getting this argument around shares versus property. It's always, like you know, shares does this, property does that, and they completely disregard that third dimension, which is the debt people use to help buy those assets, because it's never a unit by unit comparison. It's not a dollar by dollar invested comparison at all. Debt plays an enormous role in the decisions that we as individuals make and the outcome that you get in terms of return on capital and your own personal outcomes. And so, yeah, that was some of high level thoughts. What about you?
Speaker 2:Just to pick up on the last point you just made there. Recently we had an episode on with the Aussie Firebug, and I think Aussie Firebugs are a fantastic example of somebody who has used debt effectively at different periods of their life and understands themselves as an investor. You can actually go back to the early episodes of Aussie Firebug and hear about how he talks about investment property one, investment property two, and so he's thinking and then there becomes this kind of realization that is like great, this is actually doing this is making my savings work really hard. But this is very active and I actually think I'm leaning towards more of a passive approach and this is indicative of him moving into a different part of his life as well, and I think that's really really important, because if you're just looking at the two things like this, then you could just like make categorical statements the other way as well Like well, this is better, this is better Well, depends what you're optimizing for. So if you're just optimizing for money, then you can actually look at it and go well, your savings work so much harder here.
Speaker 2:But also, where are you at in your life? What are you actually trying to accomplish? What kind of life are you trying to build an experience and that's what I think is lost in a lot of these conversations of, like property versus shares and this sort of thing Like you're looking at the two things in one dimension, just on, like just on a flat piece of paper, instead of actually going, looking back at yourself and saying, but who am I, what am I optimizing for? So that's what I really want to get out of this conversation is to kind of give some mental models around how to think through those decisions with that, not just based on numbers in a spreadsheet, because that's really really important that you don't overexpose yourself. If you are looking to grow, then you want to expose yourself enough.
Speaker 2:But also, where are you at in your life? How much makes sense for now, how much makes sense for later? Where are you going to be next? These are all conversations that really need to be had with debt that most of the time aren't. They're just kind of like well, I punched the numbers in it. It looks like this Therefore, do this, you know. So I think that's really important. And Aussie Firebug is a real good example of the two. He made his capital work so hard and then he consolidated, brought it across, went more passive, and that's how he set himself up to live the life that he's really enjoying now, and that's what's best for him. That's not what's best for everybody, but it's just a good example of how it's like, not this categorical kind of like this or this, this or this.
Speaker 1:I know we talked about in one of the first couple episodes in this series, but it's not always just one or the other. Like often, you have to look at it in terms of how they work together one and the other and, like in his scenario, it was first built up, used debt more aggressively in a part of his life where he didn't have other big commitments in terms of kids and his business and things like that. So for him it was one, then the other, and so it is kind of looking at your stages in your life Like you said, we're going to talk about this today but figuring out at what time your Bryce talked about your willing to be controlled by debt in some ways and which ones you're not, and then kind of optimize for that. Right, I was a firebug like.
Speaker 2:here's a good example of the timing of this as well, like in terms of his decisions, not just life cycle but also market cycle, really leave it up at a great time, great time, took advantage of all the incentives, really kind of exposed himself at a stage that kind of made sense and then really worked hard to make that work and then to sort of goose's point, understood when for him it was time to kind of sell out, but he wasn't selling out to another property, he was selling out to another asset class. And so the timing thing I think is such an interesting conversation for me because timing the market's overplayed, timing your life is very underplayed, very underplayed. And if I'm choosing between the two, I can make better decisions timing my life cycle than I can timing the market, because the variables I'm across in my life, the variables in the market harder. But if you've got that information, obviously you want to do both. But it's an interesting kind of thing to think about. And coming back to conversations with goose, it's so interesting to me.
Speaker 2:I made the statement in the first conversation that we had I don't think his business could have existed in like the early 2000s because the big data approach just wasn't there, like he couldn't connect all these dots, and then the data science wasn't mature enough either. So I'm really interested to see how that whole thing plays out like fascinated, because it's so interesting. Like I look at the two and you know, both Bryce and goose made actually quite similar remarks, but they come at the problem completely differently. If that makes sense. They both share the same stat about how most property investors never get beyond their second property, but then their solution for that was quite different. Goose was all about these people get stuck, and then Bryce was completely different on top of that. So really just so many different ways that you can slice the lemon, and that's why I was keen to kind of go well, let's look at all these different angles, different perspectives, because you want to surround something, to be able to look at it in high fidelity.
Speaker 1:And I know we did that episode recently we talked about the title of the episode around Bitcoin was why we're putting everything into Bitcoin, why you shouldn't. We talked about a bit of a framework there which was, you know, I guess, like looking at where you are along a spectrum, was gambling, it was trading, it was speculating, it was investing. Where do you think those guys maybe sit on that spectrum?
Speaker 2:Well, both are speculating, like buying property is speculating because you're it's about making predictions on price, like they're both speculating. So if we just zoom in and say we're on that part of the spectrum but there's a spectrum within the spectrum who's speculating in a more extreme way than the other, bryce is toward the investing part of of that sort of yeah, he's kind of like on a longer term timeframe, and then Goose is more the shorter term timeframe, more speculating. But the different information asymmetry is really important as well, because what Bryce is talking about was very much like buy something that's always going to be wanted and it's interesting because Goose actually made that point as well. He's like, if that's actually the game, then that's actually exactly what you should do Buy a really good place in a place that's always going to be wanted and that's going to work for you.
Speaker 2:He's just playing a different game, completely different game, and so really, I think it comes down to what kind of ride do you want to have. Do you want to have an exciting ride? Is money for you something that you want to be excited about, and is that the job that you want your money to do? Take you on a roller coaster ride, or do you want more of a slow burn?
Speaker 2:that's going to be super predictable, you know probably work out exactly very close to what you thought that's a very personal decision, but it's important to know what game you're playing, because they're not the same game, are they?
Speaker 1:Yeah, and they're different. People will want to play different games for sure. Like oh, we'll be fascinated to kind of see if we have a big market correction. Obviously, prices businesses been through a global financial crisis and dealt with really hard times. Goose probably hasn't quite been through a couple of those big market dips just yet and obviously you know it'd be interesting to see how that shapes things over time as well. But also, just like you said, fascinated to see how data can play a role in predicting, like you mentioned, the S curve and being able to time the market in those times of when to sell and then to buy back in.
Speaker 2:So data has disrupted so many industries. Like I was in sport and data completely upended sport while the time I was in there. Completely All of a sudden I went from a bloke on the gym floor to someone who's like trawling through statistics and every day just looking through numbers and like using these numbers for judgment, and the amount of data just exploded. And you know you've probably seen that movie Moneyball, that whole idea that's just going to keep rolling through society. And it's just interesting to me that this is probably the first attempt here in Australia for this and, like we said in that Bitcoin series, when you're at the cutting edge of something, you're at the frontier, you can see opportunities other people can't necessarily see because of, I guess, how much of that information you have at hand that other people don't have. And if that big data does give you that information and it is correct you can outperform unbelievably. So it's going to be really, really interesting over time.
Speaker 2:I think I'm just really sort of just engaged in the whole thing, like I'm just fascinated by it, you know, like how coming at it, coming at it from that different angle, and then like building that business and building it that fast, getting this team together. Just that whole thing fascinated me. The story went through the big ramp. We went on at the end of the first episode like I just listened back to it, I was like whoa, yeah, I feel like my heart was racing at the end of that.
Speaker 1:We've been in a theme park since.
Speaker 2:That's a theme park analogy, Mate. It was amazing. It was just very different approaches but just both super interesting. There's a character in a novel called Animal Farm very famous novel called Animal Farm, George Orwell. It's a classic and it's all about politics and revolutions in society. And there's a character in this book called Benjamin, and Benjamin is a donkey and this donkey is the oldest animal that exists amongst the group and Bryce, to me, just reminds me of Benjamin because everyone's flipping out. It's like what's going to happen? The pigs are doing this, this is what's going on, it's a revolution. And Benjamin's just like yeah, see it all before we calm Bryce, It'll go like this, It'll go like this, It'll go like this. So I think having just a juxtaposition between the two approaches is really useful.
Speaker 1:Yeah, absolutely. Well, mate, let's wrap this in a bow a little bit. So good to have that reflection and be able to kind of carry this into this conversation. And today what we want to do is lay up a really simple model that explains four different ways that you can use that and, importantly, there's three considerations for making smart decisions with how much debt makes sense and how much you're willing to take on, and also just a bit of a framework to illuminate the impact of debt during different parts of your life, like we talked about with the Aussie Viabuct before, like there's different periods in your life where it makes sense to use more, in different times where you want to be less controlled by it and have less of that as a consideration or something that is sitting on the edge of your mind. When things are changing, there's turbulence in the world, and so a big part of that is just helping you with the timing of it. But also a big thing is we want to give you a bit of a gift in the show notes, which is one of the most powerful modules from our program, mentorship, and so we're actually going to give that to you. That's something else we're wrapping it about, and so by the end of this, we just want to make sure that you can make diligent debt decisions that make sense for you Importantly, the you is really emphasized there and just have the confidence to take the next step.
Speaker 1:And the next step, like Bryce talked about at the end of that last episode just take action so that you can actually create outcomes and not just be sitting on the sidelines being the ones that are talking about the missed opportunities around the barbecue. And so we want to make sure that we can just help you move beyond the thinking and the information gathering and the knowledge building to actually taking those steps and getting the outcomes. Let's jump straight in Nice. And so where I'd like to start with this one is you wrote a blog, probably about three years ago and it makes a lot of sense now really kind of timeless ideas that came out through this, and you call it the debt quadrant. Oh yeah, talk through what the debt quadrant is and I guess how this would actually help somebody with this decision of. Does it make sense for me?
Speaker 2:It was just kind of like thinking about debt across a couple of different dimensions and me writing is me learning. So this is me really thinking through that at the time and I just I write to learn and if it's useful for me I'll publish it. This debt quadrant is basically this idea that there's a couple of different dimensions you need to think into, but most of the time people only think into one how manageable is debt? And manageable is just about the financial aspect of it. Can you actually pay for it? Does it actually make sense? Can you get it? It's very important, very, very important, probably the most important right, because if it's manageable, you're going to be okay.
Speaker 2:But the other part of it is how tolerable is it? That's actually not at all got to do with money. That's all got to do with your experience of having debt, and we've talked about this in different parts through the episodes like what's your experience of debt and obligation and what kind of relationships have you had growing up and how is that impacting the way you feel about it and can you educate yourself out of that? Separate those two things because, particularly for couples, this is where we see a lot of people really struggle is, someone has very different feelings about the concept of debt versus the other, whereas it actually might be quite manageable.
Speaker 2:So really, what we're doing is putting these two dimensions into a quadrant and you can actually look at it and say, well, there's kind of four different experiences you can have with debt and based on how you feel and actually the realities of the situation. So the first one is walking a tightrope and that's where you might be tolerant of debt, like I feel good with debt, but you actually have unmanageable debt. So this is your top left of the quadrant, right, and this is like a situation where you're like we really need this to work. One person shitting themselves. The other person is probably like it's going to be okay. I think hopefully it's going to work. So this is the first one right. Obviously it's you've taken on probably too much, it's a little bit unmanageable, but someone's tolerance for debt has dominated the conversation and now you're in a situation where we need this to work, anything, you would add to that no-transcript.
Speaker 1:I'd imagine Goose would be somebody that would actually tolerate a lot of debt, a lot of risk. It's a personality type that enjoys pushing it to the edge. But then the unmanageable parties. Basically you might be slipping. You might be losing 500 bucks a month. You're having to supplement or subsidize a negatively geared asset, for example. So it might be actually you having to hoard it the whole way through.
Speaker 2:Yeah, and it is. It's a really important consideration because, like you're in a relationship with someone like that, you've got to find a level or a middle ground where it's not like the other person feels like they've got dragged into this situation and now we're like putting everything at risk and I'm just hating every single day, I'm anxious, I'm frustrated, and it's not conducive to good decisions, it's not conducive to a good relationship. It's going to be hard in that scenario.
Speaker 1:Another factor there might be that your income is unstable as well, or uncertain, and so the manageability might be that you can manage it well right now, but it fluctuates quite a bit in those months where it's kind of harder, or maybe your income going forward, your job is uncertain, so that probably plays a part into it as well, in terms of that manageability side right.
Speaker 2:Definitely, yeah, exactly yeah. So how much can you actually take on what actually does make sense and we'll talk about that in a sec with debt ratio? But yeah, it's your income, that income profile, how much you can actually service, how much they'll give you and how?
Speaker 2:much of that you're actually using, basically, and then how tolerable it is is like I feel great about it, I feel fine with this, versus I feel very bad about this. I'm not enjoying this at all. So walking a tie rope is where it might be tolerable, but it's unmanageable and you're like we need it to work. The second one is taking a calculated risk and obviously this is the optimal. This is where you've got debt that's manageable and it's tolerable. So it makes sense in the spreadsheet and it makes sense for who you are, the stage of your life, where you're at and you know, importantly, if you're in a couple. It makes sense for us. We both feel like this is a good decision for us. It makes sense for us. May this mean that the person who has more tolerance comes back a little bit at May.
Speaker 2:What we've usually found is education is a really important part of this, right For myself, huge.
Speaker 2:The more you understand it, the more your perception of risk changes.
Speaker 2:And if you really have understood it and you've gone through this series and you've really been thoughtful about this, what you should understand by this point is the bigger risk is no debt, and if you're not taking on enough, your money's not going to be working hard enough to actually do anything.
Speaker 2:So you've got to find this happy medium and education is going to be really critical for you to get to this place where you're taking calculated risks because you'll feel like you can tolerate this. And I remember having this conversation with Mitch while we were planning this episode and he kind of mentioned that the module, what we're going to be talking through and delivering as our gift it plays a huge role for people in changing the way they feel about debt, just because of the way they educate on how the monetary system kind of works. And I've heard so many people say that as well. So taking calculated risk it'll be like the language pattern you should hear from yourself or your partner would be this makes good sense for us. This makes good sense. We need to do this. That's a good sign.
Speaker 1:I reckon Education is a big part of it, like understanding the role debt plays. The other part is like the visibility you have on your money, on your cash flow in particular. Obviously, the manageability part is like do we still have enough to enjoy on the other important things that we have in our life and how that kind of can get crushed with interest rate changes and things like that. And I've noticed that for so many people, particularly when I'm doing forecasting with our clients looking at, zooming out, kind of looking at over 12 months or the next 12 months and going, all right, what are all the commitments we have? How do we want to enjoy our money, what does meaningful progress towards our objectives look like as well, and kind of finding the balance between those few.
Speaker 1:Oftentimes it's actually just being able to see oh yeah, this is what that means in the context of everything else that we're doing, which I do recognize that a lot of guys offline blind and are kind of relying on the feeling. It's like is this? It feels like it's too much or it feels like, and that can be heavily leaning on just their associations with it from you know growing up and what it's meant over time and an education can break through a lot of that. But oftentimes just seeing it on paper, seeing exactly what it means in terms of it is a line on your cash flows, often shows guys that it's actually a lot more manageable and tolerable than they otherwise might have thought, which is cool.
Speaker 2:Yeah, brian. So I was talking about that like you're going to be forecasting it. Either way, you're really going to be using your emotions to forecast, or you were using the numbers, and this is where it does make sense to have your head in the numbers. The other part of it, too, I think, on the education front is and I'll be curious to get your thoughts just reminding yourself that these are cycles, so we're at the top of the cycle. It doesn't stay this way, because we keep drawing that line.
Speaker 2:If you join, I'm like this sucks today, but it's still going to suck like this in six months time, in 12 months time. What about 24 months time? What's it going to look like? Particularly, right now we're at the peak, like literally yesterday, us Federal Reserve came out and said we're at the top, it's only down from here. We expect to be cutting, and I think the markets are now predicting that they expect to be cutting 75 basis points, or three quarters of percentage, throughout next year. Now, famously, they overshoot and undershoot, so I'm betting that it's more than 75 basis points. I'm betting that. The point is that's going to change things a lot, because everybody follows what happens at the US Federal Reserve, because that is the world's reserve currency and everybody kind of follows suit. So how much do you think that matters? To kind of really just remind yourself this is cyclical, it's not a straight line. It's not going to be this way. How it is right now isn't how it's always going to be these cycles move so quickly.
Speaker 1:If you look historically, just thinking about interest rates, by itself it is the weather, it's not the climate, and the weather does pass. Then you move into a different season. Also, just forecasting beyond particular points in your life as well. I spent a lot of time with young couples that are starting to build their family, and there's maternity leave time and there's periods where you don't have both feet on the accelerator, and that's how you kind of look at points in time in your life too and go well, it's just for this period. Once I get past that period, it looks very different again.
Speaker 1:And so, with the stocks that we have in terms of how much money we've got in the bank, should we hold out and continue on or do we need to make some changes here? And so often being able to go well, yes, this is right now based off the decisions we're making about how we want to spend our time, but that will change in nine months or in 18 months, and we actually have enough to see through that, and once that changes, things are actually very manageable, very tolerable as well. And so, yeah, it's kind of the economic factors, but there's also the personal, family, lifestyle factors as well that you want to be able to forecast through and pass, and there has to be a bigger, longer term vision as well, to kind of get you out like, help you zoom out and actually understand okay, cool, we are shooting for this.
Speaker 2:And Bryce was really good about saying this like does control you. So to what level do I want to be controlled? For what end? And I think that's really important for you to really think about. Like this is a tool, but it has and it comes with these consequences, and so that choice a big, very conscious about that choice changes your experience a lot. Because if you feel like you got sucked into this because you thought you were going to miss out and you didn't really understand debt, and now this situation is happening the rates are rising you're like, holy shit, I fucked this up right. It's a very different experience if you said, okay, so we're going to make this decision. What this is going to mean for us is this is going to ratchet up the pressure on our life a little bit, but we're doing it for this purpose. That internal experience is very different. You have a lot more resilience.
Speaker 2:There's a really famous TED talk I think it's Kelly McGonagall or a sister. She talks about stress and the way you look at stress and the way you perceive it. If you believe that stress is a bad thing, then it actually breaks down your body and it has a negative impact on your health disease, all that kind of thing results. But if you believe that stress is a good thing, then actually it can help you grow and I feel like there's a huge parallel here with debt and if you don't understand it, you will perceive it in a way that's unhealthy.
Speaker 1:I reckon I know we've thrown that comment around like being controlled by debt, like that. That's a thing, and it's important to note that that's not binary, like it's not that you are controlled or you're not. It's more about how much you feel controlled by it. And for a lot of people, like we talked about education, but also having the right tools to get the right perspective on how things are going to with forecasting and stuff like that, you can massively reduce the amount that you feel controlled by it. Even if it's the same amount of debt, the same whole, all the conditions, the exact same for one person and the other, one can feel a lot more controlled by it than the other, just purely by the way they see it, the role that it's playing. Like you said, it's good pressure or it's helping take me closer to that Interest rates to go through seasons. These things change All of those things that help you feel less controlled by it at the same time, because it isn't just the money in the bank and the decisions that you have that you can make with it it's a factor for sure but it's also how you feel and the decisions you feel free to make when you have that on your books at the same time.
Speaker 1:And that perspective matters a lot because, like I said, there's two different types of people. One person will feel quite stuck with it, another person might not even blink at it at the same time. So what is the difference? Yeah, often it is education. So that was the second one, taking a calculated risk. What's the?
Speaker 2:third one. Third one's dragging a ball and chain. So you've got debt. That's manageable but it's intolerable. So you can do it. It works in the numbers for you, but you just don't like the experience, maybe because you're not educated, or maybe just because you don't like debt. You actually want a very simple life. You want it to be not too many moving parts. You don't want other sort of variables to be impacting you as much as possible. If you know yourself really really well, then that's fine, that's good. But if you don't know yourself and you think I have to be doing this because I have to be doing the most I possibly can with my money and you're optimizing for the wrong thing, you can actually get in a situation where you're like, yeah, this sucks, we want out of this, we want to sell out, we hate it.
Speaker 1:I would assume this person really likes watching the news.
Speaker 2:Yeah, that's a good point. It's a good point. Yeah, I reckon they would. But how much of it is down to education and how much of it is down to the news cycle? Yeah, like, if I'm uneducated and I'm watching the news all the time, it's likely you could feel this way with debt, especially now. Right, I saw a research article that was like the. It was comparing the number of articles in the news cycle that mentioned interest rates per country. Australia is topping out. Australia is like topping out. Yeah, yeah, it's worth smashing everybody else. It's because I guess we're so sensitive to debt here, like debt in other parts of the world, like we've talked about it on the podcast. Like in America, you know, if you bought a house in COVID and the interest rate, some people got 30 year mortgages at 2.5% in COVID, right, and that's a 30 year mortgage, that's done, whereas here that actually isn't the case. You're always in and out and we're a lot more fixed, so we are very sensitive to where interest rates are at. So it makes sense that the news cycle hooks into that, because that change is like hacking into biology, attacking your biology and, yeah, hooking into those fear centers.
Speaker 2:What would you prescribe for this person. I mean obviously both. Like, I think education is more important because even if you don't watch the news, you're going to be hearing conversations with other people who are uneducated, and if you don't know how to filter the information, then you'll just get sucked into the group, think that happens and you'll feel like you know whatever the group's doing, whatever the group's saying, is actually Right and good and you should probably pay attention to that. Education is the panacea for that. You need to be able to see through that stuff.
Speaker 2:So, yes, turn off the news, but it's not gonna be enough, because everyone's gonna talk to you about it. Everyone's gonna be making conversation. You need to really go back through the start of this series, go back to it again, go back to all the show notes, really understand it and when we do drop this module for you, watch this module. Watch this module. Watch it three times, richard, four times. Take some notes, have a conversation about it, teach somebody else about it so that you can internalize these ideas, because it literally is the complete opposite of what you feel most of the time.
Speaker 1:Yeah, yeah, I love it. I think maybe adding some meditation to go along with it, just to help with the Reactivity, so that you can get, with just all that information there's thrown at you which, like you said, negative news the ability to kind of hear it but not feel it straight away, be able to think through it, kind of consider it, see what it actually means, go back to the other things that you've learned and then kind of go from there. So that person is dragging a ball and chain, yeah, what is the final one? So you said there's four in the quadrant little to quadrant, so that should be for you.
Speaker 2:So the last one, committing financial suicide. So that's where you've got unmanageable debt and it's also intolerable. You've taken on too much and this is not something that suits you at all. So you're uneducated, you've taken out too much and you're probably gonna be looking at your partner going this decisions, fuck this. You're in a world of hurt there. Usually here's where you're gonna be a force seller and you'll be one of these people that says that's really dangerous, that's really bad. You're a classic here.
Speaker 2:I want to call this out Dave Ramsey hates debt. Why does Dave Ramsey hate debt, anyone know? You know, because Dave Ramsey committed financial suicide. We went back to nothing. So he's got that very categorical view now and sort of says this is no good, you shouldn't do it, get out of debt. And For the average person who isn't running the business the day Ramsey is running, that is actually Quite bad advice, like it's very bad advice Because imagine you're in like 50 grand a year. You've got to make your savings work hard somehow, but then you've got the guy telling you debt's bad, it's just bad. He's literally shut down the conversation because of that. So you can't separate things from your own experience, but you do need to think about things beyond your own as well. So yeah, that one comes out a lot right.
Speaker 1:He's obviously not trusting his audience. They'll be able to understand it to that level as well. I would assume he would understand it.
Speaker 2:And I don't know, ramit say he's story, but he's the same demonizes debt, demonizes debt. And so I kind of think of it like it's either you haven't gone down to the studs and understood the monetary system you don't understand that or an experience of yours is clouding everything else. See the one of those two things, because before we'd sort of actually gone down and understood through the Bitcoin side things, it's exactly what I would have said. You just look at the finance side of it, the surface level, and you go, yeah, debt, that doesn't make any sense. And you hear the Warren Buffett's of the world saying, you know, leverage is no good and that sort of thing, but leverage is exactly what they used, not with our investments in their life. He's leveraging a life. So it's just interesting to me to kind of look at that and just be wary of that categorical thinking I've fall afraid to. I'm not saying I'm better, I'm just saying like, think through that, think through that I think there's a real consistency bias.
Speaker 1:So like the guys start out kind of preaching a tune and they stick at it. Like I didn't know. For us in the first season of a podcast it was quite one-dimensional, you know, looking at different assets choice you got, and we didn't go to these layers that actually came with time which, like we talked about the crypto series that we did had a massive influence on our understanding the monetary system itself and the importance of debt that it plays into it, which obviously leads into these conversations and it's the evolution of our learning over time. Whereas I know there's a lot of guys do kind of say the same thing over and over and get really good at Fine-tuning that tune itself, they don't kind of update their assumptions as well, because it almost feels inconsistent with what they've been saying before. So I'd imagine that would be a bit of that consistency bias playing in there.
Speaker 2:There's an incentive to just keep saying what you said, because you know, at the most animalistic level, people want to be seen to be consistent, and so when you change your mind at a base level, people go oh, that's not good. Changing your mind represents that you're learning, you're updating, and so For me personally, whenever I see somebody who isn't changing their mind and they'll usually start to lean on the words I've been doing this for X amount of years. They've been living the same year for however many years they quoted you. Basically, I Think you got to keep learning. You got to keep learning. You should be changing your mind. That actually should be the thing. I know that's a risk for something like this.
Speaker 2:Here. I'm saying like we've changed our mind with this, because what happened in COVID Absolutely shone a light on actually what's going on behind the curtain and if you did the work for sure, you could see who the winners and losers were. And that's why we wanted to do this series, because what we were saying in the first season pre-COVID very different world, very different world, and Honestly, it's been a different world since 2008, but really now it's accelerated because we've got to the end of that kind of cycle.
Speaker 2:We're getting everything's a lot more kind of tied up now and it's a lot more sort of sensitive. So if you don't understand it and you just keep kind of just droning on with the same thing, it's dangerous.
Speaker 1:Got to keep learning, I reckon and on that point you know I mentioned before a brasses comments about shares. First, property shares being a better asset than property. The disparity between those two was a whole lot less ten years ago, or definitely 15 years ago, because the role that plays in helping you buy more of those you know how much you willing to borrow to buy property, how much you're willing to borrow to buy shares One that's changed because now people will go to 90 95 percent. There's changing their itself, but more so the amount of asset inflation and the amount of new money that gets created has massively increased as well. Like you talked about with the stimulus during COVID. That was huge, but even just the last ten years has been massive, and so that's actually caused a big disparity between those two. It's only that we're really kind of seeing that that, coming to fruition of these last four years in particular, that has created such such change, which means you have to update your operating.
Speaker 2:What is the same, though, for us is, like one's passive ones active, like real estate's. Not passive, it's active, and you know that was the preference too, and, to be honest, for me it's still preference, but it's just not strong enough to not have any exposure to debt. It's not strong enough really. Now it's like, well, no, I can't really afford to not have any exposure to debt, need to have some, and you can do that number of ways. We've talked about debt recycling, talked about real estate. We like real estate because of all the properties we talked about for the, everything that Bryce talked about, with how much debt you can have and the manner in which that debt is treated very different to shares.
Speaker 1:Yep, and the way that our economic system supports property in particular is a big factor too, right? Okay, so there's four you laid up there. Debt quadrant you can be walking a tightrope. It can be tolerable but unmanageable. We've got the taking, a calculated risk of which is where we want to be, which is it's manageable and it's tolerable as well, so we feel good about it.
Speaker 1:The third one you said was dragging a ball and chain. So it's manageable but intolerable, and it could be something that you could actually maybe educate yourself through it and build the systems and the tools. It helped you change the way you feel about it. And then the fourth one, committing financial suicide. So it's unmanageable, it's intolerable, you know, and, like you said, it's, it feels like a decision that you're probably saying this decision fucked this, and it might not be that you made that decision now and it was instant. It might be a decision you made five years ago and the way it's come to fruition, life-changing and all these things. Now it feels like you know it's, it's in that place. Anything else you want to add to that quadrant? You?
Speaker 2:know it's worth a read, because we'll kind of go through all the different types of debt and I sort of laid it out as like a Level one is what you need to know, level two so it's almost like a game. You love your understanding up as you go, and we'll have a link to this in the show notes as well. So if you want to actually see what I'm talking about in terms of this quadrant and actually how it plays out, it'll be there for you. Yeah, brad, basically those two dimensions we talked about manageable and tolerable. We're gonna go deeper on each of those now through these concepts. So we're gonna go through manageable first and go the debt ratio gauge and then we'll go through tolerable and we'll talk about life windows, just to kind of help you think into that more, if that makes sense, yeah, awesome.
Speaker 1:Well, let's go into a bit of a deep dive onto each of those. So I've talked about manageable and tolerable. Really want to start with manageable and kind of unpack this a little bit. And there's a model that you know I always talk to clients about. This is included in that little Christmas gift that we've included in the show notes, which is the debt ratio gauge, and it's basically it's looking at really considering how much debt you're willing to take on and how it changes with different seasons, and so I guess there's a bit of a Goldilocks zone that exists for you at different times and that Goldilocks zones is always kind of shifting and it's very much, you know, it's looking at what you owe. So the debt ratio part is how much you owe versus what you own, and so it's not just the loan to value ratio that usually you look at. You know how much is borrowed against a single asset, how much is my mortgage against the house. That's what you call a loan to value ratio. The debt ratio gauge is more just looking at your entire position and considering how much debt do I have against all the assets that I own.
Speaker 1:And, like I said, there's a bit of a Goldilocks zone that tends to move a little bit, and I'd say the best way to really kind of internalize this and see it because it is quite visual you know I've used a bit of a temperature gauge to teach this is to jump in and watch that module. So this module is actually called stepping into the third dimension and, like I mentioned before, you know, our first part of the show was very, quite one dimension, or we are just comparing the assets. The third dimension is the role that debt plays into it, and so I definitely encourage you to jump in there. You know, we're just thinking about some of the comments that guys have made to us just off the back of listening to this and watching this module, and you know if I've got comments like it's the most useful thing I've ever learned in personal finance and we've never looked at it like that before, and this has completely changed the way I feel about our situation. Comments like that are pretty common after they've watched this and just because it's a huge reframe on the way that you look and, importantly, it changes very quickly how people feel about, in your thoughts, exposure to debt, and so this is something I'd say dive in, have a look, and there's really three big considerations in terms of how this works and what it's always taking into consideration for you when you're looking at how manageable it is for you.
Speaker 1:The first one is the anticipated return. So, with the asset that you're buying with that debt, what you expect to get back from it there's a 10% or 12% return, for example, and with that return, how much of that is coming back in the way of income, which has a direct impact on your cash flow, which leans into the next consideration, which is the cost of debt. How expensive is it to use that money? And obviously the interest rate right now is having a considerable impact on that in terms of it being quite high, and so the anticipated return and the cost of debt always influence how much of it you are probably willing to take on. And that's where that Goldilocks zone can shift a little bit, because if interest rates are really low let's say the interest rate is back down at 2% and you're expecting to make a return of 12% then your Goldilocks zone, that green zone, is going to be a lot higher in terms of how much debt you have in relation to what you own, because you're highly incentivized to take out more debt to buy more assets, because if you don't, there's a real opportunity cost to not doing that, because for every $100,000, you'd be losing $10,000 in that scenario the 10% difference between 12% and 2% and so that's quite high. The third consideration that comes into this so we had anticipated return, where you think you'll get back and how that split between income and growth on that asset, second thing being the cost of debt, the interest that you're paying on it. The third thing is your savings rate, which is essentially how much of a gap do you have between how much you're earning and how much you're spending and how much you're willing to subsidize the cost of that debt if required?
Speaker 1:Right now is a perfect example of buying that first investment property. The probability of having that be cash flow positive is very low because your interest is going to be around 6.2, 6.5% At this point in time. Right now. The chance of getting a 6.2 or a 6.5% yield, for example, on a property on something that's in a really scarce location it's got that really investment grade characteristics about it that Bryce talked about in that last episode.
Speaker 1:The reality is a lot of those assets have seen a lot of inflation over the last couple of years. What you're paying to buy those is quite considerably high. The yield every time the price goes up, the yield which is the rents that you're earning from it relative to what that asset's worth has fallen quite drastically over the last few years. Because you can only increase rent by $10 a month or $10 a week or whatever it is. The price of that asset has changed a lot. How much you're actually able to earn from a yield basis on those properties has fallen quite a bit. The reason my savings rate is such an important factor is because there will be times like this that you do need to subsidize where the cost of the debt is greater than the income that the asset is earning.
Speaker 2:There's a few moving parts there. It's interesting because, just listening back to that conversation with Goose, it actually does depend on how you're looking at it. When he talks about yield, he actually says yield's going to increase over time in properties, because he only actually looks at what did you put in and what's your income from what you put in, not the actual debt. He was actually looking at it going. I will see yield increase over the life of these assets when I'm measuring against those two things. But when you look at the price and you see the price ballooning actually looks like the yield's getting less. It's just kind of interesting to see how he thought about and looked at that.
Speaker 2:The other thing I picked up on there was he talked about these three constraints of a portfolio as well. He talked about capital, cash flow and debt. He thinks about that pretty holistically too, like cash flow from the asset, yes, but also cash flow from you and how all this comes together. You talked about savings right there and anticipated returns. It's almost like these are kind of getting squashed. But how is that interacting with what's going on with the capital and how fast that's accelerating and your exposure to debt?
Speaker 2:He was kind of looking at that, saying those are the three constraints and that's what he's managing throughout the course of an investment. So he would actually be using something like your debt cage and looking at that how that debt gauge is changing over time to look at, all right, when is the time to go again? When is it time, when is it unmanageable? When do we need to address or what do we need to do? What do we need to do? We need to sit and wait? Interesting parallels between those two things, just kind of thinking back on how they ride that experience, if that makes sense, what they're actually looking for. Because one of the things he said was there might be periods where you just have to sort of sit, let your portfolio breathe and let the capital grow to create more space to be able to make your next move. There are other times where you need to go and it really does come down to looking at that debt gauge.
Speaker 1:Really doesn't it, yeah, yeah. And coming back to what you're saying around the yield relative to how much you invested in it, which Goose was talking about, I guess we probably talk about it with slightly different frames based off what we do. I reckon as well, because he is looking at going right deposit here, buying this asset. What does that mean over time? My bent on it is I'm always looking at it, sitting down with clients looking at their cash flows, thinking about how we find that balance between covering the costs making these investments but also living a good life at the same time. And it is like looking at those factors, what the cost of debt is, what the yield is, but making sure it's really manageable through that period as well. For those guys, because they're both true, they can absolutely both be true that it could be unmanageable even though it's a growing yield in the sense that in the real life it's unmanageable, but the return on capital and what it's doing is good.
Speaker 1:Theoretically, 100% makes sense, and I'm not saying he's wrong in any way. I completely agree. They've got things in place to make sure that I put clients in a position where they cook themselves either More so, just looking at it and going if you map out your own cash flows and you're looking at and purchase right now, buying something that really has all those traits that you want it to have, you have to subsidize. It's going to be a 1,500 bucks a month commitment that you do need to make to that right now, which is the nature of the game.
Speaker 2:It's how you view that, like if you go into this eyes wide open, you don't see that, oh my God, I've got to chip in as a problem. You're like this is expected. This is part of it. I'm either putting into this or I've got to put it somewhere else. What's my higher return? This is actually the game. It shouldn't be a violated expectation. You're like well, that's the game I'm playing and these are the consequences of the game that I'm playing. So I think that's really important too, because people will be like wow, this sucks, cause all my cash flows getting tied up by this property. You're like but that's the game you're playing. Like did you not know? That's what's going to?
Speaker 1:happen. You know, and this is why you always need to play out those decisions, simulate them, see what they mean over the next year, over the next two years, before you actually make those decisions, because the data points exist for you to be able to look at that before you actually pull the trigger. You know, we do it all the time with clients.
Speaker 2:So we've just gone through that debt gauge model. Let's actually just ground this in a bit of real world and just kind of look at what's unmanageable as an example and what's manageable. So maybe let's just talk about what would an unmanageable position look like?
Speaker 1:Yeah, I would say unmanageable. The first thing is you have a low savings rate. Let's say there's a high cost of debt and there's a chance that if the interest rate increased by 1% it would massively impact how much you've got for other important things, and maybe a 1% increase on a $500,000 loan halves what you have for savings for other things. That would be a consideration. So you have to think about how it does change. And the other thing would be a low anticipated return. So a low yield on, like we talked about recently, inflated asset is something that's quite important to consider.
Speaker 2:And if it's not a good property and it's in one of those areas that doesn't perform and they just trade sideways for years, then you just find yourself in this cashflow trap where you're like, well, this sucks, and that's why it's so important to go. Well, a lot of that risk is in the decision what kind of decision you make around what property is.
Speaker 1:if you're using a property, that's right, and so it's considering like things as they are now, but also factoring for change ultimately. So that'd be probably the key ones Low savings rate, cost of debt is high and you've got a low anticipated return. That would be unmanageable and that's why it's so important just to always have a margin of safety. You can't control the cost of debt. Yeah, that's decisions that will be made outside your control and half the time, most of the time I'm gonna say all the time it's hard to anticipate how that cost of debt will change. But you can control your savings rate and, importantly, also the quality of the property that you're buying, and so they're the things that are within that, you know, your locust control, influencing how much you're earning, how much of that you're keeping, and choosing a property that is investment grade. You know like those few traits that Bryce mentioned were great to consider. Oh, to occupy a friendly investment grade, it can earn an income and it's in a really scarce location. Really important factors.
Speaker 2:Love it. Let's talk about manageable. What does a manageable position look like when it comes to debt?
Speaker 1:Yeah. So I suppose we'd flip those a little bit. Savings rate it would be high. Maybe you're saving at least $20,000 a year, maybe it's more like $2,000 a month. At least that would give you a really high savings rate.
Speaker 1:Obviously, the cost of debt it's leaning towards it being lower. Maybe it's something like three or 4% or lower. Importantly, the income from the asset you're buying if that's a property or it shares covers most, if not all, the interest over the year, and so you're not actually paying for the interest out of your pocket. You're passing on that cost to the tenant or to the person that's out working and the customer that's buying off the companies that you own. And, importantly, it alludes to having a high end, to a bad return. So you're expecting the income to cover the costs absolutely, but also that there will be solid growth, that the asset that you own will be worth more in the future than it is now. That's obviously the flip on unmanageable. Manageable is you've got a lot of savings, you're able to save a lot, the cost of debt is manageable, covered by the income from the asset, but you also can get the growth that comes with it too.
Speaker 2:As well. As interesting. Between the two approaches too, there was only like Goose versus Bryce Goose buying cheap growth assets before they go and then slowly consolidating and then moving toward a cash flow focus over time, the leveraging after that. To be able to free up time and have that sort of choice, just got to have a really high tolerance for debt and a secure income, I think, and really be across that debt gauge as you go.
Speaker 1:Yeah, and I think Goose is probably more willing to forego on scarcity. By the sounds like going to regional areas and areas that aren't as tried and tested in terms of there can be more release of land and things getting built. So I think there's kind of trade-offs in those approaches for sure.
Speaker 2:That's why the timing part matters more, right, because he's not saying this is a buy and hold asset. He's saying this is an asset that's about to go, and then, like I use that snakes and ladders analogy like we're picking this ladder now and we're about to jump off this ladder and go to this one because that's the next one that's about to go, you got to jump onto this one now. So your timing of when to jump and what to jump to is critical, and that's why the big data thing's so, so important and you got to like that game.
Speaker 2:You got to really like that game.
Speaker 1:You got to be high tolerance for sure, cause the anxiety of selling and changing and trying to switch, to find to jump onto the other ladder yeah, not an easy thing to do, cause you're taking on the transition costs to sell, to buy and then have the game outweigh the costs of change. Yeah, not always an easy thing to do, but that's why you have professionals support you through that Exactly exactly yeah.
Speaker 2:And then, bryce, buy expensive assets that are always going to be in demand, have a system for paying their debt down so that your savings work harder over time. And it doesn't have to be a whole lot of many properties, it's actually just a simpler approach. It's about letting time do the hard work, do the heavy lifting for you. The thing I said to Bryce about his approach was the thing about yours is you really want to make sure that the way you're earning is the way you want to earn, cause if it does make it harder, like, you want to make sure you're in a kind of career where you can play the long game and you're not going to get shaken out of your position because something's going to change. That would be one of the biggest variables, I think.
Speaker 2:So, making sure that you're like actually I like maybe I'm a doctor and I just love this job, whatever I'm like in, have at it, you know, go hard, go early. But if you're in a kind of career where you're like well, I can't see myself doing this in another sort of three to four. I don't really know what the next thing is going to be. It's going to be harder for you to get that kind of compound growth that you want. It's not impossible. It's just going to make it a bit harder, isn't it Right?
Speaker 1:Actually a crucial point. I think this is probably something that also changed a lot for us, Like for me, taking on more commitments that meant that I was staying in a job, that I was unsettled, that feels like a way bigger deal. Now that you feel settled, built business, doing the things that we enjoy, doing the willingness to take on commitments massively changes Because you're like well, yeah, I'm happy doing this for the next five, 10, 20 years. When you're not seeing it like that, then anything that gets in the way of you being able to change and being able to do something different is actually an obstacle, so that's actually a huge insight.
Speaker 2:I've said that before. That's why I didn't really go into property when I was in sport, Cause I'm like this is a limited time, it's fickle as fuck. I'm going to need to change at some point and the job my money needs to do for me is to enable and facilitate that change. That's it's number one job, and so just can't be overstated. Like you really got to know what game you're playing, what are you optimizing for? Because that's an awesome strategy.
Speaker 1:If there's anything that can take you out of that game or it can shake you out of that position, it doesn't matter, yep, where massive advocates for give yourself the space to do that exploration and finding the work that you find meaningful, cause it's a thing that removes half the need and half of the depth of desire that comes with wanting all this passive income anyway. And look, when it comes to manageability. We want to make a really key point here. Your savings rate is your savior. So if you've got high ambitions but low discipline, think twice about how much debt you want to take on. If you've got a really good, solid savings rate, you know you can take on more, and more is manageable.
Speaker 1:You need to consider do I want to make changes and will it actually keep me quite stuck in my lane that I'm in, and do you want to change lanes? Importantly, just never let your ambition cloud your reason. It's so easy to go. I want to go big and make decisions upon that. You still want to be diligent in that process of going. How much works through it methodically? And so, like I said to the last one as well, just always have that margin of safety. You don't have to push it to the edge. Sometimes for the odd few might be one of those guys you can push it absolutely to the edge and it can work out. But do you need to and do you want to Is a whole nother thing, which probably leans us into that tolerable part. Right, do you need to? Do you want to? So we think about tolerable. I know we've got a model here that we use quite a bit with our clients, which is the life windows, which is something you've brought together. Do you want?
Speaker 2:to talk through that yeah so this is really about timing when does this make sense for you and what's about to change in your life and what kind of impact that's going to have. So let's assume that you're educated now because you're listening to this episode. You're more educated than you would have been otherwise. There's still an element of like your life and your life cycle that changes how tolerant you can be to debt and how sensitive you can be to that exposure of debt at each period of your life, and it's really worth thinking about because it changes what your money does for you at different periods. It changes the choices that you have, and so if you feel like less wealthy because of the debt and you just feel like I just want to throw my hands up in the air and want to do nothing, then it's going to be just harder for you to play that long game. It's going to be harder for you to get the compound return that you need to have your savings accelerate. So this model is just really handy to give you context and actually just help you look down the road a little bit and benefit from age and experience, and what we know changes at each point in time, so you're not just making the decision based on today. You're making it based on the next 10, 15, 20 years. Critical right Because Daniel Kahneman we've spoken a lot about Daniel Kahneman early stage of the podcast behavioral economics.
Speaker 2:Nobel Peace Prize winner he had this really great concept that he wrote about in his book Thinking Fastest Flow and it was what you see as all there is, and so how you see your life now, you just project that into the future. But the reality is like I am completely different. My life is completely different. The things I care about, the things that are important to me, you reverse eight, nine years in my life completely different person. But what we tend to do at that period is take our current self and project it forward into the future, assuming that who we are now is who we're going to be. What we care about now is what we will care about, and that actually never happens. It just never, never happens.
Speaker 2:So life window is really important. So you actually know what choices of optimizing for in this window, what do I want to optimize for in the next window and, ultimately, where am I going? Because once you move from one window to the next, that window's shut. It's shut forever. Last year you went to Europe backpacked all around Europe, did all those kind of things. The version of me that wanted to do that, that version of me, is gone, dead, buried, doesn't exist anymore. Right, it's not a choice that I have at this point, right now, at this moment. It's gonna be much, much harder for me to do that. I'd have to have some kind of life breakdown, right Like break up no kids, no responsibilities, nothing going on for me. I'm just going to go and vagabond around.
Speaker 1:Europe. I'm still convinced that I could just have one of those twins on each shoulder and a laptop in front of me and make it work, that's a good nuance that you're making there.
Speaker 2:So I'm not saying I can't travel around Europe. What I'm saying is I can't travel around Europe by myself and do whatever the fuck I want when I want, and so you're going to have to actually understand what we're in right now. What do I want my money to do for me now? That'll be harder for me to do later, more expensive, more damaging, and just understanding how time, health and money change. So this is really influenced by that book, dio with Zero, that Matt and I talked about as well.
Speaker 2:Time, health and money change at each of these windows in life, and there's five windows freedom, responsibility, counsel, exploration and legacy. So let's go through each one in a little bit of detail and we can kind of unpack if you want to. But the first one's freedom, right. So you're in freedom right now. Time got heaps of time, nobody's got to claim. When you're time, you can literally do whatever you want with your time. Health, best of your life, vital, healthy, vital, looking good, feeling great on the beach, fantastic Money, growing, growing.
Speaker 2:So this is like think about early, early days. You're growing your income, you're getting into your year, you're establishing yourself. This is a peak saving period in your life. Because your overheads are lower, your money's growing, that margin between what you actually need to live off and what you're making is expanding. You start to get towards two incomes, but you don't want to just obsessively just save all that money for a rainy day, because there's these choices that are going to go away from you. That's what Matt and I talked about the travel that he did before they had the kids, the travel that you've done this would be one of my bigger regrets and really not spending enough time and money on that. Just because of the career I was in, I just didn't have enough time to be able to do it, and that's why one of my biggest goals now, in this next window, is to be able to really make it happen with my family. I'm like I know it's going to be harder, I know it's going to be more expensive, but that's really what I want to do. I want to be able to explore that, explore the world with my family.
Speaker 2:But the point here is this period. Here everything seems simple, easy and but you move through into the next window. Your time goes to nothing, your health is fair, but it starts to go on the decline. And then your money. It should still be increasing a little bit, but the majority of it's going to be being spent, because now you incur all these different costs that come with kids, that come with house, that come with marriage, that come with mortgage. They all come in at once. You're right on the edge of this window, matt. How are you feeling? You're about to walk through this curtain. You're engaged, the house is coming. You got the dog. You know what comes after the dog.
Speaker 1:We're holding on to dear life is what I would say Responsibility. We did start a business, though, and it comes with elements of that too. So, yes, kids are a big part of it, but, yeah, definitely one foot in responsibility at the same time.
Speaker 2:The point here is like who you are shifts dramatically your obligations, the things, the claims people have, the time that you have, what your money can buy you, how much money you have to buy things, changes dramatically. Even if you are making more money, it's just peak spending periods of your life Marriage, mortgage, kids, all these things kind of stack up. And then you go into council after that and council is where your kids are starting to get a little bit older. Maybe they're getting to high school so you don't have to stop and kill themselves every day. Your health is still okay but the rate of decline starting to accelerate a little bit more because you're moving more towards probably more 40s, late 40s, but it's probably starting to get towards your peak earning years.
Speaker 2:You're starting to really reap the harvest reap what you've sown, reap what you've become in terms of your human capital. It's now working pretty hard for you, but again still peak spending years because you still got all those costs. The costs keep going. You keep earning more, so you're sort of like you might be trading water, but if you're working really hard with your human capital you can still be expanding. But the reality is these two periods responsibility and council peak spending years of your life Anything you add to that, I would say, when you're getting into council.
Speaker 1:Hopefully at that point you're also seeing the compounding of your financial capital as well. Like having made decisions early, made the most of those first couple of windows to set this up.
Speaker 2:Yeah, your paper wealth will start to look pretty different. Here You'll be like, oh okay, if I've made some of those decisions, I'm going to start to see a fair bit of equity or some growing equity where I'm like, okay, this is starting to add up. Then you move into exploration. This is where you get back to having a lot of time. Your kids are probably leaving home. It's an empty nest. Your health is now starting to rapidly decline. It's a battle, it's a race of how much you can actually get out of that money before You're way too old to do anything. But it's your peak having years. I'd say this is the peak having years. Your peak earning years were council. Now it's the peak having years. You have heaps of time. You have more money than you ever had.
Speaker 2:The saving is peak saving. You're back to peak saving. You think about it. Before we said freedom, peak saving. There you go through the economic winter of your life where it's freedom or it's responsibility and council. Now you get to exploration. You go back to peak saving again. This is where you start to see people really smash into super, really put a concerted effort into this to be able to do it as well. This changes things dramatically again. The level of obligation, all those kind of things start to change too. Even if you do have debt, your debt ratio looks pretty healthy probably at this point, depending on how you've managed it. For the average person, I would have thought.
Speaker 1:Yeah for sure. Big factors there, big periods there where kids if that's a choice that you make kids their expense, but it's also how it impacts how much you want to work and income that you're earning because you want to be prioritizing that time with the kids. And it's not that that's wrong. It's actually that the grandma, grandpa version of you will say to you make the most of that time. That is what you are optimizing for, like be present, take the time. Then. You don't need to be at breakneck speed from a savings rate perspective during that period. That's okay. It's just that you want to make the most of the shoulder seasons of that economic winter.
Speaker 2:Yeah, and I think it's just important to know, like that's there, it's coming. It can feel just very all-encompassing, particularly when things change and we're at this kind of interesting period where things have changed fast. But the reality is that period always comes. The period always comes where things start to get a bit and I don't want to say easier, but things start to stack up like your efforts do compound and you start to be able to enjoy the fruits of that labor. So for me I always remind myself of that Like this is we're going hard now, we're running pretty hard, but that's actually exactly how it is. Nobody doesn't run hard through this part of life. Everybody does.
Speaker 1:Yeah, it's so worth calling out like guys in that second window, third window. We work with a lot of these guys in that responsibility council windows.
Speaker 2:It's not just you, it's not just you, everyone, everyone, like talk about Bryce, his situation same thing, oh, fair, same thing. He's like man. These are like really tough periods and they're just that is it. That's just how the life cycle works. Last window here is legacy. So now you've got complete control of your time again. The kids don't want to borrow of you because you're too old, you can't do anything, you can't go anywhere, you're health's shit house. You got the most money you ever had, but it doesn't buy you anything.
Speaker 2:So this is the last part. Obviously, you know, bringing this back to debt. It's just really just important for you to think about. Like what life window am I in right now? What choices do I have? Or do we have that we won't have later? What are we going to optimize for?
Speaker 2:Because once you step into that next window, what's going to change? What are the things that are likely to change? So if you're making decisions about debt in the freedom part of your life without considering what's going to change in the next part of your life, you'll get whacked in the face and you'll be like what the fuck happened? What is going on? That response that can again shake you out of your position. It can make you feel like you made a mistake, because the feeling of discomfort is something you think you should escape from, but actually it's what it is. You need to normalize that. So you just got to ask yourself what matters to you now, what's likely going to matter to you in the next phase, what are you ultimately optimizing for, and how does debt make sense in that pathway for you at all?
Speaker 1:Love it. Yeah, brent, and for me, whatever makes me zoom out and get context and game perspective like we talked about with what Bryce was saying at the last step this is the same thing. When you zoom out and go well, I'm in this window right now. I zoom out and I see the other windows, especially if you're in that second and third you go. Well, this isn't forever. It gives you that context and completely changes the way you feel about it, in my opinion, and so those models just help you kind of reason where you're at, what decisions you should make, what you should be optimizing for, but also allow you to go. Things will change, change is constant and things will evolve, and so sometimes you do want to just hold on for dear life and go well, I just need to get to there. Other times you go well, that's not what I'm optimizing for. I need to make changes now to make sure that I'm making the most. I'm living in the window that I am, and so that's always going to be different for different people, isn't it?
Speaker 2:If I think about the heuristics, it's how do I take calculated risks with debt in a way that doesn't make me feel poor to get rich, if that makes sense, because it is that sort of like I feel poor thing that compounds with people. That kind of starts to mess with the situation, like what am I even doing this for? The pendulum starts to swing the other way and people start getting really reactive. So you want to take on enough pressure so that it helps you rise to the occasion, but not too much that you feel like, no, I'm not living for today at all, it's all for this imaginary tomorrow I can't even see the end of the tunnel. I'm done, yep, brilliant.
Speaker 1:Matt, I think that's captured that quite well. So we talked about the debt quadrant, which is looking at those four different places you can sit in ultimately in terms of how manageable, how tolerable when deep into the manageability side of the tolerant side of it, and looking at those life windows and where you can sit. Anything else you'd like to cover?
Speaker 2:I just think, if you're thinking about what do I do with this information, like four key steps, watch this third dimension module. Guarantee that if you watch this a couple of times and you really internalize it, it's going to change the way you feel about debt. That's in the show notes. The second step would be just identify your current life window and the next one you're about to go into and understand what matters to you now, what will matter to you, what's likely going to matter to you in the next phase, and ask people who are ahead of you. Actually just ask them and say what do you not worry about now that you used to worry about, what do you worry about now that you never used to worry about? What's important to you now that never used to be, and just kind of get a sense for how that's going to shift and change.
Speaker 2:So you kind of start to think about in terms of my values and what I want to optimize for, how's debt likely to play a role in that and how much makes sense for me at what point in time, and define what matters most. That's step three Define what matters now for you, what's likely not to change and later what might change and then after that that'll help you decide what role you want debt to play for you. That's probably the conversation I'd say, or the steps take after this series and after this episode, and hopefully we've given you heaps to chew on. This is actually a longer episode than we thought, but we did want to make this useful and there were so many things we had to kind of pull together. So if you make use of this information, you'll look back on this and actually you'll realize it can change the trajectory.
Speaker 1:Yeah, definitely want to say you've been through a lot, we've covered a lot here and it's probably challenged you in a lot of different ways, but hopefully you can see now, going back to what we said right at the start of this series, the value of knowing this first. Not knowing this is massive. It's extravagant but might mean 10,000, more likely, hundreds of thousands, if not millions of dollars in outcome. And it's not just the money, it's what that money gives you the choice, the freedom, your autonomy to shape life how you want it as life goes on. And so hopefully now you can start to see how big of a deal it is to one change the way you think about it, probably work on how you feel about it, but also, importantly, to make the decisions and act on this intel that you have as well. Because it is a if you draw two lines in the future the person that just rejects it outright versus the person that leans into it, takes the time to understand it, uses debt diligently very big gap between those two and just gets bigger and bigger with time.
Speaker 1:And what I would say is, if you're having a hard time really digesting it, share it with someone you care about, someone that enjoys having the conversation, just so they can come on the learning journey with you and you can just bounce off each other, challenge each other, have the conversations, have the debates. One of the most powerful things for us is we'll learn something, but then we'll argue the shit out of it until we're in the face, until someone gives in or we get the point we go okay, those things we agree on, other things you can't actually know. And that is what helps us, kind of cements our learning, but also challenge our previous thinking as well. And so definitely share it with a friend, share it with a few friends. If you can get a group of you discussing this stuff. Really powerful, really powerful, absolutely, mate. Where to from?
Speaker 2:here. Jeez man, I think it's time to have a break, isn't it? Look, we're going to probably cover off on the typical stuff of New Year's. We're going to look at it a little bit differently, though. Like, how do we actually think through how to set ourselves up for each New Year and what's ahead?
Speaker 2:Obviously, everyone's set some goals and got some ambitions, but we kind of look at this a little bit differently, and I'm keen to sort of delve into that a little bit and then just share some stories of some folks that are just knocking it out of the park at the moment, just really making big bets on themselves and really backing themselves in using money as a launching pad. We've got some pretty cool interviews to kind of talk to some of that stuff a couple of couples and one of our coaches as well. Just big things that folks are doing with this knowledge, with this information, and just developing that confidence and what it can do for you in such a short period of time too. So we'll be talking through New Year's the typical stuff, but also some atypical stuff how to think through how to set yourself up for next year, or what we do, and then also, yeah, some of those inspiring stories that'll actually get you up and about.
Speaker 1:Yeah yeah, I love a New Year. I actually think that it's unreal that every year you get to the end of it forces you to reflect, makes you go. Let's set in new intentions for the New Year and just kind of give yourself a chance to think fresh, think new. So I'm pumped that we get to kind of help guys launch into the new one. Let's do it Good stuff.