Money is a subject that impacts not just Australian families, but families around the world. It is a topic that is much maligned and has a bad reputation. But what if money equalled freedom? What if money signalled choice? What if money led to options? Money allows all Australian families to live the life they want to. Money is a tool which we utilize to live a life on our terms. That is what money is for and I can’t wait to share with you stories from Australian families living their best lives, in all their diversity.
Now I must profess to you that I am a financial planner. I talk to people about their money every single day. I share their stories of frustration with their money and how they never feel like they are on top of their money or know what they are working towards. My work is to try and make the complex subject of money easier to understand in a simplified manner for all. Due to the immense regulation of a financial planner, I must provide this statement.
General Advice Warning: The information in this essay is intended to be general in nature and is not personal financial product advice. It does not consider your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation, and needs. You should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer documents prior to making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).
Apologies for that, but now that is out of the way, let’s continue our money journey. The title of this essay is the Great Australian Dream. Now some may believe that the Great Australian Dream is owning a property. A piece of land in Australia to call your own. What an achievement this would be, but it would take a lot of hard work to do so. Now whilst it certainly forms part of the Great Australian Dream, I believe there is more that we want from our money. To buy some land in Australia and own a property is a great start, but we need money for a deposit. We need to manage our cashflow to ensure that we are “spending less than we earn” to save for a deposit. Then when the time is right “borrow less we can afford” so we are not forced to sell our family home. These are all the building blocks but once the property is purchased, is that it? Is that our Great Australian Dream achieved? Well, no because technically you don’t own the property outright, you are loaning it from the bank, therefore you must pay it off the loan to the bank over years, if not decades. But again, that is a long time to be toiling away with money. Is there more we can be doing with our money over those years and decades than simply earning money by working, paying off our debt and meeting our living expenses> There is a lot more in fact to our money and I want to share this with you today.
To lay the foundations, we need to understand what money can be used for. What are the various elements or tools of financial planning that we use to help Australian families realize their Great Dreams? I am going to make a bold assumption here and declare that our Great Australian Dream is to live an independent and dignified life when we choose to retire. Now, traditionally retirement has meant that we stop work completely and never work a day in our lives again. I want to change that narrative by stating that retirement is making work a choice. You have enough assets built up that would allow you an income stream to meet your living expenses, so that you did not have to work again if you did not want to. A growing money following is the Financial Independence Retire Early (FIRE) movement. I more want to focus on the Financial Independence element here in our Great Australian Dream as I believe should be the focus and what we are all trying to attain, whether we know it or not.
Now I must be slightly boring here and go over the ground rules of financial planning. We essentially have eight pillars to lean on for what we do as financial planners. These are our tools. We use them to help Australian families realize their Great Australian Dream as described above, where we have already discussed one of them. They are the following:
- Cashflow
- Tax
- Debt
- Estate Planning
- Insurances
- Investments
- Super
- Financial Independence
So how do the above money tools correlate into the Great Australian Dream of number eight, Financial Independence using our definition above about making work a choice. Well, the bedrock of anything we do with our money is cashflow. When we start working and trading our time for someone else’s money we start earning an income. When we start earning an income either by being employed or having our own business, we start to incur expenses for living. Hopefully at the end of the week or month, we haven’t spent all our income on expenses, and we should have some savings or profit built up. This is our starting position for everything.
Now if we skip over the other six tools which are crucial, but somewhat dull to speak about in isolation and go again to our Financial Independence and Great Australian Dream, let’s put some basic math to it. I know what you are thinking, not math’s, anything but math. You lost me at math, but it isn’t too hard. I too did not like math’s at school and was not good at it. However, this is a simple division. Let’s say we wanted one thousand dollars ($1,000) per week for the rest of our lives, tax free. This would make our Great Australian Dream a reality of Financial Independence and making work a choice. We would have enough income to meet our living expenses along with a holiday or two built in there and if we wanted to work to earn some more pocket money, we could. How good would this be? OK, so now the tricky part. How big of a pool of assets (Cash, Property and Businesses / Shares) would we need to generate this amount of income to meet our living expenses every single year for potentially twenty or thirty years? That is an extremely tough question with many variables, but I will give it a go. Fifty-two thousand ($52,000 p.a.) divided by five percent (5%) and we would get approximately one million dollars ($1,000,000). So, fifty-two thousand ($52,000) is our income requirement for the year and five percent (5%) is our withdrawal rate from our pool of assets. Now this is a crass oversimplification of financial planning and Financial Independence, but it at least gives us a start to our story.
We have touched on the Great Australian Dream as being able to ‘live an independent and dignified life when we choose to retire’. We have defined Retirement as ‘Making Work a Choice by having enough Assets to provide an Income Stream to meet our Living Expenses’. The tools of a financial planner to achieve this have been discussed. But now let’s create some goals surrounding each of these tools before telling some personal stories to bring this all to life with my own personal example & that of my parents. To begin with, lets outline the tools once again and attach a goal to each one:
- Cashflow: We want to understand what money is coming in, where our money is going out and what we have left over. We want to set up a structure / system that helps us track this easily every time we get paid so we can automate paying ourselves first and then spend whatever is remaining, guilt free.
- Tax: How do we minimize our Taxes legally and what options do we have as Employees as well as Business Owners?
- Debt: We want to own our family home outright, so we do not have to owe anybody, any money and have a place to call ours.
- Estate Planning: We want to ensure that our family is taken care of if the worst was to happen to either one of us.
- Insurances: We want our debt to be paid off and our children looked after if we were to pass away or become disabled, injured, or ill.
- Investments: We want to build a nest egg for ourselves that is easy to manage, not too expensive and that we don’t have to stress about as we know we are on the right path.
- Super: We want our money to work hard for us to build a meaningful legacy for not only ourselves, but for our children.
- Financial Independence: We want to make sure we have enough money, so we don’t ever run out and become dependent on our children or the government.
To get you thinking a little more about your Great Australian Dream, here are some questions to ponder from George Kinder, an American financial planner:
- I want you to imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. The question is, how would you live your life? What would you do with the money? Would you change anything? Let yourself go. Don’t hold back your dreams. Describe a life that is complete, that is richly yours.
- This time, you visit your doctor who tells you that you have five to ten years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life, and how will you do it?
- This time, your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or had been? What do I wish I had done?
Some additional, non-financial goals should arise after reading through the above questions:
- I want to spend more time with my family now, doing activities that we love together.
- I want to prioritize my physical, social, and emotional health so I can not only look after myself better but look after those around me better.
- I want to not feel stressed or pressured with my other commitments so I can see my close friends more often and build better relationships with them over the course of our lives.
- I want to go to work each day, being passionate about what I do, feeling like I have a sense of purpose. I don’t want to be dreading the next shift or the next phone call.
- I want to have more impact within my community and make a bigger difference to the people in my neighborhood.
- I want to explore the world and get outside my comfort zone. It is such a big place out there and I want to experience it all.
This Great Australian Dream is getting more and more complex as we discuss it further. It came from a simple Financial Independence calculation. To understanding the tools, we use as financial planners to achieve Financial Independence for the families we serve. Then discussing specific financial goals that we want to achieve along the way and tick off as mastering. Now we have some Life goals thrown in the mix to also work on. It is getting to be too big of problem to solve, this Great Australian Dream. But it doesn’t have to be. A great quote I heard from Betty Friedan and later refined by Oprah Winfrey “You can have it all, just not all at once.”
Realizing the Great Australian Dream is not easy, nor should it be. “If it were easy, everyone would do it.” Now we know that is not the case. Not everyone has achieved Financial Independence. Not everyone owns their own home. So, it is going to take some work. It is not going to happen overnight; it will probably take five to ten years of solid focus to achieve the Great Australian Dream or at least be on track to do so far sooner than if you were to go with the flow of life. But it will make it even more rewarding by having to work for it. Just having it handed to you would not be the same. You want to look back proudly and say, I achieved this through working smarter, not harder. I prioritized what was important in my life now but also my future self. Each year I made course corrections to ensure I was on the best path possible to achieve my Great Australian Dream.
Money and finances are a lot like hiking a great mountain range such as Mount Kilimanjaro or Mount Everest. It is one step at a time. It is one foot in front of the other. It is going to take time so you must be patient. But along the way, you can certainly still enjoy yourself and look back on what you have achieved. But also, what you can look forward to when you eventually do summit the mountain. Before all this happens though, you must set the foundations early for adequate training, so you are well prepared for the adventure. Once you have completed adequate training over a prolonged period, with the right tools and equipment in hand, you are ready. When you arrive at the bottom of the mountain, you may be intimidated by the sheer size of the feat you are about to undertake. But you can be confident that you have put in the work to now relax, breathe, put yourself on autopilot and enjoy the climb ahead.
As we close on the theory of the Great Australian Dream, let’s see a real-life example. I want to share with you a personal story of proximity. It is about me and my parents’ money journey and what we wanted to achieve in our lives, using money as a tool to do so. To begin with, I want you to know that it has not always been smooth sailing. It has not been easy. There have been extremely painful times, but also extremely rewarding times. It has been a roller coaster of emotions and events. From highs to lows. To making progress to going backwards. But that is life. It is not a straight line up, day to day. But when you map it over the course of a year or five years, it shows progress. At the end of the day this is all we wanted. To see progress and make sure that we were heading in the right direction.
Growing up, we had everything we needed as children. A roof over our heads, food on the table, we went to school with all our books provided, played all the sport we could imagine and grew up very happy. However, Dad worked very hard as a Truck Driver, sometimes 6 days a week so we only ever really saw him on the weekends. During the weekdays he was gone before I woke up and I usually came home late from sport with Mum. Mum worked night duty so was always there for school pick up and to take me to sport in the afternoon. She would sleep in the morning after working from 9pm to 7am. I learnt how to work hard from Mum and Dad, but not necessarily how money works. I knew that if ever we wanted something as children, Mum and Dad would make it work by doing extra shifts. I knew that the Home Loan (Debt) was the primary thing Mum and Dad were trying to pay off. They were frugal with their money but never spoke about their Cashflow, Tax, Estate Planning, Investments, Insurances or Super.
Fast forward to when I started working and earning an income, I was quite careful. I had worked hard for my money, and I didn’t want to spend it all at once. Mum and Dad spoke about buying property as a good thing to do, so I did. But I had the dreaded D word to contend with (Debt). Although I had a house to live in rather than renting and paying off someone else’s mortgage, it restricted my cashflow and therefore my chances to travel the world in my twenties. I learned that my Employer would pay money into Super once a month on my behalf, but I didn’t have the slightest clue of any of the rules around it. This was my limited understanding and attitude towards money when I was young, learnt from my parents.
I then wanted to learn more about this thing called money that I was earning by trading my time (Working) for it. I wanted to learn more about how I could make more of it without physically doing any work. So, I enrolled in a Diploma of Financial Planning course with Kaplan and started to make sense of this mysterious object called money. As I was learning, I was asking questions to back Mum and Dad about how their Cashflow (Budget) was set up? How were they minimizing Tax? How much Debt did they have? Did they have an Estate Plan in place? A Will, Powers of Attorney and Guardianship for when we were younger. What was in their Super? What were they Invested in? Did they have any Insurances in place for Life, Disability, Income Protection or Trauma? I was like a five-year-old asking question after question. When I was able to sit down with them one Sunday night, we went through it all. In depth and in detail which took about two hours. It was more complex than I thought.
Mum and Dad essentially just used the one (1) offset account for their income to be paid into. They paid all their expenses via Credit Card and paid it off before the end of each month. They didn’t know how to reduce their Tax as employees so paid whatever they had to. Their Estate Plan was done in the eighties, and I was talking to them in twenty seventeen, so it needed updating. I wasn’t even born in the eighties. Then came Super. They had a Self-Managed Super Fund with an Investment Property in there, along with some Direct Shares and Cash. It also came with Debt, and they still owed money on the family home. They had far too much debt for sixty-year-olds heading into so-called retirement. They didn’t really understand the Super rules. They didn’t know they could access this at age sixty. Mum and Dad thought the money just sat in Super as Cash so didn’t make further contributions to it with Salary Sacrifice. We had to make some drastic changes, which we did, and I can now say thankfully they are debt free, have a healthy Super account each that is invested correctly, are making Salary Sacrifice contributions to reduce their tax, and are heading into retirement stress free as we have a plan around this.
Now we have spoken somewhat of the nuts and bolts of money but what were Mum and Dad’s goals with their money? What did they want to achieve with their money? What did they want to feel emotionally with their money? Firstly, they wanted to feel in control of their money. They wanted to know where it was all going so, they could spend their money more mindfully. They had got to the stage where they weren’t spending enough money on items that aligned with their values of spending more time with each other and with the family. Secondly, they did not want to owe anybody any money whatsoever. This was ingrained in them from their parents when they were younger that debt is to be paid back as soon as possible. Lastly, they wanted to make work a choice and live a dignified independence. That did not want to be solely reliant on the government to provide their income to meet their living expenses. They certainly wanted a helping hand from the government, but they also wanted the opportunity to work if they wanted it to. All they have known for such a long time is work. To drop this completely would mean a loss in identity, in purpose.
So, priority number one for me was to get an understanding of their cashflow, which is simply what income were they receiving? What expenses did they have? Then what was left over as their savings to either spend or invest. Priority number two was creating a plan to become debt free. This would involve some hard decisions and tough choices such as selling the family home, repaying all debt, and moving into a unit / townhouse, closer to the city center, with limited maintenance as they got into older age. We weren’t just planning for the next five years, but potentially for the next twenty years. Then our third priority was to direct our excess cashflow towards superannuation to build up their next egg via salary sacrifice contributions. This would reduce their income tax payable now but also ensure that when they do want to make work a choice at age sixty-seven and have one thousand dollars every single week, tax free to meet their living expenses, they would have the confidence that this could be achieved, sustainably over a potential twenty-year period.
I think the reason why families in Australia and around the world don’t talk about money is that they are too busy surviving. Mum and Dad were too busy working to sit down when we were younger and talk to us about money. It was just one thing after the other. But when all the children were grown up, they had more time for themselves to think. Another reason is that parents don’t have the proper education. My grandparents were from the War generation and the Great Depression. In the nineteen thirties, money was tight, and things were grim. It was save at all costs, don’t invest in anything but cash and just endure. We are in a different time now and we are so very lucky to live in the country we do. But these thoughts and emotions around money still exist in my parents. Talking about money with a professional who must act in your best interests could be the best thing you ever do as a parent. If not for yourself, but for your children. The earlier you start this conversation, the better. That is what a financial planner is for.
In conclusion, the Great Australian Dream means different things to different people. It is unique to you and your family. Yes, there may be some similarities between one another to have the basics of food, water and shelter available for our families. We want to first and foremost meet our basic human needs with some luxuries thrown in there. We may want to travel, pay off our home loan, maximize our superannuation or buy an investment property / holiday home. But all this takes money. Whether you like it or not, you need to take control of what you can control. Your Great Australian Dream will require thought, deliberate practice, and constant work. But it will be worth it. We live in a great country with many opportunities given to us so take advantage of them. You do not have the excuse of “I am just not good with money”. We have much available to us with the internet and professional help that to live your Great Australian Dream, understanding money and using it wisely should be your main priority.
This article has been written by Marcus Larcombe, Financial Advisor at Edge Advisory Partners. E: mlarcombe@edgeap.com.au P: 03 5228 3555
References:
- Peter Thornhill (2013). Motivated Money, rational markets. Retrieved from https://www.youtube.com/watch?v=7Qja3GHefiE, accessed 09.03/2023.
- Betty Friedan and later refined by Oprah Winfrey (2021). Retrieved from https://www.goodreads.com/quotes/11820-you-can-have-it-all-just-not-all-at-once, accessed 09.03.2023.
- George Kinder (2023). Life Planning. Retrieved from https://www.kinderinstitute.com/george-kinder/, accessed 26.04.2023.
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This blog contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/ or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.
