That Home Loan Hub
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That Home Loan Hub
James Shares Ep #5 - Beyond the Budget: The Gap Between Financial Knowledge and Real-World Results
The gap between knowing about money and actually managing it well is wider than most people realize. In this enlightening conversation with financial expert James, we unpack the crucial difference between financial literacy and financial capability—a distinction that explains why even finance professionals sometimes struggle with their personal finances.
Financial literacy encompasses understanding concepts like budgeting, investing, and interest rates. But financial capability goes deeper—it's about consistently applying that knowledge in real-world situations. As James explains, "You could be working in a bank for 20 years and still be spending more than you earn." This capability gap affects people at all income levels, from those struggling to save for their first home to high earners who somehow manage to spend more than their substantial salaries.
For those looking to bridge this gap, we explore practical steps toward financial capability. We discuss valuable resources from New Zealand authors like Martin Hawes, Mary Holm, and Liz Coe who provide locally relevant financial perspectives. James emphasizes the importance of setting clear financial goals, creating a functional budget, and regularly reviewing expenses—particularly those sneaky subscription services that drain your finances without delivering value. We also explore how modern banking tools can simplify the budgeting process by automatically categorizing your spending and highlighting areas for improvement.
Whether you're just starting your financial journey or looking to refine your approach to money management, this episode offers actionable insights to help transform financial knowledge into real-world results. Listen now to discover how you can move beyond financial literacy to true financial capability—and take control of your financial future.
Hello and welcome back to the episode with James Shears. Hello, james.
Speaker 2:How you doing.
Speaker 1:Wonderful. Today we're going to talk about financial literacy versus financial.
Speaker 2:Capability.
Speaker 1:Woohoo, All right. What is financial literacy, James?
Speaker 2:Okay. So that refers to the knowledge and understanding of financial concepts, Things like budgeting, saving, investing, credit and interest rates. It's about having the information and skills to make informed decisions about your money.
Speaker 1:Wow, that sounds really flash. But what is financial capability?
Speaker 2:Well, capability goes a step further. It's not just about knowing financial concepts. It's about having the ability, confidence and opportunity to put that knowledge into practice. This includes making sound financial decisions, assessing financial services and managing money effectively in real-life situations. So capability is all about implementing what you know to improve your household's finances.
Speaker 1:So I could have a bachelor's in finances but not effectively be applying it in real life. So I may have financial literacy but not really capability. Is that right?
Speaker 2:Absolutely. You could be working in a bank for 20 years and you might still be spending more than what you earn.
Speaker 1:And then you could be not having a bachelor in finance or not working in financial industry, but you could have the financial capability to manage your finances.
Speaker 2:Absolutely. Is that right, yep?
Speaker 1:Okay, so how can people get financially capable?
Speaker 2:Well, there's a number of ways to do it, and the first thing we have to realise is people just don't get this stuff in the public education. You've really got to push the boundaries and be motivated to do it yourself. There's some quite good resources out there, so there's some good authors in New Zealand.
Speaker 1:Yep, tell me more.
Speaker 2:Martin Hawes has written a lot of stuff about the New Zealand financial environment. Anything by Mary Holm or Liz Coe that's three prominent authors that give you a New Zealand perspective. Because you've got to be a little bit careful when you're reading about the international authors and they're teaching you their financial concepts Some of them transfer over. But if you're looking at tax, it's completely different, even with Australia. A nice little start spot was. Where I started was with a crazy guy called Robert Kiyozaki Do you remember him.
Speaker 1:I think we all started there didn't we Rich dad, poor dad.
Speaker 2:Yeah, yeah, the funny thing about him is he wrote all these books about financial literacy, but actually that's where he made his money from making the books, writing about the books. So he wasn't wealthy until he actually started writing about it. He had a few funny little businesses, but writing about financial capability and that sort of thing is what made him super successful. So he's got a couple of his first two books Rich Dad, Poor Dad or the Cash Flow Quadrant is quite good, Really easy to get into. Then, what I think people need to be thinking about if you are really serious about improving your financial situation, you've got to set financial goals for yourself and for your household because without goals, you don't know what you're doing, right what?
Speaker 2:you're gonna achieve yep, and the very first one of those is to spend less than you earn because you just you can make all the money in the world. You know how many people do we know that make 200 grand a year and then, but they still spend 300 somehow. Do you know what I mean? Yeah, it's, it's, it's craziness. I mean, I do it sometimes myself. Um, so it takes a lot of discipline, but some months there's going to be. You're going to have big costs. Your car breaks down. Okay, you're not going to be able to do it that month, but you should be consistently trying to spend more than you earn. Sorry.
Speaker 1:On the other way around.
Speaker 2:James. Spend less than you earn. See, I've even started doing it now. Spend less than you earn over the medium term. Otherwise, you're just using up the equity in your investments or your capital.
Speaker 1:Yeah, and you're just not moving from that spot where you are right now. You want to be moving ahead.
Speaker 2:It's especially important if you want to get into a house, into a property, into a mortgage, because how can you save for a deposit if you're spending more than you earn Exactly? So that's the first step, so setting clear financial goals. It could be to buy your own property. Second step would be to look at your financial affairs and create a budget for yourself and then implement it. So what are your big costs every month? How can you reduce them? And then, secondly, what's your income? How can we increase it?
Speaker 2:So, you've got two levers you can put on decreasing your costs, increasing your income and there should be some easy costs you can bring down and that's something we always talk with clients about right.
Speaker 1:Remove unnecessary expenses like Netflix, disney+, prime Video, sky Sport I mean so many people subscribe to so many things these days and even gym subscription. I've got clients that have gym subscription and they don't even go and they spend.
Speaker 2:We're that family.
Speaker 1:Hundreds of dollars a year go down to waste and you don't even go there. Actually, it would be really cool for us to do an episode on how much money people pay on subscriptions and whether they use them or not. Like the usage versus the payment, especially gyms. We should look into that.
Speaker 2:One thing we could do as well, because it's okay to I understand having one subscription, say, to Netflix, but you don't need to have all three or four of them Disney, netflix and Prime. You could just take turns, you know, because you only have to pay a month at a time, something like that, if you wanted a bit of variety. But yeah, the gym thing would be quite a good one, because it is quite expensive.
Speaker 1:Yeah, so it would be really cool to look into those statistics. So, James, if someone wants to learn more about how to manage their finances better and how to get more financially capable, what would be one tip that you could share with them for them to do today?
Speaker 2:Okay, well, the first thing and you'll be able to help a little bit because you're more technology driven than what I am what I would do is take a good look at your bank statements, and I had to do that recently because Rebecca and I have our incomes have come down since we've changed jobs, so we're on commission type jobs, so it's taken a while. So we've had to look at our budget again sorry, our bank statement and just have a look. What can we cut out the costs of until we get comfortably into our new roles? So, looking at your bank statement, setting the financial goals I don't think you can actually set the financial goals until you've looked at your bank statement, though, and created a budget. So you're looking at your bank statement. What costs can I bring down in my bank statement? And I think you said there was a technology thing that you could use.
Speaker 1:Yeah, we talked about it last week, right? I said, James, why are you sitting here with the ruler going statement by statement?
Speaker 2:I'm old school, that's why.
Speaker 1:Line by line. These days the banks all have various tools within the internet banking so you can go there, you can categorize your spending and then it will automatically spit out a pie chart for you each month and show you where most of your spending is going, and then you could have a look and see what you need to tidy up.
Speaker 2:Cool. Well, I'll get you to show me that, and then I can tell our clients about it. Sounds good, and then we can look at the categories and go this is where you can reduce your costs, this is where you can get the savings from for your mortgage or for whatever your goal is.
Speaker 1:And that's the thing, like it prepares them for that next step, as you say, for when they do want to buy their first home, or even when you're buying your second, third, tenth home. You should really know what's coming in and what's going out.
Speaker 2:Absolutely.
Speaker 1:At any point of your life, awesome. Well, that was an episode of James Shears about financial literacy versus financial capability.
Speaker 2:Thank, you Cool. Thanks for having me.