Episode Intro And Meet Luke

SPEAKER_04 0:10

If you ever wondered what the life of a financial planner looks like, well, tune in. Today I have Luke Hodgson from Harness Financials with me, and we're gonna dive into the financial planning world and beyond. Hello, Luke.

SPEAKER_00 0:24

Hello, Zibiniso. Did you like my introduction? Oh, so good.

SPEAKER_04 0:29

Luke and I go way back. We've met a few years ago and loved his energy. Just such an energized fireball. And I'm excited to have you here today in the chair because you've got so much wisdom. And I want to try. And I want to tap into it. So, Luke, who are you for those that don't know who you are?

SPEAKER_00 0:48

Yeah, yeah. So my name's Luke Hodgson, and I'm a financial advisor, Harness Financial, and essentially I help clients with their investment insurance and financial planning.

SPEAKER_02 0:58

Insurance and financial

Financial Planning As A Life Puzzle

SPEAKER_02 1:00

planning. What does financial planning even mean?

SPEAKER_00 1:03

I love that question because honestly, half the time I can't really give a straight answer. And I suppose the big thing with it is financial planning is just taking a full big step back in someone's financial world where you're not focusing on products, you're focusing on how does all these little elements fit together? Emergency savings, insurance, kiwi saver, mortgages, investments, investment property, all those sorts of things. Bring it all together and let it all sing from the same song sheet.

SPEAKER_04 1:34

So can I think of it as a giant puzzle? Like life is a puzzle, right? And then you've got all these different elements that make what life is. And I guess for a lot of people that go by through their life without understanding how all those puzzles fit together. And I feel like one of those, you know, you walk into retirement village or somewhere and they've got this big jigsaw on the table, and there's like all this pieces everywhere. My kids' table. Right? There's like pieces everywhere. And unless someone starts helping you to put it together, you just don't know where what goes. I mean, you could try to do it yourself, I guess, but whether and if you don't have any picture to go by, like how do you know to put it together? Is that right?

SPEAKER_00 2:18

Correct. Yeah. And I think what makes it really difficult for people to understand, and sometimes for us to give like a clear example of what it looks like, is we actually don't know what the picture is on the front of the puzzle because what we're looking at is something very individual. And it's not about having a certain amount of assets or getting to a certain outcome. It's like, well, what's important to the person across the end of the table that we're building the plan for? And so that's where it becomes really, really exciting is everything's individual.

SPEAKER_04 2:49

I love that. I'm just curious, what's the percentage? And I don't know if you know the stats, what's the percentage of New Zealanders that actually get financial planning done?

SPEAKER_00 2:59

So there has been a lot of uh advice, there's been a lot of research around access to advice. So I don't have anything specific to financial planning, but it's only about 28% of New Zealanders' access to financial advisor in the last, you know, 12 months.

SPEAKER_02 3:15

That's crazy.

SPEAKER_00 3:17

That could be across anything. It could be just KiwiSaver, it could be mortgage, insurance, whatever. I would think it would be like one or two percent tops for financial planning, would be my guess.

SPEAKER_04 3:29

So what happens to the other 72% of people?

SPEAKER_00 3:32

Well, uh obviously some people think and have the competence to do it by themselves and get to a really good outcome, and that and that's fine. But I think what's happening for a lot of Kiwis, and I certainly saw this when I was in my previous role when we first met, was actually a lot of people were just not on track. And more often than not is, and you know, we've both seen this with clients, is little tweaks make significant differences long term. And that's what, you know, that's what gets me out of bed in the it's just helping people make those little tweaks in their lives.

SPEAKER_04 4:05

Interesting. I am curious. I'm curious how people can find people like you and me. But what's the first step? What gets them thinking?

Life Moments That Trigger Advice

SPEAKER_00 4:16

I think it's that first that moment in their lives where people go take a step back and go, this is a little bit more complicated than what I understand already. And I want some professional guidance. So for me, like I I would say, you know, when I got into this industry was actually having children and starting my own family. It wasn't, and that was where I really took a step back and go, cool, what am I building in my life? What is that working towards? And is this working in the optimal way? And uh, you know, for many different people, it'll be a different example, you know, whether they bought their first house or looking to buy their first house, and when they first set up KiwiSaver, where it'll be starting a business, there's so many different examples, but what's that moment in someone's lives where they just go, it'd be good to know if I'm actually doing this in the best way possible?

SPEAKER_04 5:10

I love that. You know, I always refer back to the car wharf and the cars, car servicing. Like we take our cars for servicing all the time, right? But we never take ourselves for servicing in terms of, hey, what's actually happening there? Is everything aligned in my life? Are those tyres still spinning and in which direction am I going? Is the GPS all tuned in for where I want to go and not for some random Japan map? You know how sometimes you import cars from Japan and it's they've got like this car uh map of Japan and you're like in New Zealand and the car that has no idea. It doesn't work. No, it doesn't work. So this is how I see financial planning for people is that having you know some sort of guidance, some sort of GPS, you may end up in a completely different space. But at least you will know what routes are along the way, where the pit stops, where where the coffee breaks and the toilet breaks if things happen. So I didn't say that. Important, important, right? But that's the thing, like anything can happen in life, and if we're not prepared for it, it just gets way worse. Yeah. But if something bad does happen, and if you are somehow prepared for it, then at least it's not half as bad. Totally. Right.

Building A Plan From Your Goals

SPEAKER_04 6:25

Okay, so can you just describe to me what does the financial planning process look like? Like from the beginning. So just so our listeners understand what it involves, because it's a very scary term for someone that doesn't like dealing with money, doesn't you know avoids that because they're so good at their normal everyday jobs, like there could be surgeons, there could be firefighters, they're busy solving world's problems on their own. Yeah. So thinking about money is not their favorite thing to do. Totally. It's our favorite thing to do, but not being somehow, somehow. Right? So what does the day look like, the appointment looks like, or the process with someone in front of you?

SPEAKER_00 7:06

Yeah. So I always start with understanding what is somebody's current financial picture, and because that gives me a really good indication of a what they're potentially capable of, what might be holding them back, and where might their potential opportunities lie to improve that straight away. So that's one position. So that that's pretty straightforward, that's pretty easy. But I think the first process, and this is where planning really becomes personal, is actually sitting across the table from somebody or over Zoom and all the rest of it to go, well, what is it you actually want to achieve in life? Like, what is what does it look like for the mortgage? What does it look like for the kids? What opportunities do you want to provide them? How do you want to retire? What does that look like? Family holidays, what sort of legacy might you want to leave behind? If you can start understanding and pro people on these sorts of questions, then people start going, oh yeah, we'd love to do that, would love to do that. Oh, actually, something that really makes us nervous or excited is X, Y, or Z. And then straight away you start to be able to build a picture of ideally where this person might want to be. And then once you understand what the picture looks like, then you can work backwards to build that puzzle. So that might be putting away, say if it's you want to help your kids for your first time, or rather in 20 years than topping up your mortgage, well, why don't we start like a Kiwi Saver for them now and put 50 bucks a week aside and let that compounding do the effect. So you don't you benefit from interest rather than at the a cost.

SPEAKER_01 8:45

Yeah.

SPEAKER_00 8:46

So really cool things like that.

SPEAKER_04 8:48

I love flipping it on the other side, right? And I mean, with the Kiwi Saver, they're getting the compounding interest. And then if they're not accessing it for 20 years, like the growth is crazy. It's stupid. In that time, right? Like you'd be stupid not to. Absolutely. And then when the kids are working as well, then that just goes much faster. Versus, as you say, 20 years later, you're suddenly in your late 50s, because that's what I'm seeing a lot of at the moment, late 50s, 60s, you want to help your kids out, and you go back to the bank and you borrow that money at 6% interest. Yep. So you're right, it is costing you more money. And then how long is that gonna take you to pay off that 50k or 20k that you're trying to help? So absolutely flipping it on the other side, brilliant. Love that idea. Okay. What if someone is in a funny stage of life, like if they're separating? I deal a lot with separations. Do you see those as well?

SPEAKER_00 9:43

Yeah, absolutely. And I think that would be one of those big moments in people's lives, right? Where people go, you know, the rug might have been pulled out or it might have been pulled out slowly or what have you. And they go take a step back and go, what does this all mean for me now? Because we're doing our our planning and what we were looking to achieve was together, and now it's individual. So again, it's the same sort of process of going, okay, what what do you want to achieve? You know, and and looking forward with that. And uh, you know, sometimes the picture changes a little bit, but that's fine. But but that's the also the beauty of financial planning is it's not a set and forget. It's not like you sit down with an advisor one day and go, cool, this is what we want to achieve. We give you the plan and see you later. It's like, well, life's dynamic.

SPEAKER_03 10:30

Yeah.

SPEAKER_00 10:30

You know, there's a there's a bill that comes up that you weren't expecting. There's, you know, you decide, you know, in a few years down the track that you want to upgrade the home or you want to start doing some bit more overseas holidays, incomes have changed drastically. Well, how does it affect that bigger picture? That's just part of that ongoing check-in and review.

SPEAKER_04 10:46

How often would you recommend someone to get a check-in?

SPEAKER_00 10:49

At least every year.

SPEAKER_04 10:50

Every year.

SPEAKER_00 10:51

Yeah.

SPEAKER_04 10:51

Yeah. So I had a hilarious call this morning from a client. I've just helped this client enter their home earlier this year. And and I've known this client for the last 10 years, right? We've been working a lot together in terms of what I do, what she needs help with. So finally got her into a home. And she just calls me this morning. She's like, Oh my god, I don't know what I did. I called a bank. I wanted a top-up for the, you know, roof, solar panel, whatever. It was a horrible experience. The customer service was terrible, you know, da-da-da. Do you do those top-ups? I realize you do those top-ups because I just received your newsletter. And I'm like, Yeah, we do those too, you know. And she's like, I never knew. And I'm like, we've known each other for 10 years, you know, like I've talked about it. And and it's funny because I do this every day. I assume people know, yeah. But and I realize in that moment that people don't. Like you really have to keep in touch with them physically, yeah, mentally, and let them know of your services because people forget and they get distracted and life happens. And then and now she's had this horrific experience and calling me to save the day game. Yeah, which is awesome. I love those situations when that happens. But that reminded me is that when we help our clients, as you say, you know, they sort of go on to their lives, but we need to make sure that we're staying on top of it. Like car service reminders again. And uh, and that's where I think if we stay in touch with people and people stay in touch with us, that really enhances their lifestyle. Because all the things that come up, like they don't know what's going on, right? They don't know what specials are out there, they don't know what Kiwi Saver funds they should be in or other bells and whistles that they should be reviewing. It's our job. Yeah. But that will improve their lives. So it's sort of that 50-50 relationship, isn't that where like you want them to be also a little bit responsible for things in life, but at the same time, us as advisors, yeah, we carry that responsibility.

SPEAKER_00 12:46

Yeah. Well, I think it's a really it's a pretty privileged position that we sit in, right? Because at the end of our the day, our role is advisory. It's not about a product sale or a sell of a particular thing. It is about in your position, understanding your goals and what you would like to achieve. This is the best way to achieve that. Now, often that's facilitated through a product, but that's fundamentally not our role. Like our role is how do

Fees, Value, And Getting Started

SPEAKER_00 13:15

we help people become better off?

SPEAKER_04 13:17

Yeah.

SPEAKER_00 13:17

And that's the really exciting piece.

SPEAKER_04 13:20

Now, the question that a lot of people have usually in their minds is how much is it gonna cost me? Oh, you love it. So back in the day, right, it was considered to be that if you're rich, you get the financial planner. If you're rich, you get the financial advisor. You know, if you're wealthy, this is where you have all this guys in suits turn up and uh tell you what to do, you know, it was a little briefcase. What about today? What happens to the normal everyday New Zealanders and the cost that comes with it?

SPEAKER_00 13:48

Well, I think this is the beauty of financial advice now is cost doesn't need to be a barrier because regardless of where you sit in terms of your overall financial picture, you can access advice. And that might just be on your Kiwisaber. More often than not, Kiwisaver advice is free, just like mortgages right. I'm same with insurance. Financial planning is typically at a cost, but sometimes it's also not right for everybody. But I I always say to clients is your what you're trying to achieve in your life, if that's worth, if you could optimize that a little bit, is that worth a fee? Because the compounding effect of that is significant. And certainly every client that I've done financial planning with, I haven't been able to add significantly more value to their balance sheet by after all the fees that we charge them. And to be fair, I don't think we charge high relative to the market, but I can hand on heart say that all my clients are better off after a conversation. So but it certainly doesn't mean you have to have a million dollars in the bank or 300 grand in the bank or 200 grand in the bank. It's actually starting. And that and that's the beautiful thing.

SPEAKER_04 15:05

What's the minimum threshold? Like at what point would you go? Yep, I can see you and I can give you financial planning advice. How much should people have in the bank?

SPEAKER_00 15:14

You don't need anything. I I I would say first and foremost, because what the plan is, it's set up, what do I need to do? You know, what is it to get ahead? And now some people I'll say, hey, do X, Y, and Z, get your emergency funds sorted and do this first and do that first, if they're reluctant on the fee initially. But quite frankly, the plan outlines, you know, what do I need to do with my emergency fund? What do I need to do with my kiwi saber? What do I need to do with investments? What about my investment property? What about my mortgage? We go over all of those sorts of things and bring it together into that cohesive piece. So if that's a point of value, then it's like, well, why wait? Yeah. Like get onto it now. Yeah. Because it's not a you don't have to have it all together. Yeah. And I think that's almost one of the areas where people fall short is they go, Oh, I need to have X, Y, and Z before I can talk to an advisor or a planner, whatever that looks like. And it's like, more often than not, it's the opposite, right? We can sit in front of somebody and go, Yeah, okay, I see what you're doing. I can see where this works. But hey, we could do this together and we can really make this thing sing and make sure you actually get all the ducks in the row and build what you'd like to achieve.

Emergency Funds That Actually Work

SPEAKER_04 16:30

Yeah. So I love it. As you were talking, I was thinking about emergency funds. I read somewhere like the percentage of New Zealanders that have emergency funds. It's crazy low. Crazy. Like stupid low. Stupid low, right? Like 1% of New Zealanders can only survive past three months or whatever. Why? Why do you think that is? Is it lack of knowledge or is it just really the the hard times that everyone's having right now?

SPEAKER_00 16:57

Oh look, I think there's absolutely both at play. Um I think ultimately we're kitty. We have the shall be right attitude through and through, and certainly I'm guilty of that.

SPEAKER_01 17:08

Yeah.

SPEAKER_00 17:09

But I think, yeah, that's probably the one financial aspect I think we as a country we really hack is just an emergency fund for the what-ifs and you know, rulers of thumb of three to six months' income. And sometimes that sounds like a really scary number for people. But I think if you break it down and to go, okay, well, if we can we put it aside fifty bucks a week, can we put a hundred bucks a week? Whatever that looks like, maybe it's only twenty. But if we can build something, it's so much better than nothing.

SPEAKER_04 17:43

Absolutely. How can people like start today? If someone's listening right now, what can they do to start today to build that emergency fund?

SPEAKER_00 17:50

Yeah. If you know roughly what your net income is, so after tax each year, take a third of that and then start working out what you need to do to save that money in a bank account. You can put set it up in a goal account. I'm massive fans of that. Use you know your mortgage structure, potentially with an offset or evolving credit, because that can offset your mortgage fund too. So there's a double benefit there. That's where I come in, right? Yeah, absolutely. And you can and they obviously require really specific structure and advice. So absolutely speak to someone like yourself. But you know, just start find out what's affordable now and just start regularly paying money into that account and automate it. So you don't think about it, your money comes in and it goes out for that purpose every single fortnight, week, month, however often it is you get paid.

SPEAKER_04 18:43

What I find is there are people that are really good with money and disciplined, and offset works for them, like a treat. But there are people that just shock. Oh, yeah. And I used to be there, sometimes I'm still there. And I find for those people, those structures do not work. You know, and I know there's like this whole scheme of hey, get a credit card, get an offset, you know, pay all your bills with the credit card, and then once a month you take money out of your offset and paid it off. Oh my God, the amount of rescues I had to do when people got themselves into a really big hole because suddenly the credit card is minus 20K and the offset is minus 100K. And they're like, oh, I don't know where the money gone.

SPEAKER_00 19:25

This offset's not working anymore.

SPEAKER_04 19:27

No, it's not offsetting anything, and it's just upsetting people instead of offsetting. So, you know, obviously this is not a financial advice, but my suggestion to people would be is to make sure that you really get proper advice. You really know what you're doing, because otherwise you can get yourself into some big deep holes and then five years behind or 10 years behind in your financial planning.

SPEAKER_00 19:50

Totally. And it's such a good shout because you can have those offset accounts, as you say, like if you don't really know what that money is for, i.e., that is if the car completely blows up or I'm off work for six months or because of illness or something like that, and that's protecting my insurance premiums and making those a bit more affordable, or you know, the roof blows up, or whatever it is, if you know what that's for and what you can and can't access that for, and you set that rule strong, they can work really powerfully. But also for those people that don't have maybe that money discipline and you know, that magpie mentality, let's look, you know, let's say, because we're all guilty of that. We go, oh, that looks pretty cool. We're all human here. Yeah. Is, you know, if if those accounts don't work for people, set it up in a separate investment account or a bank account or whatever it looks like. That's you know, don't put high risk on it. When I say investment, don't send it for to the moon because you might need it tomorrow and it's dropped 20%. But uh put it somewhere else that you're not looking at day to day and just out of sight, out of mind, but you know it's there if you need it.

SPEAKER_04 20:56

I love that. I love that advice. I often uh when I used to work in a bank, and because I only worked in the bank, one product, one you know, opportunity there, what I would say to the clients, and then what I would set up is I would set up the savings accounts that I would hide from their banking. Yeah, and we'll set up automatic payments on a teller's screen so they would still have those payments going into that particular account, but they cannot see that account from the internet banking. So therefore, they're not tempted to go and put their money in or get two to sign. So if it's a couple, you know, you need the other person authorizing the withdrawal.

SPEAKER_00 21:30

So it's a brilliant strategy. I love that.

SPEAKER_04 21:32

Yeah, it worked really well until you know a couple decides to separate or you know, things happen, and then that that turns into a bit of a castard. But definitely works for people long term. Now, as you were talking as well, and if we just circle back to the separations for a moment, when I deal with separations, I find people suddenly 10 years behind, right? And that can be quite heartbreaking to start thinking, oh my God, I'm 10 years behind. And that can send you in a bit of a depression cycle and put your hand in the sand and just not deal with anything at all. Right. Have you seen people recover and gain back those 10 years in the shorter term?

SPEAKER_00 22:09

Absolutely. And And it really is you know, because you definitely there is time lost in that. Um but it's not to say that it can't be recovered. And I think with really smart structuring that can certainly happen, but it does require a bit of discipline, it does require forward thinking and planning to make that work. And what I what I often see is, and you'll see the same, is one person in a relationship often drives the financial outcomes more than the other. 100%.

SPEAKER_01 22:43

Yeah.

SPEAKER_00 22:43

You know, someone's the spender, someone's the saver, someone's think forward thinking, someone's thinking about that cool holiday they could go on next week. You know? Yeah, 100%. And that's fine. But when you separate those two people, generally one person focuses purely on savings at the cost of today, and the other person is focused purely on today at the cost of tomorrow. And if you can somehow move people in a bit of a trajectory either way, that might be a little bit more balanced overall to help them achieve what they want, you know, when do you want to retire? Okay, or maybe it was 65 and now it's 68. Or maybe it was 60 and now it's, you know, uh a little bit later on. So but if you understand what your numbers look like, then you know what you're working towards.

SPEAKER_04 23:30

I love that. And look, I have seen people turn around their lives, I've seen when the relationships break down and the one that used to be a spender suddenly realizes that they can't spend anymore the way they used to because there's no one else to back them.

SPEAKER_01 23:43

Yeah.

SPEAKER_04 23:43

Um so they have to really get their A into G and really start getting smart with money. And often it's the ones that do that. I see them catapult to new heights, yeah. Which is really exciting to see that, right? In terms of risk

KiwiSaver Risk Profiles And Real Risk

SPEAKER_04 24:00

profiles.

SPEAKER_00 24:01

Oh, I love this topic. Go.

SPEAKER_04 24:05

Do you run tests with people to understand their risk profiles and what do you do with them?

SPEAKER_00 24:11

Oh right.

SPEAKER_04 24:13

Your eyes just went on fire. Tell me more.

SPEAKER_00 24:16

This is a passionate topic. So, yeah, I th I think for the listeners, a risk profiler is, you know, a set of questions that's trying to understand, you know, how do you feel about if the market drops? So typically we're looking about investments, right? Well, Kiwi Savers probably the most common area where people will have completed one. And, you know, what happened, how do you feel about if the market drops 20%? Well, most of us are freaking out, let's be honest. Well, what would you do in that scenario? Some of us might not have been through COVID yet or had a relatively low balance, and we don't know. Oh, probably want to get out of it. And so what they do more often than not, and us Kiwis being Kiwis, we never want to be on one extreme, right? If we go down the middle. And so they're a really good tool for me as an advisor to understand where somebody's current level of knowledge is around investments. It's also a really good tool to understand how they view different events. But when I actually look at planning and setting someone's kiwi saber up and investments up long term, they're not the most helpful tool. And if I get really personal on this.

SPEAKER_04 25:32

I've got a story to share too, but go on.

SPEAKER_00 25:35

If I go really per so I bought my first house with my wife when we were 25. Nice. You know, really lucky to be able to have done that and we worked hard to make it happen. And uh, but one of the things I'd never touched my Kiwi Saber. Now I would say I was a relatively smart person, maybe still am. My wife might say differently, but that's for different reasons, and that's okay. We won't go into that today.

SPEAKER_04 25:59

We're not the same people at home. Yeah, exactly. And we are at work. You could be two different looks. So at work, you could be a completely fantastic Mr. Mr. Planner man, and then at home, yeah. Give it to your wife's opinion there.

SPEAKER_00 26:14

So, but yeah, so we had bought our house at 25. I'd never even looked at my Kiwi Saver. The only thing I think Kiwi Saver came out when I was 17 or thereabouts, and my boss said to me at the time, hey, this thing's out. If you want to jump in, we'll contribute to you as well, even though you don't qualify. I was like, oh yeah, cool. And I said, What do I have to do? And he goes, Nothing, it'll just be sorted for you. I said, brilliant. And that was the last thing I touched Kiwi Saver. And I worked for eight years, you know, through uni and all the rest of it. And then so when I went to the bank, so I'd I'd spoken to a mortgage advisor and they had set me up and um set everything up for us. And then we went into the bank for the bank appointment. And the bank said to us, Oh, cool. Well, do you want to see your KiwiSaver in your app? I said, Oh, yeah, fair enough. Let's go for it. What do I need to do? Oh, just sign this piece of paper and then you can jump online after the fact and there's a risk profiler there. Fill out the risk profiler, and that'll tell you the best position for you to go into. I said, Oh, this isn't hard. So I fill out the risk profiler. Now bear in mind I'm 25. I can't touch my Kiwi Saver to 165 unless I permanently leave to any country that's not Australia or something drastically happens. And so I'm sitting there and I fill out this risk profile. How do you feel with the market drops? How do you feel about this? How do you feel that that I'm not thinking from an investment perspective, I'm thinking from a bank account. And I'm not thinking about compounding or anything like that. Anyway, I go straight down the middle, a little bit conservative in different elements, and I end up in a moderate fund. Now, for listeners, that might slightly outperform cash or slightly outperform inflation long term, but not in a meaningful way, and certainly not enough to retire on. So and that was just on the basis of a risk profiler. I needed someone to come at me and go, look, this is how markets work over time. This is how growth assets and income assets work, and this is how it splits across these different things. If you take on more volatility, so that is a bumpy ride in terms of returns, you will get a better result. And the market's really clear about that long term. Where volatility is not your friend is if you've got a short time horizon. Like you're just about to buy your first house. It's like we don't want aggressive funds for that because we might lose 20% tomorrow. We saw that through COVID.

SPEAKER_03 28:46

Yeah, which happened. Absolutely.

SPEAKER_00 28:48

Yep. And so it's taking a step back from a risk profile to go, well, what is the outcome that I need? What is the outcome that I can achieve and working backwards from there. Now, if you know what that strategy is that you go into, say you go into a growth fund or an aggressive fund, is be comfortable of what that road looks like. Because the worst thing is, you know, my general opinion is that most Kiwis should be in an aggressive fund for the Kiwis over. Most. Because we're 10 years plus off from being able to touch it. But if the market drops 20% and you cannot, you know, you can't sleep at night and all the rest of it as a result, then you probably don't want to be in an aggressive fund because if you get out of the market when that market drops 20%, you've locked in your losses. Yeah, what you actually need to be able to do is keep contributing.

SPEAKER_04 29:48

Yeah, write it out. Yeah. Write it out. I mean, my mom is in Kiwi Saver, she's almost 70 years old. And um we've set it. We've set it up for her years ago. Um, I think about 14 years ago when it was first sort of coming out, and and the government was contributing a thousand dollars a year. And I would just say to her, just put a minimum and then you get the thousand dollars plus compounding. And at that time she laughed at me. She's like, Oh, you know, you're signing me up to another one of those things because you know she used to buy tap away from me and Avon and Neutrometics, anything that I signed up for. Mum was always my biggest fan this time around was give me savers. So I was like, my ex-husband was working for AMP at the time, and he was like, Look, let's sign up, you know, let's sign you up, me up, kids, you know, mum. So I don't know if he got the commission for it. What was going on there? But we signed mom up and she was like, Okay, fine, I'll just support you guys and I'll just, you know, put $1,000 a year and then $500 a year when the government contributions dropped. And she was really pleasantly surprised when she's finally come to New Zealand, retired, and she opened up her kiwi sandwich. She went, Oh my god, I've got like 30 grand in there now. And to her, it was amazing because she's not the greatest saver. She's always been, I wouldn't say a spender, mindlessly spending, but she's definitely had a hard life. She was raising us alone during the war and then, you know, working abroad. So she's all her money was always spent before she earned it in terms of our education, in terms of trips, in terms of other things. So us setting her up was the Kiwi Saver. I saw it as my way of giving it back in a way that, hey mom, you know, look at this. And this was really exciting for her. And she just left it there now and just sits there. I said to her, Do you want to get it out of the Kiwi Saver? She said, No, I don't need that money, it can just continue to grow. So that was exciting for me to see that. And I think she's sitting on a moderate or balanced fund or whatever it was, because she's like, I don't want it to be on high growth.

SPEAKER_00 31:46

Well, she's in draw, she can draw down any moment.

SPEAKER_04 31:48

Exactly, exactly. But I'm in a similar position to you in terms of risk profiler, where I did my own risk profile and I scored very like conservative balanced. And I wonder if that's because you and I deal with money, yeah, right? We know what can happen, and we're a little bit risk adverse in terms of oh, I don't know how I'll feel about that. And I was pleasantly surprised because I thought and people around me think I'm a high risk person because I run my own business, you know, and I've got investment properties and I'm this and I'm that. People assume I'm a more of a high-risk type of person, but I'm like, I'm not. I'm actually quite risk-adverse. I don't like risk. And I think that follows through is my advice to my clients often as well. Like, I always try to protect their money. I always try to say, look, don't buy that rental property. You know, it's absolute lemon. Like, of course, if you want to, at the end of the day, that's your decision. But I wouldn't. Yeah. And because I wouldn't, I don't think you should. Like there are risks I'll take, but they're usually calculated risks. Totally.

SPEAKER_00 32:47

Yeah. And I think, especially when you talk about investment funds or even rental property and things like that, there is, I think we often convolute the difference between volatility and risk. So the way I define both of those is volatility is how does it change in value over time? So markets go up, Elon said something, Trump said something, whatever, you know, markets shoot up. And then they say something else, and then they drop off a cliff. You know, that that's just kind of what happens sometimes. So that's what we call volatility, you know, the value of something going up and down. The risk is do we achieve what we set out to achieve? And where we talk about risk profilers, and this is where I, you know, I get passionate, is we talk about risk profilers, but we're actually talking about volatility most of the time. We're not talking about do we actually achieve our goals? Or do we achieve what we reasonably can? And um, you know, if it comes down to someone wants 50 grand a year in retirement and they've got Kiwi saver solely to do that, then being in a moderate or balanced fund, they've got 30 years to go is probably not going to achieve that. So I would say that's a risky position. But their volatility is going to be pretty low, and that might be in line with ECF. And I think having those two conversations side by side are critical.

SPEAKER_04 34:15

But I think the critical word you just used is having the conversation. And this is where a lot of people fail. Because they can go on a sorted website, they can do those profiles, they can tick the boxes. But if they don't understand the difference between those things, if they don't understand what really matters long term and what does it look like at the end, because we've got all those calculators, right? That we can show them that, hey, if you were here, the projection is you will end up 200k more, 200k less. And the problem these days, problem and not, we live longer. And, you know, there's a lot of people now past 90 years old, past 95, 100. Like, what sort of quality of life do you want to have? And we know for a fact that people tend to spend most of their money between 65 to 80.

SPEAKER_03 35:03

Yeah.

SPEAKER_04 35:03

Because that's when they're in their prime health still. They still want to travel, they want to see their grandkids or kids because everyone moves overseas. Yeah. And they're finally retired, they've got the time to do the fun things. They want to go out with their friends, they want to have oysters and champagne. But for a lot of older people, they probably can't afford it now.

SPEAKER_00 35:22

Totally.

unknown 35:23

Yeah.

SPEAKER_04 35:23

If they haven't planned for it properly. And also by the time you and I retire, I know you're a little bit younger than me, a bit of a baby. But by the time you retire, there might be no pension at all.

SPEAKER_00 35:34

Yeah, I like personally, I'm not banking on it whatsoever. Because yeah, I yeah, anything can change in the next 30 years, right? And so I mean, that's another really interesting thing you bring up is one thing we saw especially a few years ago, but a few of those risk profilers would be like, okay, well, how far away are you from turning 65? Yeah. And you could be 64 years old and you go, cool, well, I'm I'm one year away. Brilliant. Okay, you should be in a defensive fund. And it doesn't ask the question of when do you actually need that money, and when do you need that money to last too? Now, put that in perspective. Okay, well, if we're living to age 90, let's just assume that's about the average for most people um in New Zealand now. If we're living to age 90, that person has still got 26 years to go for their investments to last. Now, if we put those into a defensive fund where we're getting essentially below inflation rates, then we're probably not going to achieve our goals. So sometimes it's a little bit of a mix.

Raising Money Smart Kids At Home

SPEAKER_04 36:51

And again, it makes me think about like our children, right? Your kids are little, my kids are little. They've got an amazing opportunity ahead of them that you and I didn't. And the baby boomers didn't. Well, they had other types of funds and whatever. But like we live in a beautiful world right now where there are opportunities. Yes, there is downfalls of yeah, the pension may go away and this and that. But to be honest, I feel like the responsibility lies within the human on what they want their future to look like and not just rely solely on the government. And I wonder if that's because of the background where I'm from, because I'm from a country where there's no benefits, there's no pensions as such, you know. I mean, there's a tiny bit, but everyone has to make sure that they look 30 years ahead, they look 40 years ahead to set themselves up through investments or through properties or businesses or whatever, because you just don't know what will be by the time you get there. Also, a lot of people in my country have lots of kids because they're saying that the more kids they'll have, the chances of the kids looking after them is slightly greater, right? Unless you've got like one kid and the kid says, I don't want annoying anymore. But like I I think my cultural background affects my thinking. And it's sort of an interesting space for me to be at because I've got these two mixtures of my cultural heritage, but also growing up in New Zealand and working in New Zealand and seeing what's what makes me really feel grateful for where we are and the opportunities we have here and the kids, like you know, setting them up as Kiwi Savers and making those automatic payments into their Kiwi Savers. One of the podcasts I had with Dave from Booster, we talked about how instead of giving someone birthday money, like if you're a grandparent, instead of giving the kids birthday money as cash, put it into their kiwi saver. Yeah. Like that will grow 10 times more. That's $5 will turn into $50.

SPEAKER_00 38:48

Oh, it's huge. The other one I really like for kids. So one thing, and you would have seen the same, right? And we we've all felt it. You know, kids in daycare, super expensive. Like crazy expensive. And but a lot of parents go, I want to do something for my kids, whether it be help them buy their first home or help them through university or what have you. It's like, well, set up a kiwi saver or set up an investment account for them, but do it once they start school. Because you might be saving a couple hundred bucks a week straight away as soon as they start school, assuming they're not private, all the rest of it. And use a poor like if you use 25% of that what you were spending on daycare and put set it up into investment, you will probably be looking at like a six-figure investment by the time they turn 18. Just, you know, if if you're in an aggressive fund and yada yada yada, obviously a bunch of assumptions in there. But you're probably looking at a six-figure investment and you've got increased cash flow for your family because you're not paying daycare anymore. Brilliant. You don't miss the money you that you, you know, didn't have.

SPEAKER_04 39:51

So the mortgage broker and me will go, no, pay down your pay down your mortgage rent. You can do both as well. But that's what I usually say to clients as well. You know, like whatever cost you have right now, the moment that cost seizes, make sure you reallocate that money. Because that money is already gone, right? It's not in your head, it's not in your budget. Like you do not see that money. So don't go, oh woohoo, we're suddenly to $100 richer every week. No, put that $100 towards your mortgage, put that hundred dollars towards your investment. Yep. Then you're so much better off.

SPEAKER_00 40:21

Hugely. Yeah. And I always talk about like both and. So pay off your mortgage a little bit faster, invest a little bit more, increase your lifestyle a little bit more.

SPEAKER_01 40:30

Yeah.

SPEAKER_00 40:30

But don't increase your lifestyle to such a point that you can't do the other things as well. And you're locked in your mortgage for 30 years and your investments never went anywhere.

SPEAKER_04 40:39

And that's the thing, right? A lot of us feel the lifestyle creep. I think that's the word. Right? Let's talk about the lifestyle creep for a second. Yeah. What do you know about it?

SPEAKER_00 40:48

I know that when I get more money in my bank account, I want to spend it more. I love it. Well, that holiday looks good.

SPEAKER_04 40:57

Right. Right, exactly. You know, how did we survive five years ago on 50k salary? Yep. And then suddenly we can't. Like, why? I understand the power went up. I understand the internet went up. I understand all those things. But but at the same time, if you actually look at you're probably eating different, you're probably eating better. You're buying more expensive things. Yes, you do have kids, and maybe they're out of nepis, but suddenly you're buying them crap that they don't need. All the freaking squishy, you know, yeah, thunderstorm at the moment that my kids constantly want to buy squishies. And I'm like, you do not need any more squishies. So, you know, dealing with all of that is really interesting. You know, to me, it was eye-opening last night. I took my son shopping for his birthday cake. He's he's turned 14 today, so happy birthday to him. He'll probably never listen to this. But it was hilarious. I took him shopping and I hate grocery shopping. I hate it. It was always, you know, just one of my pet peefs. I'm much better at online shopping, then I know exactly what I need in the house. I click the buttons, I don't get distracted. The moment I'm in the grocery shop, make pie. Just terrible. Grab everything. You know, I went in for eggs the other day, spent $300. I don't know what I bought.

SPEAKER_00 42:05

Oh, nice eggs.

SPEAKER_04 42:06

Nice eggs, yeah. And I think I almost forgot the eggs. Funny enough. So, anyways, I go in with him and I said, Okay, come with me, let's choose your birthday cake, you know. And we went for a walk and I'm like, Oh, we need bananas. He's like, nope, put them back, mom. I'm like, oh, we need ham for the sandwich. He's like, nope, put it back, mom. And then as we're walking around the store, he's like, he turned around to me and goes, This is why you you always tell me you never have money, because you just put everything in the trolley. I told you the budget is $60. And I laugh because I'm like, how the tables have turned. Because normally when I would take them shopping, I would say to them, the budget is only, you know, $50 or $60, and we'll have to stick to that budget. Because when I'm with kids, it's so easy to get distracted. So if I give them the budget, they usually stick to that. So to me, it was absolutely mind-blowing in that moment that everything I've been teaching my kids over the last few years, since they were, you know, little, it actually settled in somewhere there. It actually landed with them. And we got to the we got to the checkout and it was $62. And he looked at me, he's like, see, told you. Like, if you grabbed all those either items, we would have been in a worse position.

SPEAKER_00 43:13

Pop the Tim Tims back.

SPEAKER_04 43:14

Right, right. So I love that. I really loved that for him. And I could just see him doing well in life, yeah, in terms of knowing where to spend and where to save and having control over money, not letting money control you.

SPEAKER_00 43:29

Yeah. Well, it's I really like these kids' discussions as well, right? Because you have such a cool position with our children to be able to go, these are these little things in life that you can just do a little bit here and a little bit there, and that grows over time. And obviously, we're talking a lot about financial literacy in schools at the moment, a big government push and all the rest of it. But obviously, it also starts in the home. 100%. So, one thing I do with my now seven year old, but when she turned five, she had chores every single week. And some people like slave children. Child labor. Absolutely. And she loves It. So her job at the moment is going to change soon, is she has to feed the dog morning and night every single day. And then she gets two dollars a week.

SPEAKER_02 44:19

Wow.

SPEAKER_00 44:19

Really cheap child labour. Does she need to pick up the pool? No. Maybe we'll do that next year.

SPEAKER_03 44:25

I think we should add it in 50 cents extra. I say 50 cents extra, get her to pick up the pools from the backyard.

SPEAKER_00 44:31

But what's amazing is she's built up like a pretty reasonable savings account, especially for her age of saving $2 a week. Now, often she comes to me and she goes, Oh daddy, can I have this? Can I have this? And sometimes obviously, yeah, absolutely, you're my daughter like anything for you. And then those other times I'm like, come on, Luke, show some restraint. Teach her something here. And it's like, okay, do you want to use your money for that? And she goes, Oh, well, how much do I have? And then so I log into my app and I show her her account and how her money is built up over time. She goes, She said to me the other day, she goes, Oh, but if I buy that and that's like eight dollars, I will have less than $90 in my bank account. I don't want to do that. Well, I've got $93 or whatever it was, so I only want to spend three dollars. And now originally she was like, Oh, I want to spend $30 because it's dad's money, right?

SPEAKER_01 45:25

Yeah.

SPEAKER_00 45:26

But now she's going, Oh, actually, no, I don't want that anymore. I want this a little bit. Then the other day she goes to me, Oh, I'm nearly at $100. And you could see like just this, I've built this thing where I'm going to do it. Well, it's huge money. Yeah. She's only seven. Exactly. Haven't talked about compounding returns yet.

SPEAKER_04 45:46

That's amazing. I love that. I absolutely love that. And that's the thing, right? I always said manners and money start at home. Yeah. Like you cannot expect schools and DKs to teach your kids how to say thank yous and pleases and good mornings and good nights. Like you do that at home. And when you send them to school, you just hope that the school will embed other things in them. But it shouldn't be schools' responsibility to teach them manners and money. Yeah. Like money conversations at home are so important. My um second son, he's I think he's going to be a businessman. I think he's got the potential to just freaking run this business for me with his eyes closed. Is your retirement plan? Oh, he totally is. He totally is. And he's hilarious. So he said to me a few months ago that he wants to save. Well, he wanted me to buy him a slushie machine because he wants to sell slushes. Because he was doing into the whole lemonade business and he made really good money out of lemonades. And now he's like, okay, how can I do less labor but get more money? So slushies it is, right? For summer. And uh and we looked it up and it was like ninja slushies, you know, $600 for a machine. I said, okay, I will be your investor. We'll go 50-50. So you save up to $300, I will add $300, but I want 50% of your profits. And he was like, okay, that's fine. We can work with that. And today he said to me in the car, you know, Mom, I haven't had lollies for almost three or four weeks. I said, okay, why is that? He goes, well, you know, I saved up $60 now because he gets paid through his um techwondo job. He does this instructing and he gets paid, I guess, $20 a week. And what he's done is in the past, he'll get the money, he'll get paid, and he'll run to the dairy shop and he'll spend it on lollies before I manage to tax it. He's already spent it. And since we had that slushy conversation, he's he stopped doing that. And his words exactly today were it takes so much self-discipline, mom. But I'm looking at the big picture and it will be worth it because I can make so much more money selling those slushies. Yeah. That's $300 is gonna pay off, you know. So it's really cool because he's only 11. Yeah. So he's already thinking ahead of, okay, how much money can I make selling slushies? So I said to him, look, you need to make a plan, the costing plan, you know, what goes into the slushies, what's the outcome, you know, how much do you need to spend on paper cups and all sorts. So um, so he needs to come back to me with a business plan.

SPEAKER_00 48:06

Yeah, well, it sounds like you've given him all the key outlines.

SPEAKER_04 48:10

I love kids' conversations, right? And uh I feel like I just need the whole podcast episodes just on kids. It's like it's it's amazing to see how much smarter they are than what we were, you know.

SPEAKER_00 48:23

And or potentially my kids smarter than me now, but that's a different story again.

SPEAKER_04 48:27

Right, but that's the thing, and like they do Sherzy's, so they've always done Sherzy's since they were little. And the other day he was telling me about Colgate, and he's like, you know, you should really because I was in my Sherzy's account, and he goes, Do you have any Colgate? Do you have any Coca-Cola? You know, you should really buy some of those. They've been doing really well, and da-da-da. And I'm like, looking at him, going, What on earth? 11-year-old is stitching with my shears. So uh so yeah, that's really cool. Well, we all need toothpaste. Well, that's what he said. He said Colgate is responsible for a lot of you know things that um we use in every day and hygiene, and it will not go away. So, you know, really important to look into that.

Final Takeaways And Next Steps

SPEAKER_04 49:05

So that's cool. Look, as we were talking about financial planning right in the beginning, and I gave you the analogy around the cars and the servicing, and then I asked you about the financial planning fees and stuff. What I really want to lend with people today is understanding that when you take your car for servicing, it's not free. You have to pay for that wharf. You have to pay. But what it does, it keeps your car safe, it keeps you on the road, it keeps you compliant. Yeah. And when you pay money, you don't hesitate. And it blows my mind when people hesitate to pay for the financial planning.

SPEAKER_01 49:40

Yeah.

SPEAKER_04 49:40

Because they don't see the tangible outcome straight away.

SPEAKER_01 49:45

Yeah.

SPEAKER_04 49:46

Right? With the car, at least you can see, oh yeah, you know, got new oil, got it's not shaking all over the road. Right? They see, but with financial planning, they don't.

SPEAKER_00 49:56

Yeah.

SPEAKER_04 49:57

So I think you've got a huge mission ahead of you to work on that. But if I can at least leave this analogy with people, is that we go and we pay money for service. Financial advice is no different.

SPEAKER_01 50:10

Totally.

SPEAKER_04 50:10

And the only difference it will make is that next time you take your car for servicing, you'll have more money to pay for that servicing. And it's not a huge disaster that suddenly your car needs five thousand dollars in tripers. Yeah. Right? Yeah. Because if you do the financial planning, it will help you.

SPEAKER_00 50:28

Yeah, well, it sets the whole precedent for the future, right? Correct. And so, yeah, as I say, I've never spoken to somebody that's done a financial plan and regretted it. That I haven't added significant value long term in terms of their trajectory and what they can achieve.

SPEAKER_04 50:44

I'll book mine in. Thank you. Look, thank you so much. Any parting words of wisdom? What would what would you have told a young Luke?

SPEAKER_00 50:54

Get your kiwi server sorted properly and keep saving and have some goals for those savings accounts. So whether it be an emergency fund and what you're working towards, uh have some goals in your life, financial, non financial, and put a plan and make them happen. It'll happen a lot faster.

SPEAKER_04 51:11

Love it. Thank you so much, Luke. And I can't wait to have you back again and we can look at some key studies on how you help people.

SPEAKER_00 51:17

Sounds great.

SPEAKER_04 51:18

Thank you.