Claire Mackay chats with David and Libby Koch about all things financial.
Transcript of interview
David Koch: Hi, gang. Welcome to our first Ask the Expert session. And hey, congratulations for finishing week one of the Money Makeover. Have you found it useful? Well, hope so because you’ve actually laid a great foundation for the next three weeks. What have we looked at? Setting financial goals, how to do your budgeting, track your expenses, boosting your career by looking at your CV, how to earn other bits of income to help balance the family budget. So we’ve covered a lot in this week, a lot of the fundamentals on which we’re going to build for the next three weeks.
David Koch: Remember, Banking and Data is next week. So that’s gonna be a cracking week. But first up, let’s start answering your questions from this week. And I love the way, how you’re swapping your ideas through the forums as well. Let’s keep that up and all learn from each other. Now, delighted to welcome as our first expert, Claire Mackay, from Quantum Financial. Claire is an award winning financial planner and has been and seen through it all. So, it’s great to have her aboard. Claire, good to see you again. And of course, she who must be obeyed, Lib, who’s the financial guru about our financial relationship. How long you been looking after our family dough for? 37 years?
Libby Koch: Oh, pretty well the whole time, 37 years we’ve been married.
David Koch: Well, that’s a lot.
Libby Koch: It’s gone like a flash, of course.
David Koch: I still get my allowance every week.
Libby Koch: You don’t even stick to it.
David Koch: Let’s get underway guys. We’ve got a few questions to go through. First of all, should we open a separate savings account or are we better off leaving the money in a mortgage offset account? This way, we’re not earning interest and increasing our income, instead we’re reducing the interest paid on our mortgage. This is, the argument is a mortgage offset account better than a savings account? Claire?
Independent financial planner Claire Mackay: Well, if you’re getting about 3% in savings and you paid four and a half, 5% on your mortgage, the math is pretty simple. It’s better to use your offset.
David Koch: Yep, exactly. Just do the math. Same one here. “Hi, Claire. My wife and I have a mortgage, one child, and another on the way. For around eight years now, we’ve simply been putting any excess cash into our mortgage or offset account. Do we just continue paying off the mortgage as fast as we can? Or look at other investments?” There aren’t that many investments that actually return you, what, 5% or 6% a year.
Independent financial planner Claire Mackay: Guaranteed. Guaranteed.
Libby Koch: That’s the trick, isn’t it? Guaranteed.
Independent financial planner Claire Mackay: You know your mortgage is what it is and for this family, working hard to pay down that mortgage as quickly as possible is the best advice.
David Koch: Yep, yep. And Lib, that’s what we’ve always done, isn’t it?
Libby Koch: Definitely. We’ve just planned any spare cash so that we’ve been able to accumulate into the mortgage, knowing that you’re not gonna get the same interest.
David Koch: Yup. And also, your mortgage because you can have drawdowns and offsets, some things like that. It’s also a good place for your emergency fund too, isn’t it? That’s the best place for it, rather than putting it in a separate account. But you’ve gotta have the discipline. “My husband runs a local post office, while I work three days a week hair dressing from home. My issue, I find it hard to ever save as I feel my hair dressing money is grocery money and for pleasure. And most of the time, everything goes out of the post office to pay the bills. So, I find it hard to write up a budget. My husband is definitely the money man. I’m the spender. I’ve never been great with money. I’m eager to learn as I’ve joined up to learn more, but personally, I’m embarrassed that at my age I don’t have a lot for myself.” It’s a really vulnerable position, Lib.
Libby Koch: Exactly.
David Koch: And we’ve got lots of friends in this exact same position, don’t we?
Libby Koch: Yeah. The embarrassment is what she’s feeling. It’s not necessarily what anybody else would be thinking of her. So, I think she’s making the first step by saying, “I actually want to learn more.” So, the best way is just to think, “Well, that’s the positive thought here.” Put the embarrassment aside because there’s a lot of other people that are just burying their heads in the sand and not even making that first step. And so, then she can go on and make a budget. And I think if she actually makes a family budget, she then might not be such a spendthrift and get more excitement in seeing the saving grow and thinking, “I’m actually helping my husband pay the major bills, like the mortgage.” And would feel better about herself when she thinks, “Well, I don’t… Shouldn’t spend as much.” She’s obviously thinking that way so she’ll actually get more steam.
David Koch: Yeah. And in week four, we look at how to have a better financial relationship with your partner because this one’s a classic case. You should be talking more with each other about your money. And you being across what he’s doing and him being across more what you’re doing. Now this business of having one partner take control of all the money, I think is incredibly dangerous. It’s usually the bloke that doesn’t. It means you’re incredibly vulnerable. And we give you a few tips on how to make that work a whole lot better if your husband says, “Don’t you trust me?” What should you know?
Independent financial planner Claire Mackay: It’s not about trust.
David Koch: Not a matter of trust.
Independent financial planner Claire Mackay: It’s not about trust.
David Koch: It’s protecting yourself.
Independent financial planner Claire Mackay: It’s also what happens if he gets sick? What happens if he can’t and he’s for whatever reason…
David Koch: Gets hit by a bus, or…
Independent financial planner Claire Mackay: Exactly.
Libby Koch: But…
Independent financial planner Claire Mackay: So as you said Lib, really saying, “You know what? Forget the embarrassment. Start learning. It’s never too late to learn.” It’s never too late to learn. It’s never too late to learn great habits.
Independent financial planner Claire Mackay: Exactly. And another aspect that I’ve recently come across. In this same scenario with a husband thinking, “Oh, it’s okay. I understand the money. I’m happy to do it. I won’t bother telling my wife the real situation because it might just upset her.” And it actually created a lot of stress, because things haven’t gone so well. So, he’s left it so long and he thinks, “Well, I can’t start talking about money now. It’ll be just way to much to hit her with.” And so, he’s carrying all that stress because the finances sort of have gone backwards and where do you start?
David Koch: That affects their relationship.
Libby Koch: Terribly. Terribly. So you’re setting yourself up for trouble down the track.
David Koch: Both sides. The key is just building a strong financial relationship together and each sharing… Yes, you can allocate tasks to each other… But you gotta share everything. What I always say is, once a month, it’s only once a month, sit down together for 15 minutes and just talk about money. Not pay bills. Not say, “Oh, we spent too much there, we spent too much there.” Just sit down, and say, “Okay, what are our goals and dreams about money? How are we going? How do we have to adjust our behaviour?” All that sort of stuff. Glass of wine and just talk about it as a couple. Rarely do couples sit down and talk about money, financial.
Libby Koch: Funny, the most important message we could actually give to people or I would hope that they would get from doing the makeover. When you’re in a partnership, it’s all about sharing that load and creating understanding.
David Koch: Yup. Alright, let’s move on. As I said, week four, we’ve got a special day looking at relationships. Next question, “My husband and I had three children, private schools… ”