This post is based on an interview we conducted with Charlie in October 2020
Real Money Talk is our series where we interview Australians from all walks of life about their personal finances. The views expressed are those of the interviewees, based on their experiences with money, and as such are not necessarily representative of Spaceship's views.
We have changed the name of the interviewee for their privacy.
Overview
Name: Charlie
Age: 32
Where do you live: Coburg, Melbourne.
Please tell us a bit about yourself.
I’m a Kiwi who works in the technology industry working for a startup.
What is your current net worth?
Not totally sure, about $40,000 to $70,000 but I also have share options in an early stage startup that might be worth $20,000 to $200,000, depending on how the company goes.
How does it break down?
$40,000 cash in an ING saver with my partner
$2,000 in Spaceship
$10,000 in Shares (CommSec & CommSec Pocket)
$7,000 in superannuation back in New Zealand
$75,000 in superannuation in Australia.
Any debts? (including HELP from Uni)
$60,000+ in student loans that gets interest at 3.5% since it’s with the NZ government (no interest if I live in NZ but jobs are better here, for now).
No other debt (apart from the occasional Afterpay purchase).
How did you accumulate your net worth?
Mainly by salary sacrificing into super to get that up. I also put money away or invest each month once I’m paid and have been chipping away at the student loan for a while. (It was much bigger because I borrowed to live and changed studies half way through, and when I moved here it built up interest that I couldn't keep up with.)
Earn
Tell us a bit about your career:
I’ve just worked my way up through hospitality, corporate roles and more recently different startups. I started on $500 a week, then my first salary was $40k, and I am now on $115k. Most people think startups are just about software developers but actually developers only make up 40% or 50% of startup jobs. There’s finance, sales, marketing, support, and operations, so almost anyone can work for a startup as long as you can handle a lot of change and longer hours. The initial lower pay is worth it for the ability to learn quickly. It can be tough if your startup is going nowhere.
Do you have income sources outside of your job? If so, how much do you earn from each and how did you develop them?
Normally, I rent our car park for $100 to $150 a month. My car park rentee has had to cancel as her job was impacted by COVID-19, so my monthly car park earnings is currently $0, but she’ll be back after the lockdown ends, I hope.
Other than that, maybe $60 a month from interest. My shares have gone up but I don’t count that as they’ve not been sold.
What advice do you have for people who want to earn more money?
Always update your CV even when things are going well at work. Most people don’t do this and just update their CV as they quit, etc. Keeping your CV updated naturally motivates you to put your hand up at work and ask for raises, and it helps prepare you to move as soon as you (or your pay) get stagnant. Research shows changing jobs has a massive impact on boosting lifetime earnings. I appreciate we are in an unprecedented time of unemployment so my heart goes out to those struggling to find just any job in the first place. It’s going to be a tough few years for a lot of people, but even so, you can only focus on what you can control and that’s yourself.
I recommend using modern financial tech apps like Up Bank, Spaceship, Afterpay, and others to make budgeting and saving easy. (Afterpay gets a bad rap in my opinion.) A dollar saved is better than a dollar earned because you don’t pay tax on it. But at some stage you can’t escape basic expenses, so you should focus on boosting income.
Save
What is your savings rate? And how has it changed over time?
It ranges from 35% to 45% which I feel is really high, especially as I pay the entire rent for our place since my partner is on reduced hours due to COVID-19. My savings rate was non-existent early in my career (apart from occasional student loan payments) when I was on lower income and setting myself up, but as my income has gone up, and as I’ve matured, I’ve become more focused on saving.
Do you have a budget?
I have found budgets a struggle, as it’s a drain tracking everything to the point that I can’t stick to them. What I've learnt is to use something called a ‘zero dollar budget’ or ‘paying yourself first,’ which is where as soon as you get paid you put a huge chunk of your money into savings (or investments) and then whatever is left over you spend freely as you want. As your cash gets down closer to payday you naturally have to reign in spending. As long as you put money in other accounts or investments, and can’t see them. It does simulate being broke and helps me save without the hassle of counting coffee purchases. Up Bank’s predictive analytics makes this really easy, no surprises on bills, etc.
How much do you spend per year?
About $40k per year but over 50% of that is rent and student loan payments.
Do you make purchase decisions carefully, or are you loose with your money?
Using my zero dollar budget I just spend my remaining money before payday freely, but if it’s a bigger cost I have to factor in, I don’t buy takeaway or anything discretionary for a week or two. If it’s a really big cost I try to spread it over a few months using Afterpay and just cut back on non-essential spending to accommodate that (i.e. simulate being broke).
I don’t gamble or spend money on fashion so my costs are low. Being car-free means I can make money last quite a long way.
How is your work-life balance?
Pretty okay. You have to do 45 to 60 hours in any startup but working from home and having a flexible tech job makes it easy. I feel it’s a good balance for the pay and I actually like my job. I could work less hours if I lowered my standards or work ethic.
What is your favourite thing to spend money on?
I honestly get a lot of happiness seeing my super go up and saving and investing. I also love seeing my student loan go down. In terms of happiness-per-dollar, I get hundreds of hours of fun from Nintendo games, which has been a lifesaver during COVID-19.
Invest
How do you invest?
The usual: Spaceship and CommSec. I also am part of an investing club, which is just a group of mates with a joint account who pool our money and knowledge and have fun picking stocks or ETFs. We got in on Afterpay in April so just got the club started at a lucky time. It makes it really fun and means we limit the amount of fees we pay by going in together. You have to be careful though when money is involved with friendships and we’ve got a signed charter to manage potential future conflict.
I also do salary sacrifice into super as a way of building up for the First Home Super Saver Scheme. It’s such an amazing scheme and I don’t get why so many people are afraid of the limitations or conditions of it. Apart from the tax savings alone, you also get about 3.8% “interest” via the ‘deemed rate of return’ on it which is amazing. I get there are risks but at this stage if the stock market really crashes, I hope houses will also go down too.
What has been your best investment?
Afterpay in terms of shares, but in terms of total return, the best investment has just been in building skills, applying for jobs, and getting pay rises. It’s amazing how much you can benefit from working on yourself in your primary career, rather than spend energy on side hustles or chasing risky investment returns.
What has been your worst investment?
I lost half an old Bitcoin when the phone that had the password stored on it ‘bricked.’ I still had sold enough to cover my cost but there was a while there when I was gutted at not storing the password in multiple places. I have since learned it’s really common to have lost access to Bitcoin. It’s a dumb thing to invest in.
What's been your overall return?
No idea, I’m just starting so maybe 20% this year on stocks, probably overall $15,000 on my super as I’ve been invested in international stocks the whole time, so that has exposure to Amazon, Visa, Facebook, etc.
How are you building wealth?
Trying to build skills the employment market wants while also being vigilant of lifestyle creep to ensure no matter what I earn, I can keep saving and paying off my student loan.
What are your main roadblocks? And how are you addressing them?
My large student loan is a handbrake on wealth accumulation but I don’t resent it as it’s what helped me get to where I am. I pay it down every month. The other thing that might hurt me is entering the housing market at the wrong time. Negative equity would be so gutting. I think the days of 10% house price growth are over since they can’t meaningfully cut rates anymore, unemployment is high, and net immigration is negative (selling homes and not renewing rent); so many high earning New Zealanders I know have bailed on Australia. Hoping to manage avoiding negative equity by talking with my partner about what size mortgage we would feel comfortable with and not trying to stretch when we do eventually buy. (She has $60,000 saved too.)
Do you have a target net worth you want?
I’ve heard up to $1.6m in superannuation has key tax benefits. That would be good to get to by 60. But as long as I can live a good, healthy, social life and don’t pick up any gambling habits or relationship issues, or lose my job to AI, then I’ll be fine whatever I end up on. Worst case scenario I end up divorced, alone, addicted to AI-designed gambling on the pension but hopefully by then test cricket still exists and that will keep me going.
When did you make your first significant behavioural shift towards wealth building?
Two years ago, I started listening to Australian finance podcasts and it just opened my eyes. You can learn so much there (Equity Mates, My Millennial Money, She’s On The Money, Australian Finance Podcast, Fire and Chill, The Money Cafe).
If you could start again, what would you do differently?
I would send myself a list of university courses to avoid. Otherwise, the main thing would be to just get into podcasts earlier. For me, that’s been such a useful way to passively learn and gaining new knowledge is so key for personal development and growth. I would also have told my younger self to be more humble, be patient, and ask for feedback more in the workplace to help with professional development.
What mistakes have you made along the way that others can learn from?
Early on I thought being good at your job, and doing long hours, was how you got ahead. That helps, but I appreciate now it’s mostly about relationships. Also, get rid of your credit card. They are so bad for financial health I actually cut mine in half with scissors and that helped to break the cycle.
Do you have any worries about retirement? If so, how are you planning to address them?
Just living to see the climate crisis in full effect, AI taking my job, and the effects of an increasingly unequal society controlled by a handful of families influencing public opinion through Facebook micro-targeting, to pervert global democracy. Other than that not really. I do think there’s a lot of progress on poverty and am hopeful our society can address climate change. For my sins, I’m planning to help by donating to independent journalism like Michael West, and just supporting political policies that address these issues.
How are you learning about building wealth?
All the podcasts mentioned above.
