For over 6 years now I’ve released weekly podcasts and emails exploring the idea of Financial Autonomy and gaining choice. The content is informed by the wonderful clients that we get to work with, many of whom are listeners.
I’m constantly learning, and sometimes what you learn contradicts what you thought you knew. This week I wanted to share 3 things I got wrong. There’s probably plenty more, but let’s start here anyhow.
1. Interest rates
If we did financial modelling and scenario analysis for you five years ago we never would have included mortgage interest rates at 2%. I’m sorry.
If we did financial modelling and scenario analysis 18 months ago, we never would have assumed mortgage rates at 4% today and almost certainly going higher. I’m sorry
Australia’s interest rates have been a cause for brain explosion over the past four or five years. For more than a decade we saw rates only ever go down. And just when we thought they’d gone as low as they could go, a global pandemic struck, necessitating previously unimaginable cuts.
That most people’s mortgages would have a rate beginning with two is certainly something I never saw happening. Had we known this, perhaps there would have been opportunities to be more aggressive with investments, borrow more and really go hard.
But more significant than being wrong about how low interest rates could go, was being wrong in assuming that when the Reserve Bank told us interest rates would not rise until 2024, we could take them at their word. Now, I can understand why the Reserve Bank had to change their stance, and they probably are doing the right thing. But my job as a financial planner is to plan strategies many years into the future. That requires making assumptions, with interest rates being a key input. The Reserve Bank sets interest rates in Australia so if there is anyone you should be able to rely on to give you an accurate guidance as to the future of interest rates, it ought to be them. As I say, I think their current actions are appropriate, the error seems to be in the statement about rates not rising until 2024. I’d imagine that with the benefit of hindsight the RBA governor would have never made that comment.
So item number 1 on the wrong list, assuming that the RBA wouldn’t change their tune.
2. The shift towards self-employment
For those of you who have read my Financial Autonomy book, you’ll be aware that one of the pathways identified to gain choice is via self-employment. I recognised this pathway through the experience of several of my financial planning clients, who gained flexibility in their life either by building and selling a business, or simply by growing the business to the point where they can engage enough staff to allow them to focus on only the areas that they enjoyed and were more interested in.
Self-employment remains a valid pathway to our goal of gaining choice, but when I began the podcast I had anticipated more people becoming independent contractors, more of a rise in gig type work, and a general increase in the number of people supporting themselves via self-employment. To date however, I’ve seen no data to suggest that this is occurred. I was wrong.
In fact some of the data I’ve seen suggests the proportion of the population in self-employment has declined slightly, from around 17% a decade ago, to 16% now.
I had expected web based platforms to make gig work easier and more commonplace. Whilst COVID certainly wasn’t in my thinking originally, I would have thought that with more people working from home and showing that they don’t require as much supervision as perhaps managers thought, this would further support such a move. But it simply hasn’t happened. Perhaps the increased flexibility granted to workers through the pandemic has meant there is not such a need to shift to self-employment to gain choice. Likely, I also under-appreciated the value we place on the security of a job, the reliability of a regular wage.
As an extension of getting this wrong, Side Hustles are less common than I had expected. Side Hustles are a great stepping stone towards shifting to self-employment. A bit of “try before you buy”. But what I’ve come to recognise is that most people are just too busy to pursue Side Hustles. That’s not to say no one is going down the Side Hustle path, just that it’s less common amongst the people I work with, than I had anticipated.
3. Things that make you happy
This final piece that I got wrong is actually what got me thinking about creating this episode in the first place. Over the Financial Autonomy podcast journey I’ve read a lot about money and happiness and folded those ideas into the content that I’ve produced. One of the most compelling ideas in this space is that experiences produce happiness, physical things do not. Accepting this reality drives where you should spend your discretionary income. So holidays yes, coffee machine no.
But I’ve come to realise that this is wrong. Or more accurately, it’s too simplistic.
Often, physical things result in experiences or feelings, and those experiences and feelings can be a great source of happiness. I shared in the GainingCHOICE email recently a survey conducted by a financial planning practise that asked their clients what things they had spent money on in the past year that gave them the most joy. Towards the top of the list was items for their home. Having updated a couple of things in our home over this past year I can certainly appreciate where this is coming from. I assume it’s a bit of a nesting instinct, but I really appreciate coming home to a comfortable place of calm security. Whether it’s the comfy couch, the plush floor rug, or a very cool coffee machine, examples abound where money spent on physical “things” in our home produce happiness.
The primary trigger for my rethinking of this idea was my purchase earlier in the year of a 2006 Porsche. For the car lovers it’s a Cayman S. I’ve produced several episodes highlighting the financial wastefulness of owning a car, pinpointing this as an area where households can improve their cash flow position. I still think it’s the case that many people spend more money than they need to on their daily drive vehicle. But I have to tell you that in my experience at least, money spent on a collectible type car can certainly bring a lot of joy. I would go so far as to say that the money I spent buying this car is the best money I’ve ever spent on something just for making me happy. As I write this piece it’s in the mechanics workshop getting a few jobs done and I actually miss not having it in the garage. There some anxiousness. I want it back home, safe and sound. Ridiculous I know, but it’s the truth.
I was speaking to some clients last week who own several older cars. They spoke about the community they enjoy through the car clubs they belong too, and the fact it’s a passion they can enjoy together, something of increasing importance as their children move into adulthood.
So things, physical assets, can definitely make you happy. Perhaps it is true that the happiness derives from the feelings these items produce, but regardless, the feelings don’t exist without possessing the item in the first place.
Sometimes it’s hard to admit when we’re wrong. But if you’re open to new information, and prepared to be constantly learning, then it makes sense that your thinking will change over time. Becoming locked into your ideas and place in the world feels to me a very unhealthy way to live.
That’s it for this weeks episode.
Before I close out, a quick reminder that we produce a weekly email, GainingCHOICE, which complements this podcast. It’s free, and comes out every Friday morning. If you’re not already on the list to receive it, just go to www.financialautonomy.com.au/gainingchoice
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