Escape Plan 2.0 | How to Spend Guilt Free AND Fund Your Goals

What if you could predict your financial future and spend guilt-free while still smashing your goals? In this episode, Ryan and Terry unveil the fourth skill in their Escape Plan series: cashflow forecasting—a game-changing tool that bridges the gap between where you are and where you want to be.

🔍 Here’s what you’ll discover:

• How one family transformed their dreams of traveling Australia into a reality, just by mastering this skill.
• The surprising truth about scarcity bias—and how it’s sabotaging your financial freedom.
• The two most common “money relationship” archetypes and how to break free from their traps.
• The step by step process for mastering this skill, and how to know if you're doing it effectively. 

💡 Ready to navigate your financial future with confidence? Hit play now to unlock the mindset shift that will change the way you think about money forever.

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Transcript

Ryan: 0:29

Hello. Welcome back, Texan. How are you, mate?

Terry: 0:34

I'm looking forward to this episode. Fourth one in the series.

Ryan: 0:37

Tell me why.

Terry: 0:38

Well, I just think what we're about to discuss is, I don't think it's ever talked about in personal finance. I feel like it's just a massive game changer when it comes to money. When I see people change their levels of competence and confidence and their ability to make decisions with money, it's usually coming down to this skill.

Ryan: 0:52

Mate, cut through. You have to tell me what it is now.

Terry: 0:54

we're going to talk about cashflow forecasting. That's the fourth skill in this escape plan series. So we've talked about, how this money mapping method came about. We talked about future authoring, which is the first one, which is how to get clarity and conviction in your goals. Then we talked about monitoring your vitals, which is like really just knowing your numbers and getting beyond the abstractions and now in this episode, Cashflow Forecasting, this is more about how you can start to spend guilt free and achieve your goals. That's really what this comes down to and start making big decisions, isn't it?

Ryan: 1:20

It is, and we've been using a mountain analogy to describe all of this. So the first one was standing at the top of the mountain, looking around, seeing what it looks like, what it feels like, getting a sense of where we're going. Then monitoring vitals was seeing what you have, what resource you have at your disposal to help you climb. This one is now basically projecting up the mountain. From where you are right now and kind of setting out meaningful milestones along the way, but figuring out how will you actually navigate the turns that happen along the way. And so very much a navigational skill is what I would call this one. if You were to quickly explain to me what cashflow forecasting is, a really quick snapshot, how would you do that?

Terry: 1:57

Yes, as you said, I think that analogy works really good. That's your ability to kind of project things forward. When it comes to money, it's just your ability to simulate your financial future to start to see how things can play out. How are things likely to play out? How could they play out if certain things change? And what will you do with your decisions given that information? Basically, you can, to a certain sense, predict what's going to happen because you're a creature of habit there's a lot you can use with this information to gain some insight to inform your decisions now to make your goal achievement a whole lot more likely. And that's essentially what forecasting is. think it's like very complicated and it's really not. You just need a great tool that helps you plug in the right information to make great decisions. Don't you?

Ryan: 2:35

so often we get trapped into trying to be precise. We're trying to chase precision, trying to predict exactly what will happen. It's not really the case. Really what forecasting allows you to do is to see what's possible. is actually possible for me in the next few months, in the next few years, and then use that to guide our efforts. And one thing I'd definitely call out here is usually this is a whole lot better than what people expect. It is very rare that I forecast with someone and we'd be very diligent about it and be quite generous in terms of lifestyle spending and these things and get to the end and go, Holy shit, that's ugly.

Terry: 3:09

Yes.

Ryan: 3:09

Our perception when it comes to what's possible is usually much less than what is actually possible. Not always. But 95 percent of the time that is the case. And so it is very, very much a rewarding and almost an instant, motivator because you see Holy shit, this is what's possible. I'm actually willing to do the work to make that happen. So you get to kind of borrow progress from the future, use that to feed into your motivation right now to get to work and make it happen.

Terry: 3:36

When you say that, it makes me think of it's a way to deconstruct your scarcity bias. Like we're all swimming in this idea that money is so scarce and It and it just crumbles in front of your eyes. Like I remember Mitch was talking about this and you can go back to episode 109 and listen to this. But Mitch and Brooke are the couple that have just come back from traveling around Australia with their family, they had been wanting to do this trip for years. And he said that when he got through this part of the program and they started actually using these tools and building this skill of forecasting, this is his words, this is not my words. He said, I had to realize that I was being a coward.

Ryan: 4:06

Okay, I would.

Terry: 4:07

And I said, that's strong words. And he said, well, to be honest, man, like I did the forecast and I realized there actually isn't a reason why we can't do it.

Ryan: 4:14

Mm. Mm. Mm.

Terry: 4:26

that?

Ryan: 4:27

Mm. Silence. Silence. Silence.

Terry: 4:52

So I think it's huge.

Ryan: 4:54

And I think the other common scenario is actually investing the hard reality of investing right now is most assets we're purchasing aren't earning more income than the interest on the loans to help them help us buy them. And so we are often having to buy great assets, but having to copper hit when it comes to cashflow. And. This is what helps you actually find out what's possible for you to be able to see, you know what, that property Or that bundle of shares. Am I willing to borrow and buy that, to make that big money move? And what would that actually mean for the lifestyle choices and the other goals that I have at the same time? As soon as you can actually play that out and see What it all means. You make those decisions with so much more conviction and so much more comfort as well, knowing what you're stepping into. But I'm probably getting ahead of ourselves here on this episode. What you mentioned before, there's a couple of different archetypes, if you like, that forecasting tends to help you slice through. What were they?

Terry: 5:46

I think there's two ways to look at it. Two patterns that we see. And the first is what I call anxious attached. so what's happening here is. You might be stressing about the little things really worried about like small spend. So I have this visual kind of analogy of as soon as spending comes up, you turn into a human calculator and you're like, you do not spend, you don't spend, usually it's because they're too close up. So we can't see the forest from the trees and we haven't got those big things handled in the past. We haven't made those big decisions. And so we're stressing about all those little things, the 20 cent conversations that don't buy your coffee in the morning type thing. And really. Where this ends up is regret. not having lived more. When you go back and you realize, actually I was optimizing for money instead of, I should have been optimizing for time. And remember we talked about this when we talked about future authoring, success is dying with zero regrets. And this is a massive source of regret. I'm watching my dad to a certain extent deal with some of this at the moment. Some of the choices he made earlier on going, fuck, I was optimizing for the wrong thing at that time. When I should have been thinking about really what I wanted out of life and what I wanted for my family and those sort of things. He did a lot of things right, but he's had a couple of really important conversations with me that have made me think differently at the same time.

Ryan: 6:55

To lighten the motor a little bit. I watched Johnny English recently and I don't know if you've seen it or not, but there's this scene where it happens a few times throughout the movie actually where the guy staples a document to his forehead. That's what I think of when I think about the anxious attached. It's that person that's so close to their money that's literally stapled to their forehead

Terry: 7:11

Yeah.

Ryan: 7:12

they can't see the rest of life and how it's impacting the rest of life because they are too close to it, holding onto it too tight, managing it too tightly even. So that's anxious attached. And you said before, it's like a relationship with money. If you were to personify that a little bit, and let's imagine that. A lease was money in this relationship. What does that look like

Terry: 7:34

it's a good question. So if I was anxious attached in my relationship with Elise, what it would look like is I'm always stressing. I'm like, what, how do you feel like what's going on with you? Are you worried about this? Or why didn't you call me back? Yeah. Like

Ryan: 7:47

Oh,

Terry: 7:53

Up happening is. Generally, you sort of tend to repel that person. And it can work the same way with money. Usually, what you're repelling is opportunities in your life. You're repelling the things that you really want out of life. And, I feel like I'm a broken record with this, but that Reddit thread, I lost the love of my life, don't be me that's a classic example of that, where you end up pushing away wealth in favor of money. And you go, cool, I've got money, but I don't have wealth. I don't have actually the things that I value.

Ryan: 8:21

He couldn't see his missus because he had, his bank statements stapled to his forehead.

Terry: 8:25

It's some of the quotes in that letter is she wanted to take trips and see her family. And I was like, no, it costs too much. And she wanted to have nice things and live in a nice home. And I was like, no, it all costs too much. And in the end, she just left. He's fuck, I lost wealth for money.

Ryan: 8:38

Okay, so we don't want to be anxiously attached. Clearly. That was the first type. That was the second archetype. What was that one?

Terry: 8:44

So avoidant is I am insecure still. I'm worried my partner's going to leave me or they don't care enough about me, so I'm going to do it first. I'm going to be the person who dumps them. I'm going to be the person who's more detached. It's because I can't be hurt that way.

Ryan: 8:57

Mm hmm. huh. Yeah. huh.

Terry: 9:02

I don't even want to try when it comes to this. So just going to leave it up to future me. Future me is going to figure it out but current me, way too cool for this game.

Ryan: 9:10

Okay.

Terry: 9:10

the consequences of this is, you might live the life in some senses, but you make very slow or no progress, no saving, no investing, none of these big life experiences. it's because you're too far away, too detached from money. And the ultimate, I guess, negative outcome here is, you might have some, great things around you, but you never get to do the big things, the very big things, like the big trip around Australia that I was talking about with Mitch. You won't be doing that kind of thing because you'll never be able to accumulate enough and be able to invest enough to be able to give yourself permission to do those things. And you won't have the capital to do it either. So this is just another form of regret in a different direction, isn't it?

Ryan: 9:45

Yeah. And I think it's like the balancing of a lot of big things at the same time, like having an amazing home to come back to, being able to have the portfolio that gives you comfort, knowing that you'll always have enough, those kinds of things, because like we see it, we talked about like that difference between perception and perspective. We get a lot of perspective because we get to see a broad range of people that we work with and we see these types. Absolutely. And we see these types because there's still this underlying stress, this kind of, it doesn't, it's not, maybe not as intense, but it's there. And it's irritating enough, it agitates just enough to go, do you know what, I need to do something about this eventually. And it's usually a time based thing. It's like, all right, now I'm 30, now I'm 35, now I'm 40, now I'm 45, I now need to actually figure this thing out. I can't let that go any longer. Yeah. So even though, yes, they're very good at it. There is still this underlying level of cortisol that, can just kind of hinder a little bit, make us,

Terry: 10:42

it of starts to elbow its way into that YOLO moment and you're still, it's still sitting there in your consciousness, whether you want to admit it or not, it's there.

Ryan: 10:51

so the ultimate negative outcomes for both really there was regret. Wasn't it? When you think about it. So the first one was Regret not having lived more because the bank statements stapled to their forehead. And that was the anxiously attached. The anxiously avoidant is then never doing as many of the, the big things and bring that whole life kind of together in one piece. And so it becomes very hard to be successful if you are one or either of those.

Terry: 11:19

Too close or too far away, too attached or too detached that's the problem. And if you think about this and we try to decode it, they both are making the same mistake, which is relying on feelings, not facts. You're anxious, attached, He's relying on a feeling of scarcity and really placing too much importance on it. And the anxious avoidant is trying to play, not to play that game and ignore that future they're both feelings based, not facts based. And we end up doing emotional forecasting. Anyway, we end up taking our feelings about money, projecting those into the future and living our lives based off those projections, which are Frequently, as you stated earlier, mostly wrong. So if you think about if you've got an eyesight issue, you're either far sighted or near sighted. Forecasting is just helping you see things really clearly.

Ryan: 11:57

Mm.

Terry: 11:58

on the glasses and go, what's going on.

Ryan: 12:00

Nice mate. So in this app, we're talking about cashflow forecasting. Like we've said, what I'd love for us to cover is what it does for you and why it works as well. Anything else you'd like to make sure we cover?

Terry: 12:11

Yeah, I mean, just that last part, why it works, there's some really important reasons, mechanisms behind this. One of them is called functional fixedness, and I think it's huge with money. It's something, I've really had language for it for a while, but. I guess a few months ago I sort of figured out that's actually what the problem is, this concept of functional fixiness. Broadcasting is what helps you get out of that to be able to see things clearly. So we're going to go through exactly why that is and give you the evidence behind this too. So pretty keen to do that. And as we said before, if you want to spend guilt free and achieve your goals, listen to this episode. And if you want to build confidence you can handle life's curveballs, then listen to this episode because we're going to take you through it. Soup to nuts, how the whole thing works.

Ryan: 12:47

Slip to nuts. Is that what you just said?

Terry: 12:49

That's what I said.

Ryan: 12:50

let's start with that first question, which is how it works.

Terry: 12:53

so this is just about gaming out the next 12 months to see where you can earn, spend, and save. And something you came up with is what we call the golden triangle. Paying the bills, enjoying your money, and making meaningful progress. That's what we're trying to do when we game these things out. You want to say a little bit more about that before we jump into the mechanics?

Ryan: 13:08

Yeah. Well, if you think about what job income needs to do, the first thing is, you know, I'd pay the bills. You got to have a roof over your head, you know, the electricity, the rent or the mortgage, groceries, food on the table, all that stuff. And that's pretty fixed. And it's kind of hard to ignore. you need to do that to live. And that's what I call paying the bills. The second part to that is enjoying your money, which is you just enjoying the finer things in life, being a little bit epicurean and maybe that's, you know, dining out at shopping, it's going to the movies socializing with friends, all that fun stuff. So we want to do those two things, but then we also want to make meaningful progress on the big things as well. Maybe that's the trip around Australia or the trip overseas or buying the home or building your investment portfolio. There's things we're building up for that will create something bigger later. and those three things are always kind of competing for your income, competing for the money that you have. And a deficit with any of those is pretty hard to cop because if you can't pay the bills, obviously, you know, the lights go out, you're sleeping on the street, et cetera. Enjoying your money, if there's a deficit there, then you've just got really this big question, which is, what is this all for? Like, I can't even go buy myself a coffee or I can't, you know, I'm not even catching up with friends and life becomes pretty black and white pretty quickly. And so, usually we tick those first two boxes first, pay the bills, yes, enjoy our money, second, and then third, make meaningful progress on the bigger things. And that one can sometimes feel a little bit more tough, especially if we're doing the second one very well, enjoying our money. And so, it's only when we can find a way to pay the bills, enjoy our money, and make meaningful progress. That we really go, you know what? Yeah, we're flying life's good and we're getting ahead. And that's not always easy to find as you're kind of living life in real time. And so this is where you do have to kind of zoom out and look at your life a little bit more from a bird's eye view so that you can see, you know, over a year, this is how much I'm earning. This is how much going towards bills, how much I can put towards enjoying my money. And so that I can still make meaningful progress too. That's really hard at a, at a daily or a monthly view, even because. Months change, you got seasons of spending, you know, your bills converge and, and come together at different times in the year. And it's only when you zoom out at a full annual view that you kind of capture everything that it gives you a true sense of whether or not you're balancing those three or not. So.

Terry: 15:29

Yeah.

Ryan: 15:35

when you go to enjoy your money on those things, it might be that, you've included 200 bucks a month on coffees or 300 per month to go towards shopping or something like that. As soon as you go to do those things, you're not questioning whether or not you should or you shouldn't. It's no longer working against your plan as actually a part of your plan. So you got to start to go, you know what, me actually doing these things, enjoying my money on these things is a part of me pursuing the plan that I have, which is very different to most people's experience, which is usually it feels like whenever I spend money, that's costing future me, and I'm going to pay that bill eventually. Which is a yeah, not a great place, not a great way to live, in my opinion. Mm-Hmm.

Terry: 16:12

know what sucks about it? You're going to spend the money anyway. But you're just making the choice to hate the process. Do you know what I mean? You just bought a copy. money's spent. You've just made a decision that you're going to hate it. And it's unnecessary. And it seems completely illogical when you think about it like that, doesn't it? It's purely just because you're too close to the money and you haven't been able to these things out and see, okay, this is not going to come at the cost of my future. The world's not going to crumble if I have a coffee, the second coffee of the week or whatever it is, whatever the small pleasure is or whatever, even like the ones for me is holidays, right? And I'll put my hand up on this one. Holidays is just not part of my culture. It's not something I grew up doing. But I've really come to learn and understand it's critical for us. Both Elisa and I, we both run our own businesses and we work pretty hard. we work, a lot of the time, but we also have flexibility during our weeks. But it's very important that if we don't take small breaks often, it's hard to come back. And it's hard to keep going at the same rate. And it's also this period of time that we want to have with our kids and these experiences. So we've made investments, time and money to make that the case. and know, my dad said, that's one of my biggest regrets he said, I could have done so much more with you guys when you were young, but I didn't do that at the time. And I got to carry that with me now. And it's so much harder for me to do this now because I'm in this different window of life in order for me to get you guys all together to have some sort of family experience the stars really do have to align. A lot of calendars have to sync up and I've got to make some sort of grand gesture to make as easy as possible for you. Whereas I had. opportunities then and I didn't do it. So,

Ryan: 17:39

Mm-Hmm.

Terry: 17:40

I think that's critical as well to kind of give yourself permission to do those things. And really what we're talking about here is dynamic balance. If you think about like you're on a triangle, you're balancing on this triangle on this ball and you're like, how do I get all three of these things as even as possible for as long as possible? And it's really helpful to be able to zoom out over time and realize, okay, there's seasons. We're in a season of spending here right now because we made this decision. but that doesn't mean it's going to be forever because once that decision has reached this logical end point, then we move into this new phase. And so if you don't have the perspective to be able to zoom out and see how those things happen, Or change and shift, then all you do is, like we said before, you make this emotional forecast into the future. As humans, it's always going to be the same and create this kind of learned helplessness where you're like, Yeah, we just suck. We're not good at this. I don't know what we're doing. We're battling. When in actual fact, you're not. You're actually just working with the consequences of a decision that you've made. not realizing that it's all cyclical. for example, for us, you as well, you're about to move, you just did just move into your house. So, you move into the house, you end up with a full mortgage and it's the first time you deal with like mortgage plus all the other expenses that come with it. And you're like, actually, your first few years of the mortgage, they're generally the hardest that you're going to do. And I think a lot of people project that into the future and go, got a mortgage now, my life's going to suck forever. I can't do anything else ever. And you're like, not really. You work your way through the first few years, the debt starts working for you and it gets easier with time. Yeah. super important to be able to do these things and if you find that dynamic balance you're not, you don't feel like you're sacrificing. I've said this before but the best diet is the one you don't know you're on. Getting to a place where you don't feel like you're sacrificing, you feel like you've got this nice balance of things. and you know how to adjust things to find that balance if that's the case.

Ryan: 19:15

Mm mm I think the other side of that is it's very individualized to you. You get to choose how much is enough, that lifestyle you're choosing, how much is enough in terms of meaningful progress, depends on what level you're trying to get to in terms of the scale of your ambition around obviously investing and home and whatnot. And so you get to choose your own adventure in that way. And then you create a dynamic balance, not necessarily just through having more income and more money to allocate, which helps obviously. But absolutely just through living and designing your life in a way that makes it easier for you to maintain and balance those. And it's very hard to see what that actually looks like when you're just playing scenarios in your mind. That's one of the hardest things we do with personal finances. We do a lot of guessing. A lot of mental simulation, mental forecasting, that's very rarely mirrors reality. And so it is so critical that we get out of our heads, we get it onto paper. And obviously a lot of people use a spreadsheet, a lot of people use pen and paper, whatever means necessary to get it out of your mind, because the mind does not handle that many variables. I've been doing this for over a decade and done a lot of forecasting, a lot of modeling, and even still my assumptions, my calculus, they're always just a little bit off. It's not until you actually sit down with the actual numbers and go, these are reasonable assumptions rolling forward that you actually see it for what it is. And you actually go in with clarity on what the next steps are.

Terry: 20:43

Well, let's jump into the mechanics here for a second and go through the actual process of this. We know we're trying to find dynamic balance here. We know that if we find that dynamic balance, we'll stick to it and we're going to stay the course. a couple of little caveats here. you said it earlier, we're not trying to predict the future here. It's more about finding out what's possible. And we'll say as well that this is a lot easier if you are monitoring your vitals. Remember we talked about this in an earlier episode. confidence In your numbers is so much higher if you know your numbers and I of folks we read a personal finance book and we basically go let's do this make these assumptions push them into the future but we don't have any insights they're not really coming from a place of this is what we actually spend and what we spend over time nothing cyclical it's okay that's what I spent last month. let's just predict that into the future. But there's no normal months. You want to know how things shift and change throughout the year. So caveat here is, it's not about predicting, it's about finding out what's possible. And if you're tracking your money, you know what your numbers are, you're going to do a much Job of doing this because you're going to be more You're gonna have more believable data, aren't ya?

Ryan: 21:41

a full disclosure here, we actually get our members to track back, not just a month, but a whole quarter. So the last three months before we do forecasting going forward, just so that we can actually close that gap between what we think it is and what it actually is. And that just gives you so much more confidence when you look forward and project forward that it's actually possible. Like I said, at the start, so many guys look at it and go, geez, I don't actually believe it. There must be a mistake. And the thing that cuts through that is going back further going, do you know what, let's look at the last three months, maybe the last six months if we want to. and with the right tools, it only takes half an hour. Maybe an hour tops. You know, we've watched a lot of guys now with more of the app we've built go back a whole year to see exactly what's happened just so that they look, when they look at the next year, I feel like they've got everything and they have that confidence in what's possible over the next year. And so that absolutely just makes it super believable. And then obviously makes that much more pursuable as well, because you're like, well, that's possible. I do believe it. I'm actually going to go do it. And that comes from a couple of things. It's not just spending, but it's also your income. It's looking back, especially if you're on variable income, often you want to just simulate different levels. So you go, do you know what? This is kind of like the worst case scenario. This is how much I would earn. Or if you've got bonuses, it's like, what does it look like if I don't get paid bonuses? then go, what about the expected case? I think my base income is going to be this and my bonuses or my commission or my salary or the income I'm paying myself from the business, I think it will be this. and that's what it would translate to in terms of, lifestyle and meaningful progress over the next year. Or even then best case we go, what if I was to stretch this? What if I was to set a bit of a stretch target and say, what if I got my income to this? What would that mean? What kind of choices would that give me and how much would I then be able to put towards the trip towards the home, towards the investment portfolio. And that's just basically just navigating. If this was to happen, that's what it would mean if that was to happen, if that was to happen. And that just gives you so much. awareness over how your income translates into choices. So I know for me, that can be a very motivating thing to do.

Terry: 23:43

Yeah. So you've just covered step one here in the process, one in forecasting is go through your income, make some assumptions. And you've just talked about there, if you're on a variable income, the different ways of doing that. It's actually pretty simple. If you're on a fixed income, you can kind of go here. Maybe I'm going to get a pay rise at some point. What's that going to look like? Plug it in. Just a question. If I want a variable income, you talked about simulating worst case, expected case, best case. What's your recommendation around, Which one you go with? Do you go more conservative and say, well, that's probably the most expected case. Let's go with the expected case. Or do you go, no, go with the best case scenario. If you're going to be forecasting this out, what do you think's best?

Ryan: 24:19

Good question. I would usually go expected case, but I want to know what best case and worst case looks like. just for variance but would set expectation around the center one and just because you, especially early days, if it's the first time you're doing it and you kind of, maybe you haven't necessarily had massive advances in your income, you know, in the last year or two years that you want to kind of know that it's, it's reasonable and achievable just to manage, confidence and motivation on that front. What do you think

Terry: 24:48

Yeah, I was the same. I think you go with the expected case. And you've got reasons for that. And you go, well, that's kind of, it's semi conservative. And if you do better, it's a bonus. but as you say, know what the best and what the worst is. And the great thing about forecasting is it's not a one time thing. I know a lot of personal finance makes you think that's the case. You do it once. actually refine this every quarter. Every quarter we're going back and looking at the forecast

Ryan: 25:07

more? Yeah.

Terry: 25:08

Yeah. And in every month, because of the tools and the way we've built them you can go in and refine your assumptions every single month based on that 12 month timeline. Cause you're getting smarter every month doing this. So you're always updating those base cases and those assumptions as you go. We've talked about it before, but like the brain is a, reasoning machine, which means it's always looking at information and outcomes to update its assumptions and your tools should be doing the same thing for your money

Ryan: 25:31

I actually often forecast with people without income for a start and work back from spending. Guys that are in some form of transition or starting a business, for example, you actually want to know how much you need to earn at the first pass to cover for your expenses and lifestyle. And then at a second pass to be able to do those things and then make significant progress on goals as well. So I actually had a session, A few days ago. Where both partners in that couple, are looking at job changes. And they just wanted to know how much they needed to earn before tax to be able to pay all the bills, make meaningful progress. They've got a few big things coming up they want to make happen in the next 18 months. And we actually started from there. And it actually involved him going back to study and she's going to look at an alternative job. It's going to be a little bit higher pay. And we basically just worked out what are the different kind of amounts of income they'd have to earn to then be able to do all those things. And so it actually helped them filter their search to go, all right, this is what we're aiming at. This is our target from an income perspective of these next few months to try and get themselves into those roles. So it can be a really good one just to know, this is what life costs. This is what I want to spend on lifestyle. And even then sometimes it's actually simulating further and going, What is the lifestyle? I eventually want costs as well. And so you project and go in five years or in 10 years, I want to live this lifestyle. I'm actually going to simulate that out and see how far is it from what I'm doing right now and how much would I need to be earning from myself or from my investments to make that possible. Again, just builds your spidey sense about what is actually required to make that happen. Because the more, what's that?

Terry: 27:08

I've done that.

Ryan: 27:09

Yeah,

Terry: 27:09

The

Ryan: 27:10

as scary as you thought it would be.

Terry: 27:11

that's fun. It's really fun. it was interesting because you potentially overshoot what you think you need to live a really good lifestyle. I was like, we actually don't need to earn a whole lot more to be living really well. And that was super motivating for me. I was like, that's actually not out of reach. and very doable. And if you think about it, like timelines, you just have to then start to work backwards from what would have to be true. Well, how much value would I have to create in the world in order to be able to capture that much for myself? it does help you kind of think about how to be more productive in order to be able to live that level of lifestyle. so we've just covered the first two steps here, which is go through your income and make some assumptions on that. The second part of it is go through your 12 month spending patterns. There's two parts to this, it's fixed and variable. is obviously, these are the ones it's easy to plan for. You know what they're going to be, it's this much per month. Variable, is there anything you want to say on this part when you're planning for variable spending patterns on a 12 month timeline? Any tips or tricks here?

Ryan: 28:07

Yes. So if you think about it from a needs and wants, fixed and variable, most of your needs are pretty fixed. You know, groceries, your bills, et cetera. Whereas variable is more so you making choices around how you want to enjoy your money. And. This is something where I always encourage people to start with what they really want to be spending, what lifestyle they want to be living first. And you basically go, well, based off my income and based off my bills, if I was to do all these things, what does that translate to in terms of, one obviously how I get to live, but then two, how much do I get to put towards the other bigger goals that I have? And it's always good to start with, yep, I want to do this, this, and that. And then you get to the end and you go, ah, this is how much I'm able to save if I do that. And if it's not as much as you want it to be, then you come back to your lifestyle and you start to peel it back a little bit. But the great thing about starting there is. And especially if you're with a partner as well, you get to really kind of find out what your wants are and what their wants are as well, eventually and see what that life costs. you can pretty quickly figure out what you need to earn to be able to do all those things and make meaningful progress. But then you also then start to go, well, these are the things I'd be willing to give up right now, though. to go faster on the savings goals and investing goals. And so it's a really cool way to kind of, I guess, filter the ones that you have and see these are the ones that are non negotiables. They have to be true now and forever. Whereas these ones, yes, I want them, but I'm willing to give them up for the other bigger things that are sitting around in front of me. So that's probably, that would be my suggestion when it comes to this.

Terry: 29:38

think that's a really helpful discussion for couples to have around What Ramit Sethi calls the spending dials. These are the

Ryan: 29:44

So you're not going to say I'm simple. I love. Yeah. I love shopping. I love dining. I love traveling. Love buying sport, sport stuff, like

Terry: 29:58

me living a wealthy life on the way to building wealth. are those things plug those in and then everything else is fair game. would you contain it? How would you cut it? How would you get rid of it in order to make the progress that you want to make? If you can do that, you're not going to feel poor the way. You're going to feel great on the way you're going to be speeding up your progress because you've got a couple of things. You go, these are the things for me. I know for me, it's just knowing that I can buy books. can buy trainings. I can learn stuff. I can go to the gym. That's it. That's what it is for me. simple. and for others, it's completely different things, what is it for you?

Ryan: 30:35

going to sports and doing those types of things. Also love building shit and this is dangerous right now because we've just built our house and now looking at the landscaping, looking at where I want to put it, build a bookshelf, where I want to build, you know, there's a few things in the garden, it's going to be a dangerous little period this next 12 to 24 months.

Terry: 30:54

funny. It's just gonna love you.

Ryan: 30:55

You realize, I realize like why Bunnings is the size that it is because fuck it's good.

Terry: 31:02

went to Bunnings after we got out more years in the first six months redonkulous.

Ryan: 31:06

I love that you say after we got a mortgage versus after we got a house. Where does your mind go there?

Terry: 31:11

same thing.

Ryan: 31:11

Safety.

Terry: 31:12

you got your own place and you're like, okay, cool, we're going to get this place set up. And then you end up this, and I'm like, oh Bunnings, you guys have got this dialed.

Ryan: 31:20

I'm going through my Bunnings era right now and I'm pretty happy about it.

Terry: 31:22

It's fun. when you start looking back across that 12 month timeline, you're like, fuck, do I have shares in Bunnings? I should.

Ryan: 31:28

Start buying. Everyone's not buying Bunnings shares. Oh, I shouldn't say that. That's, that's dangerous from a legal standpoint. But, I'm about to go on a spending spree. So if you want a piece of it,

Terry: 31:37

that's the first two steps. Income and assumptions, 12 month spending patterns. Let's get to the last one here. We're planning for lifestyle and financial goals after this. So we want to be plugging these in as well. And I think this is important to discuss because it's not hoping that one day we'll have money to achieve these goals. It's planning to have these goals funded within the constraints or the limited resources that you have. What do you want to say around this part, mate?

Ryan: 32:02

Yeah, when you've done that first part really well, you start to say, yeah, this is how much we can save and able to kind of just tweak. If we pull back our lifestyle, this is how much more we could save. If we ratchet it up our lifestyle, this is how much less we would save. But then you kind of then turn your attention to, well, with the bigger goals that you do have, do any of those have like a fixed timeframe and there's a real urgency about them? Sometimes you've, you know, there's a trip booked in or there's an event on, or, you know, the car needs to be bought or something like that. And it creates this demand for your money. And an urgency where you start to go now, you know, each month I need to put at least this much towards it. Or other ones, you've either got other goals where you're just like, it's so important that I want to make that happen sooner. That is where you come back to lifestyle and you go, well, do I want to spend more now? Or do I want to go harder at that? And it's where you need to then look at what are those big objectives that you do have? And how many of them are there as well? And you're starting to think about timeframes. And this is where we've spent a lot of time, like helping people understand what is possible over time. Because it is quite hard to find out. And so forecasting just helps you see this, how much we can save. And then you kind of overlaying that next part. These are the goals that I have. And if I was trying to fund them all right now, this is how long it would take to fund each of those. And it's very rare that people domino goals. Maybe they domino debts, but domino goals isn't really a thing because there's always this competing desire and motivation that we're this holiday that's booked in. That has this timeframe that we do need to do it within. But then we've also want to do a renovation on the bathroom and we want to make that happen as soon as possible. But we also need to top up our cash cushion. So we've got these four different places. One's locked in the other three. We're kind of choosing between we go, well, do we go one first or do we chip away at each? And sometimes you just go all hard at one. You're like, geez, I really want to see progress on that other one. And so you're kind of leaning on that question, which is what's most important. And usually that. Is then followed up with the greatest amount of motivation that comes from seeing progress towards it. So if you're like, Holy shit, progress towards that really lit a fire underneath me. Then you go, I'm going to do more of that. And maybe chipping away on the other ones a little bit more slowly. And so this is quite navigational. But you can absolutely use forecasting to zoom out and to see what kind of timeframes is actually possible to achieve them in.

Terry: 34:28

Yeah, back to the point, the start of this series. We talked about controlled versus autonomous motivation. This is the part where you're realizing like you're playing your way. You don't have to follow somebody's rules. You don't have to listen to what somebody says about the right thing to do. It's really about you optimizing for your own definition of wealth, rich, and success. And if you've created that clarity for yourself at the start, you don't need somebody's rules or prescription to tell you what to do with your money. I think that the more you make these decisions in line with what is best for you, you don't play somebody else's game and you actually start going, I'm enjoying it because I'm playing my own game and I'm playing in a way that I want to win. So I don't have to do this. Money isn't a job or a chore for me. something I get to do and it's a privilege and it's a part of my life where I get to figure out how I'm going to build and live this life.

Ryan: 35:13

For

Terry: 35:14

snowball and stick. Sure

Ryan: 35:16

sure, for sure. And when you do forecast out for goals, you're kind of the chess master. That's moving all the pieces around until it paints a picture of exactly what you want it to look like, and that's maybe, you know, enjoying money like this and then funding these goals in this way and kind of setting these timeframes that are really realistic based off how you forecasted. And now you're like, yep, that's what I'm doing with the resources, with the income that I have, that's how I'm going to make that happen. And that becomes a plotted path that then you're looking to walk. And with each of those goals, when you zoom into them, I think of it like a ghost to chase. Did you ever play Need for Speed when you were younger? Mario Kart had it. But basically when you do a lap or a sprint that it created ghost and then you were racing against yourself to beat that ghost. That's essentially what we're doing with goals in this way. You're forecasting and saying, do you know what? I'm going to be able to fund that holiday by next September. And then every single month, you've got this ghost line that you're trying to stick to. And it's basically, are you ahead of it or are you behind it? Sometimes you're ahead, sometimes you fall way behind and you make up for it. But it's kind of this obvious marker or yardstick that you're always kind of sticking at, keeping your eye on and saying, well, am I there? Am I just behind? And then what do I need to do to get back ahead? And definitely makes it feel like a game. That's for sure.

Terry: 36:29

I find it really interesting to as an observation, no year plays out the way you think it's going to play out, but it's shocking to me how many folks still hit their goals purely because I have a plan and a way to make that happen.

Ryan: 36:40

Mm hmm.

Terry: 36:41

a big curveball that happens like you can't crash your car or whatever. And you're like, Oh my God, I'm way behind on progress. You're talking with the end of the year. I go, Yeah, I still made it. And that's because you have the tools to be able to figure out. All right. Yeah. Now, how do I need to shift and change things to still make that possible? to make it happen? I don't just fall into this, like I said before, learned helplessness. No good with this, struggle basically.

Ryan: 37:00

Mm hmm.

Terry: 37:03

Income and assumptions first, 12 month spending patterns second, and then plugging in your lifestyle and financial goals to predict and plan when you can accomplish it. Those and figuring out what the dynamic balance needs to be between making that progress between living the good life now and enjoying your money and having the bills paid. is the process that you go through. I want to quickly talk through why this works. You just mentioned there having a target and a timeline that goes, that's a really big part of it. I think just the fact that you've got something to shoot for a benchmark and a standard to measure yourself against

Ryan: 37:32

hmm.

Terry: 37:33

the other reason I think this really works and I want to delve into is this concept of functional fixedness. And functional fixedness, it's the idea that the first way you see a problem makes it very hard for you to see it any other way. a really good example of this is the Coke can or any can, soft drink or whatever. I didn't know this and I'm pretty sure you didn't as well, you know Yeah, It's not just there to open the can. Do you know what else it's there for? Okay Okay metaphor for how we can get stuck with money, right? We look at money a certain way and we don't see it any other way. zoom out for a second and ask yourself the question, what are we optimizing here for now, again? it's not safety, security, survival, or satisfaction. It's not any of those things. We're optimizing for success as we've defined it. We're optimizing for rich as we've defined it. We're optimizing for wealth as we've defined it. Now, how can we use the tool that is money to make those things happen? This is why I say forecasting is the most important personal finance tool that no one talks about. Because there's no other way to actually answer that question. need to have the tools. You need to have the skills to be able to do it.

Ryan: 38:59

it's just not guessing really, isn't it? Because our guesses suck.

Terry: 39:03

I think functional fixes. That's the one I really want to get across. That's why forecasting works. You talked about having a target. The thing about having those targets within a forecast is they're also tied to a timeline the brain.

Ryan: 39:14

Mm.

Terry: 39:15

And you also have a tool. It's a compass to help you way find towards your goals. Last little observation that I want to make here too with forecasting is, I don't know if you've noticed this, but I've noticed this a little bit when people start looking at and gaming things out, they start to look at what small changes mean for progress over time. And I see a lot of people make decisions they were hesitating or procrastinating on, and those might be investing decisions, but they also might be. Work decisions. What kind of work am I going to do? Am I going to renegotiate my salary and how much do I need to renegotiate it for? Because what does that actually mean for me?

Ryan: 39:45

Mm hmm

Terry: 39:45

I think when you see it out in the cold light of day, you start to actually look at the opportunity cost of indecision and you realize, hang on, what am I doing here? I've been thinking about the cost of making that decision instead of I should be looking at a completely different way. You notice it?

Ryan: 39:58

yeah, I think what I've noticed it does is it makes you zoom out and look at life differently by virtue of, instead of just being in the daily grinds, all of a sudden you're zooming out and if you're looking at your finances over a year or years, you kind of look at your daily work a little bit differently as well. And you go, well, it's kind of like this variable that's plugging into this whole machine. What other variables could plug in? Yeah. Does it need to be this work? Could it be something else? Could it be something better? You know, even just sometimes it's, you know, it's like if it's a pay cut, but it's the opportunity to get somewhere better that would advance more quickly. All of a sudden you zoom out and today's not, it's that time preference, isn't it? All of a sudden making life better is a major preference and that isn't just today. It's not a snapshot in time. It's an overtime. And so I think it does train your attention a little bit differently in the way that you look at your life as a result of it.

Terry: 40:48

end of this series was Stephen Santina, where that exact thing happened. They've made some very conscious decisions around changing their jobs. Santina talked about taking a job for less pay with three hours less commute each day the ability to be more flexible in work and what that's meant for their life and how they've adjusted around that to actually be far better off at the end of that 12 month period. So, and they just wouldn't been able to do that. without thinking through that decision. Cool. So mate, we've gone through how it works, why it works. I want to just quickly go through a bit of a checklist. So how we teach it, how would you know this is working and you're doing it effectively. Same framework we discussed last time. We talked about that OODA loop, observe, orient, decide and act. These tools, these skills should help you do those things along the way. So, questions you should be able to answer to be able to observe, orient, decide and act. Let's go through these mate. Observe. What are the questions we should be able to answer if we're forecasting effectively to make these observation type decisions?

Ryan: 41:43

I think the obvious one would be how much can I save over the next 12 months? How much do we actually get paid after tax? That's one that very few people actually understand what actually lands in the account. They kind of go, my salary is this, but what does that actually translate into in terms of money for choices? Yeah. Yeah. What does it cost to live? And that might be, you know, you can kind of get a sense for what that looks like in individual months, but then you kind of zoom out and go, well, to fund our life, our life costs. 100k a year or 130k a year or 350k a year. I think that's a crucial one because that's what most people are optimizing their investing for. Yeah. Very few people actually know what that number is. And then lastly, I'd say, Can I fund my goals in the timeframe that I'm aiming for?

Terry: 42:26

So they're the questions that help you observe reality. And now you want to orient sort of figure out what you're going to do about things. so there's a bit different set of questions here as well. Do you want to go through those?

Ryan: 42:36

Yep. So if I'm orienting myself, it's questions like, what months are the fastest versus versus the slowest for saving? What are my biggest expenses? When can I fund my goals? What happens if Y changes? Example, for example, you know, if my partner goes on mat leave or if we bought this new investment property, or if we did this, how does that actually change things? So that's a real kind of navigational orienting thing. What differences would it make if I increase my income? So if my income was an extra 1000 or 2000 or 3000 a month, how does that actually translate into how those timelines shift for my goals. And then lastly, I'd say, what does my dream life cost? That's a good one. I asked before, I think where you just want to know what do I need to make to live within my means at this level?

Terry: 43:21

Love it. right, so that's Orient. Decide. So these are, that you should be able to answer through forecasting.

Ryan: 43:26

What different ways can I increase my savings by X? So how can I increase my savings by 5, 000 or 10, 000 or, and that is obviously looking at variables like if I change my income, if I change the spending, et cetera. Is it okay to spend X amount on shopping? Or any other type of spending? Is savings my biggest constraint? Or is it actually my income?

Terry: 43:49

That's a big one, isn't it? There are some folks who just don't realize that like you can't get more out of that. The other variable is the one that you need to look at. Yeah, super important because you could just spend so much time and energy trying to track and just, cut and contain every single cost. But that energy could be well spent elsewhere for a much better outcome.

Ryan: 44:06

100%.

Terry: 44:07

So that's Decide. Let's just talk about quickly what shape this takes. So. can be a spreadsheet and it can work really well as a spreadsheet. There's only one limitation with that though, isn't it? Do you want to talk through quickly what that is?

Ryan: 44:18

Yeah, well the biggest limitation is that it's just not connected to your actual data. So it's much harder to create that feedback, feed forward loop. So be able to continually kind of update your assumptions and forecast amounts going forward. being able to connect to data is pretty crucial. And we live in a age now where you can connect in real time. So open banking has now been in Australia for over a year and that gives you real time access into a really secure way. So this is where software Becomes a lot more easy and fun and real time. And um, becomes a lot easier to, Learn from what is happening and has happened, then feed that forward and see what's possible.

Terry: 44:54

Yeah. And that's why we invested last, 12 or 18 months now, really understanding that to figure that out because those two things, we were using these off the shelf tools, but having to flick between them. between these to be able to navigate effectively. And there are a lot of folks that did a great job with that. you always want to do things the best you can possibly do them, particularly when these new developments emerge. So I think it's much, much easier to do this than it was in the past.

Ryan: 45:14

Yeah.

Terry: 45:15

and easy to interpret, needs to be informed by your actual data and has to be validated every day. It helps you. Validate your decisions. Get smarter. Should get smarter and more accurate with your input over time. Anything you'd add to that, we'll help you with it.

Ryan: 45:27

Yeah, it should just look sexy too.

Terry: 45:29

Yeah, I was talking to someone the other day still on the spreadsheets and oh, these are so good. I'm like, yeah, I know, but they look like artifacts to me in an ancient realm.

Ryan: 45:36

Ages quickly. Yeah. nice. Yeah.

Terry: 45:55

really well because you can answer those questions that we just went through with that OODA loop. Maybe this is the third skill in this series. We talked about future authoring. We've talked about monitoring your vitals and knowing your numbers. Cashflow forecasting is all about spending guilt free. The next one, we're going to be talking about income mapping. if forecasting is giving you a bird's eye view, mapping is where you start to get a worm's eye view of your money and give every single dollar a job. And we have discussed this in the past, but we're going to break this apart in a very methodical way. All right. To really explain how this is different, so much different to what's out there. Newsflash, there's a better way.

Ryan: 46:26

I think there's also, I'd add, if you want it to feel like a game, that's addictive to play, this is absolutely how you do it, income mapping,

Terry: 46:32

So, that's what we're going to be covering in the next episode. If you are, Interested in this and you want to know how you're going against forecasting and the skills that we've covered so far, just a reminder, take that financial skill score, jump down into the description of this episode, assess yourself against these five skills so you can learn what's coming up, but also how you've gone against what we've covered in this series to this point. Mate, great episode again. Time to jump into this next one. See you there.

Ryan: 46:56

I love a self proclaimed great episode, thank you, mate, good stuff, see you in the next one.

Terry: 47:00

Talk soon.