When Unf*ck Your Finances author and co-founder of Money Barre Melissa Browne was 33, she got divorced and promptly gave the entire settlement away to charity.
Her ex had told her she would never make it on her own, so she didn’t want to have one dollar of their shared money. In a burst of pure emotion, she made a huge financial decision that she would regret within hours.
It was a real moment of realisation, Browne told the Yahoo Finance Women’s Money Movement webinar on passive income. She had taught herself “money stories” around the role cash would play in her life, and it was leading to short-sighted and emotional decisions.
That was when she decided she was going to reclaim her own money story and become wholly financially independent.
Today, Browne is financially free, earning income through her books Unf*ck Your Finances and Budgets Don’t Work (But This Does), her online financial literacy courses, residential and commercial property investments, shares, pre-school business and speaking engagements.
She believes the key to financial freedom is understanding our financial habits and “stories” we tell ourselves about the way money will impact our lives, before changing them for the better.
Breaking limiting beliefs
The Remarkable Woman and Upstreet founder Shivani Gopal had a similar moment of realisation when her father had a non-fatal heart attack.
“What got me so angry was when so many people came up to my mum, who was devastated, and said, ‘Don’t worry, he’s going to be fine, he’s got insurance,’” Gopal told the webinar.
“I’d never heard of this type of [life] insurance before… and what really angered me was that if you know about this, why don’t you talk about it?”
She said it came down to Australians’ tendency to be humble, or even uncomfortable, talking about their finances and their goals.
And that needs to stop, she said.
“Let's just move away from that and let's just own it, and let’s talk about money that we're making.”
Tips to build a passive income
The first step to building a passive income is understanding your goals and having a clear vision. That could be developing a passive income so you can retire earlier, or to spend more time with family or to save up for a retirement.
The second step is to understand that no passive income is truly passive, Browne said.
“What we need to understand is that when we talk ‘passive’, that’s a loaded word and it’s not necessarily the right word,” she said.
“Even if it was a genuinely passive index like an exchange-traded fund… hopefully I’m going to look at that every year.”
The same would go for a rental property - time and effort needs to be put into actually inspecting and maintaining the place.
She prefers to approach her multiple streams of income with this question: “How much did I have to invest, and what am I motivated by?”
“It’s working out, what rings the bells for me and where do I go, ‘Making money in that way could be interesting’.”
Gopal agreed, saying it comes down to individual goals.
But her tip is to start small, remove the pressure and to think of building more income streams as ways of catching “more drops of rain”, rather than radically changing your complete financial situation in one go.
It shouldn’t be a matter of choosing between entering the property or the share market, it should be a case of finding small ways to work towards both.
“Broadly speaking, you’ve got cash, you’ve got fixed interest, you’ve got property… you’ve got Australian shares, you’ve got international shares - five broad asset classes that you can invest in,” Gopal said.
“Then you’ve got yourself.”
Gopal said she began diversifying her income stream when she received an email from her former work’s HR asking if she wanted to salary sacrifice sme of her income into shares.
She started by sacrificing $200 a fortnight, before gradually growing it to $500.
“Because it was salary-sacrificed, it meant I was paying less tax on it anyway and before I knew it, I had enough money to pay for a ridiculously expensive wedding,” she said, noting that while that might not be the best way to spend money - that was her goal.
Rewire your brain to avoid ‘recipe for disaster’
But, Gopal emphasised, the first step was realising that her brain and her personal working capacity was not the only way she was going to bring money into her life.
Browne said it can also mean reevaluating your approach to home ownership. She said too many Australians believe they need to have purchased and paid off property before they even consider jumping into shares.
“This is a recipe for disaster,” she said, explaining that those who head down that path face years of wasted earnings opportunities.
She suggested Australians looking to diversify their income away from just property and salary consider investing through exchange-traded funds (ETF). An ETF provides access to a certain group of stocks or an index, and is generally considered one of the easiest ways to begin investing.
Browne said the benefit of this is that investors don’t need to spend days trying to pick the best shares to invest in: the index does the work for them.
“What I would suggest is, yes, we might start with an ETF or a managed fund but you might also have a small amount of money in addition to that that you would play with and start to drip directly into shares,” Browne said.
“Most of us are actually more aware than we realise.”
Her personal trick is to match every dollar she spends on discretionary spending with a dollar she must invest in shares.
“It reduces my discretionary spending and it causes me to invest more,” she said.
The key is to realise that it doesn’t take “large wads of money” to begin diversifying income streams. Instead, it’s to drip small amounts of money into the share market while also building towards bigger asset purchases, like property. And, at the same time, considering other areas for growth: for example, a side hustle.
“It doesn’t need to be a choice of one or the other, we can be setting up multiple things.”