Wine-O Needs Help

Hi Scott,
 
I have a dream. I want to start my own vineyard. I love wine! We live on 20 acres in Gippsland (Victoria) and I want to add 4 hectares of vines. I always thought it was a pipe dream but last year I got an inheritance of $250,000 from my grandmother. I want to use that money to create something. I want to bottle my own wine, it’s very profitable. My wife is not so sure, and wants to pay it off the mortgage. Is this a good idea?

Craig
 
Hi Craig,
 
I know nothing about wine, so I asked the best winemaker I know, Ben Ranken.
 
Ben won the ‘Young Gun of Wine’ award from his industry peers, so he knows what he’s talking about.
 
Over to Ben:
 
“I see a lot of doctors and lawyers and wealthy people who fall in love with the idea of owning a vineyard, but they never think about who they’re going to sell their wine to.
 
“So my advice to Craig is to work backwards: have a wine with a local winery and ask them about their experience, how much they’re selling their wine for, and to who, and how much money they’re making.
 
Because it can be a tough slog. A vineyard costs between $30,000 and $50,000 a hectare (irrigation, posts, vines) to set up, and then you’ve got three years before you have a crop.
 
So you’re basically working for free, and you’ve got all the risk. As you know all too well, Scott, there are bushfires, floods, kangaroos, rabbits, hailstorms …”
 
Thanks Ben, I’d go with paying down the mortgage Craig (and buying a case of your favourite plonk).
 
Speaking of which, I famously don’t drink anymore, but back when I did it was Ben’s wine that was my rolled-gold favourite. In fact I used to give away his plonk to hoity-toity wine snobs, and they’d often tell me it ‘tasted like $200 wine’ (check out Ben’s wines out at www.wilimeewines.com.au). I don’t get paid anything to say that … other than to see my readers get to drink amazing good wine.
 
Tell him Barefoot sent you!

Scott.

Tread Your Own Path

As you read this, I’m flying somewhere above your head.
 
We’re on a long-haul flight to Europe, which means that our four free-range farm kids are currently locked up in an aluminium tube for the next 22 hours.
 
Madness.
 
Yet that’s not the craziest thing we’re doing … that happens when we land.
 
We’re picking up a six-berth motorhome and doing an epic road trip through Germany, Switzerland, Austria, France, Italy and the UK.
 
If I’m honest, the trouble started when I was booking the motorhome. I noticed they all seemed to be manual drive. So I emailed an Italian car-hire business and requested an automatic, but was told:
 
“I’m sorry sir, but automatic vehicles are only for … disabled people.”
 
I wanted to reply and tell him that I do have some lead in my saddlebags: I’m driving on the wrong side of the road … in a seven-metre-long bus … on tiny narrow roads built thousands of years ago … in the peak holiday season … with four kids!
 
And you know what?
 
I can’t wait.
 
It’s been three years since we did our ‘lap of the Aussie map’, and that was hands down the best investment I’ve ever made. So much so that we started planning this trip the day we got back.
 
We’re going to be doing a bit of free camping (which has Gran absolutely scared stiff). Yet we’ve also hired local Italian and French travel agents (via the freelance site Upwork) to guide us on our itinerary and book some off-the-beaten-track campsites and farmstays. Best of all, for $15 an hour, they’re our on-the-ground ‘fixers’ – on hand via WhatsApp whenever we get in a jam. (“Buon giorno, Sabrina, can you please speak to this lovely traffic policeman in Italiano for me … tell him I’m really sorry.”)
 
For the next few months, it’ll be all about the open road and the adventure with the people I love.
 
After all, the best thing you can spend on your kids is time, right?

Till we meet again …

Tread Your Own Path!

This one is not for you

Dear Scott,
 
I’ve wanted to email you this for a while, but unfortunately this message is not only for you but for someone very important in my life: my nana. For the past four years she has cut out your articles from the paper and mailed them to me. Your advice, as well as a copy of your book, not only helped me out of a financially stressful life but gave me the skills to buy my first home at 28 years old, all by myself. I know my nana will read this because she will be cutting it out to put in a little envelope for me. To both of you I say thank you so much for setting me up for life by treading my own path. I love you, Nana. (You too, Scott!)
 
Charlotte
 
Hey Charlotte,
 
Clearing the financial runway in your twenties means you’ll reach cruising altitude much earlier in life … and it means you can choose where you’re going to land. Well done.
 
Yet this answer really isn’t for you.
 
It’s for your nana – and for the hundreds of thousands of kind and thoughtful Barefooters like her who have cut out this column, or bought my books, and handed them to the people they care about.
 
In truth, my message hasn’t changed in 20 years. It’s people like your nana, who put it under the nose of someone who it is new for, that make all the difference.

Scott.

Die With Zero

I’ve had a bloke living in my back paddock for the last couple of months.
 
True dinks.

His name is Oliver, and he’s a 21-year-old pommy backpacker who works on my farm, lives in his van, and does his business in our shearing shed portaloo (which, up until now, has only been used by shearers and requires a full hazmat suit to do a number two).
 
The other night he pulled out a map of Australia and said, “Where should I go next?”
 
“You’re living the dream, mate!” I told him, as I retreated to my warm home, with a flushing toilet.
 
Now the ‘sensible’ financial advice for a young bloke like Olly is that he’d be better off in the long run staying home, getting a good job, and starting to sock money away to save for a house deposit.
 
If he did that he could buy a cheap (overpriced) home in his late twenties. And if he did that he could spend his thirties and forties working even harder to try and pay it off. (As one burnt-out forty-something manager told me over coffee this week, “I spend more time mentoring the kids who work at the office than I do my own kids at home”).  
 
The sensible financial advice says that Olly will finally be able to slow down and enjoy himself when he retires, but there’s only one problem …

You see, the big taboo topic of retirement is that many retirees don’t end up spending their nest eggs.
 
They hoard it, because, understandably, they’re scared of running out of money. Yet by the time they work out they’ve got more than enough left over … they’re often too old to enjoy it.  
 
And so they die in their eighties with a big pot of money that they worked bloody hard for and sacrificed precious moments for … but never got around to enjoying.
 
That money is then left to their kids, who are then in their fifties or sixties and don’t really need it (they really needed help in their early thirties when they were starting their own family).
 
In the book Die With Zero, author Bill Perkins argues: “The number of actual experiences available to you diminishes as you age. Yes, you need money to survive in retirement, but the main thing you’ll be retiring on will be your memories – so make sure you invest enough in those.”  
 
And right now Olly is investing in memories that will last him a lifetime: he’s fallen for a lovely Aussie girl; partied on a deserted island under the moonlight; and met weird and wonderful people (my kids want to take him to school for show and tell).
 
So what’s the lesson?
 
Well, it’s not to ‘die with zero’ (as the book says). That’s fraught with danger, given you don’t know when you’re going to die, and you don’t want to run out of dough early.
 
No, the lesson is that, once you’ve worked through the Barefoot Steps and have your financial bases covered, you should spend your money on having life-changing adventures (or enabling them for your loved ones!) instead of spending your time accumulating more money.
 
After all, life is all about the memories we make with the limited time we have. And I’ll share with you my next adventure … next week.
 
Tread Your Own Path!

My Ultimate Father’s Day Present

Scott,
 
Last year on Father’s Day you advised readers to sit down with their father and ask them five questions on video. My father was 75 and was over for dinner on Father’s Day so I did this and recorded his answers. Two months later he was diagnosed with stage four prostate cancer, and last week he passed away after a four-month battle. Tomorrow is his funeral and we will be playing this video. This footage is the last video of my father truly happy without the fear of a terminal cancer diagnosis. My family and I can not thank you enough for giving me the idea to ask my father these questions, and I strongly urge everyone to do the same as we truly cherish this video.

Nathan
 
Hi Nathan
 
I’m really sorry for your loss.
 
However, I’m thankful you’ve given me the opportunity to give people a nudge to do what I call the ‘ultimate Father’s day present’.
 
If you’re lucky enough to have your father (or mother!) still with you, whip out your phone, hit ‘record’, and ask them the following questions:
 

• How did you meet Mum?

• What advice can you share with me about money, life and happiness?

• What does being a dad mean to you?

• What are you most proud of?

• How would you like to be remembered?

There are a few things in life that cost nothing but are truly priceless. You now have one of them.

Scott.

The ‘Die with Debt’ Strategy

Dear Scott,

I feel a bit disturbed when a different strategy recently came to my attention. If you don’t have any children (or don’t plan to, which is becoming more common) and are therefore not worried about what you might pass on to your children when you die, then you should borrow as much money as you can and pay back as little as possible. Get a mortgage to buy a beautiful house, get loans to go on holidays, buy things that bring you joy, live it up a little. Just enjoy your life to the fullest without worrying about working too much. Just pay back a little to keep the lender off your back but don’t worry about how much you are borrowing, or how much interest it would add up to over the years … because you get the money, spend it, enjoy it and then you die with no one left to pay the debt. Win! Or is it?
 
Debbie
 
Hi Debbie,
 
This is the sort of ‘strategy’ that people come up with at the pub … after six schooners.
 
It is true that, if you die without enough to repay your debts, they’ll generally be forgiven. (Though not if the debt is in joint names – the lender will chase the surviving person.)
 
Sounds simple, right?
 
It most certainly is not.
 
Can you imagine how stressful it would be to be old and financially stressed about keeping up your repayments? To be getting hassled by banks or debt collectors?
 
Besides, the vast majority of people want to leave a legacy, or at least square the ledger before they meet their maker.

Scott.

Old Dog, New Tricks

Dear Barefoot,

I am now 90 years old and have just completed reading The Barefoot Investor. I wish I had done so much, much earlier! My family house pays for all overheads and so I am able to exist on a pension and have a small nest egg. My question is: should I go with the Barefoot investment plan at my age, as who knows what the future may bring? Recently my wife passed away and now I’m lost without her. Is it all too late for me now? 
 
Sam
 
Hi Sam
 
My condolences for your wife’s passing. I can’t even begin to imagine how hard it would be to lose your best friend after so many decades together. But I think the most important thing for you to focus on is spending time with your family and friends, not on changing your finances!
 
In fact, here’s something to think about: if it is financially prudent to do so, you might consider giving some of your inheritance away to your loved ones now. That way you get to see the good your money will do, and connect with your grandchildren and great-grandchildren!

Scott.

I Gave My Parents the Best Christmas Present Ever

Last year I bought my parents the best Christmas present ever.
 
It’s called ‘Storyworth’, and it’s a really cool way to get people to tell their life story.
 
Once a week, Storyworth emails my parents a question that inspires them to write, like:
 
“What is one of the funniest things you’ve ever done?”
 
“Did you have any pets growing up?”
 
“Where were you at the moon landing?”
 
They reply to the email, and then at the end of the year their stories are bound together in a printed book to keep and treasure forever. Or at least that’s the guff on Storyworth’s sales page.
 
Unfortunately, my old man didn’t really take to it.
 
Storyworth: “Where were you at the moon landing?”
 
Dad: “At home watching it on TV.”
 
It was shaping up as not so much a book as a pamphlet.
 
My mother, on the other hand, took to it with gusto. Her Storyworth will probably be a trilogy!
 
Now, Storyworth is really just a simple way for Boomers to write their memoirs … one emailed question at a time.
 
But you, dear reader, are probably not as old as my parents.
 
In fact, you’re actually living your life right now. So what will your story be?

The key to making it a blockbuster – and not Groundhog Day – is working out what matters most.
 
The fastest way to do that is what I call the ‘funeral test’:
 
As we approach Christmas, put down your phone and spend a few minutes thinking about your own funeral. Many people (men in particular) spend much of their lives pursuing things that look impressive on their resumé: Fancy titles. Money. Power. Respect. Status trophies.
 
However, the person delivering your eulogy won’t talk about the car you drive, the title you attained, the balance of your bank account … or any of the other things society has you chasing.
 
Instead, they’ll talk about the kind things you did. The courage you showed. The difference you made.
 
Our entire lives are a story. Make yours one worth reading about.
 
Merry Christmas!
 
Tread Your Own Path!

Happy Father’s Day

One of my earliest memories was tagging along with Dad as he volunteered for Meals on Wheels.
 
“Perhaps that’s where I got my social conscience from”, I wondered.
 
“Ha!” he laughed.
 
“Huh?” I said.
 
“Well, I hate to break it to you, but you never went to Meals on Wheels with me”, he replied.
 
“I did, however, occasionally help out the local mortician. I’d basically just comb the stiff’s hair and spruce them up a bit before they got put in the casket. That’s what you probably remember. They weren’t old mate – they were DEAD!” he roared.
 
That story explains a lot about my childhood … and the man who raised me!
 
Now, we have a Father’s Day tradition here at Barefoot that’s been going for almost a decade. It’s called the Ultimate Father’s Day Present: a chance to open up to you. So, if you’re lucky enough to have your father still with you, whip out your phone, hit ‘record’, and ask your dad the following five questions:

• How did you meet Mum?

• What advice can you share with me about money, life and happiness?

• What does being a dad mean to you?

• What are you most proud of?

• How would you like to be remembered?

Chances are this video will one day be much more valuable to you than anything you’ve purchased from a store. I know that because throughout the year people send me emails like this one from Jude:
 
“Hi Scott, I just lost my dad and I’m devastated. Although he lived to the ripe old age of 94 it is still an enormous void that has been created in my life as we were very close. Years ago you suggested we interview our dads and record it. I actually did it. I just watched the video and although I bawled my eyes out, it will be one of the most beautiful memories I will have of my dad”.
 
Happy Father’s Day!
 
Tread Your Own Path!

Our Kids Have No Idea How Rich We Are

Hi Scott,

My husband and I worked really hard, started a successful business, and are now in a very fortunate position. Every single dollar we have, we have earned ourselves. My question is this: how can we ensure we instil good money values in our three children? At this stage they have no idea of our financial situation. What can we do to ensure they know that money is earnt?

Thanks, Alison

Hi Alison,

Great question!

I’ve thought about this deeply, because my kids are in the same sort of boat.

(The other day my wife was in a shopping mall when our three-year-old said “Look, there’s Daddy!” My wife corrected her — “No, Daddy’s on the farm” — before looking up and seeing my smiling mug on a billboard.)

Here are three things I’ve thought about.

First, and most importantly: our kids won’t be inheriting our investments.

Instead, each of our kids will receive a ‘Barefoot Ladder’ — meaning we’ll match, dollar for dollar, whatever they can save towards a (safe) car or a house deposit. Other than that, they’re on their own.

Second, never talk about your wealth in dollar figures (kids have no context or frame of reference).

Instead, spend time talking about, and showing them, how much you enjoy working hard, and the meaning and purpose you get from the work you do. (That’s why my kids tag along to my book signings.)

Finally, when you boil the parenting thing down, all you really want is for your kids to be hardworking and kind. If they have ‘get up and go’ and are caring human beings, you’ve done your job!

The best way to achieve that isn’t by lecturing them. It’s partly by modelling these behaviours yourself, and partly by providing them with a weekly opportunity to roll up their sleeves and experience working hard, spending wisely, and giving generously.

You Got This!

Scott.

Our $2 Million Battle

Hi Scott,

Last year I cared for a very close family member, who sadly passed away in December. I’ve been included in his will and expect to inherit approximately $2 million! Besides the grieving, we’re trying to deal with the fact that other very close family members were NOT included in the will. We are a tight-knit family and I would like to share some of this inheritance with them. Where on earth do I start, not only setting my little family up for life but also possibly helping other family members financially?

Janice

Hi Janice,

Let me start by saying that you didn’t receive this money by mistake: it was clearly what they wanted.

Case closed, right?

Well, maybe not.

In these situations the will may (read: probably will be) contested by close family members who got doughnuts.

There’s a six-month window to challenge a will — after that, they can only do so with a court’s permission.

If I were in your shoes I’d apply for probate as soon as possible (which basically means proving the will is valid and the executor can distribute the estate to the beneficiaries), and then mark the date on your calendar.

Only then would I start thinking about what to do with the money.

The first meeting should be with your accountant, to see how much capital gains tax the assets could be up for.

As for dishing out the dough: I’d follow the Barefoot Steps so that your own family is cared for and financially secure, and then think about what to do with the rest.

Good luck!

Scott.

The Greatest Investor You’ve Never Heard of

Let me tell you about one of the greatest investors you’ve never heard of.

His name is David Swensen.

Swensen was responsible for investing Yale University’s endowment (the money it uses to fund its education).

Over his career, he grew that pot from $US1 billion … to a staggering $US31 billion.

His returns were so impressive that Bloomberg said, “there’s David Swensen, Warren Buffett … and everyone else”.

With his track record, Swensen could have become one of the richest men on Wall Street.

And, early in his career, Swensen had countless opportunities to quit managing money for Yale and start his own hedge fund. If he had, he would likely have become a billionaire many times over. Rich enough to own an island, a fleet of jets, and mansions all over the world.

Yet here’s the really strange thing about David Swensen:

He didn’t.

Instead, he continued working for relatively low pay (by Wall Street standards) managing money for Yale.

Unlike most Wall Street fund managers, who get their significance from the investment fees they skim off the top, Swensen was driven by the fact that his investment gains helped the institution change young people’s lives.

Even better: while other ‘masters of the universe’ fund managers had plush offices and chauffeurs … Swensen helped out the university by turning up in front of a chalkboard to teach an investing course to students.

Tragically, Swensen died last week, way too early at the age of 67.

There was a lot written about his investing genius. (Interestingly, Swensen, like Buffett, was a vocal critic of expensive actively managed fund managers and argued that most people, including large pension and super funds, should invest in index funds.)

Yet there has been much more written about what author David Brooks calls his ‘eulogy virtues’:

The time and effort he put into mentoring the young investors he worked with. The encouraging letters he sent to his students. And the fact that he was still teaching that investing class just a few days before his death.

Now, you don’t have to be an investment genius to gain the secret to Swensen’s true wealth. Simply put down your phone and spend a few minutes thinking about your own funeral.

Many people (men in particular) spend much of their lives pursuing things that look impressive on their résumé:

Fancy titles. Money. Power. Respect. Status trophies.

Yet the person delivering your eulogy won’t talk about the car you drive, the title you attained, the balance of your bank account … or any of the other things that society has you chasing.

Instead, they’ll talk about the kind things you did. The courage you showed. The difference you made.

David Swensen understood this. And his legacy lives on in the hundreds of students whose lives he changed.

Rest in peace, David Swensen.

Tread Your Own Path!

A Very Barefoot Will

Hi Scott,

My beautiful mum passed away recently. She was a big fan of yours. Each Sunday we’d catch up and she’d ask me what ‘Barefoot Scott’ had written this week, often chuckling at your straight-talking responses. After she died, we found that she had left instructions (in her fire-proof Bunnings safe) about a hidden ‘Mojo’ envelope — to help us out until her will was resolved. We also found an ING account named ‘Holiday’, ready for her next big trip. As sad as I felt, I had to smile with pride. It wasn’t about the money, I was just in awe that Mum had done all this in her late seventies, and with very little too. Kudos, Mum!

Jenny

Hi Jenny

Love it!

A lot of people think that Barefoot is about money-grubbing finance.

Yet, at its core, what we talk about here each week is how to look after the people we love.

And, in that sense, your mum was a true Barefooter.

Thank you for sharing your story.

Scott.

The best Mother's Day present

Many years ago, I was invited to a very exclusive finance dinner.

As luck would have it, I found myself sitting next to a VIP ... the chief of a large international bank.

He leant in, shook my hand, and began telling me all about his sprawling bank, which employed tens of thousands of staff and had millions of customers.

And then he said something that totally shocked me:

“We lend money only to women.”

“What?”, I blurted out.

“My bank lends money to small businesses. And we’ve found that when we loan money to women they use it to improve their living situations and educate their children … whereas men often squander it.”

Bingo, bango!

The famous bank chief I was sitting next to was none other than Muhammad Yunus.

Back in the seventies, Yunus did something that no one in his native Bangladesh had ever done before: he provided small business start-up loans to women — poor, uneducated women who lived in the backblocks.

People thought he was crazy.

See, at the time, 99% of loans were to men. If a woman applied, she was often laughed at and dismissed: “Go get your husband to apply.”

Yet Yunus understood the power of the mothering instinct ... these women wanted a better life for their children.

Yunus bet this would drive these mothers to work hard, to look after their kids ... and to repay their loans in full.

And that’s exactly what they did.

The result was that millions of people were pulled out of grinding poverty, and Yunus was awarded a Nobel prize.

Of course it doesn’t matter if you’re in Bangladesh or Bendigo — women tend to be more focused on financial security.

And you don’t need a Nobel prize to work out why: they have to be.

That’s because women are, on average, poorer than men.

They are more likely to do more unpaid work. They are also more likely to take time off their career to raise children. And they still get paid less than men, according to the Human Rights Council of Australia.

The result?

They have less money compounding over their working lives, so they retire with around half of what men have in super.

And so, on this Mother’s Day I’ve got a special request for you:

If you know a mum who’s struggling (whether yours or not) give her the gift of financial knowledge.

Offer to take her out on some Barefoot Date Nights. Help her work through the steps.

Odds are she’ll remember that more than the supermarket flowers she gets every year!

Tread Your Own Path!

The Millionaire Orphan

Hi Scott,

When I was 18 my parents passed away, but I was in the privileged position to inherit nearly $1 million. For years I did not want to think about it and felt guilty it was now mine. So I split it across term deposits and online savers and, aside from paying for uni, left it there. After reading your book at 24, I know I should be more proactive and honour this gift, but I am lost and do not want to waste my parents’ hard work. Should I buy a home? Do I put it all in shares? Please help!

Charlotte

Hi Charlotte,

I’m really sorry for your loss.

The thing that almost no one talks about is that having lots of money can be really stressful.

It can cause a lot of self-doubt and fear and angst.

And it’s the big life-changing decisions that you really want your parents’ guidance on, right?

Well, I’d suggest that all your parents would want is for you to be financially safe and secure.

There are four ways to achieve that:

The first is to devote your time to getting a good education and building a career you love.

The second is to always have three months of living expenses in Mojo (savings) you can access.

The third is to own a home — but only if you can afford it.

The fourth is to slowly but surely add to your super over your working life (I suggest topping up your employer’s contribution of 9.5% with your own contributions, up to 15%).

Charlotte, you are honouring your parents by taking the time to learn about money, and I think they’d be very proud of the financial decisions you’re making.

Scott.

Barefoot, where the bloody hell are you?

I’m back!

Let’s kick off the New Year with the #1 question people have been asking me over the past few weeks:

“Barefoot, where the bloody hell are you?”

Answer: I took the school holidays off.

My thinking?

Well, I only have 18 summers with my kids, and I want to make each and every one count.

Yet with COVID, our options were a little ... limited.

So I came up with the ultimate trip: camping at a remote national park, some 500 km away.

“Are you crazy?” asked my wife (who wisely stayed home, having just given birth to our fourth child).

“No doubt”, I said, as I bundled my two eldest boys into the ute and set off on our grand adventure.

My thinking was this: last year taught them to wash their hands for 20 seconds, to sneeze into their elbows, and to socially distance. So this year I wanted to give the boys the gift of good old-fashioned grubbiness.

And grubby we got!

We didn’t shower for a week. We did our business in the bushes. We ate off a rusty communal campfire hotplate that hadn’t been sterilised with antiseptic wipes. We slept shoulder-to-shoulder in a tent.

At the crack of dawn our flimsy tent would start getting lighter, hotter, and smellier ... nature's signal it was time to get up and spend the day together, swimming, bushwalking, and playing board games by the fire at night.

Rinse (in the ocean), and repeat.

Sounds delightful, right?

Okay, so let’s take off the rose-tinted glasses:

It was a rewarding holiday, but it sure wasn’t relaxing.

The trip took us eight hours (that’s 56 hours in preschooler time).

Seriously, 20 minutes in, I heard from the back: “Daaad, how much longer?”

And when we got there, we had to set up camp, and sleep three-deep in a stinking hot tent.

And, unlike a resort or a beach house, there was nowhere to hide away from each other.

And no mobile reception, so nowhere for us to hide away from each other mentally either.

And no restaurant cooking us a hot meal … instead we lugged food and drinking water hundreds of kilometres into the bush (and Dad’s cooking skills are already a little, shall we say, agricultural).

Still, it didn’t matter.

See, I’m in the memory-making business, and that holiday is one that none of us will ever forget.

After the year we’ve had, we all need to be reminded of how little it costs to make memories.

After all, think back to your most precious memories: I’ll bet they didn’t cost you a cent.

Tread Your Own Path!

Barefoot and NOT Pregnant

Dear Scott,

For a decade every penny we have saved has been a prisoner to building financial security for our kids. But, as it turns out, there will not be any kids. One in six couples struggles with infertility – and we are now part of that ‘one’. Being childless has turned all our plans upside-down. We earn a combined $350,000 a year and own a family-sized home in the ‘burbs far from the city where we work. Do we sell our large house? Or rent and buy investment properties? Or buy a penthouse and have a huge mortgage because ‘YOLO’?

Marnie

Hi Marnie,

You may not be having children, but you have achieved financial security for your family.

Here’s my thinking:

Even though you describe the last 10 years as a ‘prison’, trying for kids gave you both a single, clarifying purpose.

Now you’re facing what psychologists call ‘the paradox of choice’, where too much choice can sometimes prove to be overwhelming, and debilitating.

And with a paid off home, $350,000 a year coming in, and no kids to spend it on, you have plenty of choices!

There are three ways to overcome the paradox:

First, give yourself the gift of time – don’t rush into making decisions.

Second, keep a diary on your bedside called ‘choose your own adventure’ and write down plans that come into your head (s) over the next 12-months.

Finally, once you’ve made a joint decision on where you want to live and what you want to do, go all in.

Scott

The 87 year investment

When I first began the Barefoot Investor, I wasn’t married. I didn’t even have a girlfriend.

Today, I have three kids … and in a couple of weeks we’ll be welcoming our fourth.
So, on this my final column for the year, let me tell you how I’m planning for their* future.

(*While we haven’t found out the sex, I’m totally convinced it’s a boy.)

There are three steps:

First, on the day my son is born I’ll buy a newspaper.

While I’m sitting at the hospital, I’ll get a red pen and circle all the terrible, and scary things that are happening in the world right now. And there’s a lot of them: the second (or third?) wave of the pandemic is sweeping the planet, governments are going deep in debt, and we have a fragile global economy. Then there’s the Donald Trump reality show, which is yet to be cancelled.

Second, I’ll invest $1,000 into an international shares index fund, which holds the largest companies in the world (think Apple, Amazon, Berkshire Hathaway, Nestle … and 1,540 large businesses from around the world), and another $1,000 in an Aussie index fund.

Finally, in 21 years’ time, when newspapers are a relic, I’ll pull it out and let him leaf through it.

He’ll be struck at how insanely cheap the prices of things in the ads are.

(‘Hey Dad! Here’s an ad for an iPhone. I haven’t seen one of those things in years!’)

He’ll marvel at how young his old man looks in his column photo.

Yet most of all he’ll understand that all the scary headlines were a sideshow to the real story of human progress.
I encourage anyone who has kids or grandkids to do the same:

It’s a real life lesson on the power of compound interest.

Tread Your Own Path!

Here’s what could happen in 2021

Let’s discuss what could go wrong in 2021, and what you can do about it.

Of course newspapers are chock-full of experts making predictions about “what’s in store for the next year”, so, before I throw my hat in the ring, let me shake the sauce bottle:

How many smart sausages this time last year wrote, “We predict that a pandemic will sweep the planet and lock many of us down in our homes. Our recommendation: stockpile toilet paper in February.”

That’s the err, rub, right?

Well, for what it’s worth, my view is that the next few years could be financially brutal for many businesses, for those workers who are laid off or underemployed, and for retirees who have had their investment income slashed.

However, it’s because of all this misery that things in 2021 could actually get a little … loose.

Here’s the two-hander:

The Reserve Bank has set rates at (effectively) zero to stop you from saving and encourage you to borrow up BIG.

The Government is even attempting to scrap responsible lending laws to get the party in full swing.

Heck, the RBA has given us a timeframe, having all but promised donut rates for the next three years.

What could possibly go wrong?!

Well, lots actually.

Like it or not, we’re living through a giant financial experiment: never has the world had so much debt. Never have interest rates been this low (they’re at thousand-year lows, according to Merrill Lynch).

And so the lesson I’m taking out of 2020, our annus horribilis, is this:

Life is unpredictable.

The truth is we spend most of our lives stressing about things that never happen. And then one day a bat flies the wrong way, and the next day people are going the biff over bog roll.

Think about it: the riskiest things — the ones that knock you on your backside — are often a bolt out of the blue.

For my family it was a fire that burned basically everything we owned.

For others it could be a relationship breakdown. Or an illness. Or an economic meltdown. Or a global pandemic.

So how can you and I prepare for them?

By asking yourself the following questions, today.

Barefoot’s Top Five Questions For 2021

1) “Is my money safe?”

Here’s the bolt out of the blue: you need to access your money quickly, but all your investments have tanked.

If you have money that you need to draw on in the next five years invested in anything other than a bank savings account or term deposit,you may well lose a chunk of it.

Like what?

Like property funds that offer a high rate of interest, or the share market, or cryptocurrency, or any other type of managed investment.

(The share market is not a safe place to hold your money in the next five years. However, it’s arguably the safest place to invest your money over decades, as it will outrun inflation.)

Here’s what you can do about it:

Keep any money you’ll need to spend in the next few years in a bank account (or term deposit) that is covered by the government deposit guarantee (up to $250,000).

Yes, that may sound like overkill, especially with interest rates this low. However, it’s not about the interest you earn (which is pitiful), it’s the sleep-easy factor of knowing you’ve got a backstop. That’s worth more to me and my mental health than any gain I could make in the market.

2) “How long could I last if I lost my job?”

Here’s the bolt out of the blue: your boss calls you into his (virtual Zoom) office on Friday … you’re being laid off.

It’ll never happen to you, right?

Well, I believe the lasting legacy of COVID is to radically change the concept of what we call work.

Think about it: employers have been thrown in the deep-end of the productivity pool this year. Many have had to deal with a reduced workforce who are working from home.

And, now things are getting back to normal, I wonder how many will look at last year and think to themselves:

“Maybe I don’t need all the staff I once had. And, even if I do, if they’re all working remotely … maybe I can hire cheaper workers somewhere else in the world?”

And yet one in five of us Aussies has less than $1,000, according to ME Bank’s latest biannual Household Comfort Report.

Here’s what you can do about it:

Follow the Barefoot Steps; after you’ve set up your buckets, domino-ed your debts and bought your first home (but not yet paid it off), the next Barefoot Step is to boost your Mojo savings to three months of living expenses.

I had a woman write to me in September telling me she thought having three months of Mojo was a total overkill. Yet, when they both lost their jobs, she said, “It was the most important thing in our world. It allowed us to breathe.”

3) “Am I covered?”

Here’s the bolt out of the blue: your house burns down, and you’re not fully covered.

Statistically, if you’re a normal little vegemite you will be underinsured. And the moment you’ll find out is after the fire, or the car accident, or the illness, or … the rats.

(Yes, one of the downsides to living on a farm is rodents. They somehow managed to get into both our cars and eat through $35,000 of interior and electrical work).

Here’s what you can do about it:

Dig out your insurance policies and check what you’re covered for you may need to increase it. If you’re unsure, call your insurer and ask them to review your policy. Life is full of dirty rats, so just make sure you’re fully covered for anything.

4) “Is my partner on the same financial page?”

Here’s the bolt out of the blue: your partner walks out on you.

Relationships Australia tells us the number one reason for relationship breakdowns is fights about money.

Here’s what you can do about it:

The monthly Barefoot Date Night is the cornerstone of my entire plan.

Making a monthly ritual of getting on the same financial page as your partner — and working through the Barefoot Steps — is the most powerful thing you can do to ensure you don’t end up losing half your assets.

If you don’t schedule it, you won’t do it. (We have ours on the first Tuesday of every month, which coincides with the monthly Reserve Bank meeting: how hot is that?)

And remember, money talk goes better with a wine (or taco) in your hand.

5) “If I got hit by a bus, would my family be able to put everything together?”

Here’s the bolt out of the blue: you leave your loved ones with a financial Rubik’s cube of frustration.

Picture your partner (or parents) sitting alone, distraught and grieving, trying to piece together your financial life.

They have no idea how to access your bank accounts, the password to your email and social media, your funeral wishes or even where your will is.

Here’s what you can do about it:

Spend an afternoon getting everything in one place.

At Barefoot we call it the Fearless Folder, and once it’s done you lock it away in a secure safe.

The feedback I get from people who have done it is that it’s Marie Kondo-cathartic to have it all sorted.

What’s more, it’s the final way you’ll say “I love you” to your loved ones.

And there you have it.

Each and every week, I show up and answer your questions.

Yet to really prepare for 2021 you need to ask yourself the right questions, and get the right answers for you.

Tread Your Own Path!

Safe as Houses

Hi Scott,

I followed your advice and bought the Bunnings portable safe that you wrote about in your column a couple of weeks ago. However, when we were faced with our fire I was so panicked I forgot to grab it… however it was the only thing that survived in that room! And because it survived I now have everything I have been asked to produce for insurance, quotes, and house plans. Thankyou for your old-fashioned good advice to this generation.

Jenny

Hi Jenny,

Goodness gracious, great balls of fire!

Still, having all your docs will make the often painful insurance process that much easier (and if you have ‘before’ pics on your phone of your house, that’ll help too).

And, while you’re the perfect case study for the importance of having a safe, I view our safe just as much as a communication device: if something should happen to me, my wife knows that the keys to our financial life (or at least the copies of our keys) are all set out in one place.

Truth be told, I got a huge reaction to my column (especially from the mysterious safe-cracker, who didn’t like me joking that he could come back and open my safe). In fact, many parents wrote to me saying that they plan to buy a cheap, fireproof safe for a Christmas present for their adult kids (though it appears Bunnings has now sold out of the $69 version!). Now that is a practical present … you could even put some gold chocolate coins in them … and a copy of my books.

Scott