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!

A Magical Mystery Tour

Ben, 

I’m a Kids Superhero Magician - taxable income about $80K a year … or I WAS until Covid GRRR. After reading your last column about that smart single mum with cancer who set her life insurance in place, I followed your advice and have been looking at raising my life and TPD through my living super insurance - but  the premium was $5600 a MONTH!  Is there a good life insurance place that you would recommend? Any advice around this topic?

Steph

P.S - I went into Woolies last month and your book was half price - I went to the counter and the price on the tills was wrong so I told them AND GOT YOUR BOOK FOR FREE (Woolworths weird policies). 
P.P.S - I love you! But don't tell my partner snoring next to me.

Hi Steph,

First, I have no idea who Ben is, but I’ve been called worse (like Magoo), so let’s go with that.

Second, it’s common to get ‘bill shock’ when you attempt to increase your insurance.  You should call your super fund and see what options they have where they can offer financial advice and wholesale rates (without the hefty commissions). This is one area where you really want to pay to get expert advice that is specifically tailored to your situation.

Finally, let’s talk about that ‘smart single mum with cancer’ who inspired you to boost your insurance: Emma.

As a recap: Emma wrote to me a few weeks ago, thanking me for reminding her to boost her TPD insurance. She explained that just last year she was ‘a fit and healthy 42 year old single mum with two boys aged 10 and 7’ … yet she’d been diagnosed with cancer, and her insurance really helped her out.
I found out last week that Emma died.

The greatest respect I can give Emma is to put her story in front of my community of Barefooters. And I’ll say it again this week. Check your insurance. Make sure you have enough. Do it for Emma. Do it for your kids. Do it TODAY.
 

A Mother with a Message

Hi Scott,

A year ago I was a fit and healthy 42-year-old single mum with two boys aged 10 and seven. Your book has helped me get on top of my finances, and every year I re-read it (well, listen to it on my commute). When I read it in October 2019, I realised my death and TPD  insurance wasn’t anywhere near the 10 times annual salary you recommend, so I bumped it right up. 

And I am so glad I did. Last December I was diagnosed with a rare terminal cancer, and my insurer has now paid out nearly $1 million. I have been able to pay for specialist treatment not covered by Medicare, see off the mortgage, and set up a trust to support my boys when I am not here. So much of how well I am doing is because I have the financial freedom to just live. Everyone should have this freedom. So thank you, Scott, for the work you do — you are saving lives.

Emma 

Hi Emma,

Just wow.

The greatest respect I can give you is to put this in front of my community of Barefooters.

If you’re a parent, you need to follow Emma’s lead and act on this.

The ‘10 times your salary’ figure is a very rough guide of course — you should speak to your super fund’s financial advisor (in the first instance) about what’s right for their family.

Do it for Emma. Do it for your kids. Do it TODAY.

They’re Coming Out of the Woodwork

Hi Scott,

I’ve just read your article entitled “The Horses”. My wife was tricked into buying an almost identical funeral insurance policy from Insuranceline. We estimate we have paid $35,000 in premiums since 2007, with a payout cover of just $6,000 each. My wife and I are now in our seventies, with the age pension as our only income. And, as you know, they keep increasing premiums as we get older. I’m stressed. What can we do?

Ted and Eileen

Hello Ted and Eileen,

I’m used to getting a lot of emails.

Yet I’ve been blown away by the number of people who’ve written to me in a similar situation to you.

Your wife entered into this financial transaction not out of greed but out of kindness and selflessness:

She didn’t want to be a financial burden on her family.

Sadly, too many insurance companies manipulate this emotion for their own gain.

The problem is that, in some cases, if you stop paying the rising premiums you can lose your cover (though you should definitely check the wording in your policy, or call a financial counsellor on 1800 007 007 to help you with it).

Yet if you keep paying you may not be able to afford to travel and see your grandkids. Or do Christmas presents.

The irony is that if you were to speak to your family, you’d find they’d rather you spend the money enjoying yourself than living your final years being stressed out about money.

Besides, a private funeral typically costs around $4,000 for a basic cremation, or up to $15,000 for a more elaborate burial, according to ASIC’s MoneySmart.

I’d encourage you to make a formal complaint to the insurer in writing, and if you don’t get an appropriate outcome take it up with the Australian Financial Complaints Authority (ACFA) on 1800 931 678.

The Horses

Dear Scott,

My mother-in-law took out funeral insurance way back in 2004. Since then she has paid approximately $29,000 ($72 per fortnight), but if she were to die the payout would be $17,700. I cannot find a legal way to get them to stop taking more of her money. They will stop when she is 90, but sadly she is 70 and has Parkinson’s. Any ideas?

Sarah

Hi Sarah,

You know what I dislike more than those mindless morning television shows?

The ads that pay for them.

A big infomercial flogger is funeral insurance, and they really press on your emotions to ‘not be a burden to your family’. The Royal Commission showed that the companies that sell this type of insurance are the WORST.

Let me count the ways:

First, you often end up paying more in premiums than the value of the cover.

Second, the premiums often rise as you get older, when you can least afford them.

Third, if you stop paying, in most cases, you won’t get your money back.

Fourth, if your mother-in-law had invested $72 a fortnight into a low-cost index fund for the last 16 years, she’d have $63,000 by now. That could afford a helluva funeral (she could even have Daryl Braithwaite tow her coffin out on a horse while singing The Horses).

So what can she do?

Well, these products are often sold by slick salespeople with predatory practices. If that happened to her, she may be entitled to a resolution.

You’re thinking “but my mother-in-law is a pensioner with Parkinson’s, she won’t stand a chance”. And that’s why I want you to put me in contact with her this week, and I’ll take this on personally.

It’s time to whip these nags!

A Hot Tip For You

Hey Barefoot,

I’ve got a hot tip for you. When comparing car insurance quotes online, put in your neighbour’s address instead of your own. When I was doing my renewal I gave it a go and, to my surprise, it worked! There was a $350 difference between insuring my car at my house versus five metres over the fence. 

Debra

Hi Debra,

What gives?

Was your neighbour a nice little old lady who only drove her Camry to Church on Sundays?

No, but I’m guessing that, unlike you, she was a potential new customer and your insurer was wanting to entice her in with a sweet deal! As this recession grinds the gears of corporate Australia, you can expect more pineapples like this to pop up.

The ACCC recently released a home loan report which found that “asking their bank for a lower rate, refinancing to another home loan or switching lenders, could result in interest savings of nearly $5,000 in the first year alone for an average sized new loan of $386,000”.

So the real ‘hot tip’ is to negotiate like you’re a brand new customer, and save yourself thousands. 

Scott

Extinguishing Financial Fires

Hi Scott,

My mother’s home in Nymboida (northern NSW) was tragically lost in the bushfires that ravaged the community last weekend. My mother has spent the last 30 years building a beautiful home yet, within hours of evacuation, the entire place was wiped out. We contacted NRMA for a house and contents claim, only for them to insist we itemise everything — yet it’s all gone! In your book you mention you were able to demand payment in full after your house burned down. Is there a script that we can use to achieve the same?

Mel

Hi Mel,

Give your mum a hug for me.

Your mum has just gone through a significant, stressful life event — so understandably she may not be in the right frame of mind to make far-reaching financial decisions, let alone battle an insurance company.

There are two things to consider: reimbursement for your contents, and managing the rebuild process.

While I haven’t read your mum’s policy, most insurers have what’s known as a ‘sum insured’ value. Once they’ve established her home has been destroyed, they should pay that figure out as a lump sum for contents almost immediately. Don’t let them play games with your mum: go back to NRMA and tell them that it’s far too traumatic to make her itemise everything she’s lost. Tell them to pay up the contents insurance pronto (and if they give you any stick, write back to me).

But when it comes to getting a lump sum for her rebuild, I’d be wary. Yes, I did it, but I was confident of managing the entire rebuild myself (and investing the proceeds in the meantime). However, if the onus of the rebuild is on your mum (rather than having the insurer manage it), that could be pretty stressful … and that’s the last thing she needs right now. Let the insurer deal with it.

Scott

Westpac Jackpot!

Dear Scott

I just wanted to say thank you! I received a letter from Westpac today to say that in response to my ‘query’ they have cancelled my credit card repayment insurance and refunded $1,100 in premiums paid over the past four years. Woohoo! One giant leap towards paying off and cancelling my card altogether!

Fiona

Hi Fiona,Ka-ching!

Since I wrote my column a few weeks ago, I’ve had heaps of Barefooters tell me they’ve got thousands of dollars back.

And if you, dear reader, have been sold junk add-on insurance, head over to demandarefund.com and stake your claim.

Scott

Single Mum Slays a Dragon

Last weekend I ruined a man’s breakfast.

True dinks.

It all began when I answered a question from Louise in last week’s newspaper.

Here’s a recap:

Louise read my book, went on a Date Night (by herself!), and dutifully checked her bank statement. She found that she was being whacked $90 a month for credit card insurance.

She’d been told -- when she applied for a credit card -- that the only way the bank would give a single mum a card was if she got credit card insurance.

That was a lie.

For the uninitiated, credit card insurance is what Vanilla Ice is to hip hop: a total marketing conjob concocted to fleece unsuspecting people of their money. And that’s not just my view either -- the Royal Commission labelled credit card insurance ‘junk’ and called for it to be banned.

So, for the next month Louise tried to put her policy on ice, ice baby. Yet that was easier said than done -- her bank, St George, bounced her from one department to another, and all the while kept billing her.

Just before the school holidays the bank agreed to stop the payments.

A win!

And Louise could do with a win.

She’s a single mum.

She’d just been laid off from her full-time job.

And her little girl has a very serious illness.

But you know where this is going, don’t you?

Yes, during the school holidays, when money’s always tight, St George hit her account and swallowed up the little money she had. That left her account overdrawn (then again, on the upside, more fees for St George!).

So in my reply last week I went straight to the top: I googled “who the hell is the CEO of St George Bank?” and up popped the smiling face of Ross Miller, the General Manager. I gently suggested (to a few million readers) that he pull his finger out and do something.

I can only imagine poor old Roscoe choking on his morning cornflakes as he read the paper and saw his name in print!

In any event, he got straight on to it. And I mean straight on it -- on a Sunday no less, when banks are all closed, and counting their billions.

The result? Louise not only got her junk insurance cancelled, she got a full backdated refund, paid into her account first thing Monday morning.

Alright, stop, collaborate and listen.

After Grandmaster Hayne recommended that government and regulators act to stop the selling of junk insurance, consumers could be up for up to $1 billion in refunds. So if you’ve been sold junk add-on insurance, head over to demandarefund.com and get your money back.

Rock on, Roscoe!

Tread Your Own Path!

Do I Need Renters Insurance?

Hi Scott,

I am a renter, and recently my new property agent mentioned contents insurance. I understand that the building is covered by the landlord, but I have never bothered with contents insurance before. I just had a quick google and it is a minefield! There is ‘contents insurance’, then there is ‘renters contents insurance’ ‒ I have no idea what the difference is and which one I should be looking at. Any advice?

Mardi

Hi Mardi,

Just so we’re clear, renters insurance (which is the same as contents insurance, just for renters) covers your personal contents at your property, and usually with an option to cover your personal effects when you’re out and about, whereas landlords insurance covers the building structure itself.

I did a few online comparisons for budget renters insurance, and the cost for insuring $20,000 worth of contents against fire, flood and theft ranged from $150 to $300 per year (though it may be different based on your own situation and what you want covered).

If you’re in a share house it gets a little trickier (you can’t insure individual rooms), but some policies allow you to detail the items you want to cover. If all your flatmates have expensive stuff like a laptops, fancy cameras, phones and jewellery, it may be worth you all chipping in for it.

Bottom line?

If you’re most expensive possession is a Bob Marley bong, perhaps you can pass on it. Otherwise, add up the cost of replacing everything and then run the sums.

Scott

Southern Cross Travel Insurance

Hi Scott,

This question is for my brother. After being diagnosed with serious bone cancer in March 2017, he proceeded to apply to his travel insurer -- Southern Cross Travel -- for a refund on his overseas trip, planned for April 2017. But Southern Cross have refused to pay up the $4,000. His doctors are at a loss as to why they won’t pay -- fairly cut and dried they thought. How damn sick do you need to be? Please help!

Nick

Hi Nick,

I read through Southern Cross’ Product Disclosure Statement.

It’s pretty clear: “This policy automatically includes cover … for actual and reasonable losses incurred by you because of an unexpected event, if you have to cancel or change the dates of your journey before leaving Australia.” And it details one of the ‘unexpected events’ as the “diagnosis of a terminal condition, or a condition requiring radiotherapy or chemotherapy”. They say they’ll pay up to $2,500 on a single trip.

Like your brother’s doctors say, it seems pretty cut and dried, so perhaps I’m missing something.

Or maybe it’s Southern Cross that’s missing something. Most big companies have sophisticated media tracking systems which alert them to when their names are mentioned in the media.

So, since this column is being published across the country, maybe they’ll pick it up.

Just in case, let’s throw in a few keywords: “Southern Cross Travel Insurance Fair Suck of The Sav”.

Let’s see if Southern Cross Travel Insurance reviews your brother’s case and, if he’s in the right, pays the claim.

Over to you, Southern Cross Travel Insurance.

Scott

Our Tenant Burnt Our House Down

Hi Scott,

Our tenant burnt our investment property down (has been charged with arson). The property has landlord insurance for $500,000. The insurance company has offered us $309,000, or to rebuild it themselves. They’re also being a bit suss on paying us for lost rental income. Our mortgage is around $380,000, but the block will also need to be cleared. Is there any way we can get the $500,000 we are owed, or close to it?

Tammy

Hi Tammy,

You may be insured for $500,000, but the fine print in your policy may say that all the insurer is required to do is reinstate you to the same condition you were in before the fire. And if they can get away with paying out $309,000 instead of $500,000, that’s what they’ll do. You’ll need to read your policy carefully to see what it says.

Remember though your policy was written by the insurance company lawyers, with the aim of giving them maximum wriggle room. That doesn’t mean you shouldn’t challenge them -- especially on the loss of rental income. You have nothing to lose, and everything to gain.Let your insurer know that if don’t get a satisfactory outcome, you’ll register your complaint with the Financial Ombudsman Service (1800 367 287). After that your insurer has 45 days to resolve your complaint.

Scott

Special Q&A with Kelly O’Dwyer.

This week I’m doing a special Q&A with the Minister for Revenue and Financial Services, and the Minister for Women, Kelly O’Dwyer.

Costello’s Regrets

Barefoot:

Your old boss, Peter Costello, says he regrets not doing more to lower fees on compulsory superannuation. Would you consider tendering out a default fund and making the big institutions bid ‒ lowest fees wins?

The Minister:

“I actually think Peter made some very good points.

“It’s very, very clear to me that for far too long people have been ripped off. Super funds need to understand that it’s not their money ‒ it’s their members’.

“Look, this cosy, opaque system that we’ve had for many years has come to an end. That’s why in the Budget we got rid of exit fees … because it was a barrier to switch. Our job as the government is to make sure that people’s money is protected and ensure they’re not going to be gouged with fees and charges.”

Women and Money

You have an interesting remit ‒ responsible for financial services and women. We know women retire on less than men, around $120,000 less. What can you do to change that?

“When it comes to super, we know that our Budget changes means that 2 million women will have their super balance protected from being charged inappropriate insurance.

“Another 1.3 million women’s super balances will be boosted by $2.5 billion by our plan to cap fees on small balances to 3%, and actively charging the ATO to reunite people with their lost and inactive super.

“These are very practical measures that are good for women. However, this is a passion of mine, and I’ll have a lot more to say about it in the Economic Security Statement in spring.”

Insurance and Young People

I applaud your decision to stop people under 25 being compulsorily charged insurance within super. However, the big insurers say it will increase premiums across the board by 30%. What do you say?

“I say that young people are being exploited and used as a cash cow for the entire pool of users.

“And I think that’s wrong.”

The Royal Commission

The Royal Commission has shown us that there are deep-seated cultural problems in the finance industry. How does the industry win back trust?

“There’s no question trust is at an all-time low.

“However, understand that the majority of people employed in the industry ‒ some 400,000 people ‒ are actually going about their day and doing a good job.

“The real responsibility falls on those that are in charge ‒ the boards ‒ and the CEOs need to ensure that they act with integrity. And if they don’t, we need our regulators to keep them accountable. That’s why as a government we’ve said if they are caught out doing the wrong thing, they can be put out of business, or put in jail.”

Thank you for reading,

Scott

I’m Accident Prone

Hi Scott,

I am 28 years old, earning $55k, and curious whether I should get private health insurance. I injured my ankle and had surgery through the public system after waiting a year. Even if I had bought insurance immediately after I hurt myself, there would still have been a year’s wait because my injury was ‘pre-existing’. So should I just continue to set aside some savings to cover my accident-prone tendencies, or should I take the plunge and get private health insurance before I turn 31?

Emma

Hi Emma,

I wouldn’t bother. You’re earning below the threshold for the Medicare surcharge slug, and you’re below the age of the lifetime health cover loading slug. Besides, you already have health cover -- it’s called Medicare -- and it’s one of the best healthcare systems in the world. My advice would be to do two things: take out a membership with Ambulance Victoria ($44.90 a year), and keep saving up your Mojo.

Scott

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.