“We’ve got it all covered...unless our kids want to go to school”.

Hi Scott,

I’m completely stressed out. My husband and I are planning on building our new home, and we’re worried that we won’t have enough money when the build is over (let alone now!). Our land cost us $445k, and the house will be $280k. Our basic expenses will total $1,300 a week (which at this stage does not include our kid’s school costs of $5,000 a year). Hubby brings in $1,100 a week, I bring in $300. My question is this: should we bail now and sell the land, or wait until it is built?

Sandra

Hi Sandra,

A couple of obvious observations: you’ve got $100 a week left over, so long as the car doesn’t break down, the fridge doesn’t go on the blink, and... your kids don’t go to school. Seriously Sandra, your numbers are tighter than Clive Palmer's shirt buttons.

Having just built a home, I can almost guarantee you that it’ll cost more than you’re budgeting for. It’s an incredibly expensive, draining process. The bottom line is that if you’re stressed out now, just wait until you’re a few months into the build.

If I were in your situation I’d press ‘pause’, until you can increase your household income. You should only go into this with at least one month’s worth of living expenses -- call it $4,000 -- and a weekly buffer of $300 a week (preferably more). That means either you go full-time, or your husband picks up more work. It also means your kids go to a public school.What if you can’t do that? Simple. Sell the land and buy something you can afford. Bottom line, don’t sacrifice your family for a pile of bricks -- your kids will love you no matter what home you’re in.

Scott

Squirreling away my nuts?

Hi Scott,What do you think of the new app ‘Acorns’? Apparently it’s a new smart way to invest without too much thought. (Or perhaps it’s just a lazy approach?) I'm skeptical, but intrigued at the same time!

James

Hi James,Let’s back it up a bit. For those of you who don’t know, the Acorns is the hottest thing in finance since Commsec’s Craig James appeared in the buff in a Men's Health Magazine. The app was launched last year in the US and reportedly has 700,000 users, and it’s growing faster than Tom Petrovski’s caveman beard. Now it’s in Australia.Essentially the app allows you to invest your pocket change into the share market. Let’s say you buy a copy of Men's Health for $9.00. You could tell the app to push the $1 into your Acorn account and invest it. You can also tell the app to invest $5 or $10 each day, or month.Importantly, there is no minimum amount you need to invest, and the costs are cheap (unless you only buy one magazine for the year): members with account balances up to $5,000 get charged $15 a year, and anything over that cops a fee of 0.275 per cent of the balance per annum.It’s a good deal, and I like it. But watch out. You see, I think the big banks offer their own Acorn inspired apps in the not too distant future. It’s a great loss leader to capture kids, and later upsell them. The banks love getting their hands on your nuts, and having a nibble. Hold on to your acorns!

Scott

Super Sucks, I’m Outta Here!

Hi Scott,

I have a pre-tax income of $64,000 a year, and my wife does not work. In December 2016 I will be able to withdraw $195,000 tax free from my AustralianSuper account. I plan to invest most of this money in the share market. My question is, am I better off to buy the shares in my wife’s name, my name or joint names?

Regards,

Steve

Hey Steve,

Why would you want to do that? You should keep the money in super, where you pay no capital gains tax and and no tax on income once you’re in the pension phase (and by the way, you can still invest in direct shares through your super via their ‘member direct option’). It’s the best deal ever. Super at your age is the equivalent of a packet of Tim Tams that never runs out -- don’t stuff it up!

Scott

Sisters Are Doing it For Themselves

Hi Scott,

I’m a 37-year-old married women with two kids. My husband works at one of the major banks and looks after all things financial. Only recently have I thought about investing. Although I have faith in my husband to manage the finances, I want to be able to independently manage my own stocks. But I don't know where to start. Any advice would be helpful!

Toni

Hi Toni,

I always say that a man is not a financial plan, but in your case he’s your wingman. You should be doing this as a team. First, because marriage is a team sport, and with something as important as money you need to be on the same page. And second, because I’ve seen too many families lose a partner, and the grieving widow has no freaking clue how to manage the money.

Scott

Bouncing Back from Bankruptcy

Hi Scott,

I’m 42 years old old and I feel I have one shot left. I'm just three months away from my bankruptcy being removed from my credit file -- a failed relationship, and a failed business, behind me. I now have $50k saved. I earn about $145k and have had a great secure job for the last three years. So I am at a crossroads. Who will give me a loan? What is the best way to get my financial future back on track?Thanks

Gary

Gary,

Fella, you don’t have just one shot left -- you’re not even at the halfway mark! Instead, think of your experience like you’ve graduated from the university of hard knocks. And yes, you’ll find plenty of lenders who’ll lend you loot, but that shouldn’t be your focus -- that’s what got you in trouble in the first place.

You’re earning good money, almost $150k a year, so you’ll be fine as long as you stick with the program. What’s the program? Keep the $50,000 for emergencies in a Mojo account. Boost your super by salary sacrificing an extra 6.5 per cent of your pay (an extra $628 a month). Buy a modest home you can afford, with a 20 per cent deposit. Pay it off quickly. You can’t not win with this plan.

Scott

I’m probably going to die (soon).

Hi Barefoot,

I’m facing a dilemma: whether to retire now or to keep grinding. I am 66 and my husband is 68 -- he retired some years ago -- and we have about $1 million in superannuation. Our home is worth around $450,000, no mortgage, but the house is pretty run down and needs some major renovation work. I had a mild heart attack six years ago. Although I do try to look after my health, I cannot change my DNA. My mother died of heart attack at age 68, but my father lived to 87. What would you do?

Pam

Hi Pam,

If you want to work out the odds of when you’ll meet your maker, fill out the (free) in-depth questionnaire at www.mylongevity.com.au. It’s similar to what actuaries at insurance companies use.

Whatever the website spits out at you, I wouldn’t advise betting on living until you’re 68. That’s only two years away -- though it would certainly make your financial planning much easier, and a lot more fun!

I’d plan on living until you’re 100. The worst thing that could happen is that you die early, with too much money. Either way, you’ve already saved up enough money to enjoy a comfortable retirement -- around $65,000 a year (indexed to inflation), which should last you until 100 (if you live that long!). If you want to be really conservative, you could work a few more years to pay for the renovations. But I’d say you’re sitting pretty.

Scott

So, we have $160,000 of Credit Card Debt

Hi Scott,

Love reading your column each week, and this has taken me way too long to write to you. My husband and I earn $147,000 between us and have got into serious debt over the years through bad business decisions and other reasons. We have our own home with a mortgage of $346,000, and two investments properties -- on one of them we owe more than what it is worth now, and the other we could sell outright (valued $150,000). We have credit card debt of $160,000 and two personal loans of $70,000. What should we do?

Thank you

Denise

Hi Denise,

Most people who write to me need a little plastic surgery with their credit cards -- you need a total brain transplant! You’ve got $230,000 in personal debts, so you’re essentially tied to the railway tracks while the train thunders down the hill. It’s now or never.

I’d sell the investment property, but make sure you allow for any capital gains tax (CGT). Use it to pay off the bulk of your credit cards. Then I’d lodge a hardship variation for each of your remaining debts -- aim to negotiate a freeze on your repayments for six months. Use that six months to work three jobs so you can come out of the blocks with a fighting chance. Toot! Toot!

Scott

Your Stuff is Just Common Sense!

Dear Mr Barefoot,

Your stuff is just plain common sense. How stupid do you think we are? Ringing the bank for an interest rate cut is hardly rocket science. There’s no magic secret, no code to crack. Congratulations on convincing us all that you had the secrets for so long -- but I’m done now.

Justin

Justin,

After writing this column for over a decade, I’ve been waiting for this day to come. I knew that someone would catch on, and you my friend, have cracked my code. My advice doesn’t change. People ask me a million different questions, but I tell it straight -- what works and what doesn’t. Still, I have tens of thousands of people who’ve followed my basic, commonsense advice who are now living wealthier and happier lives because of it. Maybe that’s my secret?

Scott

Are We Going to Be Okay?

Hi Scott,

I am feeling a bit overwhelmed. My partner and I are both 30 and have a combined income of $140k. We owe $690k on our home, which is worth $860K. We also owe $350k on an investment which is worth $470k. We owe $20,000 in personal loans, own both our cars and have about $20,000 in savings. We are getting married next year at a cost of $40,000 and then want a baby. Scott, I’m nervous. I’m worried about losing my partner’s income ($50k) and feel we could be in trouble. I feel we have done okay at our age, or am I dreaming?

Mark

Mark don’t tell me about your freaking problems… tell your wife-to-be.

Seriously, that’s at the heart of every good relationship -- especially when it comes to finances -- honest communication. Tell her you’re freaked out about how you’ll pay for everything -- the marriage, the mortgage and the midgets. Then sit down together and work out how to tackle it as a team.

Understand that there is no correlation to how much you spend on your wedding and how long it lasts. I got married three years ago, and it was one of the best (and scariest) days of my life. What made it awesome was the people, the music … and the booze. We had it in our backyard, with a mate as our photographer. We spent more than we thought (everyone does), but we paid for it in cash. So should you. The best thing you could do for your marriage is to build up to three months of Mojo as a financial backstop: $40,000 should do it...

Scott

Time to Go to MyBudget?

Hey Scott,

My wife and I are in a bit of a financial mess that we can’t seem to get on top of. With a $300k mortgage, a $15k car loan and $10k in credit card debt, I can’t see how we’ll ever get on top. I keep seeing the ads for MyBudget and I’m wondering if that’s the answer for us? What do you think? Worth a visit?

Matt

Hi Matt,

Stop looking for fairy princesses waving magic financial wands. Managing your money is the old 80/20 rule: the biggest barrier to you getting on top of your money isn’t a lack of knowledge, it’s developing the necessary habits that will stop you spending money you don’t have, and valuing saving over stuff. If that doesn’t click, no amount of high-priced handholding from MyBudget or anyone else is going to help: they’ll just drive you deeper in debt with their fees.

Scott

Dealing with the Ultimate Risk

Hi Scott,

I am 63 and not presently working. About two years ago I inherited some money. I purchased a property for $700,000 and invested $500,000 in commodities shares through Macquarie. I draw $3,500 monthly as an income. I was a bit disappointed when last financial year my investment only earned 3.25 per cent. How do you suggest I might look to increase that return? Last thing I need is to run out of money!

Thanks

Christine

Hi Christine,

You’ve actually done quite well given the commodities index has slumped to its lowest levels since 1999. But why on earth would you invest all your eggs in the one sector? You’ve got coal for brains! Seriously, I’d suggest you need to diversify and have a good holding in cash (enough for at least three years’ expenses) and have a broadly diversified share portfolio with a good holding in both local and international shares.

Scott

What's Mine is Mine

Hi Scott,

My partner and I are building a house, my first and his second. He made a $100,000 profit from his first house. The house we are currently building will cost $450,000. We have both saved up enough money for the 20 per cent deposit. However, we both keep separate bank accounts, and have only one shared account for the loan repayments. My partner is inclined to keep the $100,000 profit in his account for himself because he finds it unfair that I can’t match that amount. Should I be worried?

Lynda

Hi Lynda,

Honey, he’s keeping his options open. That’s what’s happening. He hasn’t put a ring on your finger, so right now, financially, you’re like a friend with benefits. If you were my sister, I’d suggest that before you enter into a major financial transaction with this bloke you have ‘the talk’.

Questions to ask him are: what’s your long-term plan? Are we buying the house as tenants in common, or in joint names? Should we have a cohabitation agreement? Are you planning on marrying me and having babies? That sort of stuff.

Scott

Life Would Be a Dream?

Hi Scott, 

I am curious as to the tax situation if someone wins the new ‘Set For Life’ Lotto, and no, I haven’t won it. Because you are paid monthly instead of in the usual lump sum, would it be classed as income and therefore taxable?

Bron

Hi Bron,

No, it will be completely tax free. That’s because gambling winnings are classified by the Tax Office as a “windfall gain or a prize”, because they’re earned without any skill.

I hate Lotto for the same reason I hate credit cards: they’re a tax on low income earners who can’t do maths. The chance of picking up the Set for Life first prize is 1 in 38,608,020.

Yet what’s interesting about this new lotto game isn’t the odds — they’re always terrible — but the way it’s marketed. On the official Set For Life website, it says: “Everyone’s heard stories of people that won the lottery and it ruined their life, it happens to some in a matter of months who confess to being worse off after they purchased that life changing ticket than they were before.”

Wowsers.

In other words, “you’ll only blow a multi-million-dollar payday, so we’ll hold on to the money for you, and dish it out over 20 years”. (And if you don’t see what the catch with this, you’re probably Lotto’s ideal customer.)

Someone who understands money would say: “Actually, just give me the $4.8 million today, and I’ll invest it in shares, and in 20 years it’ll be worth $22 million.”
On second thoughts, no they wouldn’t. Smart people don’t play the Lotto. Set For Life is for losers. Same dodgy odds, different spin. They’re just framing it for stupid people.

Scott

How to save $83,913 on your home loan

Picture this: You walk up to your car and notice you’ve copped a parking ticket.

Bastards!

You swipe the ticket off your windshield and almost fall over. A $500 fine!

WTF?!

If you’re like most people, it’d give you the Kevin Rudds for the rest of the day. It might even cause you to bang off an angry email to the council and try and get out of it (or threaten not to pay it).

However, when your friendly Westpac banker decides to hike your home loan upwards of $500 a year — every year — you simply shrug your shoulders and cop it.

What are you going to do? They’re bastards. Right?

Actually, when you look beyond the screaming bank-bashing headlines and view the issue like an adult, Westpac’s hike makes sense.

After all, the Australian economy needs strong, profitable banks. Thankfully, we’ve got some of the strongest and most profitable in the world.

But we’ve also got some of the greediest banks in the world.

In the last 12 months the Big Four have pumped out around $30 billion in profits. They’ve achieved this record-breaking haul by doling out a record amount of debt, to the point that Aussie households are some of the most heavily indebted on the planet.

So, as a precaution, the government regulators are forcing the banks to put aside more capital for when the downturn comes. As they should.

Faced with this, the banks had a choice: they could either take their lumps and reduce their record profits … or shake down their customers for more money.

Shake, shake, shake.

Really, it was a no-brainer for Westpac (and the other three, who will surely follow suit and raise their rates). The bank has clearly done its numbers, and they’re convinced you’ll cop it on the chin.

The truth is, it’s much easier to bitch than it is to switch.

So let’s talk about that.

Westpac’s current standard variable rate sits at 5.68 per cent.

(Bear in mind that the only ‘standard’ thing about a standard variable rate is that no-one actually pays it. Think of it like the price scribbled on the windscreen in a used car yard: it’s marked up so it can be marked down.) So it’s more likely the average Westpac customer is paying around 4.78 per cent.

Now, it costs your bank about $1,000 in marketing costs to replace you (and about six times that amount if you come via a mortgage broker they pay kickbacks to).

That’s your negotiating power right there.

Now here’s how to use it.

On your way home from work tonight, ring Westpac (it works for every other bank too) and say this:

“I’m mad as hell with you guys. I’ve decided to move my business over to UBank, where they’re offering me a variable rate at 3.99 per cent. I know they don’t have an offset account, but I’m happy with that. I’ve completed the online application, so can you please tell me what steps I have to do to move across my mortgage?”

This is a bluff, of course.

Yet the bank’s sales team have strict targets (backed by incentives) that they have to meet — one of which is retaining profitable customers by giving them discounts to keep their business (hey, there’s always a chance of flogging you some insurance later, right?). Over the years I’ve had plenty of readers do this exact negotiation on the way home from work, and in almost every case they’ve reported back that they’ve saved themselves a huge amount of money.

So let’s talk about what it could mean for you: if you were to move from your $500,000 mortgage to NAB’s Jetstar-styled bank brand UBank (which I have absolutely no association with), you’d save yourself $83,913 in interest over the life of the loan. Bugger the parking ticket — that’s enough of a saving to buy you a brand spanking new Mazda 3, with 20 years’ worth of free petrol and parking!

But you won’t do it, will you?

Tread Your Own Path!

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

---

The Riddle of the Next Rate Cut

The Reserve Bank is almost certain to cut rates once in the next 12 months.

Why?

Because they want to push down the Aussie dollar to help us be more competitive on the world stage (and obviously to mess with all the teenagers buying Taylor Swift merch from the US).

So if I look at my (cloudy) crystal ball, I can foresee the banks following Westpac’s lead, and raising rates in the next few weeks — just in time to pass on some of the Reserve Bank’s cut. In other words, just because the Reserve Bank may deliver a rate cut — that doesn’t mean it’s going to end up in your pocket.

So I know what you’re thinking: if the banks are increasing their rates, is now a good time to fix the home loan?

No.

Well, unless you’re on the absolute bones of your backside, in which case you should fix, and pray.

For everyone else, with rates at historical lows, you should treat today as a once-in-a-lifetime opportunity to pay down a huge amount of debt. And you limit your repayment options when you fix your rate. So stay variable, preferably with a low-cost home loan under 4 per cent.

A Letter to My Second-Born

You’re seven hours old.

As I sit here beside your crib, typing ever-so-quietly, sneaking a look every so often at your squished-up face (hey, it’s been a rough day), I can’t get over that you’re just so … new. Baby, you’ve got something that everyone wants a lot more of.

Time.

You see, most people run out of time.

I see it every day in my job: I try and convince young people about just how powerful their lives could be (they don’t believe me). I spend the rest of my day trying to help older people who are desperately trying to make up for lost time. They’re racing against the clock.

Yet here’s the thing: if you have time, you don’t have to race. You don’t need to nervously check stock prices every day. You don’t have financial pressure. You don’t need the stock market to “do something”. You don’t get suckered into get-rich-quick schemes. You don’t freak out when the market crashes.

You can make time work for you.

And, as your dad, it’s my job to show you how to do it.

So, I’m going to give you a bunch of money, a fancy car, and a Lear jet.

I’m joking! (Look how well that turned out for Justin Bieber.) My old man didn’t give me a silver spoon, and you won’t get one from me either. Instead, I’m going to give you a couple of life lessons that’ll boost your self-worth (and your net worth).

The Joy of Hard Work

Every week for over a decade, I’ve written this newspaper column.

They pay me the same money whether I bash something out in an hour, or a day.

Last week I ended up spending two days researching, interviewing and writing a column about how money can trap women into staying in violent relationships. I put my heart and soul into those 987 words.

And it paid off. That article was shared by thousands of people. But, more importantly, I received some incredibly personal, heartwarming, even tragic emails from women who needed to hear that message of hope: that they weren’t alone. That something could be done for them and their kids.

There’s a special joy in hard work. In doing a good job and delivering on your promises.

The Miracle of Compound Interest

Now, let’s talk about the simplest and safest way to create your fortune: compound interest.

As you’ll learn, there are many, many things your old man can’t do (Mum will fill you in later). But the one thing I have in my favour is the ability to steadfastly stick to a plan.

I don’t just know compound interest works — I’ve lived it.

And you can too.

With enough time, you can’t help but build enormous wealth. The truth is, your greatest investment weapon isn’t a high IQ, a knack for numbers, or fancy letters after your name: it’s time. And the sooner you start, the better. Take a look at this chart (see box), which tells the story of you and your mate.

Let’s say that at age 15 you start working on the family farm.

(You’ll get your own paddock, a ram and a ewe — sex education and financial literacy all rolled into one).

You work incredibly hard, scrape together $5,000 a year and invest it in a basic share fund. You reinvest your dividends for the next 10 years. Along the way you earn a nominal 10 per cent (for the past 30 years shares have actually returned 10.8 per cent a year … but not in a straight line).

And then you stop.

Your mate doesn’t start as early as you. He waits until he gets a real job — at age 25 — before he starts investing. Like you, he puts in $5,000 a year, but unlike you, he doesn’t stop. He keeps on investing every year until he’s 60 years old.

All up, you put in $50,000. He puts in $180,000.

So you’d think he’d have more than you, right?

Wrong. Even though you’ve only put in less than one-third the money, you end up with over 50 per cent more! (You get $2,709,000 — he gets $1,645,000).

That’s the power of compound interest. That’s the power of time.

This isn’t a new thing. It’s not hit and miss. It works every single time, and it’s the safest and surest way to become incredibly wealthy. So why don’t more people do it?

Well, because it’s kinda … boring.

Most people don’t even do the $5,000.

(People will ALWAYS find a reason to play it safe and do nothing. Those people will ALWAYS be broke).

Those who do invest will often check their returns after three years, feel they’re getting nowhere, and decide to ‘diversify’ into a Honda Jazz, a trip to Bali and an iPhone 98.

(The reality is that most people learn about compound interest in reverse — by buying stuff they don’t need, with money they don’t have, to impress people they don’t care about. Yet debt robs them of their financial independence. Debt makes things more expensive. Ultimately, debt is slavery).

Hardly anyone makes it to the seventh year, which is when the compounding snowball really starts.

Yet if you can stick with it, that’s when your life changes. The money starts pouring in gushes. That’s when you’ll crack the time code. And that’s when you can truly ‘tread your own path’.

Happy Birthday!

P.S And just think for a moment, what the returns would be if you didn’t stop at 25!

Tread Your Own Path!

How to buy a near new car at 60% off

Forty years ago, in a dusty car yard in Mildura, my father kicked the tyres of a Ford Falcon.

With his mutton-chop sideburns, flares, and Dennis Lillee-inspired bodyshirt, he cut a dashing figure as he strode around the lot, sizing up the vehicles.

He had two choices: Ford or Holden. (Yet really there was no choice — like his footy team, the decision was made at birth, and defended in the schoolyard).

“I’ll take the Falcon”, he said, shaking the hand of the dealer. It was time to upgrade: he’d recently got married and would soon be starting a family. So he was careful to ensure that his Falcon had the latest must-have safety feature: seat belts.

The car was as big as an inner-city studio apartment, and was finished in a gaudy gold which mimicked my mum’s tan at the time (hey, it was the 70s). It also came with metal ashtrays in the front and the back (for the kids?), and a little driver’s triangular vent which allowed him to have a fag without having to wind down the window. Bless.

But here’s the really interesting thing: a new Falcon today is actually more affordable that when my old man bought his (based on the number of weeks it would take the average wage earner, then and now, to buy one).

In fact cars are arguably the cheapest they’ve ever been.

Pffft.

Cheapest, schmeapest. I’m the Barefoot Investor, and I want it even cheaper.

So this week I’ve done the numbers and come up with a strategy that will show you how you can drive around in a near-new car that’s still under warranty, for next to nothing.

Yet before I do, let me explain how the car industry really works.

How Car Dealers Make their Money

The truth is that dealers make bugger all when they sell a brand new car. Let me give you an example:

In 1998, a brand new Falcon XR6 sold for $43,990 (with one lonely airbag).

In today’s dollars it would cost $70,590, according to the RBA’s inflation calculator.

However, you can buy a 2015 XR6 for just $35,990.

And here’s the thing, not only is it (relatively speaking) half the price, but it comes loaded with a reversing camera, six airbags, electronic stability control, a driver fatigue warning system, and front and back parking sensors. And if you crash, the car will autodial ‘000’ and feed the emergency services your GPS location.

It’s a bit tough for car dealers, though. I spoke recently to Josh Dowling, editor of Carsguide.com.au, who told me that, when there’s a sale (and when is it ever not?), the average Hyundai dealer makes just $450 profit on one of Australia’s top-selling cars, the i30. “They can’t even afford to throw in floormats or they’ll lose money”, says Josh.

So how do they make their money?

Two ways.

Firstly, it’s been said that Ford makes more money from providing car finance than it does from actual car sales. Secondly, the big profit margin for most dealers comes from parts and servicing. In fact, this can generate more than half of their profits.

That explains why, when I bought my second-hand Toyota, the dealer programmed the scheduled servicing straight into my GPS.

Fair dinkum, every three months, my satnav says: “It’s time for a service. Call Jessie at Kyneton Toyota: 03 5421 0210.”

And, like a nasty little rash, the longer I ignore it, the worse it gets. After a while my Toyota starts beeping and flashing at me: “Go to your dealer NOW” (and bring your credit card). Talk about Herbie Goes Bananas! (Or maybe KITT if you’re a Gen X, Siri if you’re Gen Y, or Uber if you’re a millennial).

How to Get That New Car Smell (Without Paying Through the Nose)

Back to that great deal I was telling you about.

There’s an old saying in the business: the biggest car accidents occur on the showroom floor. So this week I worked with Redbook (the leading car info and pricing site in Australia) to come up with a plan that will save you thousands of dollars and ensure you’re always driving around in a car that’s under warranty and is chock-full of the latest gadgets.

Let’s roll the numbers:

A brand new 2014 Falcon XR6 would have cost you $35,990.

Today, one year later, you can pick one up, in very good condition with 15,000 kilometres on the clock, for just $24,250 (a saving of $11,740).

It will still have two years to go on the manufacturer’s warranty and, just as importantly, fixed price servicing ($270 in the first year and $365 in the second year), which can save you a packet.

If you then drive the XR6 for another two years, and sell it at the end of the new car warranty, you’ll be able to sell it for $19,600, according to Redbook.

“Cars lose a massive amount of money in their first year, and then level off for the next couple”, Ross Booth, the global manager of Redbook, tells me.

So let’s recap: for the past two years you’ve driven around a nearly new car, enjoying the faint whiff of a new car smell and all the latest safety bells and whistles. It’s still covered by the manufacturer’s warranty, and (unlike a second-hand thirsty Merc) the servicing is just $635 for the two years (excluding tyres). So it’s cost you a total of $5,285, or $2,642 a year.

Like my dad, I understand the pull of a safe family car. The awesome thing is that in 2015 there’s never been a cheaper time to own one.

Tread Your Own Path!

What I Learned From Being A Dad

My wife has spent the past few weeks being poked, prodded and prepped as she gets ready to give birth to what looks like a bowling ball.

What did the doctor tell me to do?

Don’t forget to keep the tank full.

Don’t have too many beers at the footy this weekend in case you need to drive her to the hospital.

Don’t stress her out.

Cue the canned laughter. It’s like I’m on the set of Everybody Loves Raymond. Or maybe I’m like a doughnut-dunking Homer Simpson…you know, the stereotypical bumbling buffoon of a dad.

It’s not just Hollywood that pushes this parental propaganda. For decades, developmental psychologists have largely dismissed fathers as being irrelevant. (If this were the 70s I probably wouldn’t be allowed in the birth suite).

Yet dads are important, and this Father’s Day I want to acknowledge the hard work they do.

Most DIKs (Dads I Know) pride themselves on being the provider for their family. They haul their tired arse out of bed in the dark, and get going to work. They return home after dark, often to a series of full-scale catastrophes (the toy truck has run out of batteries, there’s a rebellion against eating vegies, the dishwasher hasn’t been stacked properly). They flop into bed, then wake up a few hours later with a snotty-nosed kid elbowing them in the face.

Then they back it up, and do it all over again.

There’s no time to press pause and ‘find themselves’. Not that it matters. Most DIKs have already found their purpose: looking after their family. It’s their job. It’s their duty. And besides, spending time with their kids pays huge, life-changing dividends. The truth is that your kid doesn’t care about the make of your car, the location of your house, or the size of your pay packet. They just want you around.

Case in point: My dad isn’t an educated man – but he wanted me to be one. That’s why every Sunday morning we’d sit down and watch Terry McCrann on Business Sunday, and then read the business pages…that I now write for.

I was lucky enough to grow up in a small business family, so I remember my dad always being around, or more to the point, I was always around him. Today, my son Louie runs around the Barefoot Investor office, and our farm. Even though he’s just a little boy, I’m intentionally showing him the joy of work, and giving him the confidence that he can do stuff (and stuff he does).

“We’ve got a job to do!” he says excitedly.

At which point chooks go flying. Betty the sheepdog gets manhandled. And we invariably end up puttering around the paddock in the exact replica of his prized plastic toy John Deere tractor. (Coincidence? … sure).

Fathers matter a whole lot, and they touch every aspect of their kids’ lives — by giving them confidence.

So today I’m doing a shoutout to all the dads. It’s a hard and often underappreciated job that you do.

By being a good dad, you’re having a huge impact on the world. Just you wait and see.

Tread Your Own Path!

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The Ultimate Father’s Day Present

We’ve now replaced everything we lost when our house burnt to the ground.

Well, almost everything.

You see my wife’s father died a few years before I met her. And in the fire we lost some of the last remaining photos of him, the letters he’d written, and the paintings he cherished.

How does my wife explain who her father was to me?

How does she explain who grandpa was to our son?

Her physical reminders are now lost in the ashes.

So if you’re lucky enough to have your father still with you, here’s how you can give him the ultimate Father’s Day present. Today, whip out your phone, hit ‘record’, and ask your dad the following questions:

1. How did you meet Mum?

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

3. What does being a dad mean to you?

4. What are you most proud of?

5. How would you like to be remembered?

This is not for Facebook or Snapchat. It’s for you and your family’s legacy. One day, it’s all you’ll have left of him. And you’ll treasure it.

Today, I’m going to explain how you can make a lot of money

Were you “greedy when other people were fearful” (as Warren Buffett would say) when the market tanked this week?

If you managed to scoop up some bargains you were no doubt patting yourself on the back for the rest of the week as Wall Street staged one of its strongest one-day rallies … ever.

Winning like Warren, right?

Maybe. However, if you look at the value of the US share market by the size of the economy (the indicator that Buffett calls “probably the single best measure of the stock market at any one time”), it’s at almost twice the long-term average.

In other words, if Buffett and history are our guide, those ‘cheap’ shares you bought this week are still bloody expensive. Yet that shouldn’t be a surprise when you look at what’s happened over the past decade …

To ward off a worldwide economic cardiac arrest, the US Federal Reserve created three trillion dollars out of thin air and injected it directly into the banking system. Then they dropped rates to emergency levels — zero per cent — and left them there for seven years.

Now the US economy is looking stronger, the patient will soon have to be weaned off the drugs — by increasing interest rates. And when that happens, it’ll likely be brutal for investors.

That’s a complete guess on my part, of course, because the truth is that the world’s central bankers are currently conducting a financial experiment that they’ve modelled on an untested academic theory. And just like my back-of-the-shelter-sheds science experiment with a Mentos and a Coke, it could all go horribly wrong.

Scared? Good.

But you needn’t worry. Let me show how you can make money, regardless of what the market does.

From Walpeup to Wall Street

Let me tell you about my Uncle Bob, who’s a farmer in the Mallee town of Walpeup. His family has been farming the same hostile patch of dirt since settlement.

A few years ago Bob began painstakingly restoring the original homestead that his father lived in as a boy. Bob showed me the fully restored shack when I was last back home.

“What’s this?” I asked, pointing to a hole in the ground.

“That’s a makeshift cellar …”

“Your dad drank wine?”, I asked.

“No. That’s where they buried the meat … to keep it cool. Remember, there was no electricity.”

Walpeup is thirty clicks from the small town of Ouyen. Today, a 20-minute air-conditioned drive, but in Bob’s dad’s day it was a death sentence if you were unlucky enough to be bitten by a snake. There were no cars, and therefore no roads. Just a horse and a buggy, and hours of trudging along a track. (And even if you made it to the hospital, what could they do?)

Still, as Bob was explaining all this, I was having my own problems. I was trying to take a selfie at the shack and upload it to Facey, but the network was a total friggin’ disaster … seriously I was struggling to get even two bars on my iPhone! Two generations on, my biggest problem was that my phone couldn’t connect fast enough to a satellite somewhere so I could temporarily negate my narcissism.

There’s the rub: you don’t get a true understanding of just how amazing life is right now — just how far we’ve come in such a relatively short period of time — unless you have your own Uncle Bob or unless you’re a lifelong, long-term investor.

Wharton finance professor Jeremy Siegel worked out that one US dollar invested in the stock market back in 1802 would have grown to $930,550 by 2014. Staggering. In that time we went from horses and buggies to walking on the moon (and that phone in your pocket has more power than the one that sent Apollo XI into space).

Yet throughout that time there have been plenty of very sensible reasons not to be an investor: recessions, depressions, two world wars, plagues that have wiped out millions of people … the Backstreet Boys.

Okay, so maybe 212 years is a little too long term.

So what about if you’d invested $10,000 in 1980? It would have grown to be worth roughly $370,000 today (and be paying you roughly $18,500 a year in dividends).

Again, throughout this time there have been plenty of pundits suggesting you ‘sell and stay away’: the 1987 Crash (now that was a real crash, where 23 per cent of the market’s value was wiped out in a single day), the Tech Wreck, the ‘Asian Contagion’, the Global Financial Crisis … and Justin Bieber.

Really, the stock market is a barometer of our standard of living. The two go hand in hand — though it’s difficult to see the progress happening if you’re checking your portfolio on a daily (or even yearly) basis.

How to Boost Your Returns (Even When the Market Tanks)

Okay so, that’s the big picture.

What can you do today?

Well, obviously it depends on your age.

If you’re young, besides stapling this column to your computer, you should make your investing automatic: set aside a regular amount of money each month and invest it, whether markets are going up, down or sideways. With this strategy, you’ll buy more shares when the market is low, and less when it’s high. Simple.

If you’re heading towards retirement you should aim to have five years of living expenses in cash and fixed-interest deposits. This will enable you to ride out the next downturn, which on the balance of probabilities, is likely to come sooner rather than later.

Regardless of your age, you need to ensure that you aren’t getting ripped off.

Paying more than 1 per cent of your nest egg to a fund manager is cra-cra, and not in a good way. The biggest beneficiaries of the long-term compounding returns are money managers — collectively they rip $21 billion out in fees each year, despite repeated studies showing the majority of them fail to add any value.

And it’s an equal opportunity rort. Proportionally, retirees pay most of the fees (because their balance is highest), while young people are a gravy train for decades to come. Lowering your costs is one concrete thing you can do to automatically boost your returns, today.

Tread Your Own Path!

How to turn $1 into $930,550

Faults in the Vault

Peter was in strife with his wife.

I knew this because she emailed me for advice using the headline ‘My Husband Is an Idiot’.

A few years ago, Peter, in his mid-forties, opened a Self Managed Super Fund (SMSF) with his wife, and invested the lot in gold. Today they’ve lost about $35,000, and his wife — a nurse, who dutifully transferred out of a low-cost industry fund — is livid.

So I called them up, and managed to speak to them together.

This week the gold price touched six year lows. Peter, however, was having none of it: “The US Federal Reserve is printing too many dollars. The entire financial system is one giant Ponzi scheme, built on the back of fiat [paper] money. When it collapses, people will revert back to the one true store of wealth: gold.”

“He subscribes to this stupid email newsletter that talks endlessly about impending economic Armageddon …”, says his wife.

“… and they correctly picked the Global Financial Crisis”, Peter interjects.

Being the marital umpire, I gave Peter a penalty: a quick search of the interwebs suggested that his newsletter gurus had been warning about a crash for years (and, just like a busted clock, they were bound to be right — eventually).

Should You Buy Gold?

When you see a gold bar in person, it’s easy to see why it’s transfixed people throughout time — and I’ve seen more gold in the flesh than most people.

In 2012, I travelled 24 metres below the streets of Manhattan and eyeballed what is reportedly the world’s largest storehouse of gold: the New York Federal Reserve’s vault — home to 530,000 gold bars.

Throughout history in times of economic upheaval, gold has been the storehouse of wealth

… yet the truth is, it’s also been a terrible investment.

Famed Wharton finance Professor Jeremy Siegel keeps long-term (inflation-adjusted) returns of various asset classes, dating all the way back to January 1802.

He found that if you put one US dollar under your bed in 1802, it’s purchasing power would have been eroded to just 5 cents by December 2013.

What about if you’d invested that dollar in gold?

The Professor says it would be worth $3.21 today.

What if you’d invested that dollar into the share market?

It would have compounded to a staggering $930,550.

It makes sense when you think about it. Other than looking pretty, gold doesn’t actually produce anything. You can’t rent it out, and it pays no dividend. There is no compounding.

The only way you can make money is by getting someone to pay more for it than you did.Stocks, on the other hand, are a collection of the businesses that compete to sell us our Model T Fords, our iPhones and our Big Macs. And over the past 200 years, it’s been a wildly successful ride: we’ve gone from horses and carts, to flying through the air, to walking on the moon.

In his book Abundance, Peter Diamandis reveals that in the past century the average lifespan has doubled, while the average income has tripled. At the same time, food is 10 times cheaper, electricity is 20 times cheaper, transport is 100 times cheaper, and communications are 1,000 times cheaper.

And Moore’s law — that computing power doubles every 18 months — is bringing us advancements like a supercomputer in our pockets (connected to billions of people), 3-D printing (which makes violins and blood vessels), and cars that drive themselves. And remember, this has all happened against a backdrop of world wars, recessions, depressions, and Right Said Fred.

I don’t know about you, but I get the feeling that this is truly an exciting time to be alive.

How to Go For Gold

The bottom line is that you really don’t want to sit on the sidelines as society advances: as Siegal’s research shows, over the very (very) long-term, there’s a fortune to be made. —

How?

Well, not by trying pick the next Facebook, Google or Apple.

History shows that it’s very difficult to pick game-changing businesses out of the gates.

Besides, some of the most innovative companies that push humanity forward aren’t the best investments — case in point, the airline industry.

Yet there is a cheap, simple no-brainer way to ride the coming revolution: just buy a low-cost, tax-efficient index fund that tracks the 500 largest companies in America — otherwise known as the S&P 500.

As new businesses emerge and grow in value, they’re added to the portfolio (read: Facebook), in the same way that as existing stocks drop off (read: Kodak), they’re deleted.

A few years ago, Warren Buffett (who famously views gold as a ‘stupid investment’), announced in his will that, on his death, 90 per cent of his wealth is to be invested in an S&P 500 index fund for his wife.

Happy wife, happy life, Peter.

Tread Your Own Path!

Here’s what to do if you’re just starting out

Let me tell you about one of the best letters I’ve received this year.

(Actually, it was a Facebook post — not even my grandmother writes letters these days.)

It was from a young bloke in his twenties. He’d uploaded a photo of himself sitting in a hospital chair, holding his brand new baby.

He looked absolutely terrified.

It has a good ending though. Despite the fact that he probably hadn’t yet worked out which way a nappy went on, he was confident about his family’s financial future, thanks to the advice he’d gleaned from being a Barefooter

That got me thinking — there’s a lot of young people in his shoes. So why not devote an entire column them? Let’s do it.

Love Me Two Times

Hello Barefoot Investor,

My 12-year-old son has recently lost his father and come into just over 200k. I have to invest the money in trust for him, and I am looking at turning this into a lot more by the time he is 18. As interest rates are low and the stock market is volatile, I am considering purchasing a block of land and changing the title to his name when he is 18. Would land or property give him the best return, or should I consider another source of investment?

Kind regards, his mum

Hey Mum,

Let’s back up a bit before I get into the investment meat and potatoes.

This money is as much about you as it is about your son. You’re a single parent now, so you’re operating without the financial safety net. The best (financial) thing you can do for your son is to learn about money yourself — starting with where to invest the $200k.

Trust me, you don’t want to sink the money into a block of land. You won’t get any income from it, and the maintenance costs will be a drain on his funds over the years.

Instead, I’d like to see you put the money into an insurance bond. Don’t get confused with the lingo — an insurance bond is more like a standard managed share fund, but with some very attractive features.

First, your son can hold it in his name, and be taxed at 30 cents in the dollar, rather than being hit with kids’ penalty tax of 66 cents in the dollar. Second, you can nominate a transfer age, and not pay any capital gains tax (CGT) after ten years.

That’s all great, but here’s your biggest risk: giving your son the dough when he turns 18. I’ve repeatedly seen the damage that sudden, unearned wealth does to a young people who don’t have the maturity to handle it. (And that includes many young AFL footballers I’ve advised).

If you put the $200k into a bond and choose a growth option, it could be worth around $300k in six years’ time (in today’s dollars, adjusted for inflation). Though let’s be honest, it could also be worth a lot less if there’s a crash in the next few years.

That’s why I’d suggest you stretch it out for 13 years. Give him the money when he’s 25, at which time he might well have around $500,000 (again, in today’s dollars — tax free).

My entire life changed when my old man sat me on his knee and taught me about shares. Just because your son’s father has passed, it doesn’t mean he can’t have the same impact.

Too Many Conflicts

Hi Scott,

I’m a long-time follower of yours and a big fan. The wife and I have moved in with the in-laws to save for our first home, but we have a huge $35k debt. We plan to save half our income and pay the loan as much as possible, but inside I feel it’s pointless saving with that amount of debt (with interest). Should we go all guns on the debt and then start to save?

Thanks, Rory

Hey Rory,

Yes, attack the debt first and start saving for your home with a clean slate. It’s the easiest way to make 18 per cent on your money, tax-free.

It sounds like you could be in for a long innings. That being the case, I’d really think through the prospect of living with your out-laws. And when I say ‘think through’ I really mean that I reckon you’re completely nuts.

I wouldn’t want to live under another man’s roof — too many conflicts. You’re a married man. If you want to save extra money, do it by working two (or three) jobs — but keep your independence.

Tread Your Own Path!