Are we in a housing bubble?

Are prices going to crash by as much as 50 per cent, as some experts predicted in the news this week?

Will the government have the ticker to change the negative gearing rules?Well, to answer these questions, and offer some views on livestock, this week I caught up with none other than the newly crowned Deputy Prime Minister of Australia, Barnaby Joyce.

And in doing so, I worked out we actually have quite a lot in common: we’re both country blokes. We both have a love of numbers. And we both have a habit of saying whatever’s on our minds at the time.

Barefoot: “Thank-you for your time Deputy Prime Minister. I currently own two Alpacas on my farm, and I just don’t care for them at all. They’re more stubborn than Greens Senator Sarah Hanson Young. Have you ever been spat on by an alpaca...or a Greens supporter?”

Barnaby: “No, although I’ve actually had alpacas run alongside me as I go for a jog down the side of my road. They just look like too much…hard work”.

Barefoot: “First home buyers have the footprints of property investors squarely on their backs. Negative gearing has created an uneven playing field because they can write off their losses against their tax. Explain to me how this is fair or productive?”

Barnaby: “Well….there are affordable houses, there just mightn’t be affordable houses in the places you’re looking. When people say there’s no affordable houses, well that’s not correct, there are, and in regional areas they’re vastly more affordable than in the cities”.

“Look I bought a house in St. George in South-West Queensland. I lived out at Charleville, now I’m living south-of Tamworth, but here’s the thing: I’m still out of town where it’s cheaper. What I’m saying is you’ve got to look across the nation. If you look around and say the houses around me are unaffordable you’ve got to ask yourself... is there somewhere else you can go where they are affordable?”.

Barefoot: “So what you’re basically saying is the Government doesn’t have the ticker to touch negative gearing, right?”

Barnaby: “The problem you’re going to have is that if you start messing around in any place without a proper plan, the problems you can create can be vastly greater than the problems you had. If you go into any market and take a substantial group of people out of that market, you can have an incredibly detrimental effect on all the people who have currently bought a house. There’s two sides to every equation”.

Barefoot: “Yes, but there is a substantial group of people who right now are priced out of the housing market. They’re called first home buyers”.

Barnaby: “There are two groups of people who you always have to consider: the people who want to get in and the people who are already there. So it’s never a simple equation, if you’re going to say I’m going to make all houses cheaper, you’ve just made all the people who own houses or owe money to a bank on a house, poorer”.

So here’s my take out from my discussion with the Deputy Prime Minister.

There is absolutely zero chance the government will do anything more than fiddle around the edges of negative gearing policy.

As Barnaby says there are two sides to every equation -- and make no mistake, in politics the side that wins is usually the one with the most voters -- and roughly two-thirds of Australian voters are homeowners.

It makes perfect political sense: who the hell wants to be remembered as the government that pricked the biggest housing bubble in history?

Well, I’ll tell you who: Bill Shorten.

He’s got nothing to lose, so he’s prepared to roll the dice, and end negative gearing for existing homes.It’s bold, and it’s brassy.

But there’s just one little problem with it: getting Aussies off negative gearing, is alike a junkie getting off the gear. Long-term it’s totally the right thing to do. Just not today...maybe tomorrow (but probably not). The scary part is that everyone knows there will be a withdrawal period, and it will be nasty, and no one can accurately predict what will happen. But let's have a go...

Bill Shorten has said that if he’s elected, negative gearing on existing properties will be axed on the 30th June 2017. However, he’s also assured landlords (and his party) that anyone who buys before that, gets grandfathered tax deductions for life.

So, what do you reckon the property market will do in the run up to the cut off date?

Boom, baby!

What will happen the day after?

Will we be shivering in in a corner, with our heads in a bucket?

Who knows?

Either way we should encourage our politicians to make hard, courageous decisions, that benefit the country in the long-term. However the trouble is for a politician, long-term isn’t even a three year electoral cycle these days -- just ask Kevin, (and Julia and Tony).

So where does that leave first home buyers, with the likelihood that the Barnaby and his boys will be returned to power?

Well, last year the former Treasurer, Smoke’n Joe Hockey’s advice to young people who were struggling to crack into the Sydney property market was to ‘get a good job that pays good money’ (teachers, nurses, police-women, scientists... no house for you. Lawyers, bankers, politicians, you win!).

When I asked Barnaby the same question, here’s what he said:“

The great thing about Australia is if you’ve still got the drive, if you’ve still got the mongrel about you that wants to get up and go, you’ll get there. But if you think you’re going to – by some stroke of luck – walk into a multi-million dollar place for a couple hundred thousand bucks, well that just ain’t going to happen. Like everything in life you’ve got to start from the bottom, work hard and you’ll get there”.

Tread Your Own Path!

Check Out Choice!

Hi Scott

You have strongly suggested (and The Checkout and Choice agree with you) that homeowners should get a ‘total replacement’ policy. So, being the devoted follower I am, I spent my morning looking into it. Who offers such a thing? Well, I looked at ALL the usual suspects ... and not one of them offers it. Everyone’s recommending it, but someone forgot to tell the insurance companies -- and of course if it is to our benefit then they will not want to offer it! Any suggestions?

Tegan

Hi Tegan,

There’s a reason they don’t offer it. Most people totally underestimate the true cost of rebuilding a brand new home, the same way that most people underestimate the cost of replacing all their possessions. You’re bearing the risk of this underinsurance, not the insurance company.

That’s the reason I pay an insurance broker manage all my general insurance: first to make sure I am insured for ‘total replacement’, and secondly, because they’re experts at dealing with the claims process. Insurance isn’t like buying baked beans. Cheaper is not better.

Scott

Negative Gearing Going?

Hi Scott

My question is simple, though I know your answer may not be. What do you think will happen with negative gearing? I’m worried because I own three properties (all on interest only loans, all negatively geared), and I worry what will happen if they abolish it. I am thinking about buying another property in student accommodation.

Rosemary

Hi Rosemary,

Labor’s proposal won’t come into effect until 2017, and they’ve said in their policy document that the changes won’t be retrospective. In other words, your existing tax deduction status is safe. Still, negative gearing is now officially an election issue, and the Minister for Networth will now have to have address it, one way or another.

My personal view is that negative gearing, much like superannuation concessions to higher income earners, will eventually be clipped. Not if, but when. That’s why I don’t advocate making an investment solely for the tax benefits. Right now you’re losing money. Work out how to turn that around, because any changes to the tax treatment of housing will likely hit the market hard.

Scott

‘X’ Marks the Spot

Hi Scott

I am recently retired and I have topped up my Australian Super to $400k and put $1,050,000 into my SMSF. I will also have a part of $1.2 million to invest after our Family Court matter is settled. Last week I got a call from a fellow who claims his company made 28 per cent after tax in 2015 through investing in the share market. It is called ‘Shares XP’. Is this too good to be true?

Mal

Hi Mal,

Congratulations! You’ve won the money game. With (roughly) $2 million in savings, you can comfortably draw $100,000 per annum tax free in retirement and you’ll never run out of money. There’s only one final risk that you face: financial salespeople getting their mitts on your money. I don’t know anything about Shares XP other than what I’ve seen on their website. It appears part of their service is trading Contracts For Difference (CFDs). These types of trading products are financial cancer. Don’t do it. Stick with AustralianSuper, and find another hobby.

Scott

The World Is Against Me

Scott,

I’m a recently divorced dad with a legal bill of $40k (lawyers are dogs!) and a credit card debt of $20k. I work two part-time jobs which together earn the equivalent of a full-time job, about $75k gross a year. The divorce settlement sees me keeping the property, valued at $1.1 million with a loan of $320k remaining. My mortgage broker is working on getting a loan for $380k but has come back and said my second job won’t be counted so I have to take out a higher rate investment loan. What can I do about these pricks?

Wally

Hi Wally,

Here’s why you’re not getting any love from the banks: you’re bringing in $4,800 a month ($75k p.a), and your monthly repayments on $380,000 are around $2,100 a month, or about 45 per cent of your monthly income. Out of what’s left over you’ve got to put food on the table and pay child support. Even if you had one full-time job most banks would charge you a higher interest rate, but given you have two part-time gigs, it makes your income less reliable. The bottom line is that you’re not in a strong negotiation position.

You have three choices: one, take the higher interest rate loan and chew really hard (though that’s not what I would do). Two, get a higher paying full-time job so you’re not handing nearly half your wage over to a banker. Or three, downsize, pay off your debts, buy a cheaper house, and spend time with your kid.

Scott

Help, We’re Trapped!

Hi Barefoot,

My wife and I are 39 and have three kids. I am the sole breadwinner, earning $80k plus super, and we live rent-free as part of my job. We own a rental property with a $298,000 mortgage, with tenants paying $380 per week, which covers the mortgage. We have $8k in credit card debt. Put it all together and we feel trapped! Each week we just seem to cover our expenses. I would love to get my Mojo account up and follow your share investment tips, but we never seem to have the money. We would love a holiday!

Gary

Hi Gary,

I may look like a fairy, but I have no magic wand to wave at you. By my calculations you’re pulling in close to $6,000 a month in the hand (when you factor in the Centrelink family benefits that I assume you’re getting), and you’re not even paying for a roof over your head? And you have credit card debt? C’mon, cobber! A wonderful holiday for you would be to drive an Uber taxi around your city, five nights a week, until you’ve paid off your credit card.

Scott

Real Estate Mistakes

Have you ever dreamt of building a multimillion-dollar investment portfolio?

Travelling overseas — business class — while you live off your six-figure-a-year passive income? If you have, today I’ve got a real treat for you.

This week I caught up with two of the most successful property investors of the past few years.

Kate and Matt Moloney are a twenty-something couple originally from country Victoria. Yet they are anything but typical: they built an $8.5 million property empire, generating $570,000 a year in rental income, in just three years.

In 2012, Kate and Matt were recognised for their achievements, being crowned “Investors of the Year” by Your Investment Property magazine. A panel of five industry experts pored over their portfolio and, after much deliberation, awarded them the prestigious prize.

The entrants were described as “some of the country’s most shrewd investors” and “property powerhouses who are showing the rest of Australia how it’s done”.

“These are ordinary, everyday Australians who have chosen to make a difference in their lives through property investing. By showing fortitude, the willingness to take risks and a sense of the gigantic opportunity that is Australian property, they’ve strived ahead and offer a shining example of how to succeed,” said the magazine.

And specifically: “The young couple wowed our judges with their awe-inspiring ability to get together property finance, even in times when they’ve been without savings or equity.”

Hang on. Hold your horses.

Let’s back up the nag and take a look-see at that last quote: the judges were “wowed” with their “awe-inspiring ability” to borrow money “without savings or equity”?

Uh-huh. We’ll mark that down. Let’s keep going.“The truly remarkable part is that both are just aged 24 and now in a position to semi-retire”, gushed the magazine, which put the couple on the front cover.

“We’re heading on our first round-the-world trip — business class. We’re quitting our jobs and heading to Africa, North America and Europe for a well-earned rest,” said Matt.

“We’ve done the hard yards, starting our investing when we were teenagers, and now we just want to enjoy ourselves,” said Kate.

You can picture them, can’t you?

They’ve got their “Investors of the Year” Oscar-like trophy wedged into their Gucci carry-on luggage. They’re reclining in their plush leather seats, triumphantly clinking their champagne glasses as the pointy end of the plane lifts off the tarmac bound for the bright lights of New York City.

Meanwhile the rest of us are stuck in peak-hour traffic — spilling coffee on our shirts — and cursing the cost of affording a dog box in Bendigo, much less owning a multimillion-dollar property portfolio.

And Kate and Matt lived happily ever after, right? Well, no.This story doesn’t end in the business class lounge, but three years later in the bankruptcy court.Yes, today Kate and Matt are bankrupt.

Well, not officially — though I assured them this week that it’s definitely going to happen, and soon.

That’s because they currently owe $5.8 million on their investment property portfolio. The value of these properties (mostly bought in the mining boom-and-bust town of Moranbah, Queensland) has plummeted to a paltry $2.3 million today. In other words, they’re $3.5 million underwater on their loans.

To make matters worse, both Matt and Kate are currently not working. But it wasn’t losing their jobs that did them in — the seeds of their financial cancer were sewn back in 2009 when they paid $7000 to attend a property seminar from an outfit called Real Wealth Australia and they got well and truly swept up in the rah-rah.

It was at the course that Kate and Matt ditched their half-paid-off marital home in country Victoria and set their eyes on becoming miyonaires! The strategy was simple: buy multiple investment properties in mining towns.

I mean, what could be better than buying one investment property?

Buying 20.A few years later — having well and truly sucked the spruiker juice — Kate and Matt attended a $4000 workshop hosted by Dymphna Boholt, who says on her website that “educating on success, money, and material wealth are the things that I am best known for”. (To be fair, she’s also known for making misleading claims that have been exposed by the ACCC and Fair Trading Queensland.)

They were so motivated by Boholt’s first seminar that they ended up graduating to her platinum mentoring service, which cost $30,000. For that money, says Kate, Dymphna was recommending investing in mining towns.

Kate also alleges that some people she was dealing with throughout her buying binge were receiving kickbacks on the debts she was taking out, though she says it was never disclosed to her.

The problem is that this young couple from the country were unwittingly held up as poster kids of success, and their story was used to suck more people into the get-rich-quick schemes.

“The spruikers would fight over us. They’d get us up on stage with the motivational music blaring. Each claimed that it was their course that had turned us into multi-millionaires in a few years,” said Kate.

“But it was all built on lies. Even our capital city properties were sold for huge losses.”

The hard truth that Kate and Matt have learned is that there’s no shortcut to any place worth going.

They’ve also learned that Your Property Investor magazine is the equivalent of a porno for property punters. (Though I’d argue they’re not so much Playboy — more like Hustler.) Seriously, it’s so sleazy that they should sell it wrapped in cellophane.

By the way, I didn’t get away scot free on this one either. In researching this column on the interwebs, I found there are a lot of investment property gurus who really don’t like me: “The Barefoot Investor gives commonsense, simple and incredibly boring savings advice”, said one.

Bit harsh!

Then again, if Kate and Matt had followed the Barefoot path, they’d own their own (modest) home today — before they turned 30.

And here’s the thing: once you knock out your biggest payment, your financial world changes: You can build a multimillion-dollar investment portfolio, you can semi-retire, and you can even save up and enjoy an around-the-world trip … business class.

Tread Your Own Path!

P.S Kate told her story last night on 60 Minutes.

All week Channel Nine had been promoting it as ‘the next great mortgage disaster’.

Last night I got to see the story, and it was … rubbish.

I was looking for an intelligent discussion on the dangers of an investor-led boom. Or perhaps a pointer of the role that property spruikers played in pumping up prices in investor-ghettos (mining towns, student accommodation, inner city dog boxes, government supported NRAS housing, negative gearing).

Nope.

Our flagship investigative show suggested that house prices in the mining town of Moranbah -- which saw its median house price jump by as much as $500,000...then plummet by as much as $600,000 -- is comparable to what is going to happen in suburban Australia.

That assumption, to quote my toddler Louie is “Ri-dic-orus”.

Finally, if you want a fly on the windscreen account of the sleazy world of the property seminar circus, buy Kate’s book. Goodness knows she needs the money.

The $18 Million Man

Hi Scott,

I'm 33, a consultant in relatively solid employment and have had some recent solid years of income, the immediate future looks bright. I have $500k in cash and would prefer to keep my cash liquid, out of the property market and in the sharemarket. Should I lump the entire amount into a mid strength fund at 12.5% to 15%? Or diversify and go 80% fund and 20% shares, oh a little bit of mojo too I guess? I am a natural risk taker!Thanks,

Ben

Hi Ben,

I've never heard an investment labelled 'midstrength'. Sounds like a beer.

All kidding aside, you shouldn't label yourself 'a natural risk taker' until you've watched the value of your investments fall by 50 per cent. Everyone sees themselves as a risk taker until they lose money. (Warren Buffett has watched the share price of his company, Berkshire Hathaway, decline by 50 per cent three times in his investing career. He never sold once).

Yes, you should have three months of living expenses in a Mojo account. Yes, you should also have a home. If you've got both of these under your belt, I'd be investing directly in shares: either via low-cost Listed Investment Companies, or building a portfolio of individual companies.

The bottom line is that you're young and rich -- and you'll end up richer: if you'd invested $500,000 in 1980, it would have grown to be worth $18 million today. History doesn't repeat -- but it sure does rhyme.

Scott

Baby Debts

Hi Barefoot,

We've just got married, and are looking to start our family quick smart (we're both 35). However, I'm concerned about servicing our current debts. We have 3 units valued at $400k, $550k and $800k respectively and owe $250k, $250k and $600k on each. We can do this at the moment, however when my wife has a baby her income stops and she is the main breadwinner. She earns $140k and I earn $90k p.a. Should we sell something? I'm completely overwhelmed!

Chris

Hi Chris,

Without seeing details of your household expenses, the income you receive from your investments, and the condition of your properties, it's hard to give a specific recommendation. However, if you're planning on supporting your family and being on hook for the upkeep of three investment properties, for an extended period -- on $90,000 -- that sounds...ambitious.

The good news is you're asking questions at the right time. You're moving into a new, very expensive stage of your life. Things won't go back to 'normal' for fifteen or twenty years.

So, sit down with your wife tonight and discuss your 'new normal': how many kids will you have? When does she see herself going back to work? How much will childcare eat into her wage? Would you consider being Mister Mum?

Dude, talk to your married mates, and ask them if they wished they'd had a conversation like this before they both found themselves up to their elbows in nappies. You're on the right track.

Scott

Mojo...No Go?

Hi Scott,

I have a query about building up an emergency fund of 3 months salary (Mojo). My partner and I earn roughly the same income. Do you recommend we both have the equivalent of 3 months salary in Mojo ($40k combined) or do you think it is ok to just have one 3 month salary amount ($20k) in Mojo to cover for either of us if needed.

Kath

Hi Kath,

It's not 'three months of salary', but 'three months of living expenses'.The idea behind having a Mojo account is that you only draw on it in an absolute emergency. Seeing a thermomix on sale is not emergency. Having your house burn to the ground with everything in it is an emergency. When you're forced to use your Mojo money, you spend it carefully, making every cent stretch until you're back to normal.

Now, if you and your partner are getting married, do the following: work out how much you could both live on for three months, then open an online savings account in joint names (nickname it Mojo), and start saving till you get to your joint goal.

If you're not planning on getting married, or sharing your finances, you'll need to save three months of living expenses on your own. Remember, a Mojo moment that could crop up is breaking up with your boyfriend.

Scott

You SUCK Barefoot

Scott,

I didn't know whether to laugh or cry when I read your answer to 'My Dream Home' (31st of January). You told Jody that her husband's wage of $45k "isn't going to cut it". Well, after 39 years earning a decent wage as a tradie, my husband was made redundant two years ago. He now works for a car dealer and only earns $43k. How do you suppose at the age of 56, he increases his income? No one is interested in employing someone his age. Or if they are, they're only offering the same miserable wage.

Renee

Hi Renee,

If you and your husband were out to dinner with me and my wife, and we were having this discussion, my wife would've kicked me under the table, given me 'the look', and empathised with you on how hard it is for older people to get decent paying jobs. (She gets social niceties like that). That part of my brain is missing. So let me dig myself a little deeper.

If you're husband has worked as a tradie for 39 years, why is he working in a car dealership for $43k a year? We're currently living through the biggest building boom in history. If a tradie with four decades of experience can't swing a gig for at least $60k, I'll bare my backside in Bourke Street. Strike me handsome!

You say: "No one is interested in employing someone of his age". That is simply not true. Stop saying it. The average age of my staff at the Barefoot Investor is 50-plus (and that's a funky, internet advice business). He's got ten years of good work left in him at least. He needs to work out how to capitalise on his experience, and exploit the superannuation tax lurks while he can!

Scott

Set Yourself Free From Credit Cards

Let me tell you about my radio interview from hell.

At the start of each year I do about twenty back-to-back interviews on financial resolutions for the new year. It’s meat and potatoes sort of stuff that I’ve been doing for over a decade (and will be doing a decade from now).

Only this year, I snapped.

I felt like Michael Douglas in that movie Falling Down, where a mild mannered dude has bottled things up for too long and goes absolutely bonkers.

I was halfway through my spiel: ‘Aussies have some of the highest household debts in the world. The average credit card debt is $4,377, and if you only pay it off at the minimum -- which is all the banks encourage you to do -- it would take you…thirty one years to pay off, and cost you $14,900 in interest...The bubbly radio host interjected and said: “Oh sure, but I still couldn’t imagine my life without a credit card...I even hide my statements from my hubby!”

“That is just so incredibly...stupid” I blurted out.(

Awkward radio silence).

Bubbly radio host: “But….how do you afford nice things?”

Barefoot: “I have this weird thing called savings”.Bubbly radio host: “Oh I could never live like that”.

Now, the radio script I’d been given had me giving her tips on how to ‘manage’ her credit card.

Bugger that. It was time to go rogue.“You need plastic surgery. Cut the damned things up and be done with them” I told her.

That’s the only advice to take for anyone who has got credit card debt right now.

See, I’ve noticed that people who try and ‘manage’ their credit card debts, are nearly always broke. They may be able to pay it down at times, but it always shoots back up.

Why does this happen? Is it because they're weak-willed? Not really. It’s because they keep their card in their wallet.

That’s like a drunk keeping a beer in the fridge for hot days.

The truth is, if you have credit card debt you are not in control of your financial situation.

In fact, the truth is that you don’t need a credit card at all. I haven’t had one for most of my adult life.

When I was young and just starting out, I couldn’t afford one. My logical brain said: ‘credit cards make everything more expensive. I can barely afford anything now, so a credit card will make life impossible’.

Now I’m older I can afford one -- but I still won’t get one.

Why?

I see it as a reverse status symbol.

I’m showing people that I don’t need a credit card. Kids learn by observing what their parents do -- and my kids will grow up watching Dad pay his own way with cash. (Seriously, how’s that for the ultimate rewards program!?).

Here’s you: “Uh, dude, you’re missing out on rewards points. Pay it off each month, and you get free stuff!”

Here’s me: Bitch, please! Credit card rewards programs are a con job. The value of each point is manipulated by sophisticated marketers to keep you spending. They have a track record of devaluing points each year (a Qantas point is now reportedly worth about 0.6 cents), while simultaneously making it harder to claim rewards (Qantas actively limits the number of rewards seats on flights). And then there’s the annual fee.

In Case of Emergency...

A credit card isn’t about convenience, and it sure as hell isn’t about emergencies -- trust me if you’re in a genuine crisis, the last people you need to call on are these pricks.

Ask your granddad how he survived genuine financial hardships without a high interest rate loan from a bank in his pocket.

The truth is you need to have some ‘no matter what’s’ in your life.

No matter what, I’m not going to take out a high interest rate loan to fund crap I don’t need.

No matter what, I’m going to pay my own way, and claw back my financial confidence.

Know this: the moment you say ‘no matter what’ -- and really mean it -- you no longer have a debt problem. It’s simply just a matter of time.

Now, here’s how to acquire the ultimate anti-status symbol:

Step 1: Save up $2,000 Mojo in an online account.

Step 2: Do your sums and work out how many months it’ll take to clear your credit card in full.

Step 3: Double it. (Life happens).

Step 4: Apply for a balance transfer card, and when it arrives in the mail, destroy it.

(This is critical. A zero-balance transfer offer is the financial equivalent of selling gym memberships in January: ‘roll your lard over to our card, porky, and you’ll have be in great shape in 18-months time.’ A study by ME Bank last year found that 29 per cent of people who tried a zero-rate balance transfer deal didn’t clear their card before the end of the interest free period. Don’t be a financial fatty).

Step 5: Set up a direct debit each time you get paid, and get rid of it once and for all.

In all the years I’ve been doing this -- with thousands of people -- no one has ever come back to me and said: ‘you bastard, you made me pay off my credit card, and forced me to live on my savings’.

Tread Your Own Path!

I need your help

This week marks our two year anniversary of losing our home -- and everything in it -- from a bushfire.

I made a pact with myself that each anniversary I’d remind you to take a look at your insurance. However, as insurance is possibly the most boring topic in the world, I’ll keep this ridiculously brief:

I need you to dig out your insurance statement this evening (please put a reminder in your phone, now). Make sure you are insured for “Total Replacement”. This is where the insurer agrees to pay the cost of replacing your building to the standard it was in before it was damaged or destroyed.

Most people have ‘sum insured’ policies, which cover you for a specific predetermined amount in the event of a claim. It’s easy to get screwed with this deal. You don't want this cover. Stick with a “total replacement” policy.

Happy Anniversary.

Fare Go for Uber Driver

Let’s kick off the year with an email I received from a reader who hates me:

Dear Barefoot Investor,

You really have no idea do you? Not everyone can work two (or three!) jobs like you “advise”. After you pay double taxes, it’s just not worth it. You’re giving up your family and friends, so you can work for a company that will exploit you for a few bucks an hour. You really need to get off your high horse and stop giving advice that is totally unrealistic for the average person to follow. You have no idea how real (normal) people live.

Craig

I picture Craig as a little yappy Chihuahua type-of-bloke. Just think, you’re competing with guys like him in the employment marketplace. Hardly fair is it? It’s like shooting tofu in a barrel.

Anyway, the truth is I’m not writing for people like Craig, who live in fear of hard work.I’m writing for people like Andrea.

Andrea is a 46 year old single mother who works full-time in office admin at a local TAFE.

She earns $44,000 a year.

Last year she got talking to the bloke who fixes the photocopiers at her office, and he told her about a good way of earning some money on the side:

Drug dealing.

(Just kidding). He said “Uber”.

Though he may as well have said drugs, because Andrea had never heard of Uber before.

“It all sounded pretty far fetched to be honest” said Andrea, when I spoke to her this week.

“You download an app on your phone...and then earn money from driving people around? I was very skeptical”.

She needn’t have been. Uber -- which goes by the name UberX in Australia -- is a ridesharing app that over the last few years has rear-ended the taxi industry like a hyper-aggressive kid in a dodgem car.

There have been 10 million UberX rides ordered through the app, which was was launched in Australia in 2014, and amazingly for much of that time it’s operated illegally. (UberX doesn’t have government approval in Victoria, but it has been legalised in the ACT and NSW, and will soon be in WA).

Yet despite the best efforts from the taxi lobby, it’s only a matter of time before UberX becomes legal, and continues to bump the taxi industry into oblivion.

So when the photocopy guy mentioned that Uber was offering a $500 referral fee for new drivers -- and that he’d split it with her -- Andrea thought she’d give it a go. She washed her Honda (UberX requires cars to be less than nine years old), filled out the paperwork and background checks, and downloaded the app.That was five hundred trips ago.

Today, Andrea says she ‘Ubers’ about 15 to 20 hours per week - mostly in the evenings when her teenage daughter has extracurricular activities at school, or is at her dad’s. For that she brings in between $300 to $400 per week. (Uber takes 20 per cent of the fare, and Andrea pays all her expenses).

Yes, but isn’t it dangerous, a single woman driving strangers around the city in her little Honda?

“No, not really”, says Andrea.“I don’t handle cash. Everything is tracked through the app, and synced up to each user’s credit card. I would never do it if I had to handle cash like taxi drivers do...I’d feel too scared that I could be robbed by an ice addict or something.

“In fact meeting so many different people is what I love about the job. I picked up a lady one day who was an escort. She said she thought I would make a very nice looking working girl, and told me that I could make my weekly wage in an hour!”

Fun and games aside, the truth is that Andrea is one of the working poor: she ploughs away in a low-paid full-time job, but needs another job to pay her bills and mortgage, and to provide for her kid. One day she dreams of going overseas, but that’s a long, long way off. Right now, most days she gets up at 5:30 am, and her head hits the pillow at 11:30pm. That’s Eddie McGuire hours!

Still, the most interesting thing about Andrea’s story is just how unremarkable it actually is.

Right now there are 20,000 UberX drivers in Australia.

It’s strictly a side gig for nine in ten of them, who have another job.In fact UberX says that about half of its drivers are behind the wheel for less than 10 hours a week.

Some drivers only turn on the app and pick up a customer when they’re driving on their way into work -- so in effect it pays for their petrol, parking, and lunch money. Other drivers I’ve met tuck their kids into bed, and go out and work on a Saturday night to make an extra mortgage repayment.

How cool is that, Craig?

Then again, perhaps Andrea isn’t ‘normal’ enough for you. So this week I met with another Uber driver, named Lorraine. Like Andrea she’s a single mother, and also works two jobs. She spends 15 to 20 hours a week driving around in her Kia, and earns from UberX around $700 a week.

Worth it? Woof, Woof!

Tread Your Own Path!

My Daughter Is a Brat

Hi Barefoot,

How can I teach my 13-year-old daughter the value of money? She will not stop asking for an iPhone 6s. We have explained to her that we do not spend that much on presents, and we would not spend that much on a phone. She has her dad’s old smartphone at the moment and an iPad that was required for school. I hope you can explain to her that spending top dollar just to have the newest of something is not always a wise use of money.

Nicole

Hi Nicole,

There’s a simple answer to this problem: introduce your daughter to the wonderful world of work. It’s a few years too early to send her down the coalmines, but that doesn’t mean she can’t do household chores for you and get some pay for it. Get her to divide her pay equally into three jam jars: spending (iTunes), saving (iPhone) and giving (for all those kids in Africa who don’t have an iPhone). Kids learn by doing, not by being told. (They also learn by watching -- could it be she’s modelling you?)

Scott

Barefoot Says: Don't Pay Off Your Mortgage?

Hi Scott,

I have just signed up for my first mortgage at the age of 56. I saved $110k over 10 years and borrowed $175k. If I pay fortnightly I can own the house outright in just under 10 years. My dilemma is that I will have $15k from the sale of some possessions and am unsure whether to do up the kitchen and bathroom or whack it straight on the mortgage. If I put it on the mortgage, I will own the house outright in 8.5 years, but will be living with an old kitchen and bathroom for that time. What do you think I should do?

Liz

Hi Liz,

At your age, I wouldn’t be making additional repayments on your mortgage. Instead, I’d be pumping your money into super (and talking to your super fund about starting a ‘transition to retirement’ pension strategy, so you pay less tax). The idea is that you can draw down on your super tax-free when you retire, and pay off the mortgage via a lump sum. I’d be inclined to keep the $15,000 in a Mojo online savings account and only spend money on renovations if chipped plaster falls on your head.

Scott

The House of My Dreams

Dear Scott,

I love reading your columns and would love your advice on what to do. I’m married with two boys (one newborn) and we have savings of $12k, with no debt. My husband earns $45k, and our family assistance payments will finish in January. I go back to work in April (after six months off) on a part-time salary of $52k. We’d love to buy our own home and send our boys to a private high school, but a 20 per cent deposit seems so far away with average house prices of $500,000. I feel very disheartened. Should we just invest our money instead?

Jody

Hi Jody,

This is the story of our time: people on average incomes increasingly can’t afford to live in capital cities. Actually, your family is far below the average income, so you need a plan to address that. Your husband needs to earn more: $45k isn’t going to cut it, I’m afraid. Together, you need to work out a realistic five-year plan to increase his income. Long term, that will give you the biggest bang for your buck, particularly if you continue living like you are now and save the extra he earns.

Scott

Ashamed, Scared, What Next?

Hi Scott,

My husband earns $150k, which is a lot of money, yet with four kids aged 10-19 we are still struggling. We have lived modestly for the last three years and are better for it. We have even entered into debt consolidation to take back control of our $80k credit card debt. So here are our vital stats now: debt consolidation $65k, novated car lease balloon payment $12k, mortgage $414k (value $550k), other $30k. What should we do?

Amy

Hi Amy,

You know things are cra-cra (and not in a good way) when you have a $30k line item labelled ‘other’. I’m not a big fan of debt consolidation; it’s often sold as a magic pill (and it does reduce your interest costs), yet the real magic is your behaviour. If that doesn’t change, nothing changes.

Now, you say you’re living ‘modestly’. I’d like you to live ‘aggressively’. Because to get out of the stinking hole you’re in, you need to get angry. You need to swear off debt and say to yourselves ‘never, ever again’. Then you have to back it up with action: line up your debts from smallest to largest and knock them over, one by one.

You’ll know you’re on the right track when you take a second job at night to get debt-free quicker.

Scott

Help! No One Turned Up to My Auction!

Hi Scott,

I recently wrote to you about whether to sell my one-bedroom unit in a reputable bayside suburb and invest the money, with a view to buying a ‘home’ in 3-5 years. Unexpectedly, nobody turned up for the auction, not even a nosy neighbour. The advertising and conveyancing fees still need to be paid regardless of whether there’s a sale or not (a $4,500 lesson for me). This has hit my savings hard. You live and learn!

Barry

Hi Barry,

If no one turned up to your auction, you either hired a dud agent or you priced it too high (or probably both -- the two go hand in hand). So let’s cut to the guts of it: you’ve decided to sell your property. The job of your agent is to go out to the market and find you the best possible price the market is willing to pay. If you don’t want to accept that, that’s your problem not the agent’s.

Still, I wouldn’t pay him anything until your property is sold and settled. He gets paid when you do. That being said, I’d never ever agree to pay an additional fee for an agent’s advertising costs -- seriously, all you’re doing is paying to promote their agency. It should come out of their heavily negotiated commission. (Note to real estate agents: kindly send your hate mail via barefootinvestor.com)

Scott

Advisor says, ‘DON’T PANIC’

Hi Scott,

My wife and I are 60 and 62. About a year ago (many years too late!) we realised we needed some financial guidance and approached a financial adviser who our accountant recommended. He told us he believed he could make us $60,000 pa from our $380,000 super, and set us up in an SMSF (Self Managed Super Fund). So far we have lost $110,000. He says “don't panic”. Do you have any advice?

Brian

Hi Brian,

I’d panic.I think that’s a perfectly acceptable emotion to be experiencing right now. After all, your financial advisor sounds like a crook. Seriously. I don’t know of any professional who would suggest to a client that they could generate a $60,000 a year return from a $380,000 investment. That’s a 16 per cent return. If that’s really what he told you, he’s not only an incredibly bad money manager, he’s a bloody liar. Truth is you went looking for a princess and you ended up kissing a toad. If it were me I’d stomp on him.

Scott

How can we be lovers if we can’t share money?

Hi Scott,My husband works full time earning $87,526.00 p.a. while I work 27.5 hours per week and earn $38,818.00 p.a. We have two children, aged 18 and 15. My husband's wages are paid into an account in his own name, while mine is paid into a joint account. My husband gives me $750 per week from his wages and together with my wage I am expected to cover all of our expenses (home loan, insurances, utilities, school fees, children's expenses and groceries). Should my husband be contributing more?

Candice

Hi Candice,

No, I don’t think he should be contributing more. Honestly, I think you should have both your wages go into the one account -- so you can make spending decisions like a family. What I’d want to know is this: he’s bringing home $1,165. If he’s giving you $750, what’s he doing with the $415 a week?I annoy a lot of people when I say this, but it makes absolutely no sense to me that a husband and wife (who have children and are still on their first marriage), would separate their finances. None whatsoever. In all the years I’ve been doing this, I’ve never seen separate finances work out well. How can you share your dreams and goals if you don’t share your money?

Scott