Breaking Bad (Advice)

Hi Scott,Due to bad advice 20 years ago, my wife and I put the family home in a company name which she had tried to get off the ground as a small business. We still have the company because we believe that to close it and return the property to our names would trigger a massive CGT impost. We just go on paying ASIC fees and land tax every year, and when the kids inherit it, same thing. Is there any point to us seeing a solicitor about our plight? Or can you see any way out for us?Regards,

Phil

Hi Phil,

Holy smokes!

The ASIC fees and land tax aren’t the issue here - it is, as you suggest, your capital gains tax (CGT) bill.

I’m guessing your words about the business which you ‘tried to get off the ground’ mean it didn’t take off. Whether there’s a loss from that which might offset the gains on the house is something you could look into. The problem is that CGT will need to be paid one day (and to make matters worse, you won’t even qualify for the 50 per cent concession on CGT that individual investors get).

If you’re going to stay living in the family home, then you could always handball the problem to the next generation - that is, assuming your kids inherit your shares in the company, they could decide themselves what to do. This is one of those situations where a good accountant can help -- preferably not the same accountant who advised you to buy the house in a company name.

Scott

Eat Pray Love

Hi Scott,

I am 31 and my wife and I have a nine-month-old child. I am long overdue a career change -- my current job is driving me insane! I want to start a career in a different field, but to do that I feel like I have to start at the bottom and work my way up. I feel like I am trapped because we have worked out our budget and cannot go below my current wage. I can't find any entry job that pays the wage I am on now. I feel trapped. How do I get out? My wife works three days and can't do more due to our child. Help!

Craig

Hi Craig,

You know, there are times when you really just have to throw caution to the wind and back yourself.

Now is not one of those times, Craig. You’re a father, and it’s your responsibility to provide for your family. No Eat, Pray, Love for you, my friend.

Well, not in a traditional sense. You can eat leftovers as you hustle each night (after everyone else is in bed) to get both the skills and the contacts you need to land your dream job. You can then pray that if you work hard enough you’ll be presented with an opportunity to work in the field full time without taking a pay cut (though you’ll have to really hustle for this to happen). Only then will you be able to look after the people you love.

Scott

Credit Card Pensioner

Hi Scott,

I am retired and have a superannuation balance of around $126,000 from which I draw down a monthly pension of $1,925. I also have a current credit debt of around $4,500 which is being paid off at approximately $150 per month. Should I withdraw a lump sum from my super to pay off the credit card?

Colin

Hi Colin,

It’s time to wake up and smell the coffee, cobber.

You’ve got a spending problem.

All up you’re after-tax income of $45,800 (combining your monthly amount with the age pension of $22,700), should be more than enough to fund a comfortable lifestyle, according to ASFA (Association of Super Funds Australia), who track these things.

Yet you’re spending more than that.

You can keep this up for about six years -- that’s how long I think your super will last, based on your current drawdown rate. Then it’s baked beans for breakfast, lunch and tea.

It’s time to start acting your age. Withdraw the lump sum, pay off the credit card, cut the damn thing up, and start living within your means.

Scott

You’ve Gotta Know When to Fold ’em

Hi Scott,

I’m a 35-year-old man with a $70k annual salary, $100k in super, and a problem with gambling online (I am currently $60k in debt). The only way to control myself is to not have access to my overall finances. My goals are clear and mapped out, but I need help to execute them. What are your thoughts on money managers like ‘MyBudget’ in my situation?

Dennis

Hi Dennis,

Congratulations on confronting your addiction. Having helped a lot of people with the financial ramifications of gambling, I know how big a step you’ve taken.

Your next step is to call ‘Gamblers Help’ on 1800 858 858. You need counselling and treatment for your disease -- do not do it on your own. If you had a ruptured appendix you wouldn’t do a DIY job with a pair of pliers and some kleenex. Same rules apply.

Under no circumstances should you go anywhere near MyBudget.

First, because they charge too much. (You not only have to pay off your debt, but their fees as well, and if they’re running your budget, guess who they pay first?)

Second, because no one should hand over the responsibility of managing their money. Period.

Let’s be honest: if you’re still in the throes of your addiction, and you get the urge to gamble, you’ll find a way to do it whether you’re with MyBudget or you’ve locked your money away in Scrooge McDuck’s bank vault.

Your healing process will come from learning how to confidently manage your money in the face of your recovery -- and the best way to do that is not with MyBudget but by working with both a gambling counsellor and a specialised community-based financial counsellor (Gamblers Help will set you up with both).

The bottom line is this: just like there is no such thing as a ‘quick win’, there’s also no ‘quick fix’ for a serious addiction. Please, reach out for help.

Scott

The $31,203 Road Test

Are you looking for Australia’s biggest and best super fund?

Well, that’s what we’re going to cover today.

You see, the front page of the Australian Financial Review this week said that NAB is the new king of super, claiming the bragging rights of Australia’s biggest retail super fund.

It’s a fair bet that either you, or one of your family, or at least one of your ex-boyfriends, is with NAB.

Now I wouldn’t be doing my job if I didn’t do a road-test on Australia’s biggest retail super fund. So buckle up (because I’m also going to show you how to make $31,203).

Guaranteed.

The Holden Cruze of Super Funds NAB’s super offering (from this week, branded as ‘MLC Super’) is the financial equivalent of a Holden Cruze.

No-one consciously chooses a Holden Cruze.

It’s just the car that the bored middle-aged woman behind the counter of Budget rent-a-car hands you the keys to. The Cruze is a car that’s foisted upon you. Eventually you’ll get a better one, but right now, well, who gives a toss?

That explains NAB’s super offering right there.

No-one actually does independent research and chooses a NAB fund.

That’s because their performance over the years has been, well, Cruze-like.

According to SuperRatings, over 1, 3, 5 and 7 years, it’s come in near the back of the pack.

That perfectly explains NAB’s hierarchy of needs, which are as follows:

1. NAB.

2. NAB Funds Management.

3. NAB Financial Planner.

4. NAB Banking (investment loan, mortgages, and credit cards referrals).

5. Client.

Holden versus Ford

Yet rather than just kick the tyres and drive around the block, I thought I’d line it up in a proper drag race against Australia’s biggest super fund.Hang on, didn’t I say NAB was the biggest?

No, there’s a difference. NAB has been crowing about being the biggest retail super fund (which means it’s run by a financial services company for profit).

The biggest super fund is AustralianSuper, which is an industry fund (i.e. not for profit). It manages $100 billion on behalf of more than 2 million members.

Retail funds have been battling industry funds for years (a real Ford vs Holden battle).

Up until now, industry funds have been out in front, mainly thanks to their lower fees.

Still, the entire industry is as seedy as a night at the dishlickers: Australians are still forking out some of the highest super fees in the world - between 2004 and 2013 the cost of the average fund fell from just 1.4% to 1.2%, even though the total super pool grew from $625 billion to more than $1.6 trillion.

To look at, there’s not much difference between our NAB and AustralianSuper contenders. We’re looking at the ‘balanced’ model for each, which means you’ll get a mix of shares (both Aussie and International), a bit of property, and some bonds and cash.

Where they differ is the sticker price.

AustralianSuper is the poverty pack. You’ll pay an investment fee of 0.57% (which gets the Barefoot rating of “meh” as it’s not the lowest in the market -- not by a long shot), plus a $1.50 per week admin fee. Anyway, on a balance of $50,000, that’s costing you $363 each year.

Now for NAB …Their cheapest option will set you back $623 per annum on the same $50,000 balance.

Next in line is their mainstream model (with leather trim), called ‘MLC Masterkey Fundamentals’, which ups that slightly to $630.

Or, if you’re unlucky to be stuck in one of MLC’s older funds (but still called ‘Masterkey’), get ready to fork out $1,033 in fees every year on a $50,000 balance.If you (or your dad or your uncle) are still in that fund, then somewhere along the line a NAB salesperson took your boss to the corporate box at the footy and got them on the squirt -- in exchange for signing up his entire staff up to a stinker of a corporate super fund.

But maybe that’s about to change ...

“National Australia Bank is combining five of its superannuation funds to create the country's biggest retail fund, promising to share cost reductions from the merger with its 1.3 million super members” said the newspaper this week.

Huh?

“Promising to share cost reductions?”

That didn’t sound very banklike, so I rang up NAB and asked them “specifically how much are you sharing?”

“The majority of our Corporate Super members will receive a 0.04% reduction to their fees… that is the equivalent of $20 per annum on a $50,000 MySuper account balance” said the NAB spokesperson.

That sounds more like it!

The $31,302 Car Crash

When it comes to cars it’s not the driveaway cost that slugs you, what you really need to focus on is your running costs, over years and years and years … it’s the same with super. Let me explain.

Take a kid -- let’s call him Freddy Falcon -- with $10,000 in AustralianSuper.

He’s earning $60,000, and keeps his nose to the grindstone for the next 40 years.When he retires his super balance will be (based on very, very conservative projections)... $286,517 in today’s dollars.

His mate -- Harry Holden -- has the same $10,000, but he goes with MLC MasterKey Super Fundamentals.

He earns the same as Freddy, and works just as long.

And when he clocks off at 60, he’ll pocket $255,314.

In other words, despite being in a balanced fund just like Freddy, he’s $31,203 worse off.

Struth!

That’s enough savings to buy you a Holden Cruze… though I wouldn’t recommend it.

Tread Your Own Path!

The $500,000 Headache

Hi Scott

I have made two horrible financial decisions: I bought two apartments off the plan in the Pilbara a few years ago from a dodgy ‘armchair developer’. We paid $1 million, and they are now worth maybe $500k. Even worse, one is in a trust/company structure. Our cashflow can handle the costs, but we are left with no ability to invest. My question is, who do I go to for advice? Accountants do not ‘advise’ and there is no money in it for financial planners. I want to get my family out of the mess I put them in!

Christine

Hi Christine,

There are two questions here.

First, you want to know whether you should sell the properties.The only advice I can give you is common sense: time never turns a dud property investment into a good one … just an older one. So I’d suggest you offload them. But only you can pull the trigger -- it’s your money after all.

Second, if you do sell them you’ll incur a capital loss (in both your personal name and the trust/company name), which you’ll be able to bring forward and offset against the capital gains you get when you do make some better investments in the future!

Scott

Husband is Terminal

Hello Scott,

My husband, Trevor, has recently been diagnosed with a terminal condition. He will get a super payout of less than $100k. I work full time but am currently on leave caring for him. I have about six months of leave left. We have no debts, rent our home, and have recently used our savings on a final overseas holiday while Trevor is still well enough to travel. My question is, what is the best way to invest his modest super payout while still ensuring we can access it if needed?

Janet

Hi Janet,

I’m so sorry for your situation.

You’ve got a chance to sort out your financial affairs together, which will give your husband the peace of mind that you don’t have to do it on your own.

So I’d like you to review his will and any accounts that are in his name. Then I’d like you to call a FISO (Financial Information Service Officer) on 132 300, who’ll be able to advise whether you’re eligible for a carer’s allowance. (Note: the FIS is a free government service.)

Finally, in answer to your actual question, if you have any debts you should pay them down as a priority, then keep three months of living expenses in an online savings account (I call it ‘Mojo’). Any left over should be invested in shares, preferably through your super fund. This is something you can ask the FISO about as well.

Scott

Backyard Blitz

Hi Barefoot,

My husband works full time on his own business and I am a stay-at-home mum to three kids. We recently finished building a unit in our backyard and we have not subdivided yet, so they are on the one title. The back unit we own outright, and we owe $160k on the one we are living in. Hubby wants to rent both out and hope the bank will lend us enough money to buy our dream home. I cannot help thinking maybe we would be better selling both properties and living debt free. What do you think?

Lucy

Hi Lucy,

First, the statement ‘the back unit we own outright’ is irrelevant, because if they are on the same title the bank will hold both as security. Second (even though I don’t know the value of the units), your hubby’s plan sounds … terrible. You’d be living in a home with a big mortgage while renting out two units with only $160k owed. I agree with you. Sell, use the proceeds to buy your dream home, and live debt free.

Scott

Puff the Magic Dragon

Hi Scott

Interesting article you wrote on National Fraud Week. Your article hit home. I have two brothers: one living at home (aged 42) and the other (aged 50) living just around the corner. Both smoke the ‘magic dragon’ on a daily basis. Being from an Italian background, my mother will not kick out the one who’s living at home. Both are constantly asking for money, which she hands over, feeling sorry for them. Mum is on the age pension and has $70k in a savings account. What do I do?

Tina

Hi Tina,

It sounds like your mother is a wonderfully kind person.But this situation is totally her fault. She’s the one who’s enabled this behaviour with your brothers.And as a result they’re basically little boys living in grown men’s bodies. It’s all very … sad.I wouldn’t expect the ‘boys’ to have the ability to change -- we’re a few decades late for that. The only way anything will change is if you can convince your loving, caring mother that she’s actually causing her sons harm by enabling this behaviour. She’s not helping them, she’s hurting them (and herself). That’s the truth.Good luck.

Scott

The Biggest Mistake You’ll Make With Your Retirement

Well, it looks like the nation’s superannuation reforms are now in the hands of ... Pauline Hanson.

And that’s quite concerning, given that I seriously doubt Pauline could tell the difference between a hedge fund and a halal burger.

“Please explain?”

So until Canberra clears its political bowels, it seems that detailed financial planning is off the agenda. But that’s not necessarily a bad thing, because it gives us a chance to talk about the number one mistake people make when they retire.

And no, it’s not retiring with too little dough.

In fact, just the opposite. I’ve found the people who make the biggest mistakes in retirement tend to be those (particularly men) who have million-dollar nest eggs.

The Biggest Mistake You’ll Make With Your Retirement

It’s said that the two most dangerous years of your life are the year you’re born and the year you retire.

You made it through the first one, so let’s talk about the second, with the help of a case study:

Fifteen years ago, a friend of mine’s father retired.

He’d spent 30 years working as an engineer in a government department.

Then he turned the magic age of 54 and 11 months, which was the kick-off age for what is arguably one of the most generous retirement schemes in history -- a defined benefit pension that paid out a factor of his final wage, every month, until the day he died.

He’d never have to worry about money again.

As was the tradition, his workmates gave him a send-off on his last day. The irony wasn’t lost on him: he’d spent his entire life rushing around chasing his tail. And the day he could finally put his feet up and relax they gave him… a bloody gold watch.

Tick. Tock.

On the first day of his retirement, he woke up at the same time he always had. Had a shower. Put on his suit. Made some breakfast. Caught the bus into the city. And then … sat in a coffee shop and read the newspaper for three hours. After that he caught the bus home, wondering what the hell he was going to do with himself for the rest of the day.

The Curse of the Million-Dollar Super Fund

Here’s you: “Curse? A million bucks in my super? I’d, I’d…”

Here’s me: “Wake up whenever you want?”

Here’s you: “Yeah!”

Here’s me: “Go on the Baby Boomer equivalent of a Contiki tour (hello Trafalgar) and get pissed with other suburbanites?”

Here’s you: “Well, maybe once a year...”

Here’s me: “Sure. And for the other 11 months of the year you can sit at home, make smalltalk with your wife and her friends, and wait for your kids to drop off the grandkids ... every second Thursday.”

Here’s you: “Ummm, I guess. What else have you got?”

Here’s me: “Death?”

Most people work incredibly hard throughout their careers to provide for their families -- especially those who beat the odds and retire with million-dollar super funds.

And, particularly for men, their work comes to define them. Not only does it build their super, but it gives them their self-worth and something productive to do.

These workhorses don’t realise that their career has been to the detriment of friends, hobbies and cultivating other interests (well, besides drinking beer and watching the cricket), till after they get home from the Trafalgar tour.

So, what’s the solution?

The Golden Rule of Retirement

The golden rule of retirement is ... keep working.

Of course most people don’t have a choice, given that research from the University of Melbourne suggests that only 53 per cent of couples and 22 per cent of singles are on track to achieve a comfortable level of retirement income.

Yet that doesn’t mean you have to keep your existing job (especially if you’re a tiler with dodgy knees).

You can do something less labour intensive, and possibly not full time. And if you do, the Government will bend over backwards to help you.Once your reach your Age pension age, you’ll not only be able to draw a tax-free pension from your super, but in addition you can both earn up to $28,974 each without paying a cent of income tax. You can save up for a trip of a lifetime, and stretch it further by making it a working holiday. Throw all that into a retirement calculator -- it works better than Viagra!

Yet what if your advisor says, “You’re a winner, you don’t have to work another day in your life.”

Barefoot says, “Work anyway” (even if it’s a day or two a week).

Work is good for you: retirees who continue doing some kind of part-time work are found to be the happiest and the least likely to suffer depression.

Why not use the skills you’ve honed over your career to do some useful work?

I meet so many Uber drivers who are well-to-do retirees who don’t need the money -- they just like chatting to people and earning their keep at the same time.

And I’ve got one final tip for you: think about your legacy. What do you want to be known for? What is it that you could be known for?

You don’t even need to be wealthy. I know of a bunch of old tradies who build wheelchairs for kids in third world countries. And last week I wrote about a stay-at-home mum who built a hospital in Uganda. One of the greatest human needs is the desire to be useful and appreciated. Helping people is the key to your own happiness.

The bottom line is this: in retirement you need enough money to live… and enough to live for.

Oh, and you may be wondering what happened to our ‘coffee shop’ engineer.

Well, after three months of reading the newspaper, one day he looked at his gold watch and decided it was time to do something. He needed meaning and purpose. He had something more to give. So he went back and became a teacher, and worked happily away for the next 14 years.

Tread Your Own Path!

Dial a Bin, Get a Raise

Hi Scott,

I have recently become a Barefoot member and have changed so much of what I was doing with my money. Thanks very much! But I have a question for you: I am a small business owner of a skip bin hire company in Melbourne (Unlimited Bins) and, as I cannot go to my boss and ask for a pay rise, what can I do to get ahead?

Troy

Hi Troy,

Make each Friday afternoons a ‘Financial Friday’. First, look at your sales for the last week and make a stretch goal to beat it next week. Then, do one thing that will bring in more bucks before you clock off for the week (advertising? Chasing up a lead? Getting a testimonial?). Second, look at your expenses for the last week. Then, look at one expense and try and eliminate it, or at least minimize it, again before you clock off for the week. Financial Fridays are a bit like putting a Fitbit on your arm. The ritual of focusing on your revenue and expenses each week will have a dramatic effect on your profitability.

Scott

AMP Screwed Me

Scott,

I have invested $200 a month over the last 20 years in an AMP whole of life policy. After 20 years, I have a withdrawal amount of… $64,196! Divided by 240 months (20 years), that is $267 dollars per month -- or about what I gave them. I feel cheated -- I can’t even use that money for a house deposit. What’s more, the payout on my death would be $300k, which is not enough for my kids to buy a house outright in Brisbane. What do you recommend?

Dennis

Hi Dennis,

A whole of life policy is an old-school product that bundles together an insurance policy with a managed fund. It’s a wonderful investment -- for the insurance salesman who sold it to you. He would have been slung 125 per cent of your first year’s premium plus an ongoing trailing commission as high as 8 per cent.

You got snookered.

Now, I assume you already have adequate term life insurance in your super fund (if not, call your fund and get it). So now you need to focus on getting out of this policy without getting a thousand amps (or AMPs) up your rear end.

Let’s look at your options. You could keep paying your premiums. If so, your policy will mature when you reach 95 or you die (whichever comes first) and you or your beneficiary would receive the full insured sum of $300,000 tax free. But I wouldn’t recommend it. Or you could surrender the policy and take the $64,196, but I wouldn’t recommend that either. Your best option is likely to be to convert it to an ‘endowment policy’, which can mature in at least five years’ time.

Still, given the thousands of dollars of commissions you’ve paid over the years, I’d encourage you to ring up AMP and ask them to run the numbers on the best outcome over the next five years.

Scott

Brexit Blues

Hi Scott,

My husband just inherited money from his mother in the UK. Unfortunately, the transfer to his UK bank account came through late last week as Brexit unfolded. We plan to use the money (250,000 pounds) for our retirement funding. However, the exchange rate has just wiped out a depressing chunk! We need to know what the cheapest and most reliable way is to get the money out of the UK so we can act as soon as the exchange rate looks more favorable. We're hoping it will bounce back up at least partially over the next few days or weeks. Help!

Marg

Hi Marg,

Yes, the pound got shirt-fronted by the Brexit vote. (My view is that Brexit will be like any other divorce: it’ll get dirty, it’ll be expensive, and it’ll drag on longer than it should.)

Right now the market says a pound is worth $1.80. However, if you look at it over a 10-year period, the pound has traded from as low as $1.44 (just over three years ago) to a high of $2.62 (during the GFC). So in that context, last week’s fall was a mere blip.Now, unlike most finance guys (middle-aged white men in suits), I’m honest enough to tell you that I have no idea what the pound will do in the future. No one does. ‘Hoping’ the currency will bounce back over the next few days or weeks is not a strategy.

The bottom line is that you can’t control the currency, but you can control how much you pay to transfer the funds to Australia. Generally speaking, avoid the banks (who will slug you with fees, then hit you again with a terrible exchange rate). Instead, use a regulated currency exchange specialist like OzForex or CurrencyFair.

Scott

A Nasty Surprise from the Bank

Hi Scott,

After saving for eight years, my husband and I finally have a deposit to buy a family home. So there would be no nasty surprises when applying for a loan, we ordered copies of our credit files. As it turns out ... we don’t have one. We’ve never had any debt before, or even a phone plan. I’ve been advised to get a credit card ASAP or we won’t get a loan. Is this true? I thought maybe our proven savings and reliable employment history might be enough for the bank to lend to us.

Penny

Hi Penny,

Lean in close, because this is very important.

The next time you meet the person who ‘advised’ you to get a credit card, here’s what I want you to do:

Cock your head to the side. Raise one eyebrow. Purse your lips. Then say, “Talk to the hand, girl, cos the face ain’t listening”. Next, lean back, and wave your index finger at them, while wobbling your head, and say: “The Barefoot Investor tells me that all I need to get a loan for a home is a good deposit, a great savings record, a reliable employment history, and the basic 100 points of identification.”

Puh-leez!

Scott

Who You Should Have Voted For

Happy new financial year!

Actually, the start of the new fiscal year won’t be that happy for everybody.

I’ve always thought that politics was showbiz for ugly people, and the weekend’s non-election had more twists and turns that an episode of House of Cards.

It seems like the only real winner from the election so far is Nick Xenophon, who looks like he’ll be able to wield a big stick in the new parliament. Over the years I’ve had a bit to do with him, and I quite like the guy.

So, how will he influence your hip pocket?

Well, negative gearing reform is all but dead and buried.

Xenophon is pro-negative gearing … he’s apparently got eight investment properties himself.

He’s also in favour of a Royal Commission into the banks, and for cutting super entitlements for the wealthy. Though we’ll have to wait a while to see what happens with the Coalition’s proposed changes to superannuation.

The bigger problem is this:

With a potentially hung parliament, whoever becomes Prime Minister will spent much of their time just trying to keep their job (and the rest of their time massaging the egos of the cross benchers).

So in terms of reform, don’t expect much to happen in the next three years (or until we get sent back to have another go at voting). And if there’s crisis, like a GFC Mk 2, don’t expect any strong leadership at the helm.Of course we don’t actually know how any of this is going to pan out yet … but we’ll keep you informed.

And now, here’s my nationally syndicated newspaper column.

Who You Should Have Voted For

As a finance guy, I look at both political parties the same way I look at a separated couple who have leased BMWs and $48,000 each in credit card debt, but are trying to one-up each other to win their kids’ affection.

“Hey Tammy, do you want a pony?”

“Hey Timmy, do you want … umm… Delta Goodrem to play at your eleventh birthday party?”

Let’s be honest: what both sides really care about is who gets to drive around in the fancy white car with the little Aussie flags on the bonnet (hell, even the Greens want flags on their Prius).

It’s enough to turn you into a ranty-tanty Alan Jones. Or, in my case, to feel fed up with the lot of them.So today, in honour of the political Punch-and-Judy show, I’m going to share with you the stories of two people who genuinely deserve your vote.

They’re not wealthy. They’re not seeking election. They’re not wanting handouts.

They’re people like you and me.

The Country Mum Who Built a Hospital

“What am I going to do now?”

Helen Brown was a typical stay-at-home mum, wondering what to do with herself after her fourth and final son left the nest.

“We are not wealthy. We live in Kyabram, and my husband runs a small signwriting business. We’d never been overseas before, so when the boys left we decided we should have a holiday”, says Helen.

So in 2007 Helen and her hubby saved up and went to Uganda.

They quickly realised they were more interested in meeting people than watching animals, and they struck up many friendships during their travels. They stayed in touch with one bloke they met, a community leader called Ssenwogerere (or David for short).

After they got home, David wrote to them and mentioned that five elder women from his village needed to raise $200 as seed capital to get into the chicken business. Helen decided she’d do some fundraising in the Kyabram community, and ended up raising the dough.

The following year, she saved up and took two of her sons to the Ugandan village to meet the women.

That trip was a turning point for Helen and the village of Lubanda. When she returned home she started up HUG (Help Us Grow) as a not-for-profit organisation to help the village community help themselves.

Helen is not religious, she believes passionately in a hand up rather than a handout, and she doesn’t draw a wage from HUG. “Every last cent goes to the community”, she tells me.

Small chickens?

Hardly.

Since 2008, HUG has built the village a community centre where the locals come together and learn new skills, a secondary school, and a medical clinic that serves a population of around 50,000 people.

How’s that for a legacy?

“I go every year. This is my tenth year … and I spend three months there each time”, she tells me.

“Why do you do it?”, I ask.

“Because it fills me with absolute joy.”

The Man Who Never Forgot

Chennupati Jagadish grew up dirt poor in a small village in southern India.

He may never have gone to high school if it weren’t for a kind teacher who invited him to live with his family and study.

And you could say that Chennupati made the best of it. He went on to become one of the world’s leading physicists, lauded for his pioneering work in nanotechnology. He’s even received an Order of Australia for his contribution to physics, engineering and a whole bunch of other stuff that goes straight over my head.

The dude is seriously accomplished (and what’s more he’s a Barefooter, which is how I heard about him!). For a boy who studied by a kerosene lamp, he’s come a long way.

Now there are plenty of people who get to the top of the tree, only to forget the kind people who helped them along.

Not Chennupati.

Despite being on an academic’s wage, he wanted to repay the favour by giving students from the developing world the same opportunity he had all those years ago.

So he and his wife ploughed $140,000 of their own cash into an endowment fund. It pays all the students’ costs -- airfares, living expenses, the whole enchilada -- while they’re studying away from home.

“It’s important to remember the people who helped me, and to express our gratitude. I want to leave my mark behind me, and our endowment will continue for ever.”

Again, how’s that for a legacy?

“I’m a scientist, and I publish a lot of papers”, says Chennupati, “but the most satisfying thing in my life is helping young people.”

Living Your Legacy

I’ve shared these stories with you today for two reasons:

First, for the past 55 days you could be forgiven for thinking you live in southern India, or Uganda, with all the problems the pollies have spooked us with.

The truth is we live in the greatest nation on earth. I mean, where else in the world could one of the biggest election issues be changes to super: “You mean I can have only $1.6 million in my super fund tax free … THIS IS AN OUTRAGE!”

Second, you don’t have to be a politician to make things happen. Hell, you don’t even need to be wealthy.

And that’s the real story here: Helen and Chennupati have, each in their own way, created a legacy that will live much longer than the next election cycle.

Tread Your Own Path!

Money Makeover

Hi Scott,

My wife and I used to have three investment properties -- and we hated every minute of it. Now we own our house outright, and it’s a bloody good feeling. We are happily married with two kids (5 and 7). Our situation now is like this: we have NO debt (I mean zero), a combined income of $90k, super of about $75k, shares worth $25k and cash $25k. For the first time we have surplus cash that is not going to banks or rental agents, so please give us some direction. I do not want to waste it.

Jim

Hi Jim,

You rock.

When you don’t have to make a monthly repayment to a bank, you can really start to build wealth.

Here’s how:

Based on what you’ve told me, you’re probably picking up some Family Tax Benefit (around $118 per fortnight, more if one of you is on a low income).

So start up an investment bond for your kids (a bond can be kicked off with about $1,000) and then every month add your Family Tax Benefit to the bond.

You won’t pay any tax on the earnings, and in 10 years you can pull out the lot tax-free (or leave it to grow, and give it to your kids when they’re older).

Best of all, Centrelink ignores investment bond earnings when they work out your Family Tax Benefit.

Then I want you to turbocharge your super.

Make sure it’s in an ultra-low-fee fund. My standard advice is to boost your pre-tax super contributions to 15 percent (talk to your bosses about salary sacrifice).

If you do that, by age 67 you’ll have over $600,000 (in today’s dollars). But with your mortgage paid off, and your Mojo, I think you should challenge yourself to do more than that.

Scott

Life in the One Per Cent

Hi Barefoot,

I am 21 and in my third year of a medicine degree. I have just found out that I will be receiving a generous $100k inheritance from my late grandfather to be held in trust until I am 25. The executor is arranging an accountant to sort out the trust. Firstly, do I get any say in how the money is managed? Secondly, how would you recommend I invest it if I am able? I realise this is a huge headstart in life and want to make the most of the four years in trust.

Sincerely,

Tom

Hi Tom,

You’ll have to read the trust deed, but I doubt you’ll have much say in how your money is managed. Given your grandfather was smart enough to make you wait till you turned 25 (and shaken a bit of stupid out of your system), to get your hands on the loot, I’m sure he’s thought it through. Best to talk to the executor.

Now, in four years’ time you’ll have $100,000 (plus earnings) and you’ll have your medical degree. From an income perspective, you’ll eventually reach the top 1 percent. That doesn’t automatically mean you’ll be wealthy, though -- god knows the doctors, dentists and football players I’ve worked with who don’t have two bob to rub together. So the way to honour your grandfather is to start preparing now, by learning the basic building blocks of wealth and low-cost, long-term compound investment (keep reading my column!).

Scott

I’m a Scaredy Cat

Hi Barefoot,

I am a financial scaredy cat with no idea! I am 34, my partner is 24, and we are awaiting her permanent residency to come through as she is English. We have almost $50k in an ING savings account and no assets but want a house and children (has to be IVF for lack of male parts in our relationship!). I also have a car loan that is costing me almost $600 a month. We earn $85k and $50k but my partner is only on a temp contract until she gets residency. What should we do?

Kim

Hi Kim,

There’s no need to be a scaredy cat -- we’ll make this really simple.Use some of that $50,000 to pay off the car loan immediately. Then promise me you’ll never borrow money to buy a car again.

Next, open another account and call it ‘our IVF account’. Instead of paying $600 every month towards a car, pay it towards the IVF. In eight months you’ll have nearly $5,000, which is enough for a single-cycle IVF treatment with a top-notch provider.

In the meantime, keep bashing away at your home deposit. With a combined income of $135,000, it won’t take many years to save a 20 percent deposit -- as long as you master the trick of living on one income and saving the the other.

In a few years’ time you should almost have the Triple Ms -- Mortgage, Midget -- and, depending on who wins the election, maybe even Marriage!

Scott

Help, I’m Desperate

Hi Scott,

I am writing this because my wife told me last night that she has run up a large credit card debt (the figure she will not say). We are both in our mid-forties, earning $80k and $65k. We have a mortgage of $465k and personal loans of around $25k. I feel really stressed about our financial situation. To me it feels like we are running out of time to own our home before we retire. Please help, I’m desperate.

Adrian

Adrian,

I could be wrong, but in almost every case I’ve come across where a partner has secretly run up a large credit card bill, there’s something deeper going on. In other words Adrian, they do it for a reason -- even if they don’t know it. Gambling? Spending? It’s all an escape from something. Until you find out what your wife’s running from, you’ll continue running in different directions.

Thanks for your support.

Scott

The Nosebleed Section

Hi Barefoot

I have an SMSF with $2 million in cash and shares. I visited a financial planner and was recommended a plan that would cost $1,100 to draw up. It involved purchasing a number of Australian shares, a number of managed funds (both Aussie and international equities), and cash. The goal is to provide $100k income per year. The initial cost is $33k, which involves moving all my shares to a management platform and purchasing shares and managed funds. After that, there is an annual cost of $12k. Is this reasonable?

Terry

Hi Terry,

They’ve charged you a special rate that is only for high net worth individuals.

It’s called the ‘rich bastard rate’.

That upfront whack of 1.5 per cent of your assets is a real ‘bend over and touch your toes’ type of fee.

And, if you’re trying to earn $100,000 a year, these turkeys are putting you 12 grand behind the eight ball from the get-go.

The longer I do this job, the more I’m convinced that most people would be far better off investing their money in an ultra-low-cost superannuation fund, which will provide you with professional trustees and a range of index investments, at a fraction of the cost of what you’d pay these turkeys.How cheap? Well, you could bring your upfront down from $33,000 to ... zero. That’s because most of the big industry funds charge no entry fees on their investments. You could reduce your ongoing management fees from $12,000 a year to around $1,500 a year by substituting their actively managed funds with low-cost indexed options. And if you really feel the need you could spend $1,100 each year to sit down with an independent professional planner and have them review your strategy.

Terry, if you’ve earned $2 million bucks you’re no dill. Stop acting like one.

Scott