So We Went on a $225,000 holiday...

Hi Scott,

We bought 36,000 points in Wyndham Vacation Resorts, but we were retrenched two years ago and have had only part-time employment since then and are struggling to keep up with the club fees of $219 per month. My partner needs two operations over the next year, and we don’t expect to be able to go on holiday anytime soon, or for any extended period in the future. We are considering just not paying the club fees anymore and forfeiting our points. What would be the consequences of doing this?

Amy

Hi Amy,

Oh for the love of coconuts!

You bought into a timeshare? Really?

Okay, I’m going to take my blood pressure pills and read their very glossy product disclosure statement (PDS). I’m guessing you haven’t read the PDS -- if you had you wouldn’t have given them a cent.

If you don’t pay your annual fees, the manager will slug you a $15 fee for every reminder letter, and charge you 15% interest on the amount due. They may also appoint a debt collection agency.

If you still don’t pay after a final demand, you forfeit your entire membership, not just your points for the year, which Wyndham will ‘attempt’ to sell for the full price. There’s no guarantee you’ll receive anything back at all.

You have the right to lend, give or sell your membership -- but, as Wyndham point out, you shouldn’t expect to get anywhere near what you paid. The only ‘bargain’ you got was in the beginning, when they bribed you with the free tickets to Sea World to sit through their high-pressure pitch-fest.

The current price for a membership with 36,000 points is $86,940.

Good lord.

If you’d put that money, plus your $219 a month, into a good Listed Investment Company (LIC), it would be worth around $225,000 in ten years’ time -- at which time you’d be earning $11,250 a year in dividends. That’s enough for a very nice holiday to wherever the hell you want. Plus massages.

You can sell your membership privately -- either on eBay or Gumtree, or through a number of web-based services which specialise in resale of timeshare ownership (though it’s unlikely you’ll recoup much of your initial cost). That’s what I’d do.

Scott

Double Tax Hit

Hi Scott,

After losing my engineering job last year, I have been working multiple part-time positions and taking occasional work opportunities when they arise. I am in the same position I was at university, with one job taxed at the normal rate and all other ‘second jobs’ taxed at a much higher rate. What is the Government’s rationale for taxing additional income like this, and is there any way around it?

Max

Hi Max,

One day a bloke who didn’t want to take a second job, and instead wanted to spend his weekends drinking frothies at the 19th hole, gave this excuse to his wife:

“Love, why would I bother working a second job … I’ll lose it all in tax.”

And from that point on it became one of Australia’s great urban myths. So let’s clear it up:

Whether you work one, two or 20 jobs, the same tax scale applies. Most people nominate one job to claim the tax-free threshold on (in fact they can claim the threshold from more than one job if their total income is below $18,200). And it simply makes sense to claim the tax-free threshold from the highest-paying job. This is good news for you because you now work as you want, and you know that you won’t be penalised.

Do the work, earn the money, pay the tax.

Scott

Tax-free Income

Hi Scott

We recently moved to Dubai (yay -- tax-free income!). In six months our first investment property in Australia, worth $230k according to the bank, will be paid. We plan to come back to Australia in March next year to purchase another property. Should we buy another low-value but positively geared investment similar to the one we currently have, or should we go for a negatively geared CBD apartment in the hope of a capital increase?

Liz

Hi Liz,

If you don’t have any significant Australian income, then negative gearing is a terrible strategy (because it works by giving you a deduction on your income tax). Basically, you’d be taking all the risks a ‘normal’ negative gearing strategy delivers but with only half the reward, i.e. no tax benefit. Worse than that, if you’re non-residents in Australia for a period of time, you may not even benefit from the 50% CGT exemption when the property is eventually sold. All up, your best investment (once you’ve paid off that property) is to diversify your investments into the owning the world’s best businesses.

Scott

50 is the New 40

Hi Scott,

I am a recently separated woman of 50. After settlement, I might get about $140,000. First, what are the chances of me getting a loan at this age? (I earn $70,000 a year.) Second, if I do get a loan, am I better off buying two smaller investment properties to rent out or one to live in?

Thanks,

Donna

Hi Donna,

Fifty is the new 40! You’re still young, though a bank will look more closely at your ability to pay a loan than with someone younger. What’s more important to a lender, though, is having a secure income and a decent savings history.

Assuming you’re planning on working until retirement age (which is 67 for you), you have 17 years to repay a mortgage. That’s totally achievable, given you’ve got a very healthy deposit.

I’d ditch the idea of buying two smaller properties. Instead, buy a home for yourself and make getting rid of the mortgage ASAP your priority.

If you want a tax-effective way to secure your retirement (which you also need to do), start salary-sacrificing into super. Yes, that’s going to be tight on your income, but plenty of people have bought a home, and topped up their super, on much lower salaries.

Scott

Love Me Two Times, Baby

Hi Barefoot,

My fiancé and I live in a large regional centre. We have a family home on a 30-year loan which we are on track to own in 12 years. We are now thinking of purchasing an investment property in an improving area -- a two-bedroom unit for around $120k returning $170 p.w. The thing is that in our town the real estate market does not grow quickly, so there are slow capital gains, though rental properties can yield 6% to 7% returns. Thoughts?

Tom and Rach

Hey guys,

That ‘6% to 7%’ is the gross return; let’s look at the net.

If your property is rented, say, 48 weeks per year (unlikely for a two-bedroom unit), you’ll bring in $8,160 in rent.

From that, deduct your loan repayments, agent’s fees, rates, land tax, maintenance, body corporate fees, depreciation, accountant fees … need I go on?

In a good year, you might break even.

In a bad year -- when the hot water cylinder blows up and your tenants go AWOL -- you’ll lose money.

If you lose money, you’re relying on capital growth (selling your house for more than you paid), which, as you say, doesn’t happen quickly in your area. And if interest rates rise, can you put the rent up? Probably not.

If you’re on track to own your family home in 12 years, you could probably bring that down to eight by concentrating on that, not being a landlord. When you don’t have a mortgage payment, you can really build wealth.

Scott

The Real Secrets of Success

Do you know the biggest lesson I’ve learned from answering thousands of people’s questions?

Most people ask the wrong question.

They frame it like it’s black or white. Cut and dried. A hopeless situation with no way out.

(Whether it’s true is beside the point -- it’s true for them.)

Yet every once in awhile I come across a crazy person who asks different questions. Today, I’m going to share with you three examples of thinking different, with three of the major financial decisions you’ll make: a car, a house, and a career.

The Car that Comes with a Year's Supply of Petrol

Car dealerships have their sales process finely honed.

The aim of the game is to upsell you -- that’s why each model has different price points.

Let’s take a look at the difference between the base-model Holden Commodore and the top-of-the-range Calais, which sells for $15,000 more.What do you get for that?

A wankier sounding name for starters.Leather seats, and a heater for your buttocks. Some faux-wood trim. A fancier gear knob. Alloy wheels.

“Do I deserve to have a toastie tushie?” you ask yourself.Yet you’ll make a better decision if you ask a better question: what could I spend 15 big boys on that would make me happier?This question leads to different answers. Fifteen grand could buy you:A year’s worth of petrol, insurance, registration, servicing, car washes, and pine tree air-fresheners.

Or a dirty weekend away each month for a year (with luxury spa treatments), plus a brand-new leather couch, a Sonos stereo system, and one of those over-the-top 60-inch televisions.

Or it could wipe your credit card debt, put three months of Mojo in the bank, plus pay for a slap-up celebratory dinner with an $80 bottle of hoity-toity plonk.

Or you could build a startup coffee-cart business which raises $30,000 a year and channels it to Vanuatu to help build classrooms, libraries and schools. That’s what Andrew Mellody, the 31-year-old founder of the award-winning social enterprise Co-Ground, would do.Then again, Andrew thinks differently.

The Caravan of Courage

Lots of young people complain that they can’t afford to live in a cool inner city area.

Andrew, who doesn’t draw a wage from Co-Ground, asked a better question: “How can I live in the area I love and still devote all my time and most of my money to my charity?”

That question led to an entirely different outcome. In fact, it led to him to Google Maps, where he pinpointed homes, with big backyards, in the area he wanted to live. Then he did a letterbox drop of those homes, explaining who he was, and that he’d like to rent part of their backyard for an old caravan he was doing up.

His plan worked. He got to live in his own four walls (with wheels!), in the area he wanted, for a fraction of the cost of renting. More importantly for Andrew, he got to devote his time and effort to Co-Ground, which he continues to do with impressive results.

The Multi-Millionaire Shoestring Start-up

Another mate of mine sold his financial services business and became one of the wealthiest people on the planet. (You and I are also among the richest people on the planet -- it’s just this guy is richer than all of us -- particularly after he and his partners sold the business for a nine-figure sum).

The business he sold had a thousand staff, offices around the world, and a corner office that overlooked the Sydney Harbour Bridge. Caterers would bring perfectly crafted cupcakes to client meetings, and real coffee (not from a pod).Yet it’s what he did next that’s really cool.

Having spent 30 years helping rich people get richer, he noticed that it didn’t seem to make them (or their families) any happier.

The clincher was that with the windfall from selling his business he was now in his former clients’ position. Yet instead of asking, “How do I turn this pile of money into an even bigger pile?”, he asked “How do I fix these people’s families and their finances?”

That question led him to starting a new business that helps ultra-wealthy families deal with the complexities and stresses of managing intergenerational wealth. And believe me, mix one part unearned wealth with two parts blended family, and you’ve got more drama than an episode of Real Housewives.

His business is doing pioneering work with ultra-high-networth families. He helps them create a legacy -- making meaning from their millions by helping others. He teaches people who are swimming in more money than Scrooge McDuck to spend it in ways that bring genuine joy to themselves and others, instead of living like, well, Scrooge McDuck.

You might think that if you’re targeting the Rich List crowd you’d need swanky harbour-view offices. Not so. He and his team work from their homes -- around their families. When they need to meet with their wealthy clients they use their boardrooms, or take them out to the best restaurants. “I’m having an absolute ball”, he says, “but, more importantly, so are my clients and the people they help!”

Let me close this column with possibly the hokiest thing I’ve ever written -- but it’s nonetheless true: the quality of your life, and your future success, depends on the questions you ask yourself. Ask different questions, and you’ll get different answers.

Tread Your Own Path!

Knock Some Sense into My Mum

Hi Scott

I need you to knock some sense into my mum! My parents are both in early 50s, and both have no money in super (they are self-employed and do not pay themselves any). She now says she does not want to “keep paying someone’s else's mortgage”, so they are saving madly for a house. She is looking at houses worth $600,000 with a deposit of 10%, but I am suggesting she should start paying into her super, buy a small house when we all leave the nest, and enjoy her later years (not in debt!). What say you?

Matt

Hi Matt,

You’re making total sense, and you’re totally right -- but that totally doesn’t matter. Your parents don’t want to have their dreams doused by their own son! They are thinking emotionally, while you are thinking mathematically. So take a leaf out of a politicians playbook -- get someone else to deliver the bad news. Arrange for your parents to see an independent financial advisor, who’ll surely tell them the same thing. Then just agree with the advisor.

Scott

Double Your Money

Hi Scott,

My waffle-free question is this: is Saivian a scam/pyramid scheme? I searched your website but “Nothing Found”.

Cheers,

Ian

Hi Ian,

Unfortunately I don’t keep a list of every internet scam on my website. So go to Google, right? Well, interestingly, the scammers seem to be getting better at gaming Google -- manipulating the search engine ranking so they can bury their bad press. (Even searching ‘Saivian scam’ brings up pages in which they say how good it is.)

That means you’re going to have to do something people haven’t had to do since Google was invented: think for yourself.

The Saivian website describes their service, which appears to be some form of network marketing, as “almost like DOUBLING your money in value every year by simply doing something you have always done”. Sounds like bulldust to me. Frankly, their website has a distinct ‘spray-on-hair-in-a-can’ feel to it.

Scott

Saving for Our Disabled Son

Hi Scott,

Our 18-year-old son has a disability. He is still at school and earning a pension, which provides him $18,950 p.a. We are saving all this money, and so far have $35,000 in a high-interest savings account (earning around 3%). We would like to invest some of his money wisely in an ethical fund. His income can then grow until the day he can live independently. We guess this will be over five years away. What would you recommend?

David

Hi David,

As far as an ethical fund goes, investment bank UBS has launched a series of Exchange Traded Funds (ETFs) with ethical ‘tilts’ that screen out companies involved with tobacco, weapons and Mariah Carey. Your son can earn $4,264 without the pension being reduced, so he’d need over $150,000 before there was any impact under the Centrelink income test.

But there’s also a ‘question behind the question’ here: how do you deal with the fact that, one day, you’ll be gone and your son will have to fend for himself? Depending on the nature of his disability, I’d use the next five years to teach him the behavioural building blocks of personal finance. My direct experience working with people with mental disabilities is that they have the ability to be very good money managers.

Scott

The Acorns App

Hi Barefoot,

I was wondering if you could look into ‘Acorns’ and give us your thoughts. This new investing app was on the news last week.

Thanks,

Monique

Hi Monique,

In the last few weeks I’ve had a closer look at Acorns.

It’s basically just an app designed to make investing small amounts of money easy.

The app collects small amounts from your bank account (like rounding up your purchases), so it’s like investing loose change. You can set it to regularly drag money out of your account as well. Acorns then invests your money into Exchange Traded Funds (ETFs).

My problem with these ‘robo-advice’ apps (as they’re sometimes called) is that they add another layer of fees. It’s cute if you’re just getting started (you have to be over 18 to have an account), but if I were serious about investing my savings, I honestly don’t think I’d bother.

Scott

Professional Poker Player Says “Hit Me”

Hi Scott,

I am 23 years old and play poker full time. I currently earn about $150k a year. The scary thing is, my family have come from nothing and have struggled financially their entire lives. I now have around a $250k net worth (though it fluctuates a lot) and am really unsure what to do with my money. I have zero debt, and have about eight accounts for budgeting as I am very strict on where my money goes. I also have $40k invested into Vanguard index funds. Do you have any advice?

Craig

Hi Craig,

I can help you with your finances, but with your poker playing I’ll have to defer to my good mate Kenny Rogers.

What advice would you give to Craig, Kenny?

“On a warm summer’s evening…”

Kenny -- get to the point -- we’re on a word limit here.

“Oh, sorry! You’ve got to know when to hold’em, know when to fold ’em.”

Thank you, Kenny.

Craig, you’re basically like any small business owner just starting up: you have fluctuating income but fixed living costs, and there’s a chance your business could go bust. So I’d treat your poker-playing like a business: have a set amount of capital you put into the business (and no more), then analyse the returns you’re achieving each financial year -- and only continue if it’s profitable. You should be proud of yourself -- there are very few people in their early twenties worth a quarter of a million dollars, and even less that are smart with their money.

Scott

Why Your Bank is Lying to You

Malcolm, I feel for you, brother.

On Wednesday, after the banks behaved like brats by not passing on all of the Reserve Bank’s rate cut, the Prime Minister held a press conference. He said -- essentially word for word -- the same things I say to my toddler each night at the dinner table:

“Your behaviour is just totally unacceptable. We treat you so well -- and this is how you repay us?! I think you need to explain your behaviour -- very clearly -- to your mother … because I am very disappointed in you. Now I demand that you eat all your vegetables!”

At which point my son pushes his bowl off the table and brussels sprouts go everywhere, and he grins at me as if to say, ‘and what are you going to do about it?’

Or in the case of the banks, they collude, collectively trouser $917 million … and grin even harder when Malcolm ‘demands’ they pass on the cut in full. They know he doesn’t have the mettle to put them over his knee and give them a politically incorrect spanking.

Yet the truth is, it’s not the banks’ fault for acting this way, any more than a tantrum-throwing toddler.

It’s our fault.

Just like parents, we set the rules and we decide what is acceptable behaviour:

We created these four precocious banking brats when we enshrined the ‘four pillars’ policy.

We underwrote their deposits.

And we have continually turned a blind eye to their naughty ways -- like when they rig interest rates, or when their financial planners rip off their customers’ life savings. Or, in the case of Commonwealth Bank, when they callously knock back insurance claims (like the case of the young dad with terminal cancer), simply because they can.

Former ANZ chief John McFarlane this week said he was ashamed at the reputation of our banks. "I joined the industry over 40 years ago where the bank manager was the doyen of the community".

McFarlane says that it’s no longer sufficient for banks to have an agenda "purely around shareholder value".

Easy for him to say, of course -- he retired in 2007 with a final salary of $4.2 million and a swag of shares worth $61 million. The bloke who took over from him, Mike Smith, was paid $88 million for his eight years of service -- over which time ANZ’s market value actually fell by 6 per cent. Where’s the value for the shareholder in that?

The banking lobbyists -- who I know and love so well -- will trot out the only argument they have: the Australian economy needs strong banks. And they’re totally right. The ‘net interest margin’ (the difference between what they pay on deposits and what they charge borrowers) needs to be maintained. Yet when four companies make a collective $30 billion in profits this year -- they’re in no danger of going broke.

Yes, we need strong banks, but what we need even more is strong customers.

The truth is that the banks are lying.

They can afford to give you an interest rate cut -- maybe even two or three.

You see, 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.

Here’s how to use it.On your way home from work, ring your bank and say this:

"I’ve decided to move my business over to Reduce Home Loans, who are offering me a comparison rate of 3.44 per cent. 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) they have to meet -- one of which is retaining profitable customers by giving them discounts to keep their business.

Sure it’s not as sexy as giving you a stock tip, but it works, and your gains are guaranteed.

Now let’s talk about another petulant child, Donald Trump.

Trump Says It's Time To Sell Stocks, Warns Of "Very Scary Scenarios" For Investors

Yes, you read that right.

The man who wants to be the leader of the biggest and most successful economy in the world is advising people to sell their stocks.

And maybe we should listen to him, because, like all things Trump does, he says he's the best.

While he’s admitted that he’s not much of a stock investor, he’s also claimed that 40 out of 45 of his stock purchases “rose substantially in a short period of time”. Analysis by Bloomberg suggests that if this is actually true it would rank him among the world’s top stock pickers.

More likely is that Trump is the Kim Jong Un of the stock picking world. The tubby leader doesn’t always play golf, but when he does he scores a hole in one, on every hole!

The world’s greatest investor of all time, Warren Buffett, is not having a bar of the Trump bulldust.

Says Buffett of Trump: “In 1995, when he listed Trump Entertainment and Resorts on the stock exchange, if a monkey had thrown a dart at the stock page, the monkey on average would've made 150% over the next decade. But the people that believed in him, who listened to his siren song, ended up losing well over 90 cents in the dollar. They got back less than a dime. I've really never known another businessman that brags about his bankruptcies.”

Yet maybe Trump has another angle for talking down the share market.

After all, according to S&P Global Market Intelligence, the performance of the Dow Jones in the three months leading up to a presidential election has displayed an uncanny ability to forecast who’ll win the White House. Historically, if stocks rise in price in the next three months, the incumbent party -- this year, Hillary -- wins the election 82% of the time. (And the opposite is true if stocks drop -- at least that’s what Donald’s banking on.)

Yet another reason to will the sharemarket higher.

Tread Your Own Path!

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

Defence Force Housing

Hi Scott,

We’re in our late 30s with three kids (16, 14 and 5) and a household income of $220k. Here are our assets: home $350k (owe $190k), holiday cabin $40k, boat $55k (owe $20k), Mojo $10k. Our accountant is recommending we buy an investment property from Defence Housing Australia -- taking out a $400k loan and only paying $100 a week. He says we will get a bigger tax refund and set ourselves up for retirement. I want to pay off our home asap and then invest. My husband says I am impacting our retirement success. What do you think?

Jenny

Hi Jenny

First, you shouldn’t invest solely for tax reasons -- though some accountants do, which is why so many of them got their clients caught up in those awful Managed Investment Schemes (MIS) which wiped out the life savings of thousands of retirees.

Anyway, if I were looking at your situation, I’d knock off the boat debt first and then salary sacrifice into super at $25,000 each. Then I’d aggressively pay down the mortgage. If you want to invest in a property thereafter, you should buy a quality family home in a good area, from a local real estate agent.

Steer clear of packaged ‘investment opportunities’ like Defence Housing Australia (DHA). Why? Because they’re too expensive. Generally you’ll pay anywhere from a 10 to 15 percent premium for a DHA property -- and the areas they build in may not be high growth. Plus, DHA charges a nosebleed 16.5 percent management fee each year of the lease. Tell your husband that I’m on your side.

Scott

I’ve Been Nabbed!

Hi Scott,

I read your column in the Herald-Sun on Saturday (“NAB-MLC Super Funds”) and became alarmed! My super fund is with MLC (Super Fundamentals, Horizon 6 -- Share Portfolio), which it seems you were saying has one of the highest fee structures (in relation to NAB). I have around $100,000 in super -- not much, I know. Should I change it to another fund and, if so, could you suggest one or two? Thank you.

Peter

Hi Peter,

The NAB, via their MLC brand, have the biggest retail super fund in the country -- but they’re a very long way from being the best. As I mentioned in my ‘road test’ of their super offerings, they’re the Holden Cruze of the financial world: average in almost every way -- except for their fees, which are way too high for my liking. Then again, what else would you expect from a bank?

I’d draw your attention to the latest super league tables, which show that the top ten performing super funds are all not-for-profit industry funds. SuperRatings data shows that industry super funds have outperformed bank-owned retail funds by more than 2.2 per cent over 10 years. That’s not necessarily because they’re any smarter -- it’s because they charge less fees.

Scott

My Husband Says I’m Playing Defence

Hi Scott,

My husband is out of bankruptcy in March 2017. He now looks after our three kids, while I work full time, earning $120k. I have a $200k home loan (value $850-900k), credit card/car loans totalling $20k, and $90k in super (my husband has $75k in super). Is it as simple as paying off the debts and investing $30k in super (pre-tax)? What about positively geared property? My accountant tells me I have to negative gear, but I want security!

Donna

Hi Donna,

If you want security, you should do the following.

First, open an online savings account and deposit $2,000 into it -- this is your Mojo account.

Second, pay off your credit card and car loans -- that’s the best return you’ll get on your money.

Third, increase your pre-tax contributions (to your ultra-low-cost super fund) to $18,000 a year.

Fourth, boost your Mojo account to three months of living expenses.

Fifth, sack your accountant.

Scott

Credit Card Roulette

Hi Scott,

I've recently received an inheritance of $200k. My partner and I have $60k debt due to his past job loss coinciding with my maternity leave. What should we do regarding the debt repayment of $60k, creating a Mojo fund and preparing to buy a house? I have some hardship agreements with closed credit accounts at 0 percent interest -- do I repay these? And can I negotiate a lower figure to pay out my debts without damaging my credit rating for future lending? It's hard to get a straight answer from the banks!

Mary

Hi Mary,

The first thing I’d check is whose names the debts are in. If they’re in your partner’s name, and the inheritance is in your name, you may be able to cut a deal with the banks. However, part of being a grown-up is honouring your debts. If I were in your shoes I’d repay the debts in full, regardless of whose name they’re in. It’s the right thing to do.

Next, I’d open up an online saver account and deposit three months of living expenses in it ($12,000), so that you have a sense of Mojo in your life. Then, I’d deposit the rest in another high-interest online savings account and label it ‘deposit’, and continue to add to it for the next two years (even if you can afford a home right now).

In the meantime, I have a challenge for you. Over the years I’ve helped a lot of people who’ve come into large amounts of unearned money. Most of them end up blowing it -- especially people like you, who have a track record of spending more than they earn. Please prove me wrong!

Scott

Five Questions You Need to Ask Before You Give Your Boss the Bird

Have you ever thought about flipping your boss the bird, and doing your own thing?

I’m sure you have.A survey released last week by the NAB found that one in three Aussies want to be their own boss.

The urge to bird is even stronger for young people -- one in two want to run their own show.

So let’s get one thing clear: owning your own business is the most reliable way to get seriously rich.

Yet it’s not all sunshine and cupcakes.

Like you, I’ve read the motivational stories of entrepreneurs who say relatable things like “I’m just a normal girl who sort of just stumbled onto this million-dollar business”.

Unlike you, I get to meet many of these entrepreneurs. Most of them are a little cray-cray. They are not normal. The people who make it to the top of their field in business are, in most cases, total workaholics, completely ruthless, and quite often a little unhinged.

(Guilty, as charged.)

It makes sense. After all, we’re talking about people who are willing to throw in a dependable wage, with entitlements like sick leave, holiday pay, superannuation and normal work hours, to back themselves against against better funded, more experienced competitors.

Okay, maybe you’re not setting out to be the next Richard Branson, but regardless, it’s a huge life-changing decision. So here are six questions to ask yourself before you flip the bird:

Question 1: Have you spent 20 hours a week on your start-up, while holding down your full-time job?

That’s the first question I ask people who tell me they want to quit their job to start their own business.

You’ll clock up 60 hours a week in a start-up … and that’s in a slow week. If you’re not already devoting 20 hours a week to your start-up, there’s a good chance what you’re really doing is running away from a job you don’t like.

You can do both for at least 12 months. If you can’t, you’re probably not cut out for business.I call this the ‘Trapeze Strategy’: don’t let go of the bar (your secure paycheque) until you’re safely holding the next one (your successful business).

If you start your business off part time, you may work out that full-time business in not for you -- but what you’ve got is a great part-time gig that can turbocharge your mortgage or build a huge investment portfolio. What’s so bad about that?

Question 2: Where are your customers?

That’s the second question I ask people.

Most of the time they come back with the three F’s: ‘friends’, ‘family’ or ‘Facebook’ (as in, ‘my friend says they’ll be my first client’ or ‘I’ll spread the word on Facebook’).

That’s not a strategy, it’s a plan for the weekend.

You need to know how much your best competitor has to lay out to attract a customer, and then work out how much profit they make on each sale.

The bottom line is that it’s not enough to be a good programmer or a good jewellery-maker -- you have to enjoy making sales and must be prepared to devote at least 50 percent of your time to doing it.

Question 3: Are you planning on getting into bed with anyone?

That’s the third question I ask, and there’s only one correct answer.

The answer is ‘no’.

I can count on one hand the truly successful business partnerships that have lasted decades, while the vast majority end bitterly. It’s like a marriage, only with money and no sex.

If there’s someone you want to get into business with, by all means sit down and create a sweetheart deal commission structure for them, but you want to own 100 percent of a business or zero. Trust me on this.

Question 4: Are you ploughing your life savings into the business?

Again, there’s only one correct answer.

Again, that answer is ‘no’.

(I’m not classifying a franchise as a business -- in most cases you’re basically buying yourself a 100-hour a week job. The real business is in selling the franchises, and it can be very, very lucrative.)

Small businesses are risky, and most of them fail.

Yet the good news is that you don’t have to stump up large sums. Case in point: half the small businesses from the NAB survey were started with less than $5,000.

Question 5: Does your family support you?

This question trumps the lot of them, because it will have a huge impact on those you love.

When I first met my wife (who, unlike me, wasn’t brought up in a small business family), I explained that owning a business is a lot like having a kid. The first year is like a bombshell -- you suffer sleep deprivation and total exhaustion. It gets a little more manageable over the first five years, but it’s still a slog. And, just like a parent, you’re never totally free from worry.

That being said, it’s the best thing I’ve ever done and, family aside, it’s my proudest accomplishment. I can work from anywhere in the world, see my kids grow up, and be 100 percent in charge of my time, and my income.

So if you’re thinking about starting a business, look at it this way:

The easiest way to make money quickly -- as in next week -- is to freelance. Even better, freelancing cuts through the bulldust and allows you to road-test your ideas, your pricing strategy and your skills … all without leaving the security of your day job.

In other words, start swinging on the trapeze!

Tread Your Own Path!

The Real Estate Mistakes Most First Home Buyers Are Making

“Aussie Dream is Dying” read a newspaper headline earlier in the week.

I happened to be reading the article as I was waiting for a coffee. So I turned to my hipster barista -- who was all beardy and tattooed and David Beckham-like -- and read him the following sentence:

“The Australian dream of homeownership will reach a tipping point, possibly as soon as next year, when fewer than half of all adults are expected to own a property.”

Barista: “Bang on, brother! Why would I bother spending my twenties saving for a deposit … it’s hopeless prices just keep going up. And what do you have to show for it -- nothing!”

Barefoot: “Well, nothing but … EIGHTY THOUSAND BUCKS.”

By my reckoning he’d put precisely as much thought into getting his neck tattoo as he had his long-term financial security. He’s not unique. After being Barefoot for 15-odd years, I’ve spoken to literally thousands of young people about making the biggest purchase of their lives -- here are the five biggest mistakes they make.

Mistake #1: They’ve given up

Ever wondered why news websites publish so many stories about an impending housing crash?

Because it’s clickbait to a generation that’s priced out of the market and have given up -- thinking their only hope for buying is a crash.

That’s a cop-out.You can’t plan your life around something you have no control over -- the only thing you can control is yourself, and your savings situation. The time to start preparing to seize opportunity is right now.

Brass tacks?The average full-time pre-tax wage in Australia is $75,000, or $4,800 a month in the hand. So, a couple both earning full-time wages could live off one income (very frugally) and save a $100,000 deposit in 21 months.

Still, your mind should be set on owning your home outright, rather than just limping over the line with a deposit. Think of it this way: saving a deposit is like the Socceroos beating Togo to qualify for the World Cup. It’s the beginning of the campaign, not the end.

Which leads me to the second mistake first homebuyers make.

Mistake #2: They buy a home when they can’t afford it

They mortgage themselves to the hilt.

There’s a reason Australia has the highest household debts on the planet: we borrow too much.

One rule that I’ve lived by, is to borrow less than the bank is willing to lend.

What comes after a bird makes its nest?

Babies … and Baby Bunting bills. And sleep deprivation. And, later, school fees.Professor Bob Cummins from Deakin University has found that financial stress has similar effects on the body as physical torture.

Is it any wonder that the median duration from wedding bells to divorce bills is 12 years?

The truth is that buying a home creates financial stress and insecurity -- until you manage to get ahead of your mortgage. As all homeowners know, running a home is expensive, costing up to 5 per cent of the purchase price each year.

And this is compounded if you take on more debt that you can afford.

Mistake #3: They buy an investment property first

Here’s the pitch that young couples give me: “We’ll buy an investment property to start off with, just to get our foot in the game, and then we’ll use the equity to buy our family home in five years.”

I’m yet to see this plan work (the only exception being couples who buy an investment property to eventually move into). Reason being, the upfront costs of owning a home, and the ongoing costs, take years to recoup.Bottom line: If you want a family home, save up and buy one.

Mistake #4: They don’t consider other options

My hipster mate had written off the entire housing market, because he wouldn’t live in a suburb whose cafes didn’t serve organic tofu and coconut water.

However, there are options if you really want to buy your own place. You can move to the city. Currently my prediction (made 12 months ago) of an apartment bloodbath in capital city CBDs by 2018 is going swimmingly, especially in Melbourne, with press reports of apartments being re-sold at discounts of up to 30 per cent from their original off-the-plan purchase price.

Some desperate developers are offering holidays to Fiji and Bali worth $5,000, for buying a $350,000 one bedroom apartment. (Is anyone that stupid? It reminds me of Homer Simpson buying a pirate pregnancy test just because it came with a free whistle.) Don’t trip to Bali or Fiji just yet. Prices are likely to go lower as the oversupply really kicks in.

Or you can move to a country area and have less of a mortgage, less stress, and more time to spend with their kids. That’s what I did.

Mistake #5: They don’t back themselves

Yes, we’re living through the greatest housing boom in history (according to The Economist).

However, there’s no reason you can’t get yourself a home if you want to -- even if you’re single.

When I met my wife, she’d bought a little apartment on her own (with an oven she found on the side of a road, no less!). No help from anyone -- just savings and a determination that a man didn’t need to be her financial plan. And the Barefoot community has heaps of single people on average incomes who’ve bought their (capital city) homes.

They’re everyday people, just like my hipster mate.

Tread Your Own Path!

Mixing It Up

Hi Scott,

Mate, what percentage of an investment portfolio should be Aussie shares compared to international shares? Considering Aussie shares provide dividends more than international shares (which are more growth oriented), I am not sure what mix I should have. What is your rule of thumb here? (Love your work -- keep it up!)

Cheers,

Arthur

Hi Arthur,

Very good question.When it comes to international markets, Australia is like a chihuahua at a dog show -- we represent only around 2 per cent of the world market. (Though we do have a big bark for a lapdog-sized market.)

Over the last century Australia has had the best performing stock market in the world. If you look back over 40 years, we’ve achieved roughly the same 12 per cent per annum returns as the rottweiler of the financial pound, the US. (International shares which include other countries have returned slightly less over the same period.)

It’s been a remarkable run; $10,000 invested 40 years ago would have compounded into $900,000 today -- even more remarkable considering the backdrop of the dot.com bubble, the Asian debt crisis, the GFC, a couple of wars in the Middle East … and Pauline Hanson.

You’ll generally get better tax-effective income through Aussie shares (thanks to generous franking credits), but that’s not a reason to avoid going international. To diversify your holding it makes total sense. For a passive, very long-term approach, consider a split along the lines of 60 per cent Aussie, 40 per cent international.

Scott

Virtual Reality

Hey BF,

I am 26 years old and have about $6k tied up in CBA and AFIC shares, with the plan of buying another $5k worth and sitting on them for as long as possible (while incrementally buying more). However, I was recently looking into investing in VR (Virtual Reality) as it seems to be the next tech hit, and apparently the time to strike is now before it blows up. So I have two questions: what are your thoughts on investing in VR, and what is the best way for Aussies to buy overseas shares?

Thanks,

Mark

Hi Mark,

What are my thoughts on investing in Virtual Reality? None. I have no thoughts whatsoever.

What I do know is that most of the big tech companies are already ploughing billions of dollars into VR — Alphabet (the company formerly known as Google), Facebook (which recently paid $2 billion for VR company Oculus, which at least has a product on the market), Microsoft, AMD, Samsung and dozens of others.

Who’ll win the race? Again, I have no idea. However, I do have a solution for you. If you invest in a global exchange traded fund (ETF), you’ll get a small stake in all the technology giants in one easy purchase.

Scott

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