You’re Wrong, Barefoot

Scott,

Last week you wrote about MyBudget, saying it is not worth the money. But you’re wrong. Not everybody is good with figures like you. Some are very bad, like me. MyBudget has been brilliant at helping me set up a budget, pay my bills, and organise my financial year. I have found it a great stress-reliever to have skilled people close by to help me. I have referred several friends, who also love it.

Jane

Hi Jane,

Here’s my take.

To get out of debt -- and to stay out of debt -- you’ve got to get a bit of mongrel in you. You’ve got to get as mad as hell. You’ve got to reach the point where you scream ‘enough!’ and cut up your cards, pay the suckers off one by one, and swear to yourself ‘never again’. I’m talking about making deep behavioural change -- and that can only come from you.

You don’t get it by paying some overpriced, glorified budgeting software sales outfit thousands of bucks to wave some pom-poms and chant ‘you can do it!’

Last week’s question was from a couple who had $37,000 in personal debt, and they were asking whether they should pay MyBudget over $3,500 in the first year to help them tackle it. My advice to them -- and to you and your friends -- is to get angry and then put the money you’re paying to MyBudget towards paying down your debts even quicker.

Scott

When will the housing market crash?

Donald Trump reminds me of the bullies who teased me at school.

Anyone who stands up to him gets a put-down: ‘Crooked Hillary’, ‘Little Marco’, ‘Low Energy Ted’. His aim is to get everyone laughing at them, just like in a classroom.

And like all bullies, he only wins by getting you to doubt yourself -- rather than getting you to believe in him.

And that’s because it’s hard to believe in Trump.

He’s a liar. He cheated on his wife(s). Heck, he even wrote a book with the ‘Rich Dad, Poor Dad’ guy (Robert Kiyosaki) entitled Why We Want You to Be Rich -- ironic, given the authors have notched up five corporate bankruptcies between them.

And yet, in this week’s presidential debate, the ‘Big D’ actually said something intelligent:

“We’re in a bubble right now, and the only thing that looks good is the stock market. But if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble. And we better be awfully careful.”

Okay, so only a shrink can fully explain why Trump feels the need to label everything ‘big, fat, and ugly’ ... yet he’s right on one thing: we are in uncharted financial territory.

Right now, global interest rates are the lowest they’ve been in recorded history. In fact, in many countries interest rates are negative. Since the dawn of civilisation savers have earned interest, borrowers have paid it. That’s now been flipped.

Park the fancy economic talk and think about how ultra-low interest rates are affecting you:

Interest rates are the main reason your house value has increased so much. People aren’t earning more -- they’re just borrowing more. That’s how Australia wound up with some of the highest levels of household debt (compared to income) in the Western world.

And ultra-low interest rates are forcing retirees out of (safer) fixed interest and cash accounts, which pay two parts of bugger all, into the (riskier) stock market to earn dividends.

When interest rates go up, as they surely will, the bubble will burst -- and house prices will come down.

Here’s you: ‘Dude! When will that happen?’

Here’s me: ‘I have absolutely no idea, and neither does anyone else. Not even the comb-over king.’

Here’s you: ‘So what should I do in the meantime?’

Here’s me: ‘Read on.’

When Will the Housing Market Crash?

I’ve been the Barefoot Investor for 15 years. And for all that time I’ve been warning about our unsustainable debt levels. However, in that time I also bought my family home.

At the time I bought, I was convinced the market was overvalued. But I was sick of renting, and I fell in love. And history had taught me that prices can remain overvalued for many, many years.

Besides, no one can predict the future. As the excellent book Future Babble, by Daniel Gardner, proved, the more famous the forecaster, the more likely they’ll be as accurate as a dart-throwing monkey.

The truth is that there are no answers.

That’s why I saved up a 20 per cent deposit, and factored in a repayment interest rate of 10 per cent. And then I set about working my arse off to get the banker off my back, once and for all.

And lo and behold, over the years, interest rates halved, and the joint doubled in price.

Things could just have easily have gone the other way, of course. After all, I don’t have control over house prices. Or the direction of interest rates. And that’s why I didn’t bet on any of this happening.

I just bet on myself.

When Will the Share Market Crash?

Back in January, things looked grim.Wall Street had the worst start to the year on record.

The esteemed Royal Bank of Scotland’s dedicated analysts ... cracked.They told their clients to prepare for a “cataclysmic year”.

It made global headlines, and freaked everyone out with their bone-chilling recommendation:“Sell everything”.

Hold your haggis!

Truth is, scary headlines are good business, especially when they coincide with a market going down (remember that old adage, ‘if it bleeds it leads’). And besides, in an era of 24-7 tweets, and Brad and Angelina, no one ever has time to go back and check what they said.

So let’s do that.The Royal Bank of Scotland predicted that markets could drop by a fifth, and that oil could drop to $16 a barrel.

How’s that call looking today?

Well, oil is up 40 per cent, emerging markets are up 29 per cent, the US S&P 500 is up 14 per cent, US high-yield bonds are up 13 per cent, and even the ASX 200 is up 10 per cent.

Look, I’m not talking a potshot at a bloke in a kilt.

All I’m saying is that you could be right about a crash in the market, but wrong about the timing. And the upshot is you could be left blowing your bagpipes while the market doubles or triples.

So what can you do?

Well, when all else fails, use common sense.

I’ve long advised people heading to retirement to go from having three months of living expenses to having three to five years of living expenses by the time they retire. That gives you time to ride out the inevitable downturns. The rest of your money should be invested in good-quality shares that will keep your nest egg growing faster than inflation.

Finally, recognise when you’re getting played. One of the oldest tricks in the book is to prey on people’s fears. It gets people to do irrational things -- like voting for a big, fat, ugly orangutan.

Tread Your Own Path!

Barefoot, should I call off my wedding?

My column last week -- why engagement rings are a scam (and why you’ll buy one anyway) -- went off like a drunk uncle on the dance floor. I was flooded with emails.

Perhaps it’s because we’re in the peak season for weddings.

Or maybe it’s because it coincided with the finale of The Bachelor, where Richie chose his winning woman. Richie gave us a candid insight into the depths of his love and devotion when he confessed to the media:

“I had the biggest blue balls in Australia.”

What a man! What a catch!Now my older readers may not know who Richie is or, for that matter, what "blue balls" are.

Try googling it.

On second thought, don’t do that. Seriously. You really don’t want to do that.

Instead, let’s shift our attention from contrived reality television to three real wedding emails I received this week -- enough to make the Bachelor look blue.

Should I Call Off My Wedding?

Dear Scott,

I am 28 and getting married in two weeks. I am having doubts about going through with it for many reasons, most of them financial, which is why I am writing to you.

My fiancé is a real estate agent and owns his own agency, which is set up in a trust. There have been instances where employees haven’t been paid. He’s a big talker, which doesn’t go down well with my father, or my brothers, all of whom are tradies.

We bought a home for $1.2 million two years ago, but he borrowed the money, not me. So is the house debt mine as well? He also took out a credit card in my name, without my approval. And there are lease payments on his Mercedes-Benz (I drive a Kia -- but again, do I have to pay?). Please help me! Please don’t publish this!

Lisa*

(*name changed)

Yes, this is a real question … and yes, she didn’t want it published.

So I called her.

Barefoot: “Hi Lisa. Now I’m no Dr Phil, but when a bride-to-be is two weeks out from her wedding and she’s more concerned with her financial exposure than her flower arrangements … well, I think that’s telling.”

Lisa: “Do you think so?”

Barefoot: “Yes, I do think so.”

Lisa: “It’s just that we’ve already paid for everything ... and we won’t get our money back … and everyone’s RSVP’d … and it’s in two weeks!”

Barefoot: “You’re thinking about the next fortnight -- I’m thinking about the next forty years.”

Lisa: “I feel sick.”Barefoot: “This could be the luckiest day of your life.”

Postscript: On Wednesday morning this week I received the following text message from Lisa:

“Thank you for taking the time to call. I really needed to hear your advice. Wedding has been called off. Surprisingly, he took it well! Everyone has been supportive of my decision. Feel free to publish. It could give other people hope if they’re in the same situation!”

One wedding down, let’s go to the next email.

Who Keeps the $11,000 Engagement Ring?

Barefoot,

I just read your article on engagement rings being a rip-off. It was very timely because I certainly got ripped off. I proposed to my girlfriend of three years last November with a 1.2 carat ring which cost $11k. She said yes. Her phone went off one night when she was asleep and, long story short, she’d been banging another bloke! I called off the engagement, but get this, she won’t give me back the ring. Won’t even talk to me. I want the ring back. What can I do?

Ben*

Hi Ben,

Trust me, you don’t want the ring back.

What would you do with it? Give it to your next flame?

As I said last week, the truth is that buying an engagement ring is like buying a new car: the moment you walk out of the showroom, the price drops by 30–50%.

Now, given you were in a de facto relationship for at least two years, the ring will form part of the property division that you may want to pursue legally. The only problem with ‘lawyering up’ is that you could be throwing good money after bad (and money spent on lawyers in a relationship breakdown is almost always classified as ‘bad money’).

Instead, look on the bright side: she cost you only $11,000 (she’ll cost some other dude a lot more than that). You got off lightly. Good on you.(P.S. Tell her it was a cubic zirconia.)

Marriage, Mortgage, Midgets

Hi Scott,

Love reading your column each week! My fiancee is pregnant and we have a wedding coming up, all booked in. We then have less than five months to the birth of our child, plus a large mortgage that we cannot afford on only one income. Is my bank required to freeze my repayments while my fiancee is on maternity leave? I will be asking them either way, but please set my mind at ease. It is almost worth having her fired otherwise!

Terry*

Terry, Terry, Terry.

You really haven’t thought this through, have you, cobber!

What you’re referring to is applying for a ‘hardship variation’ on your home loan. You have the right to apply for a variation, and the bank is legally required to consider your application -- but they don’t have to agree to it.

Even if they do agree to temporarily freeze or reduce your repayments, they’ll get their pound of flesh by extending the loan and adding the interest on the end. It’ll cost you more in the long run. It’s like Usain Bolt sawing off one of his legs so he can compete at the Paralympics. Sure, it’s an option, but what’s the long-term cost?

Relationships Australia says that 80 per cent of relationships that break down do so because of money problems -- and you have more money problems than most. So look at the next five months as your Marriage Olympics: the two of you need to work out a realistic five-year plan. It’ll involve making tough decisions -- the first of which is to cancel your honeymoon. Sing it with me, Terry: “The honeymoon is over, baby, it’s never going to be that way … again.”

There’s No Need for Blue Balls (or Bank Accounts)

Don’t hold out like old Richie. If you’ve got a prolonged state of … monetary tension ... let it out by heading over to AskBarefoot and hit me with your best shot.

Tread Your Own Path!

The Barefoot Investor Made Me a Fortune!

Hi Scott,

You finally earned me some money! I looked in the paper and saw your horse -- Barefoot Investor -- running at Cranbourne last weekend. It was paying good odds and it came home! I turned a $10 punt into $63. Go you good thing!

Bruce

Hi Bruce,

A few of my punting pals told me about this nag. I’m the legal owner of the name and trademark, so I called the owners and made them an offer they couldn’t refuse: I told them that if they didn’t change the name they’d wake up with a horse’s head in their bed. (Only joking.) But they have changed the name. Now, I don’t encourage gambling, but in this instance … congratulations.

Scott

Go Pies!

Hi Barefoot,

La Trobe Financial offers amazing rates on term deposits -- 5.2 per cent for 12 months and up to 7 per cent for 24 months. You always say ‘if it’s too good to be true, it probably is’. (In fact, they sponsor Collingwood -- so that’s a worry!) I have $70k from a property sale and am looking to park it somewhere for 12 months. Should I check them out?

Paul

Hi Paul,

I wouldn’t do it. Then again, I’m a pretty conservative dude when it comes to lending my money out.

The truth of the matter is that La Trobe is lending your money out to people the banks won’t touch -- that’s why the interest rates they offer are so good.

Right now, everything is hunky dory: Australia has just notched up a record-breaking 25 years without a recession. But the law of averages says there’s a recession coming, and probably soon. And in the last recession depositors got screwed chasing higher interest rates.

The question you need to ask yourself is whether getting an extra 4 per cent on your money -- $2,800 a year -- is worth the risk of losing some of your capital, given that you’re not covered by the government deposit guarantee (which you would be if you put your money in a bank, up to $250,000).

Scott

Buying Bricks

Hi Scott

Just read about a company called BRICKX which lets you buy a ‘brick’ in a property investment with very small amounts of money. (They split a house into 10,000 bricks you can invest in.) With houses prices so crazy at the moment, is this a clever way of getting into the market? Any thoughts?

Natasha

Hi Natasha,

‘Shoot a brick!’, as my old man would say (well, something like that).

I took a look at one of the properties they’re selling a ‘fractional ownership’ of on their website: a two-bedder in Prahran for $1.2 million which currently rents out for $750 a week ($39,000 a year).

If you invested $100 into this property, it would take you roughly 31 years to get your money back via the rental income, assuming it’s rented out continuously (which it won’t be) and assuming there are no maintenance costs (which there certainly will be).

Ah, but what about the capital gains? Well, that’s what you’re banking on, obviously. But prices in Melbourne and Sydney are in a bubble and, in my humble opinion, are ripe for a correction. Then there’s the fees: BRICKX takes a 1.75 per cent clip when you buy and when you sell.

You’d have to have bricks in your head to touch it.

Update

BrickX have been in contact with me.

They tell me that some people have misconstrued my answer.

So, in the interests of clarity, here’s the deal:

There are two ways to make money in any investment:

First, via the income it delivers while you own it.

Second, via the capital growth.

BrickX provides a market to sell your bricks at any time. Depending on the cycle, that could be at a profit, or a loss.

My view?

If readers misconstrued my original answer, they will almost certainly misconstrue the “Total Estimated ROI” figure that’s stated for each of the properties: https://www.brickx.com/properties

Case in point:

A beginner investor could be seduced by the stated Total estimated ROI, thinking that’s the return they’ll receive.

However in reality, that ROI figure is based largely on the recent boom-time growth in property values, and it’s unlikely to be repeated.

Honestly, the only thing you can reasonably estimate is the net income it will deliver you. And that’s why I personally wouldn’t purchase a two-bedroom apartment for $1.2 million on a skinny 2.48% yield ...  and it’s also why I certainly wouldn’t be buying the above Balmain property on a 1.13% yield.

Scott

Can I Afford to Keep the House?

Hi Scott,

I am currently going through a separation and want to know if I am in a financial position to keep the house. The mortgage is $506k; the house was bought for $665k 18 months ago and is valued at $730k. I am now a single mother of two children on a full-time wage of $93k. I have job security as I work for the police. I was wanting to buy my ex-husband out, unless you can suggest something else I can do to keep the house.

Emma

Hi Emma,

Most mums naturally want to keep their kids in the family home after the divorce -- but it’s almost always a bad financial decision that puts them under more stress in the long run.

Your income is $5,800 a month -- plus your child support. Even without buying your husband out, you still can’t afford to keep the house. If I were you, I’d sell it and walk away with $100k.Get yourself a nice, quality rental and re-evaluate things in 12 months’ time. You’ll be fine. So will the kids. The main thing they need right now is their mother’s undivided attention, and with $100k in the bank you’ll be free to give it.

Scott

The Financial Fitness Trainer

Hi Scott,

My partner and I are looking at using a budgeting advisor like MyBudget to help us create a plan and stick to it. We earn $90k combined but have $7k on a car loan, $17k on a personal loan and $13k on a credit card. All due to our wedding and holidays! What is your advice?

Nate

Hi Nate,

I can see how MyBudget would be appealing. They bill themselves as being like a ‘personal trainer for your money’, motivating you to shed your debt. For this they charge a start-up fee of around $1,500, and then $40 a week. Yet maybe it’s the motivation you really need, right?

There’s just one little problem: you’re broke. And broke people don’t spend $3,580 a year on a bloody fitness trainer! Broke people find a piece of rope, tie one end around an old car tyre and the other around their gut, and jog up and down the street huffing and puffing.

It’s time for you to wake up and smell the seat salt son. The only way you’re going to get out of the hole you’ve dug for yourself is with grit, determination and a third job. Put your money where your debt is, and get puffing.

Scott

Terrified

Hi Scott,

By husband and I have $130k owing on our home, which is worth about $500k. We are in our mid-40s and only have around $300k combined in super. We are now thinking of purchasing a house-and-land package for $450k to rent out as an investment (and tax offset), but my mother says ‘no, pay the house off first’. I feel we have been too conservative with our money, and I am terrified that time is running out. It is time to take action, but what is the best thing to do?

Carla

Hi Carla,

I agree with your mum. Though that being said, what your mum or I think doesn’t really matter. What matters is that you and your husband decide to behave like grown ups and own your own freaking decisions. Know this: in all the years I’ve been doing this, the people who make financial decisions based on feeling ‘terrified’ or out of fear that ‘time is running out’, almost always live to regret it.

Scott

Burnt to the Ground

Hi Barefoot,

Our house burnt down due to my laptop catching fire. It is a total loss. I want to make sure I make the best decision with the insurance money, but it is overwhelming. Our mortgage is $286k, while our insurance is $280k for the house and $110k for contents. Our options are to rebuild the house (with the insurance company helping us) or to take the money. What should we do?

Mandy and Steve

Hi Guys,

I feel for you guys.

Hindsight is a wonderful thing, and a few years on from our fire, here’s what I’ve learned:

Your insurer is not your friend. They are not there to help you. Their job is to pay out as little as possible.

So, read your contents policy slowly. Then read it again. If need be, think about paying an insurance professional to act on your behalf.

The second thing I learned is not to rush any major decisions. When it happened to us, all I wanted to do was get back into our house, and get our family back to normal. Yet the truth is that things won’t be normal for two years -- at least. That’s your reality. The sooner you accept it -- the better long-term decisions you’ll make.

Scott

Father’s Day Present

Hi Scott,

I know this is not a money question -- I just want to thank you for your article on ‘The Ultimate Father's Day Present’. That is the best advice ever. I lost my husband (and our children lost their father) two years ago. Even though our children are adult age, your column still made me cry. I just wish they could have sat down with him and asked these questions. Thank you for being so sensible and for appreciating what you have. Let’s hope others appreciate the fathers in their lives. We miss Our Hero very much.

Di

Thanks Di,

I got a lot of positive mail about this one, but yours really struck a chord.

For those of you who missed it, what I advised for Father’s Day was to sit down with your dad and ask him some basic questions, like ‘How did you meet Mum?’ and ‘How would you like to be remembered?’

Even though Father’s Day is done and dusted for this year, it’s a great thing to do with your dad at any time. And you’ll always have something to remember him by.

Scott

A Binding Will

Hi Scott,

Due to tragic circumstances my son was killed over three years ago, and as a result I received his super. However, the claim process was an ordeal and most upsetting. I was a ‘non-binding beneficiary’ so I had to claim co-dependency. Now I am updating my own will and I am not sure what to do. Can you please explain it to me, and suggest where I can get some help.

Lisa

Hi Lisa,

I’m sorry for your loss. I see this all the time, most people don’t understand that your super is separate to your will. Basically, if you don’t specify to your super fund who you want your death benefit to go to -- the fund will have the final say. There’s an easy fix though: call your super fund and ask them for a ‘binding death benefit nomination form’. This allows you to decide who you want your death benefit to go to. It’s valid for three years from the date of signing, so keep it updated.

Scott

The Millionaire Hostage

Hi Scott,

I feel trapped! I spend my days doing a job that pays me over $400k per year -- but I hate it. I’m good at my job so I get away with it, but every day it kills me just a little more. The bigger concern for me is that it is beginning to affect my home life. I am in my mid-40s and I need a change. I have $1.2 million in cash and around $500k in my super account. What should I do? Grateful for your thoughts.

Sam

Hi Sam,

Wealth gives you a lot of things -- but it can’t banish your fears -- in fact, sometimes it creates them. You’re an excellent case study: you’re scared about leaving a job you hate, because you don’t want to give up the dough.

That’s a waste of your life, and a waste of your skills. Now you’re obviously a smart dude -- morons don’t tend to make four hundred grand a year (unless they play for Collingwood).

So what should you do?

You should definitely change your career -- but not until you’ve found your next adventure.How do you that?

Arun Abey, author of How Much Is Enough, has a thinking exercise called ‘the three circles’, that’ll help you get to the core of what makes you tick (and what gives you a tickle). For the next week, before you go to bed ask yourself these three questions:

What am I passionate about?

What am I good at?

How can I make enough money from it?

The truth that they never tell you in the Mercedes dealership is that adding another million bucks to your bank balance won’t make you any happier than you are right now. It’s time for you to get to the centre of your three circles.

Scott

How much should you spend on a wedding ring?

This column is dedicated to all the brothers out there who are buying an engagement ring this weekend.

And there’s a lot of you.

According to the ABS, 120,000 people get hitched each year.

That’s 60,000 blokes, and 60,000 rocks.

It’s stressful (you know her taste … right?) and bloody expensive.It’s a status symbol on a finger.

It’s a measure of your manhood.

The size of the rock is the size of your success.

But let me share a little secret with you: the engagement ring is one of the biggest marketing conjobs in history -- right up there with the Marlboro Man.

In the 1930s, less than 10 per cent of couples sealed the deal with a diamond -- today it’s around 80 per cent.

What gives?

Well, it began in 1938 when a mining company called De Beers set out to make diamonds the symbol of love.

(Actually, the story really began 70 years earlier when De Beers found massive deposits of diamonds in South Africa and shrewdly stitched up a cartel that controlled 90 per cent of the world’s supply.)

The De Beers marketing campaign infiltrated Hollywood, paying celebrities to parade their diamond engagement rings in the magazines and newspapers of the day. De Beers also paid for diamonds to be ‘placed’ in Hollywood films, and it’s rumoured they were behind Marilyn Monroe’s famous song ‘Diamonds Are a Girl’s Best Friend’.

It was stunningly successful.In 1938, De Beers sold million worth of wholesale diamonds in the US -- today it’s .4 billion.

And at the retail level, diamond jewellery sales were billion worldwide in 2014.

Diamonds are not only a girl’s best friend -- they’ve also bought a lot of cocaine for marketing executives:

‘A Diamond Is Forever’ has appeared in every De Beers engagement advertisement since 1948.

It was voted ‘slogan of the century’ by Advertising Age, and with good reason. The brilliance of this line is that if you’re convinced that a diamond should be kept forever -- and never resold -- then the De Beers cartel can effectively control the price. And that’s exactly what they’ve done over the years.

The truth is that buying a diamond is like buying a brand-new car -- in both cases, the moment you walk out of the showroom, 30 to 50 per cent of the value is lost.

Why?

Because diamonds are not really precious; they’re more common than dogs’ balls. Seriously, there are said to be 39 billion stones in existence -- more than five for every person on earth, according to diamond analyst Martin Rapaport.

And what about the saying that a man should spend ‘three months of his wages on an engagement ring’?

De Beers marketing genius at work again.It started out as one month, and it worked so well they bumped it up to two, then three.

On an average $65,000 wage, post tax, that’s a $12,750 outlay.

Remember, though, that diamonds are not an investment. They don’t increase in value. They’re just a multi-billion-dollar marketing machine created by a bunch of miners -- to manipulate men.

Now, by all means, forward this article to your fiancée and say to her:

‘The Barefoot Investor makes some really excellent points. So, my love (you bending down on one knee), here’s a $35 cubic zirconia ring I bought off Gumtree. I’m going to invest the money I saved in a diversified portfolio of quality shares … Will you marry me?’

No, you’re not going to do that.

You’re going to buy a rock. Just like I did. Just like your father did.

Welcome to the club, son.

How Much Should You Spend on an Engagement Ring?

As any bridezilla will tell you, selecting a diamond comes down to the four C’s: Cut, Colour, Clarity and Carat weight.

But I’m not a jeweller, I’m a finance guy, so let me add another ‘C’ to the mix: Cost.

You can get a beautiful rock for a couple of grand, as long as you shop smart.

Don’t buy your ring at a name brand jewellery store -- their markups are horrendous (especially Tiffany’s).

Instead, to get the best bling for your buck, do these three things:

First, go with a specialist diamond dealer for the rock itself, get some diamond prices based on having the ring set somewhere else (this is what I did).

Second, look at the prices from an online diamond jeweller. Most of the big players operate from the US and ship to Australia (and often their prices are often up to 30 per cent cheaper than you’ll find in a shopping mall here).

Finally, look at buying a ‘reject ring’ -- one that was bought by some poor bloke who then got turned down by his bride-not-to-be, and is now sitting on gumtree.

Harsh? Sure. But someone’s ‘no!’ is your ‘hell yeah!’

Just make sure you get it inspected (it should come with a valuation certificate from a valuer registered with the National Council of Jewellery Valuers, as well as a grading certificate).

Whatever you end up doing, don’t blow your wad on a ring.

Trust me on this. If she says ‘yes’, you’re about to enter the most expensive decade of your life -- the Triple Ms (Marriage, Mortgage, Midgets). Brace yourself for the wedding venue bill, the Bugaboo stroller, and the $100,000+ house deposit.

Shine on you crazy diamond.

Tread Your Own Path!

Let's give it a rip

It’s Spring!

And you know what Spring means to me?

Cute little lambs! (‘Awwww..!’).

Getting paid! (‘Yeah!!’).

And, mint jelly! (‘Ohhh … I see where this is going’).

But for my mum, Spring means something totally different: cleaning.When I was a kid, it was time to eat all the weird and wonderful things lurking at the bottom of the deep freeze.

‘What the hell is this?'

(Brushing off the ice like David Attenborough at the North Pole.)

‘No idea, it could well be the cryogenic leg of Walt Disney.’

‘Bugger it, let’s put it on the pan and cook ’er up!’

Hmm, Spring.

Truth be told, now I’m getting older, I’m getting more like my mother every year. So here's one for her ...

The Ultimate Spring Clean

Each year we collect more stuff. First we put it on the shelf. Then we put it in the cupboard. Then we put in the garage (because we might need it). And then, when we can’t open the car door anymore, we put it in … storage! (Which incidentally is a booming industry, with over a thousand outlets across the country, mostly chock full of lemon-coloured sofas and footy trophies from yesteryear.)

Fight Club’s Tyler Durden was right: the things you own end up owning you. Well, Spring is an awesome time to liberate yourself from all the stuff that’s hanging around you like belly fat.

So with that, let me tell you about the ultimate Spring Clean.

There’s not only an art to it, there’s a worldwide bestselling book: The Life-Changing Magic of Tidying Up, by Japanese author Marie Kondo. (If you want to know about tidying up, just ask the Japanese -- their public toilets are clean enough to eat off.)

Well, today Barefoot’s turning Japanese. Here are five steps to cleaning out your clutter and bring in some cash:

Step 1: Pick a room

Begin with your ‘hoarding’ place -- it could be your garage or your living room.

Step 2: Dump everything onto the floor

Get everything out of the drawers, closets and any other hiding spots you have, and dump it on the floor in front of you. This is important because it’ll show you just how much you have.

Step 3: Pick up each item individually and ask yourself ‘is this useful or beautiful?’

Most things are neither useful nor beautiful (especially presents given to you by your family), so put them to one side. The mindset we’re looking for is to actively choose what we’re going to keep, rather than to justify what we want to hoard. In other words, you need a bias towards getting rid of stuff. This is about simplifying your life, unclogging yourself from all the junk.

Step 4: Label it with a Post-it note

For the stuff that isn’t useful or beautiful (the majority), grab two different-coloured Post-it Notes: green for stuff to give to charity, and yellow for stuff to sell on eBay or at a garage sale. Sort them accordingly. (Recycle the junk).

Step 5: Move around your house, and repeat

This exercise will take an afternoon for each room – but unclogging your life will give you a huge return in mental clarity. Even better, it’ll give you four other benefits:

First, you’ll find yourself enjoying the stuff you keep (some of which you’d forgotten about) -- it’s like getting the buzz from buying it all over again.

Second, the money from what you sell can be put into Mojo.

Third, you’ll feel incredibly liberated not having to tidy up so much junk all the time.

Finally, and most importantly, it’ll tattoo the concept of ‘conscious spending’ into your brain.

How could it not? When you look at the pile of stuff you’re throwing out, take a few minutes to think how much you spent on it.

Baaa!

Tread Your Own Path! 

Hater of the Week

I’ve been on holidays, sucking back on a Bintang in Bali, lounging by the pool, and reading… my hate mail. My favourite was from Todd (normally I change people’s names, but not for Todd).

Some context: a few weeks ago I did a column where I answered money questions from young readers. One of them was little Olivia, who wanted to know how to make her money grow.

But my answer so infuriated Todd that he got on the old tappety-tap and fired me this email:

Hi Scott,

I’m so disappointed in you. I can’t agree with your advice to 6-year-old Olivia last week! I have known a few lovely, intelligent ladies over the years who were truly hopeless with money, and your advice to Olivia (with no justification at all) is to spend everything that she gets! Isn’t this a dangerous habit to teach?Todd

Okay, let’s look at what I actually said ...

Hi Olivia ...

I want you to ask your mum to get three glass jam jars (without the jam!). Ask her to label them ‘Save’, ‘Give’ and ‘Spend’. Then keep them in your room, where you can see the money piling up inside them ...

The ‘Save’ jar is for something big you want to buy but you can’t afford right now (preferably something like a Super Soaker that your brother wants).

The ‘Give’ jar is for helping other little girls who are not as lucky as you. At Christmas time you can buy these girls presents, wrap them, and put them under a tree at the shopping centre.

The ‘Spend’ jar is for lollies.Not quite sure how this equates to ‘spend everything that she gets’, Todd.

If I can teach kids -- in a fun way -- the value of saving, the value of giving, and the value of enjoying the money they’ve saved, I’ll consider my job done. When Olivia grows up, I hope she’ll save for a home, give some of her money away, and do something enjoyable with her money.

Jam that up ya, Todd.

$2,964 Lunch Break

Hi Scott,

I went to see my bank in my lunch break and secured a reduction in interest rate for my loan. I gave the bank a nice ‘white lie’ about leaving and said I needed to know their best rate so I could shop it around to other banks before seeing a broker. The computer said ‘YES’ and the bank instantly dropped my rate by 0.72%, down to 3.95%. All up, it took around 30 minutes to save $2,964 p.a. Thank you, Barefoot!

Renee

Hey Renee,

Well done!Research from comparison site finder.com.au has found that, of the people who (like you) spend half an hour visiting their bank about their home loan, four out of five are successful in getting a better rate.

Scott

Dream Design

My husband and I are in our 40s and have paid off most of our house -- $400k remaining on a house valued at $1.9 million. Our neighbour has recommended we buy positively geared property with a company called DDP -- Dream Design Property. His philosophy is that you cannot have too much debt as long as it is positively geared. I guess it is easier to have a positive cashflow property with record low interest rates, but I do wonder what will happen when interest rates go up. Any thoughts?

Wendy

Hi Wendy,

Shrubs. You need to invest in good-quality, fast-growing shrubs that will block out your neighbours and their stupid advice. I googled the company you referred to. It showed a young dude standing in front of a Ferrari, with the headline: ‘From Student To investor With 15 Investment Properties In 3 Years.’

Shrubs, Wendy, invest in shrubs.

Scott

Why You So Crazy Barefoot?

Hi Scott,

I am a chartered accountant and love your commonsense advice. But I just do not understand why you tell people to pay more into super BEFORE paying off their home loan. Surely they should pay off their debts, THEN pay more into super?

Bruce

Hi Bruce,

It’s simple: I meet a lot of old people who have a lot of house but not a lot of income in retirement. I like the simple action of increasing your pre-tax super contributions automatically, and then forgetting about it (behaviour beats brains). Repeated studies show that saving 15% of your income will afford a comfortable retirement.

Scott

The $16 Million Farmer

Hi Scott,

I recently sold my farm for $16 million. By the time I pay Capital Gains Tax (CGT), pay off my debts, and give money to my ever-expectant family, I will have about $10 million. This amount will be paid in instalments over the next four years. Right now I have $980k, of which $180k is in super. I am genuinely scared of shares as I am worried about losing all my capital. The $180k in super is only earning 2.2% and the rest is with Westpac earning 3%. I receive $2.5 million in October. Help!

Bill

G’day Bill,

Ker-bloody-ching!

I’m guessing you’re now more popular than a ewe in a ram paddock, so today I’ll play the role of the bad cop. Blame the following advice squarely on me.

First, get yourself a new accountant.

I know you’ve probably had your current accountant for years (and I’ve got nothing against them personally), but you’re now at another level. Interview at least three accountants who have had direct experience in helping farmers in your position -- those who deal exclusively with high net worth farmers. And, before you commit to any of them, ask them to talk you through the advice they’ve given other farmers. If you understand their answer, consider them. If not, thank them and keep looking. You are in control.

Second, don’t let your new accountant end up help you ‘manage your money’.

Yes, I know you’re stressed out about the responsibility of investing millions of dollars. That’s totally normal. But you’re up to it. You’re a farmer, so you must be a practical sort of bloke. Trust your gut.

Now, you’ll find there are all sorts of people who’ll come at you with all sorts of plans. They’ll try and make your investment portfolio complex: hedge funds, active alpha managers, bonds, property deals. They’re not doing it because they have a crystal ball, but to justify the fees they’ll charge.If you were sitting across from me, I’d suggest that you keep things incredibly simple.

You could keep your money in cash and live off the interest if you like. Even with rates this low, you’ll never run out of money. However, you need to understand that this is one of the riskiest things you could do. Over time, inflation will eat away your fortune.

Investor Warren Buffett is leaving his entire estate to his wife as follows: 90% in a no-brainer ultra-low-cost index fund that tracks the 500 largest companies in the US, and 10% in cash. He believes the returns from this simple strategy will beat 90% of ‘smart’ investors over the long run. You could look at doing something similar, with a mixture of Aussie and international shares. The dividends you receive will give you more income than your farm has ever given you. (Though don’t expect any advisor who gets paid on a percentage of your assets to agree with me.)

Third, don’t retire.

The two most dangerous years of your life and the year you’re born and the year you retire. If you’re a cocky through and through, you’re naturally a worker. Just because you have enough money to never work again doesn’t mean you should hang up your Akubra.

Keep working at something, even if it’s a day or two a week. Keep the grey matter turning. You’ve been blessed with a huge fortune. The real joy comes in giving some of it away, and making a difference to people. And I don’t just mean your ‘ever-expectant family’; leaving huge amounts to family members who haven’t earned it is almost always a bad idea. (Though don’t expect any of your family to agree with me.)

Good luck!

Scott

Going Barefoot

Hi Scott

We have been doing our best to ‘go Barefoot’. My husband and I (aged 58 and 47, with kids aged 7 and 5) have downsized our home, from a $750k mortgage to a $420k one -- and loving it! We also sold our investment prop and pocketed $80k after CGT. Now we have a big decision to make: my hubby will inherit $250k soon and he wants to buy shares (to add to his $200k in super). But I’m thinking we put it on the mortgage. What do you think?

Greg and Tina

Hi Guys,

You should focus on three things: having your Mojo funded, being debt free when you retire, and maxing out your pre-tax super contributions.

So if I were in your shoes, I’d save about $10,000 in a high interest online savings account (Mojo).

Then I’d take the $240,000 and pay it straight off the mortgage. Then I’d increase his pre tax super contributions to the maximum $25,000 each year. You’re doing well. Keep going!

Scott