You’re Wrong, Barefoot

Scott

Are you kidding? Last week you advised ‘Rachel’ a single mother to let the family home go and then rent? When I got divorced, I had a terrible solicitor who lost me my family home. I had two children and ended up renting. We had to move five times in ten years due to changes with either the landlord or the real estate agent! Do you understand the stress that causes, including being at the mercy of an owner? I was never able to purchase a home again!

Bev

Hi Bev,

I’m sorry you got a dud lawyer. However that doesn’t change the facts: Rachel was a single mum earning $65,000 a year, wanting to take on a $640,000 mortgage. I told her that she couldn’t afford it, and that doing so would put herself under severe financial stress. That was the right advice for her well-being, and therefore for her kids. Most mums want to keep the house in the event of a divorce, but in most cases they’re better off without it.

Scott

How to Get a Big Tax Refund

Hi Scott,

I had my tax done this week and found out that I have (finally) paid off my HECS debt! This is great news, but my accountant advised me that I cannot let my workplace know that this is the case, so I can ensure a decent refund next year. This sounds like a great plan. But I am in my 30s and there is a reasonable voice in the back of my mind wondering if I should do something else with the money.

Sam

Hi Sam,

You don’t have a HECS-HELP debt anymore. So why is your accountant advising you to keep deducting repayments?

My guess is it’s one of two reasons: either your accountant thinks you’re a little dopey and that you can’t be trusted with your money, or your accountant is a little dopey and can’t be trusted with your money.

Over to you!

Scott

Fight Club

Hi Scott,

My partner and are currently having a massive argument: I am pro renting and she is against it. We do not have any debts, and have about $80,000 in cash and shares. We both want to buy a house -- but for me it is not the right time. I have put together an Excel spreadsheet to show her how renting is better, but for some reason I am unable to win this argument with everyone saying that house prices will go up. Scott, I need your help to show her that renting is not bad!

Sachin

Sachin,

Dude. Mate. Cobber. You’re going about this all wrong.

With a spreadsheet? Really? Come on! I can just picture you sitting her down at your computer:

“If we =Sum:B2-B11, clearly the figures show, darling, that we’re much better off renting this one-bedroom, half-a-bathroom apartment. I mean the spreadsheet doesn’t lie. It’s just maths, honey.”

No, it’s not.Buying a home is both a financial and an emotional decision.Your position is this: you’re worried about losing money if you buy and house prices go down -- or, that you could have waited till prices crashed and bought a nicer home for the money you spent.

Your partner’s position is this: she just wants a home to call your own.So who wins the fight?

Well, let’s go back to the spreadsheet.

Truth is that no matter how much you fiddle with your formula, your spreadsheet will never be able to spit out when (or if) the housing market will crash. So, you’re effectively delaying your decision (and your life) for something over which you have absolutely no control.

So now open a new spreadsheet. Use your analytical skills to work out whether you can comfortably afford a home. Do a forecast for the next ten years, factoring in outliers like getting married, having kids, going down to one income, and interest rates hiking to 10 per cent.

Then make the decision together, as a team.

Scott

If you were a drug dealer, how would you want to be paid?

If you were a drug dealer, how do you think you’d want to be paid?

PayPal?

No.

PayWave?

Well, no.

You’d want to be paid in cold, hard cash.

And if you were ‘Breaking Bad’ big, you’d only want to deal in $100 notes -- anything smaller would be too heavy to lug around in suitcases.

(This is for illustrative purposes only: I’m a married father of two -- the only drugs in my life are bottles of strawberry-flavoured Nurofen for teething tots.)

This explains the mystery behind why you rarely come into contact with $100 notes -- even though there are three times as many in circulation as there are $5 notes, according to the Reserve Bank.

Drug dealers (and tax cheats) are hoarding most of them.

So given these facts, it’s not surprising there are calls for governments around the world to kill off their large-denomination bills (especially the US$100 bill) -- as a way to make life harder for drug dealers, strippers, and terrorists.

Yet Australia is already ahead of the curve -- a report released last month by Capgemini found that we are one of the world’s top five cashless societies. So it’s really only a matter of time before large bills go the way of Clive Palmer. But it’s not just criminals that stand to lose with the shift to digital dollars; banks are going to be hurt too.

How My Phone Became a Money Machine

A couple of months ago I signed up with a bank that allows me to pay for things under $100 by tapping with my iPhone. Thankfully, my wife does the weekly supermarket shop -- god love her -- so almost everything I buy is under a hundred bucks.

Here is what I learned:

Like you, my phone is always within reach. That means I don’t have to lug around my wallet, whip out a bank-branded card, or even think about going to an ATM. My banking universe is pretty much just another app on my phone.

Portable Bank Accounts

And that brings me to the biggest news story of the week: the Government Banking Inquiry. Sure, the entire thing was a farce, yet the one interesting thing that came out of it was the concept of making bank accounts ‘portable’.

What does that mean?

Well, just like you can switch from Telstra to Optus without losing your phone number, you would be able to switch banks without losing your account number. (This means you don’t have to go through the hassle of changing over all your direct debits … and risk getting whacked with a dishonour fee if you forget one of them.)

Under the griller, ANZ boss Shayne Elliott said that he was ‘open’ to the idea.But really he’s not. He can’t be.

See, the banks are stitching us up. Everyone knows that we pay some of the highest bank fees in the world -- the politicians, the punters, and especially the bankers. Lucky for them, there are still enough people who see them as an institution (these are the people who once had to get dressed up to get a loan).

That’s all over. The bankers are now facing full on digital disruption. So the idea that they’d be ‘open’ to giving their customers the freedom to switch with a swipe is … suicidal.

After all, the real gangsters today are the bankers.

Not only do they get away with rigging interest rates and hitting people with shady fees -- they also get to spend their spoils (in the infamous case of ANZ) on cocaine and strippers.

The four families that make up the banking mafia pull in close to $30 billion in profits annually, and their respective Dons make over $10 million a year each … and none of it gets paid in $100 notes.Who’d be a drug dealer?

Hater Of The Week

Last week I wrote about Donald Trump. This caused a lot of people to lose their minds, including Bill, who was so infuriated that he got on the old tappety-tap and fired me off this email:

Scott,

I’ve always believed that you were a fool, and this week you proved it. The truth is that the only people who don’t like Donald Trump are ignorant people in the media LIKE YOU. Trump at least has the guts to talk about the massive financial bubble that global bankers have created. You have no business writing about politics. Please stick to what you (claim) to know from now on.

Bill

And here is my response ...

Hi Bill,Thank you for your comments.

You are in good company. I received a larger than usual amount of hate mail this week.However, like many American voters, you seem to be confused.

In my column last week, I actually started out by saying that I thought Trump’s comments on the credit bubble were intelligent (and that, by the way, is a ‘stop the press’ moment in itself).

Yet the real guts of my argument was about the the politics of fear -- and how the media picks up and promotes stories that scare us. The old saying ‘if it bleeds it leads’ is especially true when it comes to predictions about the stock market.

As I wrote last week:

Wall Street had the worst start to the year on record when the Royal Bank of Scotland made global headlines with their recommendation: “Sell everything.”

Plenty of people got freaked out and did just that. Yet since they made that call, oil is up 40 per cent, emerging markets are up 29 per cent, the US S&P 500 is up 14 per cent, and even the ASX 200 is up 10 per cent.

Anyway, I just want to thank you, Bill. I forwarded your concerns on to my editor. He loved it and suggested that I consider writing a political column. I told him that I know as much about politics as Trump knows about foreign policy. Then again, why let that stop me?

Tread Your Own Path!

Wedding Bills

Hi Scott,

I’ve never owned a credit card in my life but with my wedding coming up in 4 weeks I’m looking into one for a few expenses I can't pay upfront. I’m looking at a NAB low rate credit card, how does this one fare? I’d need it to purchase some flights, some everyday things and potentially to use in Bali for some accommodation.

Renee

Hi Renee,

Congratulations on getting hitched. (I’ve been getting a lot of questions about weddings lately.)

Straight up, you do not need a credit card. If you don’t have the dough for something you ‘must have’, woman up and do what everyone else does in your situation: whack it on your bloody bridal registry.

Meanwhile, just for giggles, I had a look at NAB’s Low Rate (Cough, Cough) Card.

They’re charging 13.99 per cent per annum, plus a $59 annual fee, and 21.74 per cent for cash advances. (Seriously, where the hell do they come up with these figures? Point seven four?! Really? You’re just messing with us, aren’t you guys?). Given you can get a home loan with the NAB for 4.5 per cent, and no fee, that’s quite a stretch.However, respect to the NAB marketing team, who are at the top of their game (of banking bulldust). On their application form they even put a cute picture of a guy putting money into a pink piggy bank …Or is he?

Maybe he’s stealing money from his daughter's piggy bank because he can’t afford the extra ‘point seven four’ on his Low Rate Card!

Scott

The Booby Prize

Hi Scott

About 10 years ago I won $2,000 in a competition. Part of the prize was a financial planning session with AMP. So I took up the offer and, on the advice of the financial planner, invested the $2,000 in two managed funds through AMP. I then added another $2,000 of my own money soon after. Since then, the funds have barely broken even -- in fact I currently have less than the $4,000 originally invested. I have considered taking the money out and investing it elsewhere but am worried about realising the loss. Any suggestions?

Dennis

G’day Dennis,

Sounds like you won the booby prize, mate!

It reminds me of the meat tray my father always seemed to ‘win’ every Friday night at the pub. How many tickets did he have to buy? How many beers did he and his mates have to drink? Why were the sausages a slimy green? But I digress.

The last decade hasn’t been great for the Aussie share market. In fact, if you look at a 10-year price chart it shows that the ASX 200 — which represents the 200 biggest companies on the share market — has done basically nothing.

If you’d invested in a low-cost index fund, you could have earned 6 per cent a year, factoring in share price gains and the all-important reinvested dividends. In other words, your $4,000 would be worth about $7,200 today.

Dennis, you may have won the prize, but judging on your returns I’d say your advisor has too!

Scott

Single Mum, Losing her Home

Scott,

I’m scared. I’m 35 years old and have recently separated from my husband. I will get to keep the house (valued at $1.4 million, with $640k debt) plus $60k in savings, and I have $40k in super. My monthly income is $4,200, including child support for my 10-year-old son. Currently I work three days a week, but I may need to stretch it to four days to deal with the bills now that I am a single mum. I would like your advice on how to pay off my home loan and have a reasonable quality of life.

Rachel

Hi Rachel,

It’s totally natural to want to stay in the family home for your son’s sake -- he must have been through a lot. However, on your income you can’t afford it. Even if you did work an extra day per week.

You must have been through a lot as well. You need to look after yourself and your son, and the best way you can do that is to sell your home, rent somewhere for 12 months, then buy something you can afford -- no more than $900k.

Scott

Risky, Stupid -- or Both?

Hi Scott,

Thanks for the great advice -- we read your column out loud each week! Our current situation is this: we live in Geelong, have a home loan of $7k on a property valued at $500k, and have no other debts. I am 38 years old, unemployed and looking for work; I formerly worked in the contaminated land treatment business. My wife is on maternity leave with our first child. We are looking to sell the house, rent for a year and see how things go, then buy if the market falls. Risky, stupid -- or both?

Rick

G’day Rick,

$7,000! You don’t really have a home loan, mate. Shane Warne would spend more than your entire mortgage each month on blow-waves and hand-cream. What it sounds like is that you’re justifiably stressed about having no money coming in when you have a little baby at home. And if that’s your real question, I totally understand and hear you.

Yet the answer isn’t playing ‘real estate roulette’ to try and free up some money. For one, you’ll eat up thousands of dollars in selling fees. For two, you need to look after your wife. She’s just had her first little baby and doesn’t need the stress of buying and selling and moving. The easiest answer is for you to pull up your daddy pants and get a job. Doesn’t matter what it is. Then pay off the last bit of your mortgage and save up three months of living expenses (which will be a lot less than most people’s -- because you won’t have a mortgage).

Scott

What Do You Think of the Super Changes?

Scott,

I’ll keep this super-brief. What do you think of the latest super changes?

Gary

Hi Gary,

I think the Government has achieved the impossible: they’ve managed to turn people off the best tax dodge going around. Which is a shame because super is a much better long-term investment than buying an overpriced, negatively geared property.

For those readers who snooze when it comes to the mention of super, the Government has dumped their proposed $500,000 (backdated, lifetime) cap on after-tax contributions. Instead, starting on 1 July next year, you’ll now be able to put $100,000 in per year (rather than $180,000), after tax, on balances up to $1.6 million.

The best analogy I can give is that super is like marrying a hottie. Sure, with each passing year they get a little less attractive -- but it’s still a damn good deal compared to the alternatives.

Scott

It’s the End of the World As We Know It

Scott,

I am 43 with $240,000 in my SMSF, and I have liquidated my portfolio after reading up on the coming financial crisis. The US Federal Reserve will lift interest rates, which will cause a tsunami of defaults around a world that is addicted to cheap money. What are your thoughts?

Bill

Hi Bill,

I think you’re bonkers.

I also think you’ve been reading too many scary emails from too many financial gurus trying to sell too many get-rich-quick newsletters.

The world is far too complex for anyone to forecast anything with certainty. If these guys could accurately predict the future, they’d be rolling in it -- so why the hell would they be emailing you, mate?

Let’s look at someone who really is fabulously rich: Warren Buffett. He doesn’t waste his time trying to predict the economy, or interest rates, or anything else. He believes that our best days are ahead of us, and that you get rich by owning businesses that create prosperity. History tells us he’s right.

Another fabulously wealthy investor, Peter Lynch, said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

Scott

The Prodigal Son

Scott,

My son is 45 years old. He earns in excess of $200,000 but loves spending borrowed money. He has 10 per cent equity in his house, which is worth $1,000,000, and an apartment. He recently made an unconditional offer on a block for $750,000 on which he and his new girlfriend intend to build. The bank refused him a loan. He approached us (retired) and suggested we take out a $400,000 loan on our house, which he would pay back when he sells his existing house. I refused because I believe he needs to stop spending. What is your opinion?

Nella

Hi Nella,

I think 45-year-old men who are earning two hundred big ones shouldn’t be hitting up their retired parents for money. You made the right decision.

Scott

Who’d Work for Below the Minimum Wage?

Barefoot,

My husband owns a small CBD café which he purchased two years ago. After a lot of hard work, it nearly pays him a minimum hourly wage, while employing four staff. I am concerned he is in a vulnerable position if there is a recession. Do you have any general advice for small business owners to help futureproof themselves? The business lease is up for renewal in two years, and any advice on negotiating terms based on the potential economic climate would be appreciated.

Donna

Hi Donna,

The best way a small business owner can be ‘futureproof’ is by not owning a dud business. And judging by your brief description, that’s what your husband owns.

Let me put it this way: do you think he could employ a manager to work around the clock, have the responsibility of paying staff, suppliers and the landlord -- and pay them below the minimum wage, with no holidays? Of course not. It’s against the law!

What I’d do is this. I’d sit down with your hubby and help him set a goal. Work out what the business needs to do to generate him a decent wage -- one that will compensate him for all the work and stress, and will earn him a decent return on his invested capital. Give him 12 months (or at a stretch two years, when the lease expires) to reach this goal. If he can’t, encourage him to sell the business -- and get a job in a bottleshop. At least he could enjoy a stress-free stubby after knock-off!

Scott

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