I’m Terrified

Hi Scott,

I have been diagnosed with a brain tumour and require surgery with no guarantee of an outcome. I am 44 years old, married with twins (boy and girl, aged seven). Our home is worth $1.1 million with $85,000 owing, we have $110,000 in the bank. I earn $70,000 a year, and we have a combined $75,000 in super. My recovery time will be two to three years if all goes well. What should I do for my family’s security in this uncertain time? Thanks for listening.

Chris

Chris,

As a dad myself -- my heart breaks for you.

Thankfully, you’re in a very strong financial position. The $110,000 in cash you have is something we call Mojo. It’s used for emergencies -- and you, my friend, are having an emergency. With your small mortgage your Mojo should stretch the length of your recovery. And in a worse case scenario you could look at downsizing down the track. Though I think that’s unlikely.From a practical point of view, I’d do three things:

First, talk to your employer and take stock of your options -- will you be able to continue working part-time? Then look at your personal leave, annual leave, and any long-service leave.

Second, call your health insurance and review the likely out of pocket expenses you may be hit with. That’ll help you organise a budget.

Third, call your super fund and see what insurance cover you have. You may find that you have income protection which, after a waiting period, can provide up to 85% of your usual wage for up to 2 years and in some cases up to age 65.

Good luck, and good health.

Scott

I Need a Shiny New Car

OK, I have been driving my busted-arse Holden Astra for 15 years. I am turning 50 soon and my boyfriend is going to buy me a new car, so l am looking at a luxury Audi TT convertible. We both work really hard, have no kids, own our home, and have three investment properties. So l think, why can’t l have it? But the ‘fun police’ said to me today, “How much should we spend on a car?” Being female, l don’t care -- l just want a shiny new car. Scott, my boyfriend loves you, so can you get him to give me an answer?

Caroline

Caroline,

you are the reason that people stop me in the street and say “Those questions, they’re not real are they?” Seriously, I couldn’t make this stuff up.

Okay, so your boyfriend can obviously afford it -- but that doesn’t mean he wants to spend it.

From a Barefoot point of view, I’m with him. You’re asking him to spend $100,000 on a car, and your sole justification is that you just want a ‘shiny’ car?

If I were him, the question I’d be asking is: what could I spend the money on that would make us happiest over the long-term?

For that money he could buy you a nearly new second hand car, plus a once-in-a-lifetime overseas holiday, plus fund twelve dirty long weekends away, plus radically change the entire life of someone somewhere in the world.

But hey, if you like the Audi TT convertible -- I’m all for women’s lib -- buy your own bloody car!

Scott

Meet the pizza boy with 14 properties

“Former Domino’s pizza delivery boy who earned $10 an hour owns 14 renovated properties and is now semi-retired at the age of 28 (and he says you can do it too)” read the headline this week.

And all the renters groaned.

Okay, so paint me purple and call me Dorothy but after more than a decade of doing this, my bulldust detector starts beeping whenever a young buck appears in the press crowing about owning 14 properties and retiring before he's 30 ... especially when his version of ‘retirement’ is running a property investment advisory business. Or maybe I’m just a dinosaur?

Either way, this type of ‘property porn’ always sucks in the eyeballs -- and with good reason.

House prices are our Vietnam ... man.

The war between landlords and renters has been a bitter and bloody two-decade-long battle. Over that time home-ownership rates of people aged 25 to 45 years have been in free-fall. The result being that young people are now increasingly middle aged before they get the keys to their first home.

40 is the new 30

According to research last year from ING, the average age of a first home owner in Australia is 38.A generation ago you’d hope to own your own home outright by 40. Today you’re just getting started -- so you are basically the housing equivalent of Janet Jackson (who announced this week she’s pregnant ... at 50).

And of course the banks can, and do, discriminate against older first-time borrowers. It’s simple maths: if you’re 40 and you take out a 30-year loan, you’ll still be working at 70 … or the same age that Janet will be on her kid’s 21st birthday.

So is there a way to fast-track it into your first home?You betcha.Enter the bank of Mum and Dad.

The Quickest Way into Your First Home

Research released this week from Digital Finance Analytics (DFA) estimates that the number of first time home-buyers getting a leg-up from their parents has increased from just 3 per cent six years ago to more than half today.

In fact, DFA found that over two-thirds of older homeowners who refinanced homes worth more than $750,000 did so for reasons that included helping their kids.

And how much are they giving?

DFA states that at the start of 2010 parents were handing over $23,000 -- today it’s more than $80,000.

There are three ways parents give that gift.

They can guarantor their kids’ loan by taking out a second mortgage on their family home (and you’d be totally bonkers to do this).

They can offer a limited guarantee -- say for a 20 per cent deposit. This has a couple of advantages: the kids won’t have to pay expensive Lenders Mortgage Insurance (LMI), and the parents know exactly what they’re on the hook for. Yet in the words of Pauline, “I don’t like it.”

Or retired parents can take a lump sum out of their super and hand it over to their kids to use as a deposit. That’s the cleanest option, though I won’t be doing it for my children.

Why?

A couple of reasons:

First, if a bank that earns $10 billion a year in profits deems your kid a risk -- why should you stump up?

Second, mixing money with family is never a good idea.

For the parents -- many of who are trying to fund their own retirement -- it sets a dangerous and expensive precedent for other children.

And for the kids, having your parents as your financial backstop could invite ‘boundary issues’...

“You know your mother and I didn’t lay down carpet until 1982? We sat on a cement slab for the first four years of our marriage. It gave your mother piles yet she’s still around, isn’t she? But you kids have to have it all now, doncha, with your fancy carpet and curtains.”

And …

“Why are you going on an overseas holiday / buying that car / talking to me like that ... when we helped you out with your home? Is that all the thanks we get?”

Planning for the Worst, Hoping for the Best

I’ve been called everything under the sun for my steadfast advice to save up a 20 per cent deposit. People have accused me of being out of touch. Mortgage brokers disagree and say ‘just borrow 90% … or get an interest only loan’. Real estate agents say ‘house prices are going up faster than you can save’.

None of these arguments change my advice.

The fact is we live in a country with the highest household debt in the world -- at a time when interest rates are the lowest point in history. All I’m concerned with is keeping first home buyers safe. And the best way to prepare yourself for taking on a massive 30-year commitment is to cut the apron strings and spend three or four years saving like mad.And what about our property-mogul pizza delivery boy?

Well I called him up and had a chat with him this week -- and I’ve got to admit that I was impressed.

When he started out, he lived with his parents and saved up a 20 per cent deposit with a low-paid job (and they don’t come much more low paid than delivering plastic pizzas), and he bought a little unit in the boonies. In other words, he scrapped, saved, and made things happen.

And then … it seems the Capricciosa went to his head. He just kept on leveraging up. Now, owning 14 properties on a low income at a time when interest rates are at all time lows (and have to come up some time) is not something I’d do. Then again, what’s the worst that could happen? He could go bust and … end up delivering pizzas for a living.

Still, hats off to the kid -- he’s got more guts than a freshly delivered Domino’s MeatLovers.

Tread Your Own Path!

Scott

The $20,000 Win

Hey Scott,

Not so much a question, I just wanted to say thank-you. I read your article about calling your bank and bluffing to get a cheaper home loan rate. I did exactly that. Although, things have changed now. They won't offer you anything on the spot. Instead they'll send you the forms, you'll need to fill them out (with fake UBank details of course) send them back to your bank, and their retention team will make contact. Your idea has just saved me $20k over the life of my mortgage.

Rick

Hey Rick,

Given this column is read (or at least seen!) by a couple of million Aussies each week, maybe the banks are wising up to my script. Maybe. Still, research from comparison site finder.com.au has found that four out of five people that hit their bank for a better rate, get it. Either way, you’ve proven that sometimes it pays to go postal!

Scott

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