The Shipping Magnate

Hi Barefoot,

I am currently looking at making some investment decisions for the next 3–5 years to save a healthy deposit for a first home. An option I am considering is to purchase shipping containers (at least four). Of the companies I have researched, the terms are: $5,000 per container, 5 year minimum hold, sell-back at full purchase price (capital preserved), 9.75–12 per cent fixed lease options, paid monthly if four or more owned. You always say ‘when something sounds too good to be true, it is’. Thoughts?

Martin

Hi Martin,

You’re talking about an unregulated investment -- meaning you have no protection if it all goes pear-shaped. I’d be as tempted to invest in this as I would to live in a shipping container.Yes, it is too good to be true.

Scott

Your Book Is WRONG, Barefoot! Pulp It Immediately!

Hi Barefoot,

I’m sorry to say this but your book is WRONG.

In the chapter on retirement -- “The Donald Bradman Retirement Strategy: Why You Don’t Need $1 Million to Retire” -- you state:

“You can’t retire until you have $250,000 in super for couples of $170,000 for singles. What’s so special about these numbers? This is the maximum dollar amount of assets (excluding your family home) that you can have and still get close to the maximum age pension.”

WRONG!

According to the Centrelink website, you can have $375,000 for a homeowner couple and $250,000 for a single homeowner, and still qualify for the FULL age pension.

You will need to PULP your bestselling book!

Doug

Hi Doug,

Thanks for the all-cap! I’m not wrong.

Centrelink applies two tests for the age pension: an asset test and an income test. Then they base your pension payment on whichever test gives the lower figure.

If you were a couple and had $375,000 in financial assets, you wouldn’t actually get the full age pension -- because you’d fail the income test.

Stay with me here, and I’ll explain why.Centrelink ‘deems’ a rate of return that retirees get from their assets. If you’re a couple, the first $81,600 of your combined assets (other than the family home) are deemed to earn an income of 1.75 per cent per annum, and any amount over that is deemed to earn an income of 3.25 per cent per annum.

If you do the sums you’ll find that a couple with $375,000 worth of assets would be deemed to have earned an income of $10,963.50 per year from their assets.

Now let’s look at the income test.

Retired couples can earn a maximum of $292 a fortnight ($7,592 per annum) in income before their age pension is affected. For every dollar they earn over that, their age pension is reduced by 50 cents in the dollar.

Do the sums again and you’ll see that if a couple has $375,000 in assets, then their age pension will be reduced by $1,685.75. Only on (roughly) $250,000 would the pension not be affected, like I say in my book.

To be clear, the figures in my book take into account both the asset and the income test -- but I didn’t want to bore anyone to death (though for you I’ve made an exception). The truth is that financial planners, banks and other financial floggers scare the hell out of people when they say you need $1 million to retire comfortably. It’s complete self-serving rubbish (the more assets you have, the more fees they can grab).

Only about 1 per cent of people have super balances over $1 million. I’m writing for the 99 per cent, showing them that they can retire with dignity if they have a paid-off home, have $250,000 in combined super, and work a day or so a week.

Scott

My Daughter Is Missing

Hello,

I have worked as a nurse my whole life, supporting two daughters and a mentally unwell husband who has since passed away. I am 64 and now retired, and completely overwhelmed. My 31-year-old is in LA; I pretty much support her, though I do not mind helping her out. My 27-year-old became a missing person back in 2015 and I have spent a lot of money looking for her on the US west coast. I intend to find her, and to do this I want to sell my fully-paid-off home (in Mullumbimby, NSW), for which I would probably clear $480,000. But what then?

Beverley

Hi Beverley

As a parent my heart breaks for you. But you’ve asked me for financial advice, so here goes.

You know when you’re on a plane and the flight attendant does the safety demonstration. Have you noticed they always say, “put on your own oxygen mask before you help others”. There’s a reason for this -- you’re no good to anyone else if you can’t breathe yourself.

The same goes for your financial situation. You’re retired now, so you’re not earning any more income.

There’s safety and security in owning your own home, so please don’t sell it. Rent it out, and head over to America by all means, but don’t sell it.

Scott

Johnny Depp Did a Bad, Bad Thing

Grab some popcorn. Dim the lights. Settle back in your easy chair.

Today we’re going to watch one of the world’s top actors, Johnny Depp, in his most challenging role yet.

The story starts in 2010 when Depp reportedly walked off the set of the movie Black Mass when the producers tried to slash his paypacket from the standard $20 million to $10 million.

At the time, everyone thought he was a Hollywood megastar sticking to his guns, driving a hard bargain.

Turns out, though, he may have just needed the dough.

See, Johnny is currently suing his former managers (TMG), alleging they lost him tens of millions of dollars.

In fact, Johnny claims that he only realised he was facing financial ruin when TMG advised him to sell a large piece of property to pay his debts.

But this is Hollywood, so the drama is being played out before the courts: TMG are counter-suing, alleging that Johnny’s real problem was that he was spending like a drunken pirate … to the tune of $2 million a month.

How do you burn through so much coin?

Well, Johnny spent $3 million blasting Hunter S. Thompson’s ashes out of a cannon, he spent $400,000 chartering a private jet to save his handbag dogs (Pistol and Boo) from Barnaby ‘I’ll Kill Yer Dogs’ Joyce, and he spent $300,000 a month on wages for his 40-person entourage. And that’s just the start.

In their submission to the court, Johnny’s managers sounded like me answering one of my Q&As:

“Depp, and Depp alone, is fully responsible for any financial turmoil he finds himself in today. He has refused to live within his means, despite the best efforts of TMG and the repeated warnings about his financial condition from TMG and his other advisors.”

They continued:

“Depp often responded by rebuking and cursing his managers for issuing such warnings and advice, while increasing his extravagant lifestyle and spending, and demanding that his managers find some way to pay for it all.”

Okay, let’s pause the movie.

What did Johnny do wrong?

One thing, obviously, is that he spent more than he earned. It doesn’t matter whether your income is $20 million a year or $20,000: if you overspend you’ll end up pretty much the same way — being forced to dress up like a pirate to entertain kids.

Arrr!

Yet Johnny’s real failing was his decision to outsource control of his money to someone else.

(Seriously, it’s as if he’s never read a celebrity biography … Johnny, it always ends the same — the manager rips them off, bro! The Beatles. The Rolling Stones. Freddie Mercury. Charlie and his Chocolate Factory. The list goes on.)

That’s a lesson for you and me, too.

You should never, ever pass over full control of your money to anyone.

Not to your financial advisor, not to your accountant, not even to your husband, your wife, or a trusted friend.

You should always know exactly where your money is, and be able to explain clearly why it’s there.

I worked with an AFL star who told me about a small business that someone had advised him to invest in.

“Why are you doing this?” I asked.

“Money just isn’t my thing”, he shrugged.

“Well, you betta make it your thing”, I told him.

Thankfully, some big stars get it.

In a recent interview, Australian Open winner Serena Williams said that early in her career she made a decision that she wouldn’t become another statistic: “I’m an athlete and I’m black, and a lot of black athletes go broke.”

So she went to see the richest black woman she knew — Oprah — and asked her for money advice.

Here’s what Oprah told her:

“You sign every cheque. Never let anyone sign any cheques.”

Tread Your Own Path!

Now I know why everyone hates me

“I understand why everyone hates you.”

I was at a booksellers’ conference a few weeks ago, about to give a speech, when a suave, tanned bloke with silver hair walked up to me and delivered that opening line with a smug chuckle.

Twelve years ago, when I was a virgin author, such a confrontation would have caused me to wee on the carpet then and there. Not today. Instead, I shook his hand, smiled, looked him straight in the eye, and said, “Hang around, let’s talk after my speech.”

Game of Trolls

After twelve years of being in the spotlight, I’ve got a PhD in dealing with haters.

Back in the old days — when my first book hit the stands — it was much harder to be a hater. Remember, this was years before Twitter, Facebook and the interwebs gave everyone a digital machete to slash your self-confidence.

My haters had their work cut out for them. They actually had to take the time to write me a letter, affix a stamp, and pop it into the post: “Who are you to be talking about this stuff?” “How many years’ experience do you have?” “What sort of a stupid name is the Barefoot Investor?!” “Your feet are repulsive.”

Think about the psychology of someone who would actually do that. Then think about what it must have felt like opening these horrible letters. Yet it toughened me up — and it prepared me for living in today’s hyper-critical digital age.

Saving Your Self-Confidence

I’m sure you’ve had people give you ‘unsolicited advice’ about your life. They could be your colleagues, or your friends, and they’re probably your family.

Or it could be you have jealous people who speak about you behind your back. Over the years I’ve had people say the most horrible things about me — that I have credit cards (I don’t). That I secretly take trailing commissions (I don’t). That I bought a John Deere tractor just so my boys would think I was cool (well, maybe). Hell, even today I still have weirdos who try and hack my website.

The problem is that all this stuff can rob you of your self-confidence. And that can lead you to stay in jobs you don’t like or relationships you have outgrown, and it wastes the precious time you’ve got on the planet.

Now if your mum is like my Mum, she’ll at some stage have given you this pearler of advice, “Honey, just don’t listen to them! Your father and I think you’re wonderful.”

But you do listen to them, don’t you? You replay the comments over and over, and they drown out all the nice things people say about you, and the good things you’ve done.
Well, here are the three things that I’ve learned about dealing with the doubters:

1. Understand that it’s part of your progress

You need to understand that if you are doing brave things (working hard, starting something, backing yourself), you are going to make some people around you uncomfortable. Some of them will try and ‘take you down a peg or two’. Others will give you advice just so you don’t get ahead of yourself (or, more to the point, ahead of them). The more progress you make, the bigger the target you’ll become.

Don’t be surprised by it — expect it. It’s just human nature.

2. Make it personal

Let me tell you the biggest breakthrough I ever made when dealing with haters. When I’d get a nasty letter, I’d call them up (usually by finding their phone number which they sometimes had already provided).

When I did, a few things would happen:

First, they were always shocked to hear from me. Always. That’s because trolls don’t think about the person they’re hating on. It’s all about them and their issues. So if someone you know bags you out on social media, don’t get sucked into messaging back and forth — instead, call them directly. Totally freaks them out.

Second, after a few minutes of chatting, we would either found common ground, and they’d end up being a bit embarrassed about behaving like a jerk. Or I worked out that they were total whack-jobs, and I took them as seriously as the guy who yells at me as I walk past McDonald’s.

The bottom line is this: you want to size the person up — Why are they giving me this advice? Should I listen to them? What have they achieved in their life? Do they matter?

3. Have a Laugh

These days I’m so schooled in the subtle art of not giving a toss that I’ll occasionally showcase their efforts in a ‘hater of the week’ column. These are some of the funnest columns to write — and some of my most popular pieces. And that brings me back to the silverfox at the book conference.

After I finished my speech, I tracked him down again.

Barefoot: “What do you do?”

Silverfox: “I’m a financial planner.”

Barefoot (chuckling): “Oh … now I see!”

Silverfox: “See what?”

Barefoot: “You said everyone hates me. What you really meant is that it’s people like you who hate me!”

The silverfox (who later admitted he reads me every week, so … hello!) looked perplexed.

We continued chatting for a couple of minutes, and he proceeded to give me a series of backhanded compliments — that my stuff was “just common sense” or “for the idiot in the street”.

He then explained that he catered to wealthier clients and did more ‘sophisticated stuff’, which he said involved directing his clients to buy investment properties through their SMSFs.

“Oooh fancy!” I laughed.

The truth? I couldn’t care less what he thought about me.

Fact is, I don’t write for him (maybe for his clients, but certainly not for him).

I write for my tribe, the people who get what I’m about. My Barefooters aren’t flashy. They’re hard workers who avoid debt, maintain their Mojo, and look after their family. They think long term and keep things simple. Just like me.

And thankfully there’s a lot of them. My book debuted at #2 on the bestseller last week … behind some fly-by-night author named JK Rowling.

Tread Your Own Path!

The Barefoot Book

Scott,

I have followed you for years, and treated your first book like a bible since a good friend of mine gave it to me in 2010 -- when my husband died. At that time I could not afford my mortgage repayments, and I had a six-month-old baby. Since then I have tripled my super and am saving and working towards being financially independent. Thank you.

Wendy

A note to readers:

You are probably thinking to yourself, “Hey, this isn’t a finance question; it’s a blatant self-serving plug for Scott’s new book.”

And you know what? You’re absolutely right.

Truth is, my first book (published over a decade ago) helped a lot of people --mainly because readers shared it with their loved ones, including Wendy. My new book, ‘The Only Money Guide You’ll Ever Need’, was launched this week, and I’m confident it is going to help a whole lot more people.

Thanks for your support.

Scott

Are Family Trusts the Tax Haven They Used to Be?

Hi Scott,

My accountant told me that a family trust is not the ‘tax haven’ it used to be a few years ago. Is that true? We were thinking about establishing one for our family (we have two kids -- one aged four and the other two months). Our combined income is $190,000 before tax.

Cheers,

Keval

Hi Keval,

Your accountant is my kind of guy (or gal).

Family trusts can be tax havens if you have adult kids (at university, say). You can distribute income from the trust and take advantage of their tax-free threshold (the first $18,200 earned is tax free).But your kids are minors. And the Government doesn’t like rich people using their children (under 18) as a tax dodge, so it whacks them with a tax rate as high as 66 per cent on unearned income!

I’d suggest building up your Mojo, maxing out your pre-tax contributions, knocking out your mortgage, then investing in shares -- possibly through a trust. One day your kids will be adults!

Any accountant who talks a client out of giving him more fees deserves a pat on the back. He’s looking out for your best interests.

Scott

The Recovering Gambling Addict

Hi Scott,

I am a recovering gambling addict. I got hooked at a young age, but I have not gambled in the last 18 months. Now I am in my late 20s and have ruined my credit rating by taking out credit, loans and payday lending to fund my gambling. My credit score is 458 and I can’t even get a phone plan. I am now 100 per cent debt free, and I earn $85,000. How can I fix my credit score -- get a credit card? I want to fix it so one day I can buy a house.

Tim

Hi Tim,

You’ve got my respect, mate.It takes a lot of courage and determination to face up to and tackle your addiction, especially given the gambling industry actively targets recovering gambling addicts (hello Sportsbet).

Okay, so let’s lay down a strategy to wipe your credit file clean and get you into your home.

You don’t need to get a credit card, and for god’s sake stay away from those credit repair (spray-on-hair) spruikers. Those creeps are almost as bad as Sportsbet. (Almost.)

All you need to do is open up a savings account and deposit money each payday for the next five years. That’s how long the information on your credit file lasts legally. And that’s also how long it’ll take you to save up a very safe deposit.

Here’s the thing, Tim. Most people totally overestimate what they can do in one year, but totally underestimate the mountains they can move in five years. Then again, most people don’t have your guts. You’ve got this.

Scott

A Financial Man-Child

Hi Scott,

We live beyond our means -- especially my husband. We have been married two years; I earn $45,000 and he earns $70,000. I bought us a house three years ago, paying a deposit of $90,000 plus another $49,000 to clear his credit card debts. I now have a credit card debt of $15,000 and he has another of $40,000. We have separate finances with a joint account for bills. The house is worth $900,000 with a $680,000 mortgage. His solution is to get a small second mortgage to pay off our debts at low rates. No pre-nup. Unstable marriage. Should I agree?

Tammy

Hi Tammy,

I’m going to be honest with you.

The first thing that came to my mind as I read your question is “No. No. No. No. No.”

Seriously, that’s what I kept saying as I read your question.

I see the problem you’re facing. On one hand, he’s your husband. On the other, he’s a financial man-child.

You bailed him out once. Now he’s coming back again. The third time he comes back -- and there will almost certainly be a third time -- he’ll take you to the cleaners. It may take five or ten years, but that’s where this is heading.

Now, consolidating your debts via a second mortgage will save you interest. Honestly, though, that is the financial equivalent of using a surgically clean syringe to inject your heroin each day. It’s not the interest that’s the problem, it’s your out-of-control spending.

Not to get too airy-fairy, guitar-strummy-strummy with you, but your financial problems are a symptom of what’s going on in your relationship. Before anything changes financially, you (both) need to. The problem is that changing is hard at the best of times, especially when you’re married to a little boy who can’t be trusted with a credit card.

Obviously it is totally up to you, but if you were my sister I’d suggest you go Gwyneth Paltrow and ‘consciously uncouple’ from your husband until he can start acting like a responsible adult -- giving you space to focus on digging yourself out of this mess.

Scott

An Update on the Acorns App

Hi Barefoot,

I have been an avid reader of your column in the Herald Sun and have read your book back to front several times. With your inspiration, I paid off my $1.5 million dollar house last year at the age of 45. I have also been educating myself about investing -- using the Acorns app to invest $5,000 of my money. But do you think this app is any good?

Tom

Hi Tom,

Well done, dude!

The Acorns app is the investment equivalent of putting training wheels on a bike (with a bell and streamers on the handlebars). It collects ‘loose change’ (like rounding up your purchases) from your account and invests it, or you can set it to regularly drag out small amounts as well. It then invests your money into exchange traded funds (ETFs) -- charging an extra layer of fees to do so.

It’s an easy way to invest, but I wouldn’t commit serious dough to it. That’d be as ridiculous as a 45-year-old man riding around on a bicycle with training wheels. For beginner investors, though, it’s an okay deal.

But I’ll tell you what’s a stinker of a deal -- an investment in Acorns itself. Acorns Australia have just released an ‘investment opportunity’ for its young, inexperienced customers: the ability to buy shares in Acorns itself.

They emailed their customers last week attempting to raise as much as $6 million in what Acorns’ own lawyers have described as a “highly speculative” and “highly illiquid” investment opportunity.

Damn straight.

Reading the prospectus, I note that Acorns Australia generated a loss of $1.7 million in the 2016 financial year on skimpy revenue of $154,236. It’s a rolled-gold turd of a deal, and you should steer clear of it.

Don’t let them touch your nuts!

Scott

Aspiring Artist

Hi Scott!

I am a 15-year-old aspiring artist who is interested in doing commissions for online customers. I am hardworking and passionate about art. Where should I start and how do I set up my own company? I have no idea how I am supposed to be paid online without giving away my bank details and possibly being scammed. What do you think?

Zoe

Hi Zoe,

I think you’re fantastic. That’s what I think. I also think that the lessons you’ll learn from setting up your business will be as valuable as any subject at school.

For simplicity, I’d start off as a sole trader which allows you to use your individual Tax File Number. Once you’ve got that, sign up for an Australian Business Number (ABN) with the Tax Office. Then set up a bank account with your business name -- Zoe’s Picasso Productions or whatever you want. Then it’s time to set up a basic online store -- via Shopify or PayPal -- to accept payments.

After all that, the real work begins: finding customers, working out your pricing, and building your brand. Good luck, and send me a link to your online shop when it’s up and running!

Scott

Tax Effective Way to Buy a New Car?

Hi Scott

A friend of mine, who is in real estate and whose mum is an accountant, suggests that it is more tax effective to buy a new car on a three-year finance deal with an agreed buyback figure than to drive a cheaper older car. My friend seemed to get a good tax return for her earnings due to this. Am I better off doing this than driving my older (but almost fully owned) car?

Chris

Hi Chris,

What a load of rubbish.Car dealers (and finance companies) have come up with all sorts of marketing gimmicks to get you to buy brand-new cars, which fall in value by 30 per cent as soon as you drive them off the car lot. That’s on top of the finance cost, of course.

You’ll always be better off buying a three-year-old car for cash, downloading the logbook app from the ATO, and claiming your expenses through your business. That’s what I do. Even better, small businesses can claim an accelerated depreciation of $20,000. Honk, honk!

Scott

Save Me from My Kids!

Hi Scott,

I am a successful elderly businesswoman. My business (which I started from scratch) is conservatively valued at $7 million. My problem is that I have a daughter who wants all my money. I thought I could leave the business to the family, but apparently that’s not going to be the case. My daughter says she will challenge the will and just keep going till there is nothing left. What should I do?

Helen

Hi Helen,

I see this quite a bit -- ‘kidults’ putting their lives on hold and waiting around for an inheritance they believe they’re entitled to. For no other reason than that they are a member of the ‘lucky sperm club’.

As a successful self-made woman, you’ll understand that money doesn’t, in itself, make you any happier -- it just magnifies the person you already are.

In other words, your daughter won’t find happiness from the money you give her (or that she tries to prise from you).

Anyway, let me take off my tweed jacket, put down my pipe ... and pick up my calculator.

If I were in your shoes, I’d do a few things:

First, I’d sell your business. It’s your life’s work, so you’ll want to ensure that your customers and staff are in safe hands. You should have the final say on who takes it over. If you leave it to your kids when you die, they’ll probably just flog it to the highest bidder.

Second, I’d think about placing your assets into a trust, which will bypass your estate and with it any potential claims from your daughter (that’s if you decide to give your precious little snowflake donuts).

Third, I’d think deeply about the legacy you want to leave. Right now at least part of your legacy will be your spoilt, entitled brats fighting over money they haven’t earned and don’t deserve.

You know what I’d do?

I’d pick a cause that your family believes in (funding a shelter for women fleeing domestic violence, granting wishes to kids with cancer, saving rare birds -- whatever’s meaningful to you) and pour your millions into a charitable trust for that purpose. If you really want to help your family find happiness, teach them the power of generosity.

Scott

Bless Your Cotton Socks, Barefoot

Hi Scott,

God love your cotton-picking socks, Barefoot! With your help I have, in under two years, eliminated all my credit card, personal loan and car debt, and built up some Mojo as well. All that’s left is my mortgage of $106,000. Thank you!

Caroline

Hi Caroline,

If you were standing in front of me, I’d give you a fist bump, homeboy style. Fact is, you’ve turned the corner financially. Now it’s time to put your retirement planning on autopilot: boost your pre-tax super contributions from the current 9.5 per cent to 15 per cent in an ultra-low-cost fund. Then set a date to be mortgage free. You rock!

Scott

I’m a Multi-Millionaire!

Hi Barefoot,

I have a question about how to deal with an upcoming bit of luck. I am the CTO (Chief Technology Officer) of a startup, and when I started I was allocated 5 per cent of the company’s shares. It now looks like we are about to be bought, and valuations suggest my share could be worth up to $4 million! I have been with the company for over 12 months, and I paid a notional $1 for my entire share. I have an outstanding mortgage of about $800,000. Mate, what do I do to maximise this opportunity?

Chris

Hi Chris,

Well played! The first thing you need to do is talk to an accountant who specialises in employee share schemes about your potential capital gains tax (CGT) bill. Given you’ve held the shares for over 12 months, you’ll get a 50 per cent discount on your CGT bill.

However, I’d definitely want a second opinion on what the value of the shares was when they were allocated to you.Once you have that sorted, I’d pay off your mortgage, put three months of Mojo in an online saver account, max out your aged-based super contribution allowances, and then invest the rest in blue chip shares (to balance out your riskier startup employment) via a family trust.

Good luck.

Scott

I am OFFENDED

Scott,

Last weekend I took offence at your comment about ‘double dipping’ on paid parental leave (PPL). The PPL scheme was designed so that government and industry can support families together, so there is NO SUCH THING AS DOUBLE DIPPING! To call taxpayers double-dippers is offensive and uneducated. The current PPL is already not enough, and you sending the wrong message does not help!

Narelle

Hi Narelle,

My wife agrees with you! Tony Abbott agrees with you! But I don’t!

The Government provides parents 18 weeks of PPL at the level of the minimum wage. Currently, an employee has the ability to ‘double dip’ by also accessing their employer’s generous maternity leave scheme.

My view is it should be one or the other -- but not both. It is not an entitlement; it’s a taxpayer-funded safety net. Either way, that was just one line in a column that focused on empowering first-time parents to save up at least $10,000 so they can create their own safety net.

Scott

The Medicine Man

Hi Scott,

I am currently (fairly happily) employed as a paramedic. However, I have been thinking about further study to pursue a career in medicine. The course fees will be $20,000 p.a. for four years, which if invested in the share market instead, would become a substantial amount of money. I would really appreciate your take on this investment from a purely financial standpoint.

Ben

Hi Ben,

From a financial standpoint it’s a no-brainer. You’re talking about an investment of $80,000 over four years to potentially earn $80,000 more each year for the next 40 years.

The only problem is that you really don’t want to be a doctor, do you? If you did, you wouldn’t be asking me about the ‘opportunity cost’ of the fees.

Seriously, mate, if you’re smart enough to study medicine, you’re smart enough not to choose a career based solely on the bucks.

I’d suggest you read a book called Strengths Finder 2.0. It is produced by the Gallup organisation, and it has an in-depth survey that will help you identify your core strengths. Build your career around them.

Scott

Wealth, Health, Love … and a Family of 10

Hi Scott,

I have recently separated from my (now ex) husband, who was extremely financially controlling (I have only just learned how to use internet banking!). He has left me to pay for everything -- two mortgages, both lots of utilities, insurances and all kids’ expenses. I have since fallen in love with a woman who also has four children (that makes eight children altogether). I need to support us all, and I have heard about a business called Coinspace. Is this a good investment to secure the financial future of my now huge family of 10?

Leanne

Hey Leanne,

You are the reason that people stop me in the street and say: “Those questions... they’re not real are they?” But this is your life -- and truth is stranger than fiction, right?

OK, so first off I think Coinspace sounds like a very, very bad idea. One of my investment safeguards is never to invest with a company that sounds like L. Ron Hubbard. The following is taken verbatim from the Coinspace website:

“FUTURE is in your hands. WITH US: you are literally creator of YOUR own money for YOUR future” (sic … very sic). And it goes on: “Coinspace is more, it can be translated into the beauty of living, lifetime support, wealth, health, love and education.”

Now let’s get serious, Leanne. Many women leave a controlling relationship without the skills to pay the bills. In your case, your ex had a vested interest in keeping you in the dark -- so you wouldn’t know what you’re entitled to.

The first thing you should do is consult a family lawyer and have them look over your divorce. There will be a division of assets, and it will take into account that you have custody of the kids. And as long as your ex-husband is working, he will have to pay you child support. The bottom line is this: there are four parents in this situation and they all have a responsibility to provide for their kids. It’s not all on you.

The other thing I want you to do for me is educate yourself on the basics of personal finance. Now, you’ve probably had your self-confidence kicked out of you by your ex, but I’m here to tell you that you can do it. If you can raise four kids on your own, learning the behavioural building blocks of winning with money will be simple. Good luck in finding your happy space (but not your Coinspace).

Scott

Real Estate Mistakes

A couple of years ago I hosted a 13-week prime time television show.

Don’t remember it?

There’s a reason for that … it was axed after the second episode.

I found out about its premature death via a text message (!) from the network. It started out promising — “We LOVE the show” — but went quickly downhill — “And we’ll play out the rest of the series on one of the digital channels … sometime.”

Television is a brutal game.

Then again, so is the property market, which is what the show was about.

If we’d made it to the later episodes, you would have seen a young couple making a life-changing mistake.

Spurred on by her father, the couple were half-heartedly bidding at an auction on an absolute dump of a joint. You could tell they didn’t want it, and you could also tell that they really couldn’t afford it.

And then the unthinkable happened … the bloke they were bidding against suddenly put his hands in his pockets and shook his head, and the auctioneer turned around and shouted “SOLD!” to the shellshocked couple.

Real Estate Mistakes

So let’s talk about the two biggest mistakes that first home buyers make.

The first mistake they make is they buy a home they can’t afford. They’re often spurred on by the ‘advice’ of family, friends, real estate agents and bank managers — none of whom have the responsibility of repaying the debt for the next 30 years.

That explains why I’m a stickler for saving up a 20 per cent deposit. Yes, a good deposit means that you don’t have to pay Lenders Mortgage Insurance (LMI), which can cost homeowners upwards of $13,000 simply to insure their bank. And yes, it also means you’ll be able to negotiate a cheaper rate with the bank. But the main payoff from saving a 20 per cent deposit is that you will have proven to yourself that you can handle a huge mortgage.

How long does it take to save up a 20 per cent deposit? Well, the average full-time pre-tax wage in Australia is $78,832 or $5,000 a month in the hand (excluding super). So a couple both earning average wages could live off one income (very frugally) and save a $100,000 deposit in 21 months.

The second mistake first home buyers make is … buying the wrong home.

It happens every weekend. Property prices in our capital cities are so insanely high that many young couples get worn down by being continually outbid on places. Some get so desperate they wind up behaving like a boozed-up bloke at a nightclub when last drinks are called … “You’re here; you’ll do”.

I get emails from people most weeks saying things like, “We know it’s tiny, a little dumpy, and totally not in the area we want to end up … but it’s only temporary.”

Haemorrhoids are temporary … a $650,000 home is anything but.

Trust me on this. The biggest purchase of your life shouldn’t be a chew-your-arm-off-in-the-morning moment. You should only buy a home that you can happily live in for at least 10 years.

Reason being, the costs of buying and selling (hello stamp duty and agent’s fees) mean that you will likely be out of pocket if you plan on selling within a few years. Also, the idea of turning your home into an investment property and upgrading is generally a bad idea from a tax (and investment) point of view.

The bottom line is that if you can’t commit to a 10-year timeframe then you’d be better off renting.

Yet that doesn’t mean you should hold off buying until you can afford to live in a trophy suburb. Far from it. When my wife and I went looking for our place in the country, we decided to rent there for a year. “You should rent in the country for a while… make sure she doesn’t miss her soy lattes”, my father wisely advised. It was good advice, given my wife, Liz, was brought up in North Fitzroy where even the ducks have their own bike lanes.

In that year of renting we got a feel for the joint. Not only did we become part of the community, we also got to study the market. I made friends with local real estate agents and even did a letterbox drop of places I wanted to buy.

In the end, the day we bought our home was one of the best days of my life. Not only could we afford it, but we knew it was the home we’d never leave (well, until it burnt to the ground). I actually sealed the deal by proposing to Liz on the verandah.

Okay, so you may not go that far, but I guarantee you that every first home buyer feels a sense of freedom from finally being able to delete the Real Estate app from their phone. Not only did Liz and I get our weekends back, but we now had a place to call home.

As my mum says, “Life doesn’t always turn out like it does on TV”. And thank God for that.

Tread Your Own Path!

Are We a Bankruptcy Case?

Barefoot,

I am humbled by the current state of the WA economy. My current job is paying me 50 per cent less than what I was earning four years ago. I now earn $115,000 and my wife earns $70,000, and we have a teenager in private school. We have dwindled away $120,000 in savings just to survive. Our house is worth $900,000 (oweing $720,000), and we have car loans of $35,000 and credit card debt of $50,000. We have now hit rock bottom and do not know what to do. Are we a bankruptcy case?

Terry

Hi Terry,

Are you a bankruptcy case? You’re certainly spending like it.

Despite what you’re telling yourself, you don’t have an income problem, Terry -- you have a spending problem. You ‘dwindled away’ $120,000 (and $50,000 in credit cards) ‘just to survive’?

Fair suck of the sav, Terry!

Even on your current household income you’re pulling in $11,000 a month after tax. Your mortgage is around $4,000 a month. Even with a kid in private school, $300 haircuts, and fuel for the jet ski, you should be able to make ends meet ... but you can’t. You’re spending way more than you earn, and you’re basically broke. That can only keep going on for so long.

So it’s time to wake up and shake the sauce bottle, buddy. You are still spending like a high-earning FIFO when you’re all but ... FIFO-ed. Financially, you can turn this around within a few years without going bankrupt -- but only if you and your wife are prepared to change your behaviour.

Scott