A Father’s Final Wish

Hi Scott,

Sadly, my husband has just been advised that his cancer has moved to ‘terminal’ (he is only 48). We are devastated, but the reality is we have to make some hard decisions about where to go from here. Luckily, we have always believed in having life insurance, and that will more than cover the mortgage, so financially my boys (10 and 13) and I will be okay. But I want to make sure it stays that way. After ensuring we are debt free, I want to invest some money for the boys, and I am torn between AFIC shares and investment bonds. Any advice would be appreciated — we have so many decisions to make.

Jen

Hi Jen,

My heart breaks for your family.

The simple answer is “yes” — buy some shares in a low-cost index fund. But there’s nothing simple about your situation.

If I was your husband, my only wish would be to make sure that my family was financially secure.

So let’s grant him that wish.

Speak to his super fund immediately and lodge an application for a terminal illness condition of release, for which you’ll need sign-off from two doctors (one a specialist). This will give you access to his death benefit now, instead of having to wait.

Then, sit down as a family and discuss what you’re going to do. Now here’s the really important point — turn this into a life lesson for your boys.

xplain to them that you’re going to be okay because their father is a good provider who made sensible financial decisions, like taking out adequate insurance.

When you get the payout, pay off the mortgage, put something aside for a final holiday together (or to pay hospital expenses), put three months of living expenses in a Mojo savings account (extra if you’re taking a break from work), buy your low-cost index fund, and park the rest in a 12-month term deposit so you can allow yourself time to grieve. The best way to look after your sons is to be financially strong yourself.

Scott

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

A $25,000 Gift to First Home Buyers?

Should first home buyers be allowed to raid their super to fund a house deposit?

“No”, declared Malcolm Turnbull boldly in 2015, before adding that it was “a thoroughly bad idea”.

Then again, in 2015 the Minister for Networth also said that he thought Tony was doing a dinky-di job …

And that’s the perfect frame for what’s going on with the current housing debate: it’s got nothing to do with creating effective policy — and everything to do with politics.

Right now housing affordability is the ultimate “bbq stopper” issue, and the Government wants to be seen to be doing something about it on Budget night.

My worry is that if first home buyers aren’t careful they may find themselves with apples in their mouths and a banker sharpening up a pointy metal rod in the years to come.

Let me explain.

What do you think would happen if I walked around at an auction and handed first home buyers an extra $25,000 from their super funds?

They’d just throw in a few higher bids.

Then after the house sold they’d say … “By jingo, look at how much prices are jumping! Thank god I was able to access my super!”

A Lesson from the Canadians

Thankfully we don’t have to rely on make-believe scenarios where I walk around doling out dough like some housing super Santa. That’s because our resource-rich cousins, Canada, already have a similar super-housing scheme that’s been running since the 1992.

It’s called the Home Buyers’ Plan, and it allows first home buyers to borrow $25,000 from their retirement account to fund a deposit. The catch is that you have to make tax-free repayments each year — otherwise you’re hit with penalty tax.

So how’s it worked out for the Canucks?

Not well.

Data from the Canadian Revenue Agency in 2013 suggested that almost half the borrowers had yet to pay anything back.

Why?

Well, I’ll take a stab in the dark and suggest it’s probably because they can’t afford to make the repayments. They’re what I call ‘postcode povvos’. All the 25 grand did was help stretch themselves into a tight spot that they now can’t get out of.

D’oh!

A Massive Mistake

Okay, but has the Home Buyers’ Plan at least helped make housing more affordable over the last 25 years?

Well, no.

Canada is recognised as having some of the most unaffordable property in the world. In fact, the Bank of Canada (our version of the Reserve Bank) has gone so far as to produce a Youtube video that warns the public how their record high household debt and inflated house prices could combine to devastate the economy.

Scary stuff.

And guess what? Australia actually has higher household debt, and more unaffordable homes, than Canada.

Double d’oh!

One of the original Canadian MPs who signed off on the Home Buyers’ Plan, Garth Turner, now calls the program a “massive mistake”, and has warned our government not to go down the same path.

Turner calculates that young Canadians have taken $30 billion from their long-term retirement accounts that may never be repaid — money that should be compounding away and providing for their retirement.

So will it happen here?

Well, we’re still seven weeks away from Budget night. And the fact that the Government refused to rule out the idea this week suggests that — in the time-honoured political tradition that is Budget night — they’re contemplating putting common sense aside.

Whatever happens, just remember that 2015-Malcolm was right: this is a thoroughly bad idea.

Tread Your Own Path!

Update: Pay The Screamers First

Just over a year ago, I wrote about a company called Nant Whisky.

Nant had come up with a neat little investing scheme that involved investors buying Nant whisky barrels via their Self Managed Super Funds (SMSFs). Nant guaranteed to buy the barrels back in four years for a 9.55 per cent per annum compound return. Smooth stuff.

The problem for the investors was that the person behind the ‘guaranteed buyback’ was a bankrupt Gold Coast businessman by the name of Keith Batt.

In the process of writing the piece, I interviewed Batt and said to him point blank: “Keith, I think you’re selling whisky barrels that don’t exist … so what I want to know is this: when are you going to run off with people’s money?”

Batt didn’t bat an eyelid: “We will buy back the investors’ barrels in four years’ time.”

After my piece was published I was flooded with emails from Nant investors.

They nearly all said the same thing: “Well, I guess I’ve lost my money (sad emoji).”

Yet there was one investor, a bloke by the name of Fraser, who played it very, very well.

I actually spoke to him on the phone and gave him this advice:

“Look, this thing is going down quicker than a scrawny teenager who’s drunk way too much of his dad’s whisky. But these guys almost always have some money set aside to pay off the screamers. So be the screamer.”

At that stage Keith Batt was still publicly assuring his investors that things were hunky dory … but wasn’t giving them back their dough.

Fraser started screaming. He must have emailed Nant 30 times demanding payment.

That’s not an exaggeration.

I know, because he cc’d me on every one of them.

It was like I was in inter-office corporate hell: “Why I am getting all these freaking emails?!”

Well, turns out I wasn’t the only one with email fatigue: Fraser got all his money back from Nant.

Last week the ABC reported investors were “terrified” of losing their money, after the Herald Sun revealed an audit had found that over 700 barrels (sold to investors for $12,500 a pop) never had a drop of whisky in them.

And now the receivers have been called in.

And what about Mr Batt?

Well, he told the media that he’s no longer a director of Nant, and that he has “no legal connection to Nant Distillery or any Nant company”.

I spoke to Fraser last night and got his approval to tell you this yarn.

It sounded like he was in a pub … hopefully enjoying a smooth whisky.

Cheers, Fraser.

You played a screamer, mate.

Should I Help Out My Dad?

Hi Scott,

I am a 30-something single renting in Sydney -- and I have saved up a $25,000 deposit towards a home. My dear dad is an expat on a whopping wage overseas but has just lost half his retirement money to his very predictable ex-girlfriend (now there’s a bad investment!). He wants to retire next year at 60, and his super is good but he will only have $250,000 to buy a place when he returns from overseas. I am thinking of putting my deposit into a loan to go halves with him in a property for him to live in. Am I silly?

Bec

Hi Bec,

Yes, that is a silly idea.Your old man is actually in a very fortunate position: he’s still got a decade of work ahead earning a ‘whopping wage’. So all he has to do is keep his pecker in his pocket, and keep working until he can afford to actually retire. If only every question was this easy! Keep saving for your own joint.

Scott

My Mother is $90,000 in the Hole

Hi Scott,

I knew my mum had debt, but when she finally fessed up I was absolutely shocked. She owes $90,000 in credit cards and personal loans due to gambling and spending. She is aged 60, has $120,000 in super and earns $2,000 a fortnight. She lives with my brother and pays no bills. She has now agreed to turn around things around and has given gave her credit cards to me. Please help.

Helen

Hi Helen,

You should congratulate your mum for admitting the extent of her financial problems -- that’s a really big step. No doubt she feels a lot of shame about her situation.

Now, you both need to be realistic about the hole she’s in: gambling addiction is a horrible disease that takes a lot of time and a lot of effort to treat. Having your mum hand over her credit cards is a symbolic step -- kind of like an alcoholic tipping their booze down the sink -- but it doesn’t stop her from going out and poking the pokies when she gets a craving.

Here’s my thinking: if your mum doesn’t have any assets, she could look at declaring bankruptcy.

Reason being, after you’re declared bankrupt you can earn up to $54,736.50 per annum before having to make repayments to your trustee -- and your mum earns under that.

In other words, she could stiff her creditors, wipe out her consumer debts, and keep all her income. Just writing that makes me feel physically ill -- but that’s the dollars and cents of it.

Once she’s got that sorted, she has an even bigger hurdle to face: she has reached her preservation age, and she’ll be able to access all her super in five years. If she’s not on top of her gambling addiction, there’s a chance she’ll blow it. Then she’ll be the one who gets stiffed ... by the casino.

Scott

Boom Boom

Hi Scott,

I got caught up in the mining boom and bought an investment property in Karratha, WA, at the peak. While the economy was booming it was great, but now rent is just 25 per cent of what I used to get and the property has halved in value. I have to fork out $200 a week to cover the interest-only loan, on top of rent, insurance, rates, etc. It is crippling. Luckily, I had paid off the mortgage on my home. I am thinking my only option is to ride it out, hoping it will eventually go up again. What else can I do?

Will

Hi Will,

No, you have another option … you can sell, cop the loss, move on, and focus on the future.

Truth is you bought the financial equivalent of a Beanie Baby when everyone was losing their … beans. As a result, you’ve anchored yourself to a price that may not be seen for decades, even though the mining sector is picking up.If you think you were given poor advice, or believe you were given a loan you shouldn’t have entered into, you can make a complaint to the Financial Ombudsman Service (FOS) -- a lot of the mining town investments were sold by sleazy seminar spruikers -- but it’s a slim chance.

Look, the only thing you can have some control over is your out-of-pocket costs -- and the longer you hold onto this turkey, the more it’ll cost you. In all the years I’ve been doing this, I’ve never seen time turn a bad investment into a good one. Having said that, only you can make the decision on when it’s time to sell.

Scott

For Richer, For Poorer

Hi Scott,

I currently earn a good salary, save around 35 per cent of my pay, do not have any debt (other than HECS), and am a long way into saving for a deposit for a house. My husband is a second-year apprentice who earns less than half what I do. We split most expenses 50/50, though I pay a bit more rent. I feel like I have to save for the two of us, and this stresses me out. I also feel resentful that he is not in the same position to save for our future as I am. How would you handle this situation?

Lisa

Hey Lisa,

Here’s a refresher for you:

“I, Lisa, take this [poor young up-and-coming apprentice] to be my lawfully wedded husband, to have and to hold, from this day forward, for better, for worse, for RICHER, for POORER, in sickness and in health, until death do us part.”

That’s what this is about.You’re building a life together -- you’re building a family together -- that requires a team effort.

So stop being a ball-breaker and cut your husband some slack: apprentices get paid bugger all while they’re learning their trade -- but at least he’s not incurring a HECS-HELP debt. Yet if he’s a hard worker, his income will jump in the years after he gets his ticket.

Now, before you blow your stack and write me an angry reply, let me share with you this little tidbit: I can chart my increasing income back to the day that I met my wife. Since we met, she’s been my biggest cheerleader.

Scott

Schools sell out their kids for cash

Let me give you a window into my Wednesdays ….

Every Wednesday, I’m just one of the girls.

That’s because I do the pick-up for my son at kindy.

All the mothers come in wearing Lorna Jane activewear with their hair pulled back in ponytails.

“Are you in between jobs?” one of them asked me innocently the other day.

“Huh?” I asked.

“Oh, it’s just that not many fathers pick up their sons … in the middle of the day.”

For the record, I told her that “I’m always scratching around for something to do” (unless it’s tuckshop).

That being said, I’m definitely going to play a big role in my kids’ education, especially their financial education. And if an ABC Drive radio interview I did this week is any guide, I’ve got my work cut out for me.

Let me explain:

I got a call from an ABC presenter earlier in the week, asking me to join in on an interview she was about to do with Sarah — a furious mother who’d just witnessed something unsavoury at her kid’s primary school assembly.

Now as shocking as what I’m about to tell you sounds, I promise it’s 100 per cent true (and verifiable on the ABC radio website):

Presenter: “Sarah, tell us what happened at your child’s primary school assembly.”

Sarah: “The Commonwealth Bank … did this presentation that left a bad taste in my mouth … Probably the most disturbing thing was that the female presenter was accompanied by a mascot who was someone in a costume, who was introduced as ‘Cred’, which I assume is short for credit.”

Wait a minute. Let’s have some fun:

I picture ‘Cred’ as Gary, a 34-year-old out-of-work actor, whose last role was at a theatre restaurant.

We find him backstage of the Gilmore Heights Primary School assembly.

He takes a final drag of his fag, stubs it out with his oversized yellow cartoon foot, and puts on his styrofoam cartoon head.

He’s now in character.

He’s not Gary (who, come to think of it, probably has a heap of credit card debt).

He’s Cred, a cool dude who plays by his own rules (but is also careful to follow the terms and conditions of Commbank’s credit policy).

“Hey kids! Do you want to learn about credit cards?!” he says as he wobbles out on his skateboard.

The kids stare at him in silence.

Okay, word up to Commbank’s lawyers: I have absolutely no evidence that Cred is an overweight, out-of-work actor. I just made that up. But what I could never have made up is Sarah’s account of the presentation, which is true, and even funnier, and even more tragic:

Sarah explained that the reason she and the other parents were at the assembly was to see the Year 6 play. But Cred and his banking buddies were running way over their allotted five minutes.

Sarah: “It went for about 20 minutes in the end, which took up about half the assembly and cut short the play that the Year 6’s had written and practised.”

You can picture it, right? Little Timmy and his classmates are patiently waiting in their cute costumes, nervously glimpsing at their proud parents standing up the back, who’ve taken time off work to watch their performance.

Well I’m sorry, Timmy, but your little play doesn’t pay the bills. Today you’re getting a lesson on how the real world works! When you earn $9.45 billion a year in profits — and you’re paying thousands of dollars in kickbacks to schools for signing up kids — you can stay on stage as long as you goddamn want.

But maybe I’m being a little harsh.

After all, I’m always banging on about the importance of giving kids financial education. Surely the Commbank presentation taught the kids something … surely it wasn’t just a blatant ad?

Well, no.

“The presentation was aimed at getting the kids excited, rather than having any financial literacy content”, said Sarah. “So they talked about what they could win if they made deposits, and got them to do a Mexican wave … for really no apparent reason.”

When Sarah had finished her story, the ABC presenter turned to me for my thoughts.

“Just how lame would that school assembly have been?” I said.

Yet make no mistake, signing these kids up is serious business for Commbank. The presenter mentioned that Commbank’s Dollarmites program is in 4,000 schools across the country, and that, according to a survey, two out of five people still use the same account our parents set us up with. That’s seven million Aussies who’ve never switched bank accounts.

That cute little passbook they get at age eight puts them on a marketing database that spits out a credit card when they turn 18. As I’ve said in the past, having Commbank — the biggest credit card issuer in the land — teach financial education in schools is like having Ronald McDonald teach kids about nutrition.

Here’s Your Chance, Malcolm Turnbull …

Word is that Malcolm Turnbull is pinning his political hopes on making a splash with first homebuyers in the May budget. He and ScoMo are cooking up all sorts of weird schemes in the hope it’ll buy them some love at the polls.

However, their schemes will no doubt have as much credibility as … Cred.

Giving every first homebuyer more money (or whatever Malcolm has in mind) to put towards their first home will not make property cheaper. It’ll actually make it more expensive — because first homebuyers will simply spend that much more on a place.

The main reason that houses are so unaffordable right now is blindingly obvious: the banks have lent us a record amount of debt … at a time when interest rates are at record lows.

Australia has one of the highest rates of household debt in the world. More than the Yanks. More than the Greeks. More than the Poms. And at some stage, when interest rates rise, our day of reckoning will come.

So Malcolm (or Malcolm’s junior press secretary who is actually reading this), here’s a suggestion for the May budget. Instead of giving first homebuyers another cash grab that will only serve to further inflate property prices, be the first prime minister in history to adequately fund a financial literacy program — taught by truly independent — in every Aussie school (minus the mascots).

The right wing of your party will love it: conservatives have wet dreams about promoting fiscal conservatism and self-reliance. And for what would be a rounding error in the budget, it’ll pay huge dividends in the future. Take it from a bloke scratching around for a job in the middle of the day — financial education is a core life skill. It’s too important to leave to Cred.

Tread Your Own Path!

Here’s a Shout Out to All the Renters

I froze.

Live on television.

The sweat welled up my back, and in my ears, making the voice coming from my plastic earpiece crackle.

“Scott … What do you have to say to the caller?”

Thankfully this moment happened at the start of my career. And thankfully it happened on Sky News (audience: seven Young Liberals) on a low-budget talkback show that consisted of the audience calling up and asking an expert money questions.

(I was the expert.)

Unfortunately for me, the first caller happened to be a bitter former colleague, who decided he was suitably sloshed to call up the show and take me down a peg or two, live on TV:

“And why should anyone lisssen to yoo? You don’t even own ya own home. You’re a … RENTER!”

For a good 20 seconds I sat in front of the camera saying nothing, swimming in my own insecurities.

Maybe he was right. I mean, what sort of financial expert was I if I didn’t even own my own home?

At the time my lack of homeownership gave me an inferiority complex. I felt like I was locked out of the grown-ups club. Like I didn’t belong at the big people’s table at Christmas lunch: “Put on your silly paper hat and go and sit at the card table with the other kids.”

“But I’m 28!”

“But you’re still a renter!”

If you, dear reader, are a renter, you know the feeling.

And you probably wish it didn’t matter to you as much as it does.

That’s why I’m doing a shout-out to all the renters.

Don’t Become a Postcode Povvo

There’s a lot of pressure on young people to become postcode povvos. That’s the name I give to people who hock themselves to the hilt so they can live in a fancy suburb … and end up living lives of quiet desperation.

In January, an extensive study of 26,000 Australian households by Digital Finance Analytics found that around 20 per cent of homeowners — one in five — are so stretched that they could lose their homes if interest rates rose by even 0.5 per cent.

O.M.G.

So let’s put down the crack pipe for a moment. What the hell are these people thinking?

I’ll tell you what they’re thinking, because I have conversations with them all the time:

“My mother is so proud of me” (plus, she also gets to brag to her friends that you’re ‘sorted’).

“The bank lent me the money, and they wouldn’t have done it if I couldn’t pay it back … right?”

“House prices are going through the roof, so while things are tight now, it’ll surely pay off.”

Like a cranky old high school maths teacher, I’m continually amazed that most people make the biggest financial decision of their lives without actually doing the sums. Don’t get me wrong — plenty of people spend hours working out ‘how much can I borrow, and what will that get me?’

Yet very few people calculate the total cost of homeownership (rates, maintenance, insurance, higher interest rates in the future) or think realistically about how long they plan to live in the home they buy. Upgrading in less than 10 years is almost always a wealth-reducing exercise when you factor in stamp duty and agents’ fees.

You’re Not a Loser if You Rent

Despite what everyone around you might say, there are many intelligent reasons why you would choose to continue to rent and save, rather than borrow and buy:

Like that you haven’t found your prince (or princess) yet. Or that you’re not sure where your career will take you. Or that you can’t afford it right now — that’s a bloody good reason.

Fifteen years of being the Barefoot Investor, together with the 19,000 questions I have sitting on my email database right now, has taught me this: very often it’s the case of the rich renter and the poor homeowner. So chin up, renters. Pull those shoulders back. Delaying gratification is a sign of maturity — a sign of strength.

If I could teleport myself back to that TV show, I would stare down the barrel of the camera and say:

“While I think everyone should eventually own their own home, I don’t think you should rush into it. I don’t own a home because I’m still saving up my deposit. It’s not easy. In fact, it’s a bloody hard slog. But it’s a much better than being a broke homeowner or — worse — a postcode povvo.”

Tread Your Own Path!

Barefoot Business

Hey Scott,

I do not have a question ... more of a suggestion. I am a 29-year-old, self-employed electrician and I just finished reading The Barefoot Investor. Great book! Down to earth and no ‘BS’ like you get in most money books. I would love you to write another book aimed at people who are self-employed, showing them how to manage their money. Nearly all the books I can find on this subject are 1) hard to read, 2) full of big words, and 3) wanky. Any chance?

Peace,

Ben

Hi Ben,

Truth be told, I only chose your question so I could ‘humblebrag’.

To the amazement of my publisher (and the entire publishing industry, I’m told), my little finance book has been the number one bestselling book for the seventh week in a row.

Finance books are supposed to be seen and not heard (or read). What the industry doesn’t know is that it’s people who read this column who are buying it by the bucketload for their family and friends. So to all of you who have supported me, humbly I say thank you.And to answer your question, Ben, the Barefoot Steps that my book is built around work just as well for a self-employed person or small business person as an employee. Common sense never goes out of fashion!

Scott

The 17-Year-Old Millionaire

Hi Barefoot,

I have a 17-year-old son who has a part-time job. He has saved over $1,000 and would like to start investing, but CommSec says he has to be 18 to buy shares. So how can he enter the share market with as little help from me as possible? After all, it is his money and he has worked for it. He is looking at buying Coca-Cola Amatil -- I said that, as he drinks enough of it, he might as well own part of it. Or is he just too young to get started? It’s funny -- my wife and I have accumulated over $2 million in shares and we are still not sure how to get him started!

Darrell

Hi Darrell,

Take a bow, mate, it sounds like you’ve raised a financially fit kid! Most 17-year-olds are more interested in buying Jim Beam and Coke than shares in Coca-Cola Amatil.

Now, while you could buy some Coke shares in your name, in trust for your son, I don’t think it’s a good idea.

What happens if Coke suddenly loses its fizz?

It would be the ultimate aversion therapy! If he loses money it could scare him off shares for life.

So, my advice would be for you to encourage him to keep saving and to experiment on your portfolio. Why not challenge him to select a couple of shares that you invest in? Then the two of you can follow them (without laying any actual money down), and even do some field trips to check out the company’s products and services.

Here’s the thing: when kids become teenagers they often don’t want to talk to their parents.

This is a bond that you can share with your son.

When you talk to your kids about money and investing it lasts a lifetime -- trust me.

Scott

High Income Earner

Hi Scott,

I am 32 years old and earn a good wage ($225,000 p.a.). I have decided it is time to start contributing more to super, and my plan was to increase my contributions to 15 per cent as you recommend in your book. However, in doing so I go over the concessional cap of $30,000 and will have to pay my full income tax rate for the extra contributions over that amount. My question is, does your advice change under these circumstances -- should I limit my contributions to the cap amount? I feel at my age the money is better invested outside of super if I am paying the same tax. Would appreciate your thoughts.

Thanks,

Andrew

Andrew,

You’re spot on, cobber. You should reduce your salary-sacrifice contributions so that the total of your employer guarantee, including your salary-sacrifice contributions, does not exceed the pre-tax limit of $30,000 per year.

(Note: this will reduce to $25,000 p.a. from 1 July 2017. D’oh! )

The balance should be invested outside of super, preferably through a family trust into good quality shares.

Scott

Should My Boyfriend Contribute More Because He Earns More?

Hi Scott,

I am 24 and have been living with my boyfriend for the past couple of years. We have separate incomes and bank accounts but have joint accounts for rent, groceries and bills, which we go 50/50 in. I earn $40,000 a year (working full time in childcare) and he earns around $100,000. Even though I am a Barefooter, I am struggling to keep up, because a dinner out or a grocery shop is a huge chunk of my pay, whereas it does not impact him as much. Then again, he does have an investment property and a car loan, which I do not. Is it fair for me to ask him to contribute more than I do because he gets paid more?

Ella

Hi Ella,

No, I don’t think it’s fair to ask him to contribute more.

If he chooses to buy you something, or maybe shout you the occasional dinner, that’s just him being a chivalrous dude. There’s no ring on your finger, and you don’t have kids, so you’re essentially ‘friends with benefits’.

The bottom line here is this isn’t about him, it’s about you.You need to make bloody sure that you don’t try to live a $100,000 lifestyle on a $40,000 income. Trust me, it won’t work, and it will only lead to you eventually giving up your freedom -- either by getting into debt with a bank or incurring an emotional debt with a bloke.

So the answer is to say it loud and to say it proud: “I can’t afford it.”

There’s power in saying those words. Not in a whiny, teenager life-is-sooo-unfair tone -- but in a strong, confident, I’ve-got-my-stuff-together tone.

Ella, there’s nothing sexier than a strong woman who understands that a man is not her financial plan.

That’s the sort of woman guys want to marry. In fact, that’s the sort of woman I married.

Scott

Investing is a Foreign Language

Scott,

We are two middle-aged partnered women -- one retired, one about to go part time in a well-paid professional job. We have very good superannuation balances and are living (comfortably) off my salary. We are debt free and pay off our one credit card each month. We would like to explore investing in shares but know absolutely NOTHING about it. ‘Dividends’, ‘blue chips’, ‘bonds’ -- it is a foreign language to us. Where do we start?

Annie

Hi Annie,

You’re already an investor. Congratulations!

And you’ve been smart enough to invest via the most tax-effective structure available: superannuation.

The fund that you’re with now, probably invests on your behalf.

However, there are some low-cost super funds that now offer a ‘direct investment’ option, which allows you to take invest part of your super into buying individual shares that you select.

Of course, choosing which shares to buy is another matter. You could pay for the services of a full-service stockbroker, you may wish to do a course through the ASX, or you might want to think about joining my investment newsletter, the Barefoot Blueprint.

Right now investing may seem like a foreign language, but it really does come down to commonsense. Plus it’s a lot of fun!

Scott

Our Daughter is Deep in Debt

Hi Scott,

Can you advise my 24-year-old daughter on how to face the financial mess she has created? She lost her job in May and has lived off credit cards since then; she now has debts of $27,000. After a period of estrangement from us (she simply would not talk to us -- we think she was ashamed), she has finally told us about her problem. We already knew, as we are being hassled by credit collectors looking for her. She needs our support to get on track, but where to start?

Jan

Hi Jan,

Without a job, and with a shot credit file, the easiest short-term solution will be for her to go bankrupt.

But it won’t do anything for her self-esteem. To reconcile both her self-worth and her net worth, she needs to take responsibility for her actions and dig her way out of this mess.

She needs to have a win -- and you can help. So, sit down together and write out all her outstanding debts on a piece of paper so she can get the full picture.

Obviously, she needs to get a job (preferably two) and begin meeting the minimum repayments on all these debts. Then she should ‘domino’ her debts from smallest to largest -- focusing all her efforts on knocking out the smallest debt, just like a domino. Celebrate with her each time she pays off even one debt.

Give her all the love and support you can muster, but don’t bail her out -- let her find her own way back.

Scott

I’m Grateful to Be Alive

Hi Barefoot,

My wife and I are 40 and we (almost) own our home -- with a mortgage of $70,000 on a house worth about $900,000, about 10 kilometres from the CBD. She works part time and I, due to a near-death experience, do not work, so I look after our child. We have $70,000 in super and no credit card debt. After nearly dying I feel deeply grateful to be alive and so we both only ever want to work part time. We earn $35,000 a year. If we sell the property when we are 65 and downsize, would we have enough to retire on and live a simple life?

Mark

Hi Mark,

A near death experience will certainly cause you to rethink things.

Here’s what I’d be thinking: “Why am I limiting myself to only one course of action, 25 years into the future?”

If you only ever work part time, you’re unlikely to accumulate enough in super to give you a decent standard of living in retirement. And what happens if you and your missus get 20 years down the track and decide you don’t actually want to downsize?

It might happen. Most pre-retirees tell themselves they’ll downsize when they retire -- but most don’t. It might be because of their emotional attachment to their home, or their community, or the arrival of grandkids, but they tend to delay it for as long as possible. What do you do then?

Look, I’m all for living a pared-back lifestyle and taking time to stop and smell the roses. But you’re young and you still need to work. My advice is for you to find a job that will give you meaning and purpose, and do that.

Scott

Help -- We Won Lotto!

Dear Scott,

My partner and I are both age pensioners and we have just been confirmed as sharing a 1st division prize in lotto, which we never ever expected! Having worked and tried to make ends meet all our lives-- and not done the correct thing with money -- we do not want to make that mistake again. We are scared. What should we do?

David

I’ve helped quite a few lotto winners over the years, and I’d say that fear is a totally natural, healthy emotion to be feeling right now. Here’s what I’d do in your situation:

First, don’t tell anyone.

Second, seriously, don’t tell anyone. Trust me on this: nothing good will come from telling people that you’ve won the jackpot. It’ll make at least some of your friends envious, and it could cause your kids to plot to ‘granny grab’ their inheritance, rather than living their own lives.

(Speaking of which, seek out a lawyer to create an estate plan for you. Ask them about setting up a testamentary trust so you can have more control over who ends up with your loot.)

Third, since your winnings will be tax free but the earnings on them won’t be, talk to an accountant about the most tax-effective structure for investing your money. Hopefully you’ve already paid off your home, so I would suggest you splurge a little (keep it under the radar), give some away, put some aside for emergencies, and put the rest into good-quality shares.

Given you’re already retired pensioners, you’re not going to be able to put the money into super, and this windfall will affect the amount of Centrelink pension you get. But who cares, right? You’re rich!

Scott

How a Single Mother Made $17,000 in 7 days

I’m not proud of what I did this week.I used my position in the media to blackmail a man.(And it worked.)What follows is the true story of how I made a single mother $17,000 in 24 hours.Let’s begin ...Pop!That’s the sound my brain made when I read the following email from a worried single mum:

Dear Scott,

I am an anxious 46-year-old single mum, raising two boys on $50,000 a year.

I have credit card debts of $17,000. The reason is that I invested in a wealth creation course but have not seen nothing from it yet. I am upset with my decision because I had no debts before that time!

However, I am expecting a gift of $12,000 and I should pay off the cards. But I have zero savings and want some security through having cash in the bank.

What to do?

Leah

I know what you’re thinking, dear reader — the same thing that was going through my noggin:

How the hell does a single mum wind up paying some wealth guru seventeen grand?

So I called up Leah and asked her that very question:

“Look, I’ve been a single mum for 10 years. I’ve been renting all that time. I guess I just wanted a better life for my boys”, she said.

Last week the corporate cops, ASIC, announced they will be sending undercover operatives to pursue property spruikers and identify shonky practices within self-managed super funds (SMSFs).

Well, boys, Leah’s gone undercover for you.

In August 2015 Leah attended a free wealth creation seminar at the urging of a friend.

But the seminar was just a sales pitch.

“When I first arrived, my defences were definitely up — it felt like a cult.”

Yet over the course of the next three hours Leah was sucked in as the guru bragged about how wealthy he was, and explained that most people are J.O.B. (Just Over Broke). And that led to his pitch: sign up for a $3,000 multi-day seminar and learn the secrets that the rich are keeping from you.

Problem: Leah didn’t have $3,000.

Solution: They offered her a deal — come up with $500 now and pay off the rest at $40 a week.

But the course was just a sales pitch.

When she attended the multi-day course, the spruiker spoke about the value of credit cards.

“He advised us to get multiple credit cards with multiple banks … so when opportunity strikes you’re ready to invest and take action.”

Strewth!

Now here’s the interesting thing: just before signing up for the course, Leah had proudly paid off her credit card. However, in the communal confines of a multi-day seminar where everyone was getting excited, Leah applied for credit cards with NAB, ANZ and Westpac — total limit $17,000.

Next, he spoke about the benefits of opening an SMSF. And on cue he introduced an accountant to the room who offered to set one up — at $2,800 a pop.

“They explained that an SMSF is like a bank you can use to fund your property deals … and that we could invest our SMSF money into property deals with his associate. I only had $42,000 in an industry fund, so I thought, what the hell, and signed up for an SMSF.”

The spruiker then brought out his big guns, selling $50,000 ‘mentoring packages’. Leah didn’t take the bait. But as part of her course she’d qualified for a one-on-one ‘mentoring session’ with the spruiker a few months later.

But the mentoring session was just a sales pitch.

“I went in saying to myself there is absolutely no way that I will sign up to anything”, said Leah.

“He sat there in front of me with all the financial details I’d provided in the previous course. He said I was like a windscreen wiper (furiously working, but never getting anywhere) and that I needed to take action … by doing his course.”

After an hour-and-a-half of hard-core sales pressure, Leah buckled.

But how would she pay for the course?

“He looked at me and said: you’re a single mother, you don’t have any money … so we need to find another way.”

Remember those credit cards the spruiker advised Leah to open so she’d be “ready when opportunity strikes”?

Well, hot-diggity-dang, that opportunity had just struck!

The spruiker said he would give her a $5,000 discount if she signed up for his $21,000 course “NOW!”

Then he pointed to her financials and said “put it on the Westpac card”.

“It was a full-on sales pitch. I walked out of there feeling totally defeated.”

“So”, I asked, “he used high pressure sales tactics to get you to hand over the money, huh?”

“Yeah”, said Leah glumly.

“Well, let’s give him a taste of his own medicine.”

Barefoot Turns the Tables

I called up the organisation and (eventually) spoke to the head wealth guru (spruiker).

Spruiker: “I love the Barefoot Investor!”

Barefoot: “You follow my column?”

Spruiker: “Yes!”

Barefoot: “Awesome! Because next week’s article is about a wealth creation guru who pressured Leah, a broke single mother, into buying his $17,000 course … on her credit card.”

Spruiker: “…”

Barefoot: “Look, I have a very special deal for you today … but only if you act within the next 24 hours.”

Spruiker: “Huh?”

Barefoot: “Listen to me very, very carefully. If you give Leah a full refund — today — I won’t mention your name or your company’s name in the article I’m writing.”

Spruiker: “But … you see …”

Barefoot: “Look, I’m on deadline for the newspaper. If you want this, you need to commit. NOW!”

Spruiker: “I’ll transfer her the money today.”

The Ultimate Opportunity

“What I’ve done is embarrassing”, said Leah, “but I am not a naive person. I’ve always been good with money. Being a single mum, I have to be. I have to run a tight ship.”

I don’t doubt her for a second, but everyone is vulnerable to emotional manipulation. Even spruikers, which is how we got her money back.

But I wanted her to go a few steps further. After all, the only reason she started this nightmare in the first place was to provide a better life for her boys — and why the hell shouldn’t she?

So I gave her a copy of my book, The Barefoot Investor, and paid $1,000 out of my own pocket to shut down her SMSF and help her roll her super back to a low-cost industry fund.

The other day Leah texted me to say her credit cards were now paid in full. Of course the spruiker would say she’ll miss an opportunity. I say she’s just landed the ultimate opportunity — total control of her family’s finances.

Tread Your Own Path!

How Not to Raise a Spoilt Brat

Recently, I received the following email:

“Hello Scott,

We’re a PR firm representing a toothpaste company. We’ve commissioned some research on how much Aussie kids get from the Tooth Fairy. Can we pay you to comment on the research for our press release?”

“No” was my firm answer.

I mean, seriously, who do they think I am … the Easter Bunny?

Still, I have young kids, so I’m inherently interested in the parental construct of the Tooth Fairy. Not that I’ve broached it with my son, Louie, for fear he’d never sleep (or eat a toffee apple) again:

“Mate, each time one of your choppers is ripped from your gums, we wash off the blood under the tap, then we pop it in a glass of water by the side of your bed. And then in the middle of the night, a fairy will creep into your room, take your tooth, and leave you some money for it. Sweet dreams!”

The survey, of over one thousand Aussie parents, found that the average payout for a first tooth has hit $3.51, which sounds suspiciously like the amount of shrapnel in your car’s cupholder that evening. Yet the survey also found that some parents in Western Australia and New South Wales are shelling out a whopping $40 per tooth!

What sort of message is little Timmy getting when he wakes up, looks at his bedside table and sees two crisp $20 notes sticking out of the glass?

For an entrepreneurial kid it says, “My little brother’s mouth is a goldmine! Where are Dad’s pliers?”

Or, more realistically, it tells Timmy, “I just got forty bucks for doing nothing”.

How Not to Raise a Spoilt Brat

No one wants to raise a spoilt brat, but plenty of otherwise well-meaning parents do.

And often the bratty behaviour begins with the best of intentions — giving out pocket money.

According to a recent study from comparison site Finder, the average parent is shelling out $483.60 per year in pocket money per child.

Yet here’s the kicker: the survey also found that, of the 3.3 million Aussie kids who receive pocket money, only a third have to do any chores to earn their cash!

Is it any wonder some kids grow up to be entitled little brats?

So, parents, here are my five pocket money tips for raising financially fit kids.

#1 Don’t Pay Your Kids For Basic Chores

Most kids get paid to do nothing. Bad.

And even if they do end up working for their pocket money, it’s usually for doing a few basic chores around the house.

The danger is that if you pay them for basic chores then you’re creating a pavlovian response that tells them that the only reason they should bother lifting a finger is if they’re being paid.

No, no, no!

You need to explain that everyone needs to pitch in and help out the family, for free.

Example: “Boy, have I got a deal for you! If you set the table each night, you get to … eat.”

#2 Give Them Responsibility

Understand that pocket money isn’t about the money — it’s a tool for financial education.

If you get it right, your kid will gain an appreciation of the value of a buck, a sense of accomplishment, and the self-confidence that comes from being able to earn their keep.

So, set them age-appropriate jobs: younger primary school kids can mow lawns, wash cars, crutch sheep. Older primary school kids should be able to cook the family dinner once a week: give them a budget, make them do the shopping, and have them explain over dinner how much it all cost.

#3 Pay Them Quickly

How much should you pay?

A good rule of thumb is $1 for each year of their age — so a five-year-old will get $5.

Now, and this is important, make sure you have a good supply of $1 and $2 coins on hand so you can pay your kids straight after they’ve finished a job. Don’t keep them waiting till the end of the week — what we’re trying to do is create the link between work and money.

#4 No Bank Accounts

For primary school kids, bank accounts totally suck.

The only reason student bank accounts are popular is that they’re a lucrative marketing tool for the big banks, who want to sign up kids as quickly (and as cheaply) as they can.

Yet kids learn by seeing — you want them to watch the dollars piling up as they work. Enter my infamous ‘Jam Jar’ approach: grab three empty jam jars and label them ‘Spend’, ‘Save’ and ‘Give’.

Divide the gold coins evenly each time they do some work. These are the building blocks of good financial behaviour: encourage them to spend wisely (their choice), encourage them to save up for something, and, finally, show them how much fun it is to give to other less lucky kids.

#5 No Fairies

A survey by Westpac found that 66 per cent of parents are worried about how financially savvy their kids will be by the time they finish high school.

With good reason. Despite my best endeavours, your kids are unlikely to be taught about money in school (and if they are it will be from Commbank, who have wonderful cartoon characters with such catchy names as ‘Cred’ (and, no, I’m not making that up).

The bottom line is this: there’s no magical fairy who’s going to teach your kids how to be good with money.

Raising financially fit kids — generous, hardworking kids — is your ultimate responsibility as a parent.

Tread Your Own Path!

Thanks, Barefoot

Dear Scott,

Last year I wrote and explained how the Barefoot Investor had changed my life. Lucky for me, you wrote an article on my letter (‘Here’s One for the Grandparents’) and then called me to give some advice. I just thought I would bring you up to date on my situation:

I am driving around in the crappy car that I bought with cash after selling my hugely expensive one. I now have no credit cards. I asked the girl of my dreams to marry me; luckily she said ‘yes’. We saved up a deposit and bought our first home. We have no debt apart from the home loan, with our wedding paid for thanks to us working overtime and taking jobs on the side. I am now taking your business advice and learning how to quote, run jobs and manage clients at the new company I’m working for. Again, thank you mate. You have changed my life, and now my fiancée’s as well.

Rhett

Hey Rhett!

That’s awesome man, I’m really proud of you -- and I bet your fiancé is too. This is totally politically incorrect, but I’m going to say it anyway: your actions show that you’re going to be a great provider for your family. You got this!

Scott

What Would You Do?

Hi Barefoot

,I am 35 and on a good salary ($190,000). My question is this: If you had an investment property that, if sold, would clear $80,000, and you had personal debt of $50,000 (credit card and car loan), would you sell the property to clear the debt?

Brad

Hi Brad,

How the hell do you earn $190,000 a year -- over $10,000 a month after tax -- and think the only way out of debt is to sell off the family silverware? You need to decide whether the investment property is a good long-term investment. If it is, you keep it, and you knuckle down and you pay off your debt comfortably within 12 months, cobber. The real question you need to ask yourself is whether or not you plan on continuing to piss your money up against the wall. It’s time to harden up, cupcake.

Scott