Our Friends Almost Ruined Us

Hi Scott,

My husband and I lost $300,000+ in the GFC -- bad property, tax schemes (‘woodlots’), loans for shares, etc, all sold by a dodgy financial adviser and all of which collapsed! We have slowly shed the debts. We now follow Barefoot, are ‘hosing down’ our home loan ($185,000), have $65,000 invested, are building up our Mojo account, and have started giving Kiva loans. Despite all this, I cannot shed the resentment I have for our friends who promoted the financial adviser to us. In your experience, do people like us eventually forgive themselves for listening to bad advice?

May

Hi May,

You’ve managed to pull yourself out of a financial hole; now you need to let it go emotionally, for a few reasons:

First, the money ain’t coming back.

Second, it’s not your friends’ fault. Truth is, most people have no idea how to judge a financial planner: Did he have a nice smile? Nice suit? Salon-styled hair? More likely, he made your friends some money (well, before the GFC hit) and they were just trying to help you do the same.

Third, if you’re going to get angry at anyone, direct it at the financial advisor, not your friends. He was the one who broke your trust and did the wrong thing by you.

You know what? It’s highly likely your friends lost a lot of dough with this douchebag too. Why not have a chat to them and explain what you went through -- and how you pulled yourself back up again. Just sharing that story with them will make you feel better. Promise.

Scott

Worried Grandad

Hi Scott,

My granddaughter’s father (my son-in-law) died when she was 10 years old, and left her a legacy. She is now 19 and has a share portfolio worth $105,000 earning (around $7,000 fully franked) and cash investments of $30,000. She attends uni and has part-time work earning $20,000 p.a. All good. But for the past year she has been seeing a boy who only works part time and lives with his mother. I think they may be planning to move in together. How can she protect her assets if this relationship fails?

Doug

G’day Doug,

You could encourage them both to sign a cohabitation agreement, which is a legal document between a couple who choose to live together. Honestly, though, it’s not ironclad and it doesn’t necessarily stop things from getting messy if he’s got dollar signs in his eyes. You could choose to transfer the shares into a trust, or invest via an investment bond for another layer of asset protection, though you’d need to consider the capital gains tax implications of doing so.

For my money, the best way to protect your granddaughter is to explain, in as many ways as you can, what the money represents, namely her father’s dying wish that his daughter be financially secure. It’s her job (with your loving guidance) to honour him, and the way to do that is by learning to become a good money manager. She may need to hear it 30 times before it really sinks in: it’s not just shares and cash in a bank, it’s a bond she shares with her father. No one else.

Scott

Divine Intervention

Scott,

Could this be divine intervention? I have just read your recent article in which you saved a single mum from a property ‘guru’. It hit home for me because my husband and I are considering signing up for one of these programs -- a ‘step-by-step guide’ to investing in commercial property. It is not the $17,000 your article mentioned, but it is still $3,000 that we do not have and which we are considering paying for on our credit card.

My husband is excited and wants to go ahead, but I am sceptical. We follow your blogs, have read your book, and religiously read your articles in the paper. In the past you have advised that commercial property is a good investment, though you were referring to shares in commercial companies. We know a little about investing in property (having bought a property through our SMSF which seems to be going well), but we are scared to take the plunge. What would be your advice?

Natalie

Hi Natalie,

Tell your husband to pull his head in. You should both have an equal vote on where you spend your money. You’ve voted ‘no’ for what I think are intelligent reasons -- the biggest of which is that you don’t actually have the money to buy the course. Anyone who buys a $3,000 course on credit card should not be investing in commercial property!

Scott

Mojo or Offset?

Hi Scott,

We are absolutely loving your book -- we are on Date Night Three and already feel more in control than we’ve ever been. But the one thing we can’t get our head around is your advice on Mojo -- you say that people shouldn’t put their Mojo money in an offset account. We make $170,000 combined and have $342,000 on the mortgage, which has an offset account. Wouldn’t it be the best of both worlds to use our offset account as our Mojo account?

Kelly

Hi Kelly,

Great work on the Date Nights! As far as parking your Mojo money goes, I strongly favour keeping it in a totally separate account with another bank. It just gives another layer of separation from your day-to-day banking (and spending).  Yes, I know more tax effective to park your Mojo in an offset account than a savings account, but the real return you get from Mojo is being able to draw on it when life hits the fan. And I’ve met a lot of people who’ve ‘borrowed’ from their Mojo money and never replaced it. Ultimately, though, I suppose it doesn’t matter where you keep it, so long as you have it!

Scott

You’ve Lost the Plot, Barefoot

Hi Barefoot,

I always read your column and generally agree with your comments, but I strongly disagree with the thrust of your article on 29 January on ‘How to Retire Comfortably’. I do not dispute your arithmetic, just the logic that a couple need only get to the very bottom rung of the assets ladder (paid-off home plus $250,000 in super), and then rely on a taxpayer-funded pension for the rest of their lives. The reasoning is inherently flawed.

I believe people should be encouraged to provide for themselves and strive to live comfortably with NO government assistance. To me, your book seems to lower the standard of human endeavour and will only result in more and more taxpayer money being spent on welfare in future. The age pension is supposed to be a safety net for those who cannot fund their own retirement -- not a guarantee to be factored into retirement plans.

Jason

Hi Jason,

Don’t hate the player, hate the game.

The fact is that 80 per cent of Australians retirees receive either a full or part age pension. And let me raise your blood pressure a little higher: that figure is unlikely to reduce over the next 40 years, according to estimates from Treasury Intergenerational Report.

Having said that, I agree with you that being self-funded is the best way forward. That’s why I spend every other page of my book doing all I can to help people become financially independent. If they follow the Barefoot Steps a little earlier in life, they’ll be comfortably self-funded when retirement day comes.

Scott

I’m Accident Prone

Hi Scott,

I am 28 years old, earning $55k, and curious whether I should get private health insurance. I injured my ankle and had surgery through the public system after waiting a year. Even if I had bought insurance immediately after I hurt myself, there would still have been a year’s wait because my injury was ‘pre-existing’. So should I just continue to set aside some savings to cover my accident-prone tendencies, or should I take the plunge and get private health insurance before I turn 31?

Emma

Hi Emma,

I wouldn’t bother. You’re earning below the threshold for the Medicare surcharge slug, and you’re below the age of the lifetime health cover loading slug. Besides, you already have health cover -- it’s called Medicare -- and it’s one of the best healthcare systems in the world. My advice would be to do two things: take out a membership with Ambulance Victoria ($44.90 a year), and keep saving up your Mojo.

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.

My Fiancé Had a Surprise For Me ...

Hi Scott,

First-time caller, long-time listener. In May I was all set to be married to what I thought was a lovely gentleman. I always had a sneaking suspicion that he carried a reasonable amount of debt (due to his lavish spending), but I finally pried it out of him: he owes $107,000 on credit cards! What should he do? What should I do? Can a leopard change their financial spots? I am 39 and was hoping to have a child ASAP!

Mandy

Hi Mandy,

Greetings, and welcome to the Jerry Springer section of my weekly Q&As. Actually, my first thought when I read your question was that you may have been a contestant on Married at First Sight. And I had the same reaction that my wife has when she watches that show (mumbling and shaking the head). Anyway, thank god you found this out before walking down the aisle. Your discovery is a game-changer, for a few reasons:

First, because there’s something off about a bloke who only admits to his fiancé that he’s got $107,000 in credit card debt when he’s pushed. That’s not normal. What other questions should you be pressing him on?

Second, because you’re planning on having children with this guy, so you need him to be a good provider. That’s not being sexist, it’s being a realist. You’re probably going to take time out of the workforce to raise children, so you need to be able to rely on him to provide. Unless he’s earning very good dough, he won’t be able to.

Finally, because he’s a financial loser. That’s not very nice to say, and very judgemental. However, there are two instances when you’re allowed to be judgemental: when you’re watching reality TV, and when you’re choosing a life partner.

Scott

The Government’s Plans to Fix Housing Affordability

“Waaaah!” wailed my son.

Tragedy had struck: our golden retriever had used his favourite toy tractor as a makeshift bone.

“Dad … can you fix it?”

I looked at my distraught son.

I looked at the mangled remains of his little John Deere toy tractor, covered in bite marks, missing two wheels, and encased in a film of dog slobber.

“You can fix anything  … right Dad?”

“Oh … umm … sure”, I mumbled, avoiding eye contact with son number one.

Hello, Mr Fix It

A thousand kilometres away another Scott (Morrison, the Federal Treasurer) was having his own chewed-up screwed-up moment: right now millions of kids are asking the Treasurer  … “Please Mister Sco-Mo, can you fix the housing market for us?”

Like me, deep down Sco-Mo knows he can’t really fix anything.

Like me, he also knows no one wants to hear that ... so he’s just trying to keep everyone happy (and keep his job).

Still, he and Malcolm-in-the-Middle have only themselves to blame for the political pickle they’re in. After all, they were the ones who boldly declared that the centrepiece of next month’s Federal Budget would be policies to fix the mangled mess that is housing affordability. And, just like my son, first homebuyers are now staring at Sco-Mo expectantly. A good example of which was the front webpage headline in the Fairfax papers this week: “Government aiming to fix housing deposit problem so young buyers can purchase ‘as soon as possible’.” (No pressure, Sco-Mo!)

And so the pre-Budget tradition of leaking ideas to the media to see what sticks or stinks is in full swing. The big idea that has had more leaks than the Titanic is allowing first homebuyers to raid a few years of their super contributions to build up a deposit. This week the Treasurer again refused to rule the idea out. Though in this he at odds with his boss, who described it in 2015 as a “thoroughly bad idea”. And, as I go to print, the Prime Minister appears to have put his foot down (though with Malcolm that would be a gentle tap of his $800 brogues) and said it won’t happen.

In reality, their hands are tied. The Government doesn’t have the political ticker to touch negative gearing, despite the fact that the current rules favour investors over homebuyers and encourage loss-making property speculation.  (Research from Digital Finance Analytics this month shows that one in three Sydney landlords risks being under financial stress should rents fall or rates rise. History shows that, when a downturn occurs, property investors often rush to sell -- unlike owner-occupiers, many of whom would sell the dog to keep their family home.) And while the Government is making noises about trying to encourage oldies to downsize, they don’t have the kahunas to include the primary residence in the asset test for the age pension.

Canberra Can’t Solve a Damn Thing

Look, I’m no Rhodes scholar (like, say, Tony Abbott, who incidentally is a big fan of raiding super), but the only sustainable ‘fix’ for housing affordability is lower property prices.  And it’ll happen anyway at some stage. Fact is, Australia’s household debt is out of control. Our household debt-to-GDP sits at 123 per cent -- the third highest in the developed world, and much higher than the Poms (88 per cent) and the Yanks (79 per cent), and basically twice as much as the bloody Greeks (62 per cent)!

So, as I’ve said many times before, we’ve got debts at all-time record highs when interest rates are at all-time record lows. When interest rates rise -- and they will, eventually -- house prices will fall, and housing affordability will be fixed (YAY!). The only problem is, you may not have a job as we slide into recession (BOO!).

But don’t expect anyone in Canberra to talk about this.  Even though they’re chauffeured around in fancy cars with little flags on the bonnet, that doesn’t mean they know what’s going on … or that they’ll admit how worried they really are. Heck, even the people who set interest rates don’t have much of an idea. Case in point: at the height of the US housing boom, Federal Reserve Chairman Ben Bernanke was interviewed on television:

Interviewer: "We have so many economists saying this is a bubble, and it could even cause a recession at some point. What is the worst-case scenario, if we saw prices fall substantially around the country?

"Bernanke: “Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow ... maybe stabilise.”

The US housing bust triggered the deepest financial crisis in living memory. Yet here’s the interesting thing: the beginnings of the US housing bubble can be traced back to 1995, when then President Bill Clinton passed legislation to … tackle housing affordability. So the lesson here is simple: don’t look to anyone -- except yourself -- to fix your problems. After all, Scott has enough of his own. “

Waaaah!” 

Tread Your Own Path!

The Revenge of the Oldies

You never actually know what will become a ‘hit’.

Case in point:  when I wrote my book, I had no idea that my ‘Donald Bradman Retirement Strategy’ would resonate so strongly with readers. To date, I’ve received literally hundreds of emails from people in their 50s and 60s -- some admitting they were in tears as they typed -- thanking me for taking away their fear of retirement.

For the first time, they realised they can live a dignified retirement even if they have far less than the minimum ‘magic million’ in super that everyone tells them they need.

For those of you who haven’t read my book (What’s your excuse? Buy a freaking copy! The royalty from each book buys me half a can of Coke), the aim of the strategy is for retirees to still be at the crease at 100, hitting it out of the park while enjoying a comfortable retirement.

(And by ‘comfortable’ I mean lapping it up on a nice three-week trip to Noosa each year with your mates each year. Regularly eating at nice restaurants. Going to the flicks. Driving a near-new Toyota. Spoiling the grandkids. Having enough money for top-quality health insurance. And having some Mojo stashed away for emergencies.)

The Donald Retirement Bradman Strategy is a four-step process: First, you need to own your own home before you retire.

Second, you (currently) need to have $250,000 in super (couples), or $170,000 (singles).

Third, you need to claim the full age pension.

Fourth, you need to continue working a day or so a week. And here’s where the gravy cup from Canberra really runneth over: retirees can earn $57,948 a year (couples) or $28,974 (singles) before they pay a dollar in tax. And if they just want to supplement the age pension -- and not reduce it -- they can earn $13,000 (couples) or $6,500 (singles) a year under Centrelink’s ‘Work Bonus’.

The Million-Dollar Myth

Let me be clear: having a million bucks or more in retirement is a very good thing, and if you follow my book from a younger age you’ll almost certainly achieve it.

However to say that you need a million-dollar nest egg is a myth, peddled by the finance industry who get paid by clipping a percentage of your assets. It’s also a myth that a successful retirement is never having to work again.  

It’s said that the two most dangerous years of your life are the year you’re born and the year you retire. (That’s possibly because your partner will kill you if you hang around too much messing up the house).

Now listen up: you don’t have to keep working at the same job. But it’s essential that you find work (paid or voluntary) where you feel like you’re making a contribution, helping people, and even learning something new. It’s good for your savings and your self-confidence.

And that brings me to a very interesting discussion I had this week.

A Few Good Apples

I caught up with Matt Higgins, who runs Australia’s largest online jobs board for more mature employees -- olderworkers.com.au. Matt started the business nine years ago with his old man, who at the time was struggling to find a job after being laid off and then being unemployed for two years. Today the site has over 50,000 registered older workers looking to connect with ‘age-friendly’ employers.

Who do you think these ‘age-friendly’ employers are?

Well, Bunnings (of course), the RSL (sure), and … Apple.

Huh?

Yes, Apple.

As in the technology company, not fruit-picking in Mildura.

In fact, at the moment they’re picking a bunch of oldies to work in their Apple stores across the country.

Why?

Well, Higgins says one reason is that Apple is getting a lot more older customers coming into their stores (and who knows, maybe the young blue-shirted hipster crew aren’t that jazzed about teaching grandma how to turn on her iPad?).

However, Higgins believes the main reason that Apple is advertising on his site is simple:

“Older people are bloody hard workers.”

Makes total sense. The older generation has a great work ethic. They turn up on time. They’re ready to work. They focus on the job at hand ... instead of standing around staring at their phones and Instagramming their lunches. Most importantly, when they’re on the job, they tend to really enjoy their work. In fact, a survey of 17,000 Aussie workers released week by Curtin University backs this up. It found that workers aged 70 or older were three times more likely to be happy at work than their melancholy younger colleagues -- Gen Y recorded the lowest level of job satisfaction, at only 24 per cent. And here’s the kicker: those who claimed to be very satisfied with their jobs earned a lower amount on average each week than their less satisfied counterparts.

And that, my friends, is why Apple is the world’s biggest company. Hell, they’ve not only worked out how to dodge paying billions of dollars in taxes -- they’ve cracked the code on hooking up happy, engaged workers!

The researcher behind the report, Professor Rebecca Cassells, said: “Our research suggests that people working beyond the age of 65 are less likely to be doing it because they need the money … they’re doing it for the love of the job.” Howzat!?

Tread Your Own Path!

P.S. Happy Birthday to Mrs Rickert, who turned 102 a few weeks back. You may remember that I interviewed her a couple of years ago to get a reality check on why all us young ’uns should harden the hell up.

She’s lived through the Great Depression, a flu pandemic that wiped out 100 million people, and two world wars. And how’s this for hard -- she gave me the interview just after she’d finished mowing her lawns!

I asked Mrs Rickert how it feels to be 102, and she told me: “I don’t feel a day over 100.”

I'm So Worried I Can't Sleep

“I wish I could be like you … and own my own business”, said a friend to me this week.

I bit my tongue.

Far as I can tell, he gets paid a comfy salary to essentially sit in meetings, drink coffee, eat nice pastries, and burp out the occasional “well, moving forward, we’ll cross-collaborate on our KPIs to achieve operational synergy with all stakeholders”.

(Okay, so that’s not all he does. He also spends quite a lot of time emailing … about upcoming meetings.)

Ain’t no small business owner I know who’s got time for that. We’re in the trenches, baby!

Small business owners are a different breed: they work their guts out — risking it all — even though the odds of success are well and truly stacked against them.

Case in point: this week I received this email from Tania, whose small business is at the crossroads.

I’m So Worried I Can’t Sleep

Hi Scott,

I feel sick to the stomach. After five years of owning our cafe (which we bought for $100,000 with a loan), we are still only earning about $45,000 a year. That’s after we pay the interest on our loans, and there are a lot of them!

We now have around $220,000 of debt across around seven sources (mainly one bank) and repayments are around over $1,600 per week. So far we have been able to meet loan repayments but are feeling financially stressed — not to mention the day-to-day running of our business.

The business is profitable but, with the debt the way it is and some bad advice that was given to us, we seem to be going backwards. We need to address this ASAP, so we are considering consolidating all our debts into one loan for $220,000 at 15 per cent, which would be only $1,000 per week.

I don’t want to go bankrupt as we are profitable, but we are experiencing a bad run. I am also wary that we have a portion of debt secured against our in-laws’ home. We are making changes to improve our business but it’s not fixing our debt issue, and I am concerned about being able to pay our suppliers and make all our debt repayments.

I am so scared of what could happen and am losing sleep.

Tania

The answer I have for Tania is applicable to many small business owners. Here it is:

The Crossroads

Hi Tania,

You’re at the crossroads.

Actually … no you’re not.

You were at the crossroads a couple of years ago, but for some reason you decided to put the pedal to the metal, speed through the stop sign and hope for the best.

And now you’re face to face with a huge debt truck that could wipe you out. (Guess who watched a bit too much of the Melbourne Grand Prix last weekend?)

Okay, so I’ve helped hundreds of small business owners over the years. While they were all different — and in vastly different industries — every one of those who went broke had two things in common:

1. They Take on Too Much Debt

Despite the marketing hype, banks generally don’t like lending to small business owners — unless they can get security over their family home (or, in your case, the in-laws’ home!). Then, when they’ve got the security, they’ll give you enough rope (credit) to hang yourself.

Here’s the thing: having the family home on the line compounds your stress dramatically — because it’s a highly emotional investment. No one wants to lose the roof over their head, or your in-laws’ heads.

Strewth! Christmas lunch at your house must be a real hoot. (Don’t even put butter knives on the table.)

2. They Don’t Know Their Number

As a small business owner, I’m obsessed with my ‘break-even number’: how much I need each month to keep the lights on and the employees paid (including my most important employee — me).

It doesn’t need to be fancy. Grab a piece of paper and write down — line by line — all your expenses (both variable and fixed). That’ll give you your break-even number. Then match that number against your expected revenue, minus 25 per cent straight off the top for tax.

Just being aware of your number can be enough to boost profitability.

‘Cashflow problems’ are weasel words — a fancy way of saying you’re spending more than your business earns. Other than making more sales, the only way to guard against going bust is to consistently focus on cutting your overheads and transferring those savings into a business Mojo account.

Assume Crash Position

This advice is all well and good for business owners approaching the crossroads, but not for you.

You bought the business for $100,000 five years ago. You now owe $220,000. Your profits haven’t increased.

That tells me the business isn’t paying its way.

Honestly, your chances of consolidating your debts without additional security are slim. More honestly, the biggest beneficiary of your business is the bank, from all the interest you’re paying them!

I don’t like the fact that you’re sick to your stomach and can’t sleep.

I don’t like the fact that you’re earning less than you could earn scrubbing dunnies.

And I certainly don’t like the fact that your parents have mortgaged their home for your business.

I’m all for the thrill of being in the trenches, but sometimes you need to wave the white flag.

Or, to quote esteemed management consultant Mr Kenny Rogers:

“You got to know when to hold ’em, know when to fold ’em, know when to walk away, know when to run …”

In your case, I’d fold ’em.

Tread Your Own Path!

You’re Sexist, Barefoot!

Scott,

I am usually a fan but I was rather disappointed by the way you described picking up your son from kindy in a recent column. To me your language came across as sexist, and I think we can all (especially someone in a position such as yours) be more careful in the way we phrase things. I have always recommended you to people (including my girlfriend just recently), but if your advice is going to come with a side of gender stereotyping, then that will come to an end.

Tim

Hi Tim,

First, let me put down the vacuum cleaner so I can type with both hands.

Okay, ready.

Tim, I’m guessing you’re upset about a column I wrote recently where I recounted a conversation I had with a mother at my kid’s kinder class: “are you in between jobs?” She innocently asked me. When I told her that I wasn’t, she replied, “oh, it’s just that not many fathers pick up their sons … in the middle of the day.”

I’d say that’s a classic case of gender stereotyping right there … but I actually found it funny. Though I admit if I was actually out of work, it might have knocked my confidence a bit.

Anyway, the guts of the column was about Australia’s biggest bank using its marketing muscle to send in cartoon credit card mascots to primary school assemblies. And that’s definitely something we should all be deeply offended and outraged about.

Scott

ING Direct Fees Rip Off!

Hi Scott

ING Direct came to the market a few years back with great product called Living Super (you call this type of fund ‘SMSF Lite’ as it allows you to buy shares within super). If memory serves, it was the first super provider to offer a zero-fee balanced option and it really shook up the market. I was attracted by the ability to access low-cost index ETFs and construct a low-fee share portfolio within my super.

Fast forward a few years and everything has changed. There are now fees on the balanced fund option, and the annual trading fee is 0.50 per cent. It works out as a $700+ increase, negating the very reason for buying the ETFs over a standard fund.

I rang ING and was told the reason was that they have been absorbing costs for a number of years - sounds like a loss leader to me to capture market share. Is this legal? Further, the Morningstar report they commissioned to justify their changes is laughable. I am very angry, because moving super is a pain and you are exposed while you are out of the market! I know AustralianSuper have a similar product. Do you recommend it, are you aware of any others?

Also, I want you to share this with all your readers are aware of these very significant changes to the ING Living Super product.

Cheers,

Luke

Hi Luke,

When ING launched the zero-fee super option, I called them up and asked them, ‘what’s the catch?’.

After about twenty minutes of bulldust bingo, I basically worked it out: technically the product was ‘free’ … well, as long as you parked a certain amount of your super in a cash account that paid below the market interest rate.

Uh-huh.

That sort of marketing is too tricky for my liking -- and it seems also for ASIC, which made ING Direct compensate 24,500 of their customers $5.38 million for their “potentially misleading” fee-free statements they made about their Living Super product.

That’s why I’ve never recommended ING’s Living Super product. There’s no such thing as a free lunch!

So, what should you do?

First, you need to look at the costs of switching: you’ll have existing insurance cover in place, and you’ll also have tax implications. However, if you do a bit of research you’ll find there are a range of low-cost industry funds that have dirt cheap “SMSF-Lite”, otherwise known as direct share investing options.

Scott

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

Changing My Life, One Day at a Time

Hi Scott,

You won’t remember this because you speak to so many people each week, but I wrote to you in late November last year about being overwhelmed by receiving a payout from the Church for $175,000, and you were kind enough to give me a call.

The advice you gave me was incredibly helpful. You told me to put most of it away in a term deposit until I’d decided on things, so I could get rid of all the crazy ideas floating around my head. Doing that was an amazing first step. Then I got a copy of your book and have been following the ‘Barefoot Steps’.

I am still going through some yucky procedures, trying to get some proper justice, and have had to take time off work to cope. But when I have bad days, I take out my drawing of the buckets and it reminds me that I am going to be safe, no matter what. The money has ended up buying me some valuable time to recover and rest, which is changing my life, one day at a time.

I write with no expectation of reply, just wanted to say a sincere thank-you. Keep doing your thing.

Rebecca

Hi Rebecca,

The Barefoot Steps are focussed on keeping you financially safe and secure. And after what you’ve been through, that’s exactly what you need. Thanks for writing, and keeping us updated on your journey. You’re on the right path.

Scott

Barefoot Goes to Church

“Did you get a letter … from the Bishop?” my mother asked casually over coffee a couple of months back.

I looked at her for a full 30 seconds in silence.

“I get a lot of letters from old people”, I told her (only half-jokingly).

“I think he wants to book you for a speaking gig — for the clergy. But I want you to know that I haven’t committed you to anything” she said (and I believe her — my mother is a good Christian woman, and she wouldn’t lie).

Still, in her world, the Bishop is kind of like my Buffett. He’s a big deal. Even so, I gently explained to her that my days as a travelling seminar speaker are now over, and as a result I wouldn’t be able to do the gig.

The Barefoot Commandments

So this week I … walked into a church in Bendigo to do my presentation for the faithful.

(I decided it’d be wise to keep in good with the big boss … after all, she is my mum).

I was there to answer their specific financial questions. However, I first wanted to give them some context: explain to them who I was, and what I was about — because my worldview affects the advice that I give.

I also decided it would be fun to structure my speech around the Ten Commandments — which I called the Barefoot Commandments — and I whittled them down to three, because, well, that’s what the kids do these days.

(Cue nervous laughter from the congregation.)

So, as I prepare to pass the plate around, let me give you my Barefoot Commandments:

1. Seek Safety and Security

Standing in front of my burnt-out home following a savage bushfire was a good test on what matters.

To my surprise, I worked out that I honestly didn’t care about my stuff (and I proved it by not replacing a lot of it). Yes, that sounds like a story from Chicken Soup for the Soul, but it’s true. Instead, what mattered in that moment was that I was able to turn to my family and say “I’ve got this”.

And over the next couple of years we not only rebuilt our home, but rebuilt our family life. I did the unthinkable — I quit prime time television, and turned down almost every opportunity that involved travel. Today I spend my time on the farm with my wife and two sons.

Your net worth isn’t the same as your self-worth.

Everyone wants to get wealthy, but in the process, some give up their safety and security. Case in point, you’d be surprised at the number of $300,000-a-year executives who are rushed, stressed, and chained to their salary — but justify it all by saying “I’m doing it for my kids” (who they hardly see).

The best part is that safety and security are achievable for pretty much everyone who has a full-time job. If you’re living in a home you can afford (rented or owned), spending less than you earn and have some Mojo (my word for savings) tucked away, you’ve all but eliminated the biggest cause of family break-ups.

Feeling in control of your life — and being in control of your time — is true wealth.

2. Keep It Simple

I get a lot of hate mail these days, and most of it is from people criticising me for being too simple.

(Guilty as charged).

Yet let me explain why I’m so simple. These days I’m fortunate enough to be classified (in they eyes of the law) as a ‘sophisticated investor’. This basically allows me to invest in all sorts of weird and wonderful investments that smaller investors aren’t allowed to access.

I get to drink off the investment top shelf!

However, what I’ve learned from the experience is this: anyone who makes things overly complicated is usually trying to sell you something. And generally it’s rubbish.

Case in point: Warren Buffett famously laid down a ten-year million dollar investment bet against Wall Street exclusive hedge fund managers — and cleaned their investment clocks with a dirt cheap no-frills index fund your grandmother could invest in.

Besides, what sort of weirdo wakes up wanting to make things more complex?

Life is busy enough, and I’m still getting my head around programming the dishwasher. If you make managing your money too complicated you won’t stick with it — especially if you have a partner who isn’t as money-focussed as you. There’s power in keeping things simple, and focussing on one thing at a time that builds more safety and security in your life.

3. No One Cares More About Your Money than You

I’ve written this column for over a decade, and I’ve made a lot of enemies in the finance industry. Yet the truth is, I know of no other industry that makes so much money from the complacency and ignorance of their customers.

Let’s take one example:

Bank-owned super funds have, on average, underperformed not-for-profit industry super funds by more than 2 per cent over the past decade. The difference basically comes down to the fees.

A study by Industry Super Funds (using SuperRatings data), found that over a 19-year period your balance would be 5 per cent higher if it was in a low cost industry fund. It doesn’t sound like much, but it’s potentially tens of thousands of dollars (or more) that you don’t get to spend in retirement.

When it comes to your family’s financial future — and their safety and security — no one cares more about your money than you do.

Amen.

Tread Your Own Path!

Barefoot Goes to School

Hi Scott,

I am a high school economics teacher. This week I made your recent article ‘How Not to Raise a Spoiled Brat’ required reading for my Year 9/10 class. I am looking forward to hearing their thoughts! I am also planning to play the ASX Sharemarket Game with the class. Do you have some top tips for them as they try out investing for the first time?Cheers,

Miss J

Hello Miss J,

Even though I’m a former employee of the ASX, I have to tell you that I’m not a huge fan of the game, because it encourages short-term trading, not long-term investing.

My tip would be for the class to do some real-world homework. Have them ask their parents three questions: Where is their super? How many super funds do they have (most people have three)? And what are they being charged in fees (as both a percentage and a dollar amount)?

That’s one lesson the entire family would never forget!

Scott

The Ethical Dilemma

Hi Scott,

I have a question about ethical investing. Having done some research on ethical funds, I find myself stuck between two extremes. Some have low fees but are not ethically stringent enough for me. Some are super stringent but have high fees. I want something in the middle. So I was wondering what your thoughts were on Morphic Asset Management, which is seeking to raise more than $200 million for the Morphic Ethical Investment Trust, to be listed on the ASX.

Louise

Hi Louise,

Choosing a fund boils down to two things: do you understand it, and how much are they charging?

Here’s how Morphic explain their fund:

“This will be an opportunity to invest in an ethical long/short equity fund providing you with diversified exposure to a portfolio predominantly comprised of global listed Securities and Derivatives that comply with the Company’s social and environmental guidelines.”

Louise, before you invest your hard-earned with them, you need to understand that paragraph.

Okay, now onto the costs. As an investment grump I pick up the prospectus and skip past all the pretty pictures and all the marketing guff, and go straight to the fees -- since that’s the only thing in the prospectus that you can actually count on happening:

They’re charging 1.25 per cent per annum, plus a 15 per cent outperformance fee.

That’s too damn high for me. Research from Standard and Poor’s proves that 80 per cent of fund managers can’t reliably outperform a cheap index fund over the long term.

So if I were in your shoes, I’d invest in the UBS Ethical International Fund (ASX:UBW). It’s simple to understand: it’s an international index fund that screens out companies involved with tobacco and weapons. How much do they charge? A low 0.35 per cent.

Scott

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