My Totally Independent Financial Advisor … Sucks

Barefoot,

My wife are in our early 50s. Adult kids. We earn $180k a year combined, with $200k left on our mortgage, $200k in savings, and $350k (combined) in super. This week my wife and I met with a financial advisory firm who claim they take ZERO commissions and proudly claim their independence from EVERYONE. All good so far, but when we saw their fee pricing … bill shock moment! They want $7,500 up front as a project fee, then $600 per month thereafter. They were admittedly thorough in their fact-finding about our situation, but we just cannot accept their price as a good value proposition. Curious as to your thoughts.

Warren

Hi Warren,

Well done for seeking out an advisor that takes zero commissions. However, let’s be honest: your advisor is not truly independent … he has a vested interest in advising you to write him a $600 cheque each month!

However, it may be worth having them review a simple, set and forget plan: pay off your mortgage. Review your insurance. Build up a three month Mojo fund for emergencies. Then continue working hard, but save harder: salary sacrifice $25,000 each into a low-cost super fund. Invest the rest via a family trust into low-cost index fund that you can distribute tax-effectively to your adult kids.

Think of it this way: if you invest the $600 a month into shares, in 20 years time it could be worth $330,000.

Scott

IVF Has Left Me $15,000 in Debt

Hi Scott,

I believe my situation is unique. I am 42, single, earning $85,000 (including super), and about to embark on IVF cycle number seven, as I have not yet met Mr Right and at my age have no time to wait for him. IVF has left me with a debt of $15,000, and after my next cycle I will (if I am careful) have $10,000 left in savings, which will pay the rent for six months if I fall pregnant. I will then need to save more and pay off the debt throughout my pregnancy. Would love your advice as I really need to get ahead and it is tough.

Mandy

Mandy,

Your situation reminds me of the young people that write to me who desperately want to buy a house they can’t afford. They scrape and borrow too much and eventually get over the line … only to realise just how expensive the ongoing costs are. The only advice I have is to think beyond the pregnancy: you’ll get 18 weeks maternity leave at $695 a week before tax. You’ll need to work out your maternity leave entitlements with your employer. After that you should receive Family Tax Benefit A and B, plus some rent assistance. Financially, you’re setting yourself up for a very hard road. But you obviously know that. If you’re going to do this, make a vow to do it without debt. No credit cards. No personal loans. Debt makes everything more stressful, and more expensive. You’re obviously a very determined person. Good luck.

Scott

What Young People Should Learn from Their Parents

In last week’s column you talked about young people and money. My husband and I encounter many young people, some even in their thirties, who do not know the basics about saving, super, banks, financial advisers, etc. We spend a lot of time talking them through stuff they should have learned from their parents. We are thrilled you want to change the school system to teach kids about earning, saving and giving – the proper way, with no ‘sales pitch’. Go for it! We are behind you!

Kathleen

Hi Kathleen,

I received a massive response from last week’s column. There were two main camps: teachers wanting me to kick off my program at their school, and Barefooters like you. After years of doing this, I know that many of my readers mentor young people. What an absolute privilege, right? It’s one way to positively change a person’s life. I’ll have more information on the program over the next few months. Watch this space.

Scott

How to ruin your financial life

He didn’t even introduce himself.

An old bloke just walked straight up to me, poked his knobbly old index finger into my ribs, leaned in, and said:

“They don’t listen to you, do they!”

“Huh?” I replied, cowering like a schoolboy (I was at a function, and I didn’t know this old codger.)

“I’ve been reading your questions in the newspaper for years … and they don’t listen to your advice!”

He did have a point. Maybe my message just isn’t getting through. After all, each week I try and give people honest, commonsense advice to help them out.

Fat load of good that does!

So this week let’s try something different — a bit of reverse psychology.

If people don’t respond to good advice, maybe they’ll listen to some bad advice?

So in honour of the old bloke, let me give you half a dozen ways to totally screw up your financial life.

How to Lose Your Shirt in the Share Market

Buy shares based on the tips of your brother-in-law (a 43-year-old IT helpdesk employee who ‘dabbles’ in shares, porn, and sporting memorabilia).

Yet what if you are not lucky enough to have a brother-in-law who has outspoken views on things he knows very little about?

Easy.

Just read scary newspaper headlines: “Sell Everything!”, “Prepare for a Cataclysmic Year!”

(The Royal Bank of Scotland made these headlines in January 2016. Since then the US stock market has jumped 35 per cent, while our market is up around 18 per cent … not including dividends.)

And after you’ve bought some shares, make sure you watch them right throughout the day.

Do not take your eyes off them for a second.

The minute the shares go up, buy more. The minute they go down, sell.

Okay, so now let’s focus on losing money in something you are an expert in: property.

You’ve been living in a house your entire life … right? How hard can it be?

Let’s roll.

You: Property Mogul

If you buy an investment property, don’t buy a good-quality family home from your local real estate agent.

What do those losers know?

Instead, go to a wealth-creation seminar, preferably hosted at a suburban Holiday Inn conference room.

You want a tanned fellow from the Gold Coast who’ll teach you the ‘secrets’ the rich have been keeping from Domino’s-Pizza-munching plebs like you.

Ideally, you’d like a complicated strategy that involves you purchasing ten properties in ten years and will have you retired at 40 and living off $229,345 a year!

Go ahead and buy a property from the spruiker using ‘OPM’ (Other People’s Money), interest only (remember, the more debt you have, the wealthier you are). Location? Preferably South-East Queensland, though what matters most is that the property you buy at the seminar is located somewhere far, far away. While you’re at it, use their legal representatives and mortgage broking ‘team’. It’s so much easier than worrying about all those annoying details yourself.

Yet the real money is made (and lost) in business.

You’ve read Donald Trump’s The Art of the Deal, and look where he ended up.

Okay, so he did get a multi-million dollar loan from his father, but screw it — let’s do it!

How to Go Broke in Business Without Even Trying

Start a business you have no experience in, preferably in partnership with your ex-boyfriend … preferably funded with credit card debt.

Focus on ‘brand positioning’ (business cards, a fancy office, an agency-designed website) before you even think of finding any customers. If your product is as good as your friends on Facebook think it is (38 ‘likes’ — you GO girl!), customers will beat a path to your door.

And what if you can’t think of an idea for a business?

Easy. Just buy a franchise, like Pie Face, or 7-Eleven.

They always work out well.

Harness The Secret

Money can be attracted through your mind.

(Picture me rubbing my temples as I write this).

Let’s be clear: God wants you to be rich.

The 800 million people in sub-saharan Africa? … not so much.

But you? … Sure.

Now, one way to awaken the spiritual money muse is to always keep $2,000 worth of cash ($5 notes) in your wallet. It’s a sure-fire psychic signal to the universe that you are bathed in abundance.

And it works! Every time you open your wallet you’ll see your riches … and so will the sketchy dude waiting behind you at the Taco Truck on King Street.

Now repeat the affirmation: “please, take my money, just don’t hurt me”.

How to Find the Wrong Financial Advisor

Once you’ve got a bit of dough … you need to share it with someone. So it’s time to find the most expensive financial planner you can find.

Judge them on (a) their car, (b) their office, (c) their pinky ring.

Let them know you’re a player.

Explain that you want the most expensive super fund they have. Your retirement is no time to be a tightarse.

And when they explain it to you in terms you don’t understand – nod like an idiot.

And make sure you invest in things you don’t understand.

And if someone cold-calls you about an investment opportunity, under no circumstances should you Google them.

Who cares what other people’s experiences have been?

Let’s be honest, the interwebs is just full of freaks that like cats anyway. If you are tempted to go near Google, the only keywords you should use are: “get rich”, “lifestyle design”, “Barnaby Joyce”, and “Multiple Streams of Income”.

Let’s be honest though, the real reason to get rich is so you can exert control over your family, right?

Well, I’ve saved the best to last.

How to Ruin Your Relationships

If you’re dating, don’t talk to your partner about their financial situation, or their views on spending and saving.

Didn’t your mother teach you anything?

It’s rude to talk about money — and unless you’re loaded it’s not going to help you in the sack anyway.

Split everything down the middle except for: your secret shopping money, your secret mistress money, and your secret betting money. Oh and keep a little set aside that your partner doesn’t know about, just in case you have to run. Because you will, eventually. And divorce will be the final crowning achievement of your financial life.

So there it is: six simple ways to completely screw your financial life.

Are you listening? Don’t make me have to poke you in the ribs.

Tread Your Own Path!

Why Young Women Are Miserable

The email subject line simply read: “Crisis”.

It was from Jess, a 26-year-old, university-educated Melbournian who wrote that her life was “a disaster”.

Her email was brief, punchy, and melodramatic. Just the way I like ’em.

She also left her mobile number, so I gave her a call … at 8.51 pm on a Thursday night.

Barefoot: “It’s Scott Pape, the Barefoot Investor.”

Jess: “No way.”

Barefoot: “Way.”

Jess: “You’re calling about my email?”

Barefoot: “Yes. Apparently your life is a disaster.”

Jess: “Well, that’s how it feels. I’ve got about $6,000 in debt across three cards that I can’t ever seem to pay off … and I hate my job.”

I spent the next 15 minutes talking Jess off her $75,000-a-year ledge.

Why Young Women Are Miserable

Seriously, if I had a dollar for every broke young woman who emailed me … well, I’d have enough money to pay Jess’s debts off.

Yet it turns out that this runs deep:

This week the National Australia Bank (NAB) released its quarterly wellbeing index and, shockingly, it found that young women aged 18 to 29 are the most unhappy people in the country.

To be more accurate, the survey found that young women have the lowest wellbeing score of all the 48 groups surveyed, and that almost 50 per cent of young women reported they suffer from high anxiety.

Anxiety is worrying about stuff that hasn’t happened yet.

And, like Jess, a lot of young women look into their futures and see a lot to be worried about: they’re living through a unique time in Australia’s history where houses are severely unaffordable, debts are at record highs, and they’re getting married later.

Women are biologically inclined to seek out safety and security — eventually most women (but not all) will want to have children. And that explains why the NAB survey found that one of the biggest positive impacts on overall wellbeing and happiness is having your own home.

And if you can’t see a way of achieving this, it creates a lot of anxiety.

The Triangle of Happiness

The big shift for me happened a few years ago, when I lost my own home.

It was the first time I got it — in my gut — just how important safety and security are to happiness.

Deakin University Emeritus Professor Robert Cummins says the key to wellbeing is what he calls the ‘golden triangle of happiness’:

You need to have a sense of purpose.

You need to have strong personal relationships.

And you need to have a sense of financial control.

The research clearly states that money doesn’t make you happy, but it also shows that not being in control of your finances will make you very unhappy. In fact, Professor Cummins and his research team found that financial insecurity produces similar feelings to those of physical torture!

Cummins found that low-income earners who rated themselves at least an 8 out of 10 for being in control of their finances were far happier than those who were earning substantially more but rated themselves as not as in control of their finances.

Raising Strong, Financially Fearless Women

On paper Jess looks the goods:

She went to a private school.

(“We paid for her to go to a good school … we did our job!” say her parents).

She got good marks in Year 12, went to university, and graduated with a degree.

(“She got good marks … we did our job!” says the school).

Yet now, five years later, she’s tearing up talking to a total stranger about how her life is “disaster”.

Here’s the rub: at no stage of her education did anyone teach her how to manage her money, introduce her to the spirit-strengthening power of saving, or sit down and explain just how amazing the opportunities in front of her are.

And that’s why I’m so very, very passionate about shaking up the current schooling system — kicking out the credit card floggers and their ‘edu-marketing’ (Hello Cred!), and bringing honest, empowering financial education to girls (and boys) in our schools. And I’m going to do it. You just wait and see.

Tread Your Own Path!

Hedging Against My Shaky Marriage

Hi Scott,

We have $300,000 in the bank, and owe $42,000 on our mortgage. We have two kids (ages 6 and 7), but our marriage is shaky. If it fails, I want to keep the family home with my husband, and I would move, then we would split time with the kids equally. We are considering buying a block one minute’s walk from the family home, and building there. If our marriage works out, the home would be an investment. If not, it would be my home, because being close would be important for me. I am worried that if we do not buy now, we might not be able to afford to do so later if we do need two homes. What do you think?

Sally

Hi Sally,

Now I could be wrong, but here’s my theory on what’s prompted this: your marriage was already on the rocks, but you’ve inherited $300k. How else do you get to have $300k in the bank and $42k still owing on your mortgage? That makes about as much sense as your plan: your marriage is shaky … but you’re contemplating building a brand new house together?

This is a terrible idea. (If my editor allowed me to write in all caps I would, but he doesn’t, so I’ll stick with the italics, but just know that my left eye is twitching uncontrollably at the moment). After all, if you actually separate -- and I think you already know you’re going to -- who’s to say he’ll follow the plan? My advice is to sort your relationship out first -- before you commit to this big, messy purchase. The best investment you could make right now is relationship counselling.

Scott

Any Advice for an Overwhelmed Widow?

Hi Scott,

It is with a heavy heart that I write for advice. Last week, my best mate of many years suddenly decided to end his life, leaving behind young wife and two primary school aged kids. He also left behind a financial mess. I have told his wife to call and get everything ‘frozen’ while she comes to grips with it all, but is there any other advice you can give her?

Tom

Hi Tom

What a heartbreakingly sad situation. I’m so sorry for your loss.The admin that’s required after someone dies can be overwhelming… especially if you’re grieving.

However, the first thing she should do is contact her husband’s super fund. The final payout is called a death benefit, and it’s a combination of his final balance and any insurance held at the time of his death.

To get the ball rolling, she’ll need his death certificate (or, if that’s not yet available, the interim death certificate), his passport, his driver’s licence (or birth certificate), a copy of his will (if there is one), and letters of administration (if applicable). Generally, banks and other financial institutions will need a death certificate before they can start the process of settling accounts.

From experience, she (understandably) won’t be in any state to make rational financial decisions for at least a few months. What she needs is someone who can help her get a clearer picture of her financial situation. And that’s the job of a best mate.

Note to the reader: I’ve offered to help them through this process.

Scott

How Would You Invest a Spare $10,000, Barefoot?

Hi Scott,

I’ve just turned 28, and after reading your book I came to the realisation that my savings have been sitting in my bank account for several years doing nothing. I have no investments whatsoever, but I do have $10,000 I could invest. Based on your previous advice, I am looking to invest $5,000 into AFIC and $5,000 into Argo. Is this a good idea, thinking about the long term (30-40 years)? And if I continue to add to them over time, is that better than adding the money to my super?

Rick

Hi Rick,

If you’ve read my book, you’ll see that I set out a time-tested plan: do a monthly date night (Step 1), set up your buckets (Step 2), domino your debts (Step 3), then start saving a 20 per cent deposit for a home (Step 4). Step 4 is where you’re up to at the moment.

So right now you have $10,000 sitting in a bank account. I want you to give that account a nickname, call it “my house deposit”. I know it sounds like I’m making you suck pea and ham soup, but make no mistake, the act of naming something is powerful. It gives you clarity and purpose.

If you’ve been Barefoot for a while, you’ll know that I love low-cost index funds as investments, but everything at the right time. Now, after you buy your home, you’re onto Step 5, where you boost your pre-tax super contributions from the standard 9.5 per cent to 15 per cent (or up to the annual cap of $25,000). If you can do that before you’re 35, your retirement will be soupy.

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.

The Slippery Slope to Ruin

Barefoot,

A few years ago I was on a high income, with $60,000 in savings for a home. But after being made redundant two years ago I have blown so much money gambling. I have been sliding down the slippery slope to where I find myself now, on a low income struggling to pay my credit cards and personal loans (which I used to be able to service comfortably on my income). I have $40,000 in credit card debt, $12,000 in personal loans, and around $20,000 of other debt. Should I seek access to my super? If not, what can I do?

Max

Hi Max,

Let me guess: you got caught up in sports betting, right?

The number of young men in the same boat (and the betting companies actively target young blokes) is frightening -- it really is the new pokies.There are only two winners out of this devastation: the gambling companies, and the government (via taxes). For its sins, the government trickles a bit of their winnings into gambling crisis services, which can help with your all-too-common situation. You’ve paid for their services over and over again, so call them on 1800 858 858.Now, you may be able to access your super based on financial hardship. The minimum you can get is $1,000 and the maximum is $10,000, and you can only make one withdrawal in any 12-month period.

However, you shouldn’t, for a couple of reasons: first, if you still have your addiction (or you relapse), you could end up gambling it away. Second, without any assets, it’s highly likely you’ll be advised to go bankrupt, and if that happens, your super will be protected.So repeat after me: “I will NOT access my super.”

Max, you already know that the odds are stacked against you. All you can do now is fight.

To see what that looks like, read on.

Scott

Thank You Barefoot

Scott,

We spoke way back in 2010. That was the year when my husband died, I had a six-month-old baby, and I could not afford my mortgage repayments. Since then I have treated your (first) book like a bible. Now I have tripled my super, am building up my savings, and am working towards being financially independent. I just wanted to say “thank you”.

Alex

Hi Alex

Six years ago your family tree probably looked like a shrivelled up little sapling.

Today it’s not only strong but it’s growing into something magnificent!

Make no mistake, your actions over the past six years have literally changed your family tree forever.I’m proud of you.

Scott

We’re Waging a War!

Dear Scott,

My hubby and I have read your book and are on a ‘Barefoot warpath’. However, we have one big problem. Our mortgage is far beyond 60% of our combined incomes.  It’s actually more like 85%! And we earn decent money -- I am on $95,000 and he is on $115,000. We have two young children, aged eleven and five, who want things all the time. Can you recommend a saving strategy without simply saying “you bought a house that was too expensive”? We know this. Also, we live in Perth, so it has lost value. It is not finished yet either, and we are now having to do the renovations ourselves. What can we do?

Jan

Hi Jan

You may be on the warpath, but the enemy has you surrounded.

I get that you’re looking for reassurance, but you’re asking me to recommend a savings strategy when 85 per cent of your combined income is going towards your (unfinished) home and you have two school-aged kids who ‘want things all the time’. I’m good, but I’m not that good!

I can only guess that you bought the home when you were on a higher household income, because there’s no way a bank could-a, should-a, would-a lent you that money on your current income. I actually can’t work out how you’re keeping afloat (perhaps you have a lump sum you’re living off that you haven’t disclosed). Either way, unless you can increase your income dramatically and quickly, you’ll eventually lose your home.

That’s the only way I can see you could lose the battle while still standing a chance of (eventually) winning the war. Right now, you need some good soldiers on your side, and there are none better than Financial Counsellors Australia. Call them on 1800 007 007 and have them represent you with your bank’s hardship department.

Scott

Should I Buy Baby Bunting Shares?

Hi Barefoot,

I remember you saying in a column once that people should invest in companies they understand. Well, my partner and I are pregnant and have been spending a lot of time, and money, at Baby Bunting. So it got me thinking. I have been looking at the share price and it is down quite a bit. It hit a high of $3.20 last year, then dropped below $2, but recently it has been going up again. It seems like a good investment, but is now the right time to buy?

Andrew

Hi Andrew,

Over the past few years I too have dropped a large chunk of change at Australia’s largest baby goods chain, Baby Bunting. But I won’t be investing in them.

Right now Baby Bunting enjoys wonderful gross margins of 34.5 per cent (something I grumble to my wife about as we shop for strollers). However, they’ve got a stinky nappy that will soon need to be changed.

In the US, Amazon has a killer membership called ‘Amazon Moms’. For $99 a year, mums get 20 per cent off nappies (the high-frequency purchase), ultra-low prices on everything else (to add to your virtual cart when you’re getting the nappies), free two-day shipping, plus access to Amazon FreeTime, which is an all-in-one streaming service with “thousands of kid-friendly books, movies, TV shows, educational apps and games”.

When they roll this out in Australia they will crush the competition. After all, when you’ve got a newborn, there are two things in short supply: money and time. Amazon solves both.

Avoid.

Scott

Last weekend I made a terrible mistake.

My wife left me alone for three hours, and in that time I generated a full-scale social media storm.

And it all started when I posted a picture of my undies on Facebook.

Let me explain:

In my book I wrote about ‘how to live like a multi-millionaire right now’. Basically it involves spending your money consciously on things that will make you feel like a million bucks.

One way to do this is by splashing out and buying really comfy undies. After all, some people justify spending $8,000 on a 14-hour business class flight … why not fly business class in your undies every day?

(With such hard-hitting advice, is it any wonder my book has sold 300,000 copies?!)

Anyway, what I didn’t envisage at the time of writing was that enterprising underwear manufacturers would start sending me samples of their product in the post.

So a few weeks ago I went to my country town post office, where the Australian Post lady handed me a big box:

“Looks like more undies”, I said matter-of-factly, like it was completely normal.

She smiled nervously and avoided eye contact.

Just for kicks, I took a pic of the box — which had the underwear brand on the box — and uploaded it to my 107,911 followers on Facebook with the caption: “I think I’m the only finance guy who gets sent undies in the post. Second time this week.”

On my way home from the post office I rang my wife and told her about the undies.

Mrs Barefoot: “Hang on. Are you telling me that women are sending you their underwear in the mail?”

Barefoot: “No, honey. Underwear companies are sending them to me.”

Mrs Barefoot: “Oh! Well that makes sense. Of course, if they’d actually seen you in your underwear … they wouldn’t bother sending you any … ”

Barefoot: Frowning.

Mrs Barefoot: “… I mean, it’s clearly ridiculous that you would be an undies influencer … ”

Barefoot: “You can stop now.”

Mrs Barefoot: “I’m joking! But you’re an idiot for posting that picture. It looks like you’re being paid to promote their product.”

When I checked my Facebook feed … I realised she was right.

All hell had broken loose.

The first reply to my undies post was less than encouraging:

“Why are you posting this crap? Stick to finance or firetruck* off” (*the substitute word we use in front of our four-year-old).

And the comments went downhill from there. As I sat nervously on my verandah patting my trusty old sheepdog, people from the corners of the interwebs jumped in to bite me on the backside. It was like trying to placate an angry mob ready to burn me at the stake.

In my underwear.

(This incident is now referred to at Barefoot HQ as #undiesgate.)

The Rise of the Influencer

In the olden days, advertisers would buy ads in glossy magazines to try and influence readers.

Today, glossy mags have all but been replaced by social media (especially Instagram, with its 700 million users). Advertisers now pay social media influencers to create the ads, by posting a promoted pic with their product in shot.

It’s actually big business for social media starlets (generally those who are ridiculously good looking … or post pictures of ridiculously good-looking food). According to Bloomberg, brands will pay up to $US250 a post if you have 10,000 fans, $1,000 a post if you have 100,000 fans, and all the way up to $US300,000 for a single post if you’re a Kardashian.

Contrast this to my Instagram account, which has a total of three posts: a picture I took in 2012 of a busker playing the bagpipes while dressed as a duck, and, for reasons I don’t quite understand, two identical headshots of my 55-year-old editor, Wally.

Again, when it comes to social media I’m kind of clueless. However, #undiesgate aside, I know a thing or two about building a business, and I’m proud of being fiercely independent.

To prove it, let me drop my dacks and show you an email I received last year from a marketing company representing an Aussie bank.

The $9,000 Post

Hello Scott,

XXX Bank have tasked us to identify some social influencers who could boost the video views of their brand-new online documentary “All I Need: Is the Australian Dream Getting You Into Unnecessary Debt?” (YouTube/Facebook versions). We have come across your social media channels and, given your strong influence as a thought-leader in the financial sector and of course Australia’s most trusted finance expert, we would love for you to participate.

This is a paid opportunity of $9,000 and we can also offer the opportunity for your content to be amplified on the XXX Bank’s pages. We would love it if you were able to:

1. Write and upload a blog discussing your own personal opinions on the content.

2. 1x social media post focused on original blog post – this post will have the blogpost linked into it.

3. 1x social media post (Facebook, Twitter, Linkedin, Instagram).

So I watched the doco, fully expecting it to be horrible, as most corporate videos tend to be.

Turns out, it was actually pretty good! (Who’d have thought a bank would tackle the issue of borrowing too much?)

So I wrote back to the PR firm, thanked them, and turned down their cashola.

Then I wrote about the doco and shared it with my audience anyway.

Now here’s the wedgie: the only reason a PR company would be willing to shell out nine thousand clams to me … is that I’ve built an audience who knows I wouldn’t take it.

Tread Your Own Path!

Help! Money Just Appears in My Account!

Scott,

My in-laws are our ‘financial alpacas’ -- they keep giving us money! I hate it but my husband loves it. I have asked them to stop, but they won’t, so it just keeps appearing in our account. I know they do it out of love, but the fact is we already earn loads ($200,000 a year)! I honestly believe they want nothing in return. How do I cope knowing I do not have to do anything in your book and we will be just fine? I feel so unproud of myself.

Gemma

Hi Gemma,

Well, I can finally retire. I have now officially had every question under the sun. (I‘ve been waiting for the ‘money just keeps appearing in my account’ question for years). Only joking. They sound like they’re generous people who are simply driven by giving (I can think of worse traits to have in in-laws). If I were in your shoes I’d sit down with them and reframe the situation; you don’t need the money, but plenty of people do. So, as a family, could you work together to help the truly needy people in your community? That would make the both of you feel proud.

Scott

The Tony Robbins Tax

Hi Barefoot,

I’m 26 and work in advertising and I earn $82,000 a year so I pay a lot of tax! Last year I went to a Tony Robbins seminar called Date With Destiny. It cost me $8,995 (and it was worth every cent!). Am I able to claim part of this expense as self education against my tax this year? It’s really helped me with my job …

Desi

Hi Desi,

You may have survived a fire walk over hot coals, but the ATO will not allow you to claim a motivational seminar as a work related expense -- no matter how much positive vibes you throw out into the universe. In order for you to claim a self education expense it has to relate specifically to your job at hand.

Scott

Where to Invest $5 million?

Scott,

My wife and family are in a very fortunate position after selling our business in February this year. We have no debt, own our house valued at $5,000,000, own a beach house valued at $1,700,000, super $1,700,000, and approximately $5,000,000 in cash. We have sourced some advice on how to invest the $5,000,000 to provide an income stream of hopefully around 5 to 6 per cent per annum (they have suggested buying a commercial property and some investment properties). We now have financial advisors all over us like wet dogs. What would you do?

Gary and Helen

Hi Guys,

Congratulations on your success!

To get rich you will have concentrated your risk, and focussed all your effort into one business. However to stay rich you need to do the exact opposite: spread your money across a large number of investments, and take very few risks.

Therefore I’d run away from all the wet shaggy dogs that are trying to gnaw on your juicy assets. They have dollar signs in their eyes. Also, stay away from anyone who is recommending you invest directly in commercial or residential property. Reason being, it’s simply not diversified enough, and if you lose a tenant, you lose your yield!

Look, you’ve earned the right not to have to worry about your money. So if I were you, I’d keep a hefty amount of in cash (for opportunities, and because a $5 million home sounds kind of expensive to maintain!), and invest the rest in a broad mix of shares (local and overseas), via ultra-low cost index funds. The income you generate from dividends should be enough for you to live off without having to draw down on your capital.

Finally, you say that you’ve got got $1.7 million in superannuation, however, the cap is actually $1.6 million per person, so you may have the ability to contribute more. If you can, you should.

Scott

Will Interest Rates Rise Eight Times in the Next Two Years?

Barefoot,

This week I nearly had a heart attack when I read in the newspaper that economist John Edwards says that interest rates may rise eight times (!) in the next two years. There is no way my family could support this on my husband’s wage (I am a stay-at-home mum), be able to service our mortgage ($550,000) and afford to put our two children through school in a few years time. Can you please tell me that this guy is joking?

Erica

Hi Erica,

Is he joking? Well, let’s see: he’s an economist. He’s middle aged. He’s wearing a sober suit, sensible glasses, and he’s not smiling. I’m pretty sure he wasn’t doing a stand up routine.

However I think he was taken out of context. Edwards is smart enough to know that no one can predict the future (least of all economists, who on the whole are no better than dart throwing monkeys). What he was trying to say was that interest rates would move higher (at some point) in the future.

Here’s the interesting thing: anyone under the age of 45 -- and that includes you and me Erica -- has never experienced a recession in their adult lives. We have no reference point for it. In fact, our only experience is that housing prices go through the roof, and interest rates fall through the floor. People think it’s normal. But it’s not … not even close.

The truth is we’re living through one of the greatest booms in modern history. Eventually it will end (though only the monkeys know when). The only advice I’ll give you is to start preparing for higher home loan rates immediately. The worst that could happen is that Edwards and I are wrong ... and you pay your home off quicker.

No jokes.

Scott

An Update on the First Home Saver Super Accounts

I’m a little ‘dusty’ as I write this.

You see, as a card-carrying DIK (Dad I Know), I don’t get many leave passes from my wife … so when I got an invitation to an EOFY (End of Financial Year) finance shindig, I couldn’t pass it up.

After all, the EOFY is the one time of the year it’s socially acceptable for bean-counters to get on the grog.

You can picture it, can’t you?

Sharon was in the storeroom dishing out Cabcharges like party pills. Craig had a shandy. And late in the night Dennis got loose and moved his superannuation investment option from ‘balanced’ to ‘high growth’.

Boom!

So today I’m a little like a bear with a sore head.

And when I’m hungover, my tonic of choice is to call Treasury and talk tax policy on behalf of a reader.

Paula’s Problem

I got this question from Paula last week:

Hi Scott,

I’ve been reading your newspaper column since I was in primary school (my dad got me into it)! Now I am studying nursing at university, working part time in aged care, and saving for a home. I am very interested in setting up a new ‘home super saver account’. However, I called up my super fund (HESTA) and they don’t seem to know much about it, and they actually said it won’t come in till next year. Can you please clear this up for me?

Paula

My first reaction was “hell, have I been doing it for that long”?

My second reaction was, on Paula’s behalf, to follow up on the progress of the First Home Super Saver Scheme (which, if you remember, I talked about in my column some time ago). What I found is that it looks about as well planned as my son’s finger-painting, currently stuck on our fridge:

“What do you think of my picture, Daddy?”

“Oh that is beautiful! It’s a …. truck … right?”

“No! It’s a picture of you and mummy riding a horse.”

“Oh, yes! So it is!”

A quick refresher for those of you in the back row:

The First Home Super Saver Scheme was announced by our Treasurer on Budget night as a $250 million air kiss to housing affordability. As ScoMo crowed on the night, by making voluntary contributions of up to $15,000 per year and $30,000 in total, “most first home savers will be able to accelerate their savings by at least 30 per cent”. For an average earning couple it’s worth an additional $12,000.

From ‘Yeah!’ to ‘Meh’

That was in May.

The First Home Super Saver Scheme is set to launch on 1 July but, like Paula mentioned, none of the super funds I spoke to had the foggiest. And after speaking to Canberra, I worked out why.

The Government has had a bit of legislative constipation — the scheme hasn’t yet been passed into law. A spokesperson for the Treasurer said they were adamant that it would be tabled in the Spring session of Parliament, and that it would be passed.

Fair enough. But, to my mind, there’s a lot of uncertainty around it.

So should you open one up?

Maybe … (and, of course, only if it actually makes it into law).

You could consider opening a First Home Super Saver if you’re planning on buying a home in the next few years, and you already have a decent deposit. After all, it could be worth $12 628 extra to an average earning couple, compared to saving in the bank. Not bad.

However, since the Government announced these accounts I’ve had a lot of well-meaning parents and grandparents — not to mention savvy young savers like Paula — write and ask about opening one up for the long term.

My advice?

Don’t touch it.

Quite apart from the fact that the Government is still in need of some legislative laxatives, what happens if the current mob is voted out and the new mob decides to ‘ghost’ the First Home Super Saver Scheme (like you did with that mummy’s boy you dated twice in 2004)?

Well, if the scheme were scrapped, it’s possible your savings could be locked up in your super till you retire.

So, Paula, all I can say right now is: watch this space.

Tread Your Own Path!

The overnight $60,000 pay rise

Can you imagine getting an immediate $60,000-a-year pay rise?

Well, that’s what happened this week to a bunch of young blokes that I work with.

Even better, the average 20-something who got the pay rise is pulling in a whopping $371,000 a year.

I’m talking about AFL footballers … who this week scored a six-year, $1.84 billion collective pay deal.

But now for the tackle: despite the serious dough they get, a lot of these players will end up kicking their finances out of bounds on the full.

It’s a worldwide phenomenon: American footy players (lycra and crash helmets) earn an average of $US1.9 million a year, but most of them are broke within three years of retirement. NBA basketball players earn an average of $5.15 million a year, but 60% of them are broke within five years of hanging up their boots, according to a fascinating ESPN documentary called Broke.

How does this happen?

Well, this week I sat down with a bloke who knows: North Melbourne coach Brad Scott.

A few things you should know about Brad: first, he’s whip smart; second, he cares deeply about his players; and third, he happens to be a Barefooter!

(Oh, and fourth, I’m helping his boys this year … with their finances, not with their footy. Obviously.)

When it comes to footy and finances, Brad has seen it all.

In fact, when he was first drafted in the nineties, he was paid an outrageous sign-on fee:

“I got seven and a half grand”, he tells me.

“… and $250 a game.”

(And, just like my sheepdog Betty, if he got rubbed out or injured … no pay.)

While you may scoff at the players’ pay rise (and pay packet), after 20 years of playing and coaching Brad knows why many of them end up broke.

Let’s start the siren.

Show Me the Money!

“Part of the problem is that everyone else thinks they’ve got it made”, says Brad.

And then he proceeds to throw cold water over the “$371,000 average wage” claim that’s bandied around in the media (and by yours truly at the start of this column).

“Look, of the 44 players on our list, only 14 are earning above the average wage, and the rest are below it … and that would be similar for all the clubs.”

And ‘below’ is actually … really low:

The minimum wage for a rookie is $71,500, and for a second-year player it’s $100,000.

Sure, good money for doing something you’d do for free … but you’re hardly turning up to training in a Porsche 911.

And herein lies the problem:

“When you’re a young AFL footballer … you get a lot of female attention.”

“And the players … well, they’re not going to downplay the image. Really, it’s not in their interests to say … ‘hey I umm, actually don’t earn that much money’.”

And it’s not just the girls. Often when the players go home they shout their mates, and their families, who all believe they’re loaded.

I know what you’re thinking at this point: “Yeah, but that’s just what they start on, they’ll soon earn the big bucks.”

And you’re right.

Brad tells me that when some young players get a sizeable contract that can mean their salary is double or triple their first pay. And that’s when the real problems begin.

He’s My Private Banker

When your income triples, so do the opportunities to spend it.

There’s no shortage of banks — with private bankers in tow — wanting to lend these players huge sums of dough, to fulfil their Instagram images.

“The average AFL player career is just three years”, says Brad soberly.

“So, yes, technically they can service the debt while they’re playing … but what happens when they stop?”

A financial shirt front. “I’ve seen it too many times”, says Brad. “Plenty of guys I’ve played with end their career with a negative net worth position.”

That’s why Brad tells his players there’s only one thing he’s really impressed by: “It’s not what you earn, it’s what you save.”

Boofhead’s Bar and Grill

The final trap for many players … the world over … is that they tend to invest badly.

“They often invest in exotic investments”, says Brad.

Generally, it’s not their idea either.

The one thing I’ve learnt from dealing with professional sportspeople over my career is that there’s always a ‘bunch of blokes’ waiting around to hip-and-shoulder them into something complex, confusing, and high risk: restaurants, bars, property developments, you name it.

And best of all?

These high-tax-paying players can be so negatively geared, they’ll be positively screwed!

The Good Coach

The AFL and the clubs understand the problems players face, and that’s why they’re investing a lot into player development. Every club employs staff whose sole role is looking after player welfare. Plus, each player is mandated to have at least one weekday off per week to focus on professional development, either study or work placement.

Before the final siren sounds, the last word must go to Brad:

“The reason I’m passionate about financial education is that I’ve seen too many players who struggle after retirement, when they should be a step ahead. The reality is that a lot of players don’t succeed in the AFL — but they can all succeed in life.”

Tread Your Own Path!

Sinking Not Swimming

Scott,

My stepdaughter is a single mum in her early forties, with two kids. She earns $60,000 working three days a week, and has never owned property. She has $10,000 saved. She wants her bank to second-mortgage my house for a deposit for her in country Victoria on a house worth $350,000. I have $102,000 in credit card debt and (at most) $100,000 equity in my house. I am struggling with my own debt but I feel sorry for her and would like to help. I am widowed from my second husband. What should I do?

Linda

Linda,

It’s beautiful that you are wanting to help out your stepdaughter ... but with $102,000 in credit card debt you are clearly not in any financial shape to help anyone. It’s like someone who can’t swim diving into the sea to rescue a drowning person. Who’s going to rescue you?

Scott