Robbed with a Pen

Dear Barefoot,

Five years ago we were advised to start up an SMSF and buy a property within it. We bought a unit for $400,000, for which we had to borrow $275,000. Since then the value of the unit has dropped by more than 30 per cent ‒ it is now valued at $260,000! Our monthly super contributions are sucked into the property as the monthly rent does not cover the mortgage and expenses. Should we continue as we are and hope the property value increases over the next few years, or sell and start rebuilding our superannuation from scratch?

Dave

Hi Dave,

You got robbed with a pen, you poor bastard.

If someone walked into your home and stole $40,000 off your kitchen table, they’d be locked up for larceny.

Yet most of the spivs that market these SMSF schemes trouser up to $40,000 in commissions.

They know the apartments they’re flogging are horribly overpriced, and that they’ll eventually blow up their client (which is why they often advise their clients to “never, ever, sell” ‒ because if you never, ever, sell, you’ll hopefully never, ever work out you’ve been ripped off).

But these guys don’t go to jail, they go to Italy ‒ first class.Research firm Rainmaker says the true cost of fraud over the last decade from SMSFs is a staggering $103 billion, once you include the loss of investment returns from no longer having the money to invest.And that’s precisely where you are right now.

Your new super contributions are being eaten up by a loss-making property that you hope will come good. But hope isn’t a strategy, Dave. Besides, in all the years I’ve been doing this, I’ve never seen time turn a bad property into a good one.

So let’s deal with the facts: you were flogged an overpriced property that was never worth the $400,000 you paid.

If I were in your shoes, I’d sell the property, and begin again ‒ this time in an ultra-low-cost industry super fund.

The clock is ticking, Dave. It’s time for action.

Scott

Too Good to Be True?

Dear Scott,

A friend has signed up with an investment company where they have set up a self-managed super fund (SMSF). This group uses this money to buy him investment properties, which they buy and then run. It has not cost him a cent other than his super. He thinks this is a great retirement plan. We are middle aged and trying to get ahead for retirement. We have a big house (in a ‘povvo postcode’), a blended family of five kids, and a huge mortgage ‒ and we feel trapped! Is my friend’s experience too good to be true? Help!

Alison

Hi Alison,

Well this sounds like a thoroughly bad idea.

He claims “it has not cost a cent other than super”.

Well, unless his super consists of cans of Pal Meaty Bites, I’d suggest it is in fact a nest egg that he needs to grow to a sufficient level by the time he retires ... so he doesn’t end up eating dog food in his golden years. And if he’s investing in a scheme like this, it’s highly likely he’ll end up eating home-brand dog food (the stuff even my sheepdog rejects because it gives her gas).

Okay, enough of the dog jokes.

Alison, I want you to call your friend and invite him over.

Boil the kettle, pour yourselves a cuppa and, together, read the next question.

Scott

Tithing Is NOT Mandatory!

Dear Scott,

I read with interest your recent answer to a question from a woman who said that tithing was ‘not negotiable’ at her church. As a Christian, it sickens me that the church would do such a thing. It is between you and God ‒ not you and your pastor. The apostle Paul says to give according to what you have been given (1 Corinthians 16:2). Personally, I choose to tithe, as I have been convicted by the Lord and can easily afford it (though I could pay off my house quicker if I did not). But it is NOT mandatory.

Edward

Hi Edward,

I actually had a lot of readers respond to last week’s tithing question, and they all agreed with you:God doesn’t charge a 10 per cent toll on your wages before he’ll open heaven’s boomgates. (I chose your comment because you quoted scripture. So, on behalf of all my fellow sinners, thank you for the Sunday School lesson.)

That being said, one of the fastest ways to break the curse of entitlement, materialism and Kardashian-ism is to support a worthy cause that you truly believe in. Better yet, studies repeatedly show that we get more pleasure from spending money on other people than on ourselves. Still, no one should be guilted into doing it, nor should they put their children’s basic needs before it.

Scott

The Ambulance Ride from Hell

Last year my two-year-old decided to do a swan dive off his highchair.

He landed on our wooden floorboards.

On his head.

As he lay in my wife’s arms, concussed, I rang triple zero, and then quickly jumped in my ute and drove all the way to our farm gate to meet the ambulance. As I sat there waiting ‒ without knowing what was happening to my son back at the house ‒ I made a promise to myself that I’d get first aid training.

It ended up taking the ambos an incredibly stressful (for me) 25 minutes to arrive. Thankfully, they were amazing. And, thankfully, by that stage my son had come to and was re-enacting the fall for them by performing headstands in the kitchen. Still, just to be sure, they took him to the Royal Children’s Hospital, where he was given a clean bill of health.

Fast forward to this weekend, and I now have my Certificate in First Aid.

For my wife’s Christmas present, I paid for our 10-strong family (me, Liz, my mum and dad, etc) to come over to the farm and do the full-day course with an instructor from St John Ambulance. It was actually a fun experience for all of us to do together. I got to wrap my mummy up like a mummy, and I luckily avoided giving my father mouth-to-mouth resuscitation.

The cost of the basic one-day first aid course is around $200 per person, and you can do it at one of St John’s training facilities, which are located throughout the country. Alternatively, like we did, you can arrange a bunch of your family or mates and make a day of it.

Now, if you’re reading this and thinking to yourself “I really should do this”, please do me a favour: right now, whip out your phone and type in http://stjohn.org.au/. Book in a class for a weekend within the next few months.

It might well be a life-changing investment.

Tread Your Own Path!

My Son is $120k in Debt … and Wants Me to Save Him

Dear Barefoot,

Twelve months ago my wife and I separated, so I am now ‘starting again’. We have nine children, and my eldest son has asked me to go guarantor, or have a joint loan, so he can consolidate his $55,000 credit card debt. He also has two personal loans amounting to about $70,000. He earns about $120,000 a year, and I earn about $100,000 myself. I gave him your book for Xmas but I fear it is not enough. His situation is crushing ‒ what can I do?

John

Hi John

You have nine kids?

That’s very impressive. I have a 66 percent fewer kids than you, and my life resembles the Teletubbies.

Now, with nine kids you’re in danger of setting a very expensive precedent by bailing out your eldest. Even if you could afford it, I still wouldn’t recommend it. Your son is in desperate need of a life lesson, and if you go the hook for him you’re denying him that opportunity (at best) and screwing yourself financially (at worst).

It takes a lot of guts for a parent to sit back and let their children learn from their experiences. Be courageous.

Besides, your son’s problem isn’t the interest rates he’s paying — that’s merely the symptom. His problem is that he has out-of-control spending. The sooner (and more brutally) he works that out, the sooner he’ll start behaving like an adult, take responsibility for his actions, and move forward.

There are no magic wands, but all the answers he needs are waiting for him in the book you’ve already given him.

Scott

Man Overboard

Hi Barefoot,

Last August my husband bought a boat without telling me, and put it all on finance. After wanting to throw him to the sharks, I have come to terms with this liability (B.O.A.T. — Bring On Another Thousand). We are both 47 and earn $150,000 combined. I bought him your book for Christmas and finally we are on the same page as far as money goes. It is a five-year loan at 8.97 per cent (total cost $37,000). My question is, would it be worth it rolling it into the home loan and pay extra on the mortgage? Our mortgage rate is 3.99 per cent, and the penalty to pay the boat out early is $400. 

Mary

Hi Mary

That’s really … strange.

“Hi honey, I’m home! On the way back from the fish ’n’ chip shop I picked up a $30k boat!”

Anyway, the answer to your question is yes, you should roll the boat debt over to your mortgage. However, you need to understand that you’re taking a fixed-term five-year loan and spreading it over a 30-year mortgage, which means you’ll pay less per month but will end up paying a lot more in the end!

So, a word of advice: if your husband comes back from the shops with a jetski, you need to grab him by the fishing tackle and lure him in quick. Keep him on the hook, Mary.

Scott

The Financial Dominatrix

Hi Scott,

I am 24 and do financial domination on the side, out of my normal working hours. Income goes into my account for this, which is mostly gifts, the rest as payment for videos. I am doing pretty well — by the end of this financial year I think I will have doubled my income. But I am scared no one will talk to me seriously about this, as sex work is gasped at everywhere I look. My real question is, should I have an ABN set up, or continue as normal and add it to my tax return? 

Barbara

Hi Barbara,

First, yours is easily the wildest question I’ve had in 2018.Well done.

Second, I’ll admit that I actually had to google ‘financial domination’.

Here’s how the interwebs describe it:

“The fetish of financial domination basically entails men (or ‘pay pigs’ as they’re known within the fi-dom world) transferring large sums of money to women over the internet. The nuances vary, but a relationship can stretch anywhere from a pay pig sending his dominatrix $30 a week to donating the vast majority of his earnings and having his dom take full control of all his finances.”

Third, any men who get their rocks off this way, please email me!Finally, let me answer your question. You say that “no one will talk to me seriously”, but I can assure you the Tax Office most certainly will. One way to become more legit is to go to the Australian Business Register (abr.gov.au) and apply for an Australian Business Number (ABN). It doesn’t cost anything, and you’ll get it immediately.

It’ll also help should you want to register your business name (my suggestion: Financial Domination R Us), help you with the ID to get a bank account, and if you ever want to issue an invoice (which may well be a trophy for a submissive client), you’ll be able to quote your ABN number and not get hit with withholding tax.

Still, you don’t need to worry about GST until you’re turning over at least $75,000 a year. Until that point you can run the business as a sole trader and simply report the income in your individual tax return, using the section for ‘business items’ to show your income and expenses.

Scott

Tithing for the Church

Hi Scott,

I am a single mum of three. I earn $86,000 a year, pay $624.10 per fortnight in child support (my hubby doesn’t work as he is a stay-at-home dad to our teenage kids), and owe $275,000 on the mortgage. I am a teacher and tithe 10 per cent  of my salary each fortnight to the church (non-negotiable commitment). But I just cannot fill my buckets — what would you suggest?

Janice

Hi Janice,

When you factor in your non-negotiables — child support, mortgage repayments and the tithe — you’re already coming close to spending 60 per cent of your take-home pay! And that’s before you pay the other non-negotiables, like electricity, food, fuel, council rates and toilet paper.

If I were in your situation, I’d seek guidance from your pastor. If you’re a teacher, maybe you can pay your tithe by working for the church? Or perhaps you can do some tutoring? Either way you need to increase your income (or decrease your outgoings) until your teenage kids are off your hands.

Thank-you for reading.

Scott

We Smell a Rat!

Dear Barefoot,

My wife and I desperately need your help. We have been following your wise advice for many years. We do not earn a lot (I am on $80,000 a year) but by implementing your plan we have accumulated $1 million in super, $250,000 in shares and $160,000 in savings. I am 64 and want to retire, so I went to see a financial advisor. He recommended we take all our super and invest it in five Vanguard ETFs plus an SPDR Dow Jones Global Real Estate Fund. We smell a rat ‒ do you?

Frank

Hi Frank,

Before we get into sniffing rodents, first let me give you a pat on the back: on your income you’ve played an absolute blinder — well done, mate!

Now, I don’t know what you’ve got a whiff of, but I’m not sure if we can call it a rat just yet. See, the Vanguard ETFs (exchange traded funds) and the SPDR (or ‘Spider’) ETFs are ultra-low-cost index funds — the fees are around 0.20 per cent, or $200 for every $100,000 invested. To quote financial rapper Jay-Z, “I got 99 problems but the fees on these ETFs ain’t one”.

That being said, things might get a little pongy if the advisor tries to wrap in substantial admin fees on top (not that I’m saying they will, but keep a close eye on it). Know this: on your balance, paying an additional half a percent will end up costing you an extra $100,000 in fees over the next decade. Ay caramba! That’s a lot of Coronas!

Look, if you’re going to invest your super in low-cost index funds — and that’s a smart strategy — I’d suggest you do it via an ultra-low-cost industry fund. You should be able to replicate the advisor’s stated portfolio for fees of less than 0.10 per cent, and under $100 a year in administration fees.

Sniff, sniff!

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.

GoFund My Lifestyle!

Dear Scott,

A young relative of mine, a single mum with a one-year-old, is in such a bad state that she posted her financial hardship story on a ‘crowdfunding’ website. The only donation she got was from her own mother — which (to me) says her mum is happy for her daughter to beg! She owes money for bills, a car and other things — and has even been to one of those debt companies you see on TV that ‘help’ you pay your bills, but to no avail. I genuinely want to do something, but I have learnt from trying to support her mum over the years that you can’t help those who won’t help themselves. So I am writing to you to get some constructive advice. I can’t sit by and watch her become homeless!

Nadine

Hi Nadine,

So you’re annoyed that her mum took your hard-earned money and started weeing it up against the wall!

Now you’re wondering if the apple doesn’t fall from the tree.And you know what? You’re probably right.

However, if you genuinely want to help this young woman, you’re going to have to really connect with her.

So, let’s you and I look at life from her perspective:

She’s a single mother, deeply in debt, unable to pay her bills, and now resorting to begging for a buck. Trust me, she doesn’t need your judgement — she’ll be judging herself more harshly than you ever will.

The bottom line is that she’s scared she’ll never get out of her situation … just like her mum.

What she really needs more than anything (much, much more than a handout that enables her bad behaviour) is someone in her corner who truly believes in her. Someone who believes she has what it takes to eventually dig herself out of the hole she’s dug herself into. Right now she probably believes it’s a hopeless situation.

So take her out for coffee and show her page 189 of my book. It’s a profile of a single mother who I nicknamed ‘Mojo Mamma’ . This young mum was once all alone, with thousands of dollars in debts, and trying to escape a bad family. It took her years of hard work, studying at night, and scrimping and saving.

But she made it.

And today that woman is one of the strongest people you’ll ever meet.

Even better, her young son is going to grow up knowing how much of a fighter his mother is. Now of course your support and encouragement may not work … but how amazing would it be if it does?

Scott

My Parents Nicked My Money

Dear Scott,

My grandmother passed away in 2013 and left me, along with her other four grandchildren, $50,000. Unfortunately, my parents put the money into their mortgage offset account without discussion, as they thought I was too young to be in charge of the money (I was 22, but I have always been very responsible and a great saver — unlike them). Five years on and I want my money! The question is, should they be paying me the interest they made off my inheritance?

Anna

Hi Anna,

What a pickle.

If I were you, I’d do three things:

First, arm yourself with the facts by reading your grandmother’s will. Were your parents required by the will to hold the money in trust for you until a certain age? Whatever the answer, I highly doubt you’ll want to bring legal action against your parents — that would make Christmas lunch awkward, right?

Second, as financial guru Noel Gallagher advises, “don’t look back in anger”. Look on the bright side: at least your parentals haven’t blown your inheritance on Bitcoin. The money is still there. And using an offset account is actually a tax-effective strategy for parking short-term money … well, so long as it’s your offset account and you’re not being treated like a 28-year-old kidult.

Finally, by all means you should cut the apron strings and get control of your money — but first have a plan for it. I’d like you to set up your three ‘Barefoot Buckets’ and, assuming you’ve paid off your debts, start saving for a house deposit. Then take this plan to your parents. Explain that you have a responsible financial plan that honours your grandmother’s legacy — and then hit them up for $58,000 (which includes $8,000 in interest you’ve forgone over the past five years).

That’s more than enough stuffing for the turkey for this year’s Christmas lunch.

Good luck!

Scott

My First Year as an Adult

Dear Scott,

Just over a year ago I was a 17-year-old high school graduate with literally $0 to my name. Luckily, I managed to find a farm job over the summer break before starting uni. My boss, a charismatic Canadian lady, had just finished reading your book. She bought copies for her children and, to my surprise, one for me. I am sure you can imagine my first thoughts — what does a 17-year-old girl need with a finance book?

Nevertheless, I decided to give it a go. Reading your book made me feel like I had been living in the dark. There were so many things I should have known! I was taken aback by how easy it was to read and how everything was explained in a way that even I, who knew nothing about finance, could understand. Back then I had one everyday bank account and no super fund. Fast forward to now …

I have switched to a low-cost super fund. I have set up two daily accounts (‘Expenses’ and ‘Splurge’) and two long-term accounts (‘Smile’ and ‘Fire Extinguisher’), and have $3,000 in ‘Mojo’. I love my ‘Barefoot Date Nights’!

In the past year I have saved, using your methods, for a $3,000 trip to Japan, a $3,000 car, a $1,000 trip to Brisbane, a $1,000 University Games tournament, and $2,000 for braces … and I still have $4,000 of my original money from the farm job. I have no debt, I receive no money from my parents, and I don’t worry about money.

The Barefoot Investor has helped me survive my first year out of home, and my first year as an adult. I owe you a tremendous thank-you. If not for the Barefoot Investor, I’m not sure where I’d be today.

Jess

Hi Jess,

You just nailed why I wrote my book.

See, most teenagers don’t have much confidence. Especially teenage girls. And especially when it comes to money.

Let me tell you what typically happens next:

You turn 18, and the world is waiting to reinforce your belief that you’re no good with money:

Advertisers spend billions of dollars targeting you to buy stuff you don’t need, to impress people who (you’ll eventually come to understand) don’t really care about you. Social media makes you feel like a loser if you’re not living an expensive Instagram-filtered life. And your bank will send you a credit card ... and then begin upping the limit.

And within a few years your negative beliefs will become a self-fulfilling prophecy:

“See, I am a loser with money! It must be true! Just look at my credit card statement!”

And then these negative beliefs feed on themselves. They colour your entire life. They keep you stuck in jobs you’ve outgrown, in relationships that aren’t good for you. And life passes you by.

But that’s not you, Jess.

You have confidence. You’re a strong woman. No one messes with you. Keep treading your own path. You got this!

Scott

High Returns from Medical Cannabis?

Hi Scott,

We are in our mid-forties with a combined income of $110,000. We own our home and have an investment property worth approximately $420,000. We would like to further secure our future and are thinking of investing a small amount, $3,000 to $5,000, in shares in a medical cannabis company. We could invest more but, because we have never played the share market and do not really know anything about it, would like to start small. What are your thoughts, and do you think medical cannabis is a safe choice?

Christine

Hi Christine

The dot bong boom!

Mark my words, the medicinal marijuana business is set to explode. Analysts are suggesting that the domestic market could be worth $1 billion a year, and that the global market could reach as high as billion by 2025.

Even better, earlier this year the Federal Government gave the green light for exports of medicinal cannabis. Health Minister Greg Hunt sparked up a spliff and told reporters, “Australia is brilliantly placed to be a world leader in medical development and medical cannabis”.

Exhale.

So it is a good investment?

I have absolutely no doubt that medicinal marijuana will become a huge industry all around the world. And I also have absolutely no doubt that there are hundreds of companies around the world that are looking to cash in on this boom.

Listen, I have a simple, old-fashioned rule when it comes to investing: I only invest in companies that make money.

And none of these medicinal marijuana companies are making any money … yet.

Take the largest pot player on the ASX, the Cann Group. Its share price has had a phenomenal run, up close to 500% since May last year, and the company is now valued at around $350 million.

However, they’re also burning cash like Bob Marley rolling a spliff with a hundred dollar note: they lost $1,462,561 in the six months to 31 December 2017. Despite this, they still hit investors up for more dough, even though they admitted that they had no expectations of being profitable in the short term, and that their financial projections were unreliable.

Look, if you’re just getting started in the share market, don’t dabble in dope. Now, this is the straightest thing you’ll ever hear me say: call your super fund and make a tax-deductible contribution to your fund, man.

Scott

I’m Freaking Out Here!

Hi Scott,

As I write this, the Dow Jones has suffered its “biggest fall in history”. They are saying on Sunrise that our market will plummet today. I feel physically ill. I am 62 years old, earn $110,000 a year (I work in logistics for a government department), and am due to retire in three years — or at least that was the plan until today! I feel so stupid. This was the year I was finally going to sort my super, work through the steps in your book, and get on top of it all. But have I left my run too late? What should I do? Help! I’m panicking.

John

Hi John,

Thanks for your email, which brilliantly captured the madness of Monday’s market.

It’s like you wrote it on a plane just as the oxygen masks fell from the ceiling: “Captain Kochie says the market’s plummeting!”

But then after a few scary bumps the pilot’s voice comes over the PA saying “sorry about that, folks, we just hit some unexpected turbulence; everything is back to normal now”.

So adjust your tray table, resume your in-flight viewing, and notice that Kochie has gone back to dancing with the Cash Cow.

Okay, enough with the analogies.Monday saw some brief market turbulence, but there will most certainly be a crash at some stage.

That’s because, historically, the Australian stock market crashes every 10 years or so.The good news is that it’s not too late.

What I’m saying, John, is that you need to harness the fear you were feeling when you wrote me this email on Monday, and make sure you strap on your financial life jacket right now.

Here’s what to do:

First, get rid of any debt you have. Interest rates have never been lower — but that won’t always be the case. The time to get out of debt is right now.

Second, get rid of any dodgy investments you have. They fall into three camps: the ones your brother-in-law talked you into, the ones you’ve borrowed money for that aren’t paying their way, and anything you don’t understand. Ditch ’em.

Third, my advice to anyone over the age of 60 who is preparing to strap on the sandals and socks is to start aggressively building up three to five years of ‘Retirement Mojo’ — a cash buffer of living expenses. (If you think you’ll get a pension or part-pension, that’ll reduce the amount you’ll need to save to reach your buffer.)

Better yet, put it on autopilot — contact your super fund and request that all future super contributions go to a cash and fixed interest investment option.

Why would you do this?Well, my old finance professor called it ‘sequencing risk’ — which is a fancy way of saying that a market crash in the final years leading up to your retirement has a significant impact on the future income you can generate from your nest-egg.

I learned this first hand in 2008 when I saw many retirees watch in horror as their super got smashed. What did they do? They sold out at the market bottom … and locked in their losses.

Think of last Monday as a test-run, John. When the real crash comes, you want to be able to say yourself: “That’s Day 1 — it’s a good thing I have 1,825 days (five years) of living expenses set aside to ride this sucker out.”

That way you won’t end up having to rely on the Sunrise Cash Cow!

Scott

I Was Robbed … by the Police!

Hey Barefoot,

I have managed to rack up a large sum ($15,000) in parking and speeding fines. Not being able to come up with the money, I tried to pay fortnightly, but the ‘hardship’ rate was unreasonable; and when it caused food to be taken off my table, I refused to pay. I have not driven for three years now, and the sum has magically jumped to $25,000. I am helpless to argue for a justified repayment plan or a fair total, and the lack of licence is destroying my career potential. I feel robbed by the WA Police!

Nick

Hi Nick,

Fair suck of the sav, cobber! The only person robbing your career is the hoon who racked up 15 grand in fines, and then couldn’t cough up the dough (even on reduced ‘hardship’ terms).

Also, there was no magic involved with your fines jumping $10,000. If you google “what happens if I stick my thumb in my mouth and don’t pay my fines for three years?”, you can clearly see the escalating fiscal repercussions of your decision.

So there are two pieces of advice I’d give you:

Call the National Debt Line on 1800 007 007 and see what your options are — there may be a chance for you to do community work to pay off the debts, if you have no other means.

And, most importantly, sit down and make a life-changing decision. Are you going to play the victim for the rest of your life, or are you going to take responsibility for your actions and make something of yourself?

Or let me put it another way, sport. If you keep avoiding the problem, there’s every chance you’ll wind up with a free pair of striped pyjamas, enjoying an extended sleepover with a bunch of other thumbsuckers.

Scott

How to Invest in Shares With No Risk

Hi Scott,

My partner and I are quite young (both 28) and have bought our first home already. We are now looking to invest in the share market, and would like to take out a ‘protected equity loan’ to do so. Yes, the cost of it is high, but after that you own the asset. We are in it for capital growth over time, so we can accept breaking even for 10 years or so, particularly with the potential for tax minimisation. The trouble is, I know you do not think highly of this product. Could you please explain why?

Angie

Hi Angie,

On first glance these things look like the best thing since sliced (gluten-free) bread.

Here’s how Westpac describe their protected equity loan:

“The potential of Australian shares. The certainty of capital protection at maturity.”

Let’s say you take out a Westpac protected equity loan of $1,000 and invest in an Aussie share fund. If in five years’ time the shares are worth less than $1,000, all you need to do is hand them back to Westpac, and just walk away Renee (or Angie -- word up to those 90s kids who got that music reference).

Hot diggity dang! Who doesn’t want the potential of shares with the certainty that you won’t do your dough?

Sign me up!

Trouble is, there’s no free lunch in the stock market, and Westpac sure ain’t handing out gluten-free dinner rolls.

The devil with these loans is the interest rate you’re charged. Westpac builds in the cost of the capital protection (otherwise known as a ‘put option’), then adds a bit of gravy.

How much gravy?

Well, Westpac charges an interest rate of 8.95%.‘Trời ơi!’, as my Vietnamese friends say.

Bottom line?

These fancy loans are dreamt up by bankers and flogged by financial planners with one goal: to make them fat ongoing fees … not to help you.I’ve been Barefoot for years now, and I’ve come to understand a few things:

First, most people make dumb decisions just to save tax.

Second, most people don’t have the ticker to invest in the market with their own money, let alone with borrowed money.

Third, most people borrow at the wrong time. Like right now, when the market has been going up for over a decade and everything appears ‘safe’. The time to go ‘balls in’ (as my father would say) is straight after a crash, precisely when no one wants to invest in the share market.

So what should you do?Stick to the Barefoot Steps.You’ve bought your home at a young age -- well done!

That’s Step 4 done and dusted. Now it’s time to move on to Step 5 and increase your super contributions from the basic 9.5% (paid by your employer) to 15% by salary-sacrificing some of your pay packet (up to the $25,000 cap per person per year).This has two benefits:

You’ll get a genuine tax deduction (possibly slashing your top marginal tax rate by almost two-thirds) and, if you choose a super fund with ultra-low costs, your returns won’t be eaten away by some banking fairy.

Scott

Do I Have to Pay Tax on Bitcoin?

Hi Scott,

I have just bitten the bullet and invested in Bitcoin (and it has been a wild ride over the past week!).

Judging from what the experts suggest, the price could hit $60,000.This got me thinking -- what tax will I pay on my gains?

Lloyd

Hi Lloyd,

If your purchase of Bitcoin was under $10,000, and you’re only using it to pay for goods or services, any capital gain you make will be tax free because the Tax Office considers it a ‘personal use asset’.

However, you’re speculating (i.e. hoping to ‘get rich or die tryin’, as Fiddy Cent says), so you’ll pay tax on any capital gain at your marginal tax rate. Having said that, if you hold on for at least 12 months, you’ll be able to claim a 50% capital gains tax discount.

Even though the Tax Office can’t track Bitcoin, they still want their share of any capital gain you make. So make sure you keep good records (transaction dates, how much you invested, the price you bought and sold for) in case you get audited.

Finally, if you cop a loss on your Bitcoin, you can use it to offset capital gains made that year, or you can carry it forward to offset against gains made in the future. (Losing money on Bitcoin? That’s never going to happen, right?)

Scott

The 3 Smart Gifts I’m Giving this Christmas for Under $30

Christmas shopping sucks, right?

Not for me.

Years ago, I cracked the Christmas shopping code: buy people books.

They’re the ultimate present, they cost under $30, they don’t need a separate card (I simply scribble a Merry Christmas message on the inside cover), and my local bookstore will even gift wrap them for me.

Job done!

Here are the books I’ve got in my Santa sack this year:

How to Get Rich

Felix Dennis started out with nothing and rose to become one of the wealthiest men in Britain. Then he died of cancer from smoking too many cigars. Several years before sucking his last stogie, he sat down in one of the most expensive homes in Europe and wrote How to Get Rich. It’s vulgar, manic, cutthroat, and one of the most brutally honest accounts of what it really takes to build a fortune. And what you have to give up to do it …

Raising Boys

Okay, so this one doesn’t have much to do with finance, but I’ve got two boys … and a baby is due in a few weeks (and no, we haven’t googled what we’re having). Anyway, there’s a reason that Steve Biddulph’s Raising Boys has sold over a million copies, and that’s because boys are crazy and we parents need all the help we can get. This book navigates you through the testosterone-charged challenge of growing great boys. It’s helped me a lot.

I’ve Got This!

And last, you guessed it, I’ll be giving away my own book: The Barefoot Investor: The Only Money Guide You’ll Ever Need. (Side note: at wileycompetitions.com/barefoot, my publisher is running a little promo where they’re offering $5,000 in Mojo to one person who gifts the book in December.) I estimate that 80% of the sales so far have been from people gifting it to their family and friends. Why? Because the Barefoot Steps work, and they keep you safe. And that’s a pretty cool Christmas present to give, right?

Tread Your Own Path!

Why Advisors Hate Barefoot

Hi Scott,

My husband and I would like to share with you a conversation he recently had with our financial adviser.

Husband: “My wife and I have been looking into our shared finances. We think we are paying too much for financial advice on your managed super fund. We will be switching to a ultra low-cost super fund.”

Adviser: “Sounds like your wife has been reading the Barefoot Investor.”

Husband: “I bet that’s the bane of your life.”Adviser: “Yes. Hmf. Well, our fund is better because …”

You can guess the rest. We are so thankful to you, Barefoot!

Meg

Hi Meg,

Just for kicks, let me visualise the rest of the conversation:

Adviser: “You’ll get better returns from our actively managed fund, which employs some of the finest fund managers in the world and has a history of outperforming the market.”

Meg: “Go on.”

Adviser: “Fees are important, but they’re not the only consideration. You need to consider long-term performance.”

Meg: “Do you have access to exclusive hedge funds?”Adviser (panting): “We most certainly do!”

Meg: “Well, did you read about the million-dollar bet Warren Buffett made in 2007? He bet that a basic no-brainer index fund that simply tracks the market would outperform the most elite hedge funds over 10 years. Guess what happened? The $1 million invested in the expensive hedge funds gained $220,000 … the ultra-low cost index fund gained $854,000.”

Adviser (closing his folder): “I’m late for my next appointment.”

Scott

The First Home Super Saver Gets Up!

Hi Scott,

I heard you on Triple J this week talking about the fact that the First Home Super Saver Scheme has finally been passed by Parliament. My parents, being traditional hardcore Asian parents, are telling me I have to open one up. But realistically it will be 10 years before I buy a house (I am 23). What do you think I should do?

Mandy

Hi Mandy,

Honestly, I thought the First Home Super Saver Scheme was as good as Sam Dastyari’s political career (dead and buried). Yet after seven long months the Government took some legislative laxative and passed it into law.

Here are the basics:

First home buyers can now divert extra money into their super (maxed at $15,000 per year), and then draw it out as a deposit on their first home. The maximum they can save is $30,000 per person ($60,000 a couple).

For someone earning $65,000 a year, after three years of using the First Home Super Saver Scheme they’ll have $6,314 more than if they’d saved via a standard bank account.

So I’d certainly use the First Home Super Saver Scheme if I knew I was going to buy a home in a couple of years and I’d already saved up a big deposit. For an average-earning couple it’s an extra $12,628. I wouldn’t kick it down a drainpipe if I was walking along the street and saw it. Do it.

However, if I were in your shoes, Mandy, I honestly wouldn’t bother. There’s ‘legislative risk’ to doing something 10 years out (i.e. Krusty the Clown could be our PM in 2027). Instead, I’d focus on getting your buckets set up and sorted.

Scott