Special Q&A with Kelly O’Dwyer.

This week I’m doing a special Q&A with the Minister for Revenue and Financial Services, and the Minister for Women, Kelly O’Dwyer.

Costello’s Regrets

Barefoot:

Your old boss, Peter Costello, says he regrets not doing more to lower fees on compulsory superannuation. Would you consider tendering out a default fund and making the big institutions bid ‒ lowest fees wins?

The Minister:

“I actually think Peter made some very good points.

“It’s very, very clear to me that for far too long people have been ripped off. Super funds need to understand that it’s not their money ‒ it’s their members’.

“Look, this cosy, opaque system that we’ve had for many years has come to an end. That’s why in the Budget we got rid of exit fees … because it was a barrier to switch. Our job as the government is to make sure that people’s money is protected and ensure they’re not going to be gouged with fees and charges.”

Women and Money

You have an interesting remit ‒ responsible for financial services and women. We know women retire on less than men, around $120,000 less. What can you do to change that?

“When it comes to super, we know that our Budget changes means that 2 million women will have their super balance protected from being charged inappropriate insurance.

“Another 1.3 million women’s super balances will be boosted by $2.5 billion by our plan to cap fees on small balances to 3%, and actively charging the ATO to reunite people with their lost and inactive super.

“These are very practical measures that are good for women. However, this is a passion of mine, and I’ll have a lot more to say about it in the Economic Security Statement in spring.”

Insurance and Young People

I applaud your decision to stop people under 25 being compulsorily charged insurance within super. However, the big insurers say it will increase premiums across the board by 30%. What do you say?

“I say that young people are being exploited and used as a cash cow for the entire pool of users.

“And I think that’s wrong.”

The Royal Commission

The Royal Commission has shown us that there are deep-seated cultural problems in the finance industry. How does the industry win back trust?

“There’s no question trust is at an all-time low.

“However, understand that the majority of people employed in the industry ‒ some 400,000 people ‒ are actually going about their day and doing a good job.

“The real responsibility falls on those that are in charge ‒ the boards ‒ and the CEOs need to ensure that they act with integrity. And if they don’t, we need our regulators to keep them accountable. That’s why as a government we’ve said if they are caught out doing the wrong thing, they can be put out of business, or put in jail.”

Thank you for reading,

Scott

Proud, Angry, Happy!

A couple of day ago I finished reading your book, and immediately phoned my bank (Suncorp). My husband and I have had our home loan with them for close to 10 years. I told them I was currently paying 5.02% and would like them to reduce the rate. The woman I spoke to said the bank would review it, and after a few minutes on hold she came back and said my new rate was 4.02%. I must admit I had a little cry — not sure why … proud … angry … happy! I will be phoning them every six months from now on. (I have also bought three more copies of your book and given them to my nieces.)

Melanie

Hi Melanie,

Let me channel my inner Oprah: You go, girl!

Even better, like ‘O’ I can give you the equivalent of a free car:

If you’ve got a $300,000 mortgage, with 15 years left on the clock, that five-minute telephone call has saved you $27,618. A few taps on the MoneySmart mortgage switch calculator suggests that, if you maintain the same minimum repayments as your current loan, you’ll save $36,908 over the life of your loan and be debt free 15 months earlier!

Thank-you for reading

Scott

I Am Never Looking Back

Dear Scott,

Six years ago I left my ex, due to him punching me. It was the right thing to do, but it certainly set me back financially. That is why I have found your book so amazing. I already feel much better about my situation. I have my new fee-free accounts set up with better interest rates, have been on the phone to my super, and have split my money into ‘buckets’. This is the start of financial control, for my sake and my children’s. While I still feel anxious ‒ as a single parent with a mortgage and $8,000 of debt (personal loan and credit card) ‒ I feel more in control, and I know I’ve got this! I am never looking back.

Tanya

Hi Tanya,

What you’ve done is taught your kids two amazing life lessons.

First, that domestic violence is not acceptable.

Second, that you are strong enough to stand on your own two feet financially.

Thank-you for reading,

Scott

Can I Afford to Become a Mum?

Hi Scott,

My husband wants us to have a baby, but I am petrified at the thought of not earning money. How far backwards would we go if I can work only a couple of days a week, and/or have to pay daycare fees so I can work? Hubby runs his own business earning around $120,000 a year, and has two small business loans for equipment. His income varies month-to-month, so it is my wage ($57,000) that gives us the steady money. We have no loans other than our mortgage, and have Mojo tucked away. But can we afford a baby? Please tell me it’s going to be OK!

Hannah

Hi Hannah,

It’s going to be OK.

(Well, so long as you haven’t gone all ‘postcode povvo’ and got a supersized mortgage.)

I’ve spent my entire married life as a small business owner, so I have some ideas.

First, you are very much a part-owner in the business, so you need to be across the numbers, even if that means sitting down with the family accountant and having them explain the current state of the business to you. Fact is, you’re going to be relying on this business to take care of your family, so you need to know it inside out.

Second, the benefit of understanding the true state of the business isn’t just that you’ll stress less, but that the two of you should be able to set some realistic 12-month business goals, both in terms of lowering costs and increasing income. Write them down, and review them at least quarterly.

I actually do this with my wife on our Date Nights. At the start she was more ‘nah’ than ‘yeah’, but after seven years of being my partner in the business she’s shown insights I would never have had. Plus she’s actually way more hard-nosed than me when it comes to negotiating deals.

Finally, I’d go out on a Barefoot Date Night and sketch out your buckets – Daily Expenses (60%), Splurge (10%), Smile (10%) and Fire Extinguisher (20%) – and base it only on a conservative estimate of your husband’s income from his business.

If the numbers stack up, it’s time to become a mum!

Scott

Helping Out My Mum

Scott,

At the age of just 30, I am VERY aware of the importance of super. Here’s why. My mum is two years off the pension and has $8,000 in super. Yep, not a typo. I am going to ‘gift’ her $200,000 or so from the sale of my house (I have another, so will not be homeless), and she will be able to buy a house on which she will owe nothing. I have two questions for you. How might this ‘gift’ affect us? And how can Mum, who works full time earning $40,000 a year, maximise her super in the two years of work she has left?

Tracy

Hi Tracy

I hope my daughter looks after me as well as you do for your mum!

First up, let’s look at what you’re trying to achieve: you want to put a stable roof over your mum’s head so she has a sense of security and doesn’t have to worry about moving.

If I were in your shoes, I wouldn’t just give her the cash.

Instead, I’d consider buying an investment property in your name and renting it out to her.

There are three advantages to this:

First, when she goes on the age pension she’ll get rent assistance ‒ the maximum payment is $134.80 per fortnight.

Second, as long as it’s an arms-length transaction, you’ll be able to claim the interest and related expenses of the property against your tax, like any other investor can.

Third, it makes things a lot simpler. You should have a written tenancy agreement that sets out who pays for what, and what upkeep she’s expected to do, just like you would for any other tenant. That’s not only going to help you prove this is an arm’s-length transaction, but also manage everyone’s expectations. Also, in the event of her passing, the property is yours and is separate to her estate.

Now, as far as how your mum should manage her money over the next few years before she retires, here’s what I’d suggest if it was my mum:

When she retires she’s going to live on $23,597 per annum (the maximum pension for a single person, not including rent assistance and the health care card, worth at least $1,500 a year).

I’d encourage her to be a ‘practice pensioner’ – by living off that figure now and saving the rest of her wage.

Her aim should be twofold:

First, to have a goal of at least $100,000 in super when she finishes full-time work in five years (not two!).

Second, to never retire … keep working part time at least a day or so a week, and supplement her pension by up to an additional $6,500 a year (which, thanks to the Budget, will increase to $7,800 on 1 July 2019).

The upshot is that you’ll have an investment property with a great tenant. Your mum will have the security of a home, plus $100,000 in super to draw on, and she’ll be earning more in retirement (after tax) than she is right now!

Of course, you should run this past your accountant and financial advisor, but that’s how I’d do it.

Scott

Okay, I’m Angry

Commbank chief Matt Comyn is sorry …

He’s sorry his insurance guys ripped off terminally ill parents who took out life insurance with the bank.

He’s sorry his financial advisors ripped off retirees for millions of dollars with fraudulent advice.

He’s sorry the bank ripped off dead customers, by charging advice fees for no service.

He’s sorry the bank lost 20 million customer statements, and didn’t bother telling those affected.

And now he’s sorry that his bank teller staff scammed school kids’ Dollarmites accounts.

You’ve got to hand it to the CBA, their fraud has a kind of … circle of life to it, right?

This week we learned that thousands of children’s Dollarmites accounts were fraudulently manipulated by CBA staff, so they could earn bonuses and meet aggressive sales targets.

Hang on a minute:

Why would the bank link sales incentives to those cute-looking little Dollarmite accounts?

Because their Dollarmites program is easily the most successful marketing campaign in Australian history. In fact, one analyst has suggested Dollarmites was worth an astounding $10 billion to the bank.

How?

Simple. The CBA pays schools a token kickback for signing up students. Yet it’s chicken feed for acquiring a long-term customer. Especially when Choice magazine says that close to half of those Dollarmites end up staying with the CBA.

For well over a decade I’ve been calling out the Dollarmites program. Australia’s largest issuer of credit cards teaching kids about money is like Ronald McDonald teaching kids about nutrition.

Besides, the Dollarmite Youthsaver accounts terms and conditions are rubbish. Parents would be better off saving for their kids  in a high interest online savings account, and throwing their edu-marketing in the bin.

Look, I’ve dedicated my life to delivering independent financial education, and I can tell you that kids don’t learn much from the Dollarmites cute cartoon mascots like ‘Cred’, who rides a skateboard and is ‘a real cool dude’. Rather, it’s when Cred morphs into a credit card, and is mailed out to fresh-faced 18 year old cool dudes, that their real education begins.

There are well over five hundred thousand kids who are unwittingly enrolled into the CBA’s marketing database.

As parents, it’s time for us to tell the Commbank that their sleazy circle of life has to stop right now.

It’s time to ban Commbank from our classrooms.

Sorry, not sorry.

Tread Your Own Path!

The Big Budget Changes You Missed

Far as I can tell, we’re the only country that goes a little ‘Hollywood’ for the Budget. Other nations just read theirs out on a Tuesday afternoon in parliament, and no one gives a toss. Not us. We lock all the journalists up, and give the Treasurer the prime-time razzle-dazzle.

And last week’s Budget was a little … Family Feud. A bit, er, boring.

So what did we learn?

My first takeout is that Australia is the Jay-Z of the world economy … we’re swimming in cash. That’s largely because there’s been an uptick in the global economy, which is boosting the price of our resources. It’s also because unemployment is low. Oh, and also because we’re running a fairly aggressive immigration policy.

This pile of cash is what’s funding the centrepiece of the Budget ‒ a $10-a-week tax cut for low- and middle-income earners. It’s also what ScoMo hopes will fund what is effectively a ‘flat tax’, where 94% of the population pays 32.5% or less.*

*In seven years’ time.

Look, in seven years’ time I plan on living on a Tuscan vineyard so I can drink vino and wear slacks without socks … but I’ll have three kids in primary school by then, so the closest I’ll get to bellissimo is my local, La Porchetta.

Bottom line?

I’m not getting my holiday, and you’re not getting your flat tax.

Anyway, while the tax cuts stole the limelight, the real story ‒ which was largely ignored ‒ was the changes to super.

So here are three things that really deserve prime-time attention:

First, if you’ve been shocked by what you’ve seen at the Royal Commission (and you should be), you can now teach these bozos a lesson, switch your super fund, and not get whacked with an exit fee.

(Still, anyone who’s tried to roll over their super knows it’s harder than breaking up with your high school sweetheart. There’s so much back and forth, so many itty-bitty details and forms … it’s almost like they want you to give up and keep your money there!).

Second, a campaign that I’ve been banging on about for years is the rort of compulsory life insurance through super. Young people collectively pay nearly $200 million a year in life insurance they don’t need. The Government will now force super funds to stop automatically charging young people under the age of 25. That’ll add thousands of dollars to young people’s end balances.

Third, the government is finally moving to protect one of the biggest cash cows of the super industry: the 6 million inactive (read: forgotten) accounts that super funds feast on. The Government has put a fee cap on these low-balance funds and is making it easier to consolidate them.

All in all, it was a terrible night for the super fund lobbyists, which means it was a great night for you and me. In fact, I think the super changes will potentially have a bigger long-term impact than the short-term tax cuts. Just don’t expect to read too much about it. After all, super isn’t very Hollywood, is it?

Tread Your Own Path!

Your Book Is Stressing Me Out

I started reading your book last night and was discouraged when I read about your SMSF strategy. About two years ago, on advice from a financial advisor, my husband and I set up an SMSF, and we have since purchased a property with it. It was extremely stressful to set up, and the cost of ensuring compliance is ridiculous. My question is: should we close it (and how do we do this?),  or would the financial and emotional cost be too high?

Prue

Hi Prue,

I must admit it doesn’t look so good.

For one thing, I’d be very wary of having the bulk of my super assets tied up in one investment property.

I’m yet to see a case where someone has bought a residential investment property via an SMSF that was actually a good deal for the client. Often they’re a three-way play — an accountant, a financial planner, and a property developer who share in upwards of $50,000 commissions they load onto the purchase price of the property (plus the SMSF fees, plus the borrowing commissions).

I’d also be very wary of the adjectives you’ve used in describing the process thus far: “extremely stressful” and “financial and emotional costs”. Sounds more like a colonoscopy than holistic advice.

But I don’t have all the facts. So if I were in your shoes I’d get some second opinions — firstly a valuation on the property from a local real estate agent, and secondly an assessment of the SMSF from an accountant with no links to the guys who set it up. Once you’ve assembled the facts, act quickly. I’ve never seen more time turn a bad property into a good one.

Scott

Baby, I’m Bamboozled

Hi Scott,

I just had a long chat with a financial planner. The topic came to rolling over to their actively managed SMSF, and I asked them about using a low-cost passively managed super fund instead. They then bamboozled me with talk of MERs, ICRs, fully-franked dividends and tax credits, and how these factors mean that their actively managed fund would perform better than a passive fund (even after fees). Can you enlighten me, please?

Terry

Hi Terry,

An example will work best here.

It’s like you go to your doctor for your annual check-up and say, “Do you think I should eat more fruit and veggies, and perhaps do 30 minutes of exercise each day?”

And the doctor replies, “Bugger that! I’m offering 20% off lypos this week. Wouldn’t you like some washboard abs, Tubby? Well, you can have them — next week. We’ll just suck that lard out like liquid. No lycra needed, and better than eating bloody broccoli!”

Bottom line?

The advisor just bamboozled you with bulldust.

There are three things you need to understand.First, finance is the only industry where (in most cases) the more you pay the less you get.

Second, you don’t open an SMSF (Self Managed Super Fund) for higher returns. Studies show that 80% of managed funds fail to beat a simple index fund over five years, principally because of the fees managers charge. There’s no way they can guarantee higher returns.

Third, you should walk away from any professional who tries to bamboozle you. At the Royal Commission this week, ASIC’s Peter Kell said the regulator had found that 90% of financial advisers who provided advice on SMSFs failed to act in the best interests of their clients.

Trust your gut!

Scott

How Do I Find a Financial Advisor?

Hi Scott,

I have read lots of advice about avoiding excessive fees charged by financial planners. Problem is that we still need one! My wife and I now have over $1 million in super — $400,000 in Australian Super and the rest with a non-bank retail manager (it’s an Asgard account with three managed funds). This is all great, but we’re in our early 50s and need some professional help to manage it. Any ideas?

Will

Hi Will, You’ve done well!

Let me be clear about this, the biggest cost you’ll face in dealing with an advisor is ‘compounding fees’.

I’ll give you a really simple example:

Let’s go to ASIC MoneySmart’s super calculator (moneysmart.gov.au), and punch in some numbers. I’ll assume you want to retire when you’re 67 and you currently earn the average wage.

You have a choice between two funds: what the calculator calls a ‘medium high’ share fund that charges 1.3% in fees, and another fund called ‘medium low’ that charges 0.3% in fees.

Let’s assume they both earn historical rates of return on shares on your $1 million fund.

If you choose the lower fee fund, you’ll have $270,000 more in your account after 15 years when you retire.

That’s why when it comes to choosing your advisor it’s incredibly important that you pay a true professional a reassuringly expensive one-off fee for independent advice (it could be upwards of $5000). However, make it a non-negotiable that you are invested in an ultra-low-cost portfolio that compounds without any tacked-on costs.So, how do you find such an advisor?

Well, just like any relationship, the first time is free — and then you start paying. So I’d suggest you go on dates with at least three financial planners before you commit.

Scott

Financial Planner Wants Advice

Hi Scott,

Am I in the wrong job? I am a financial planner. No, seriously please keep reading :) I got into the industry after being retrenched, as I was looking for something that would pay better than an admin job. I do my best to provide advice that is free from bias and not tied to products. Trouble is, sooner or later my boss is bound to notice and move me on. How do I help Aussies with their finances and still put food on my table?

Tim

Hi Tim,

The old saying ‘don’t hate the player, hate the game’ is true in financial services.

The Royal Commission is great, but unfortunately it tends to tar everyone with the same brush. The overwhelming majority of financial planners and mortgage brokers are good, hard-working, ethical people like you.

It’s the game that sucks. It’s been set up by the banks and AMP. It’s called ‘vertical integration’, and it’s basically where the banks manufacture products and then employ planners to sell them. If you’re working in a Holden dealership, you won’t be selling Fords.  Hopefully a recommendation from the Royal Commission will be to break up the vertical integration game. Yet what advice would I give you right now? Well, there are truly independent firms that charge hourly rates. Or there are financial counsellors, who do important work without flogging products.

Scott

Lock ‘Em Up!

Here’s something shocking that I learned about this week.

Apparently there’s been a spate of violent home invasions in which young thugs have been terrorising vulnerable pensioners, and it’s been going on for years.

In fact, one young thug was caught stealing $120 from a little old lady.

And when the cops caught up with him, and questioned him on it, he repeatedly lied and said it wasn’t him.

Yet, when he went up against the magistrate this week, he not only admitted his guilt but admitted he’d lied through his teeth to save his backside.

I’d say this young thug is heading for the slammer.

Okay … so I just made all that up. There was no gang. No young thugs ripping off $120 from pensioners.

But there is a gang … of wealthy, old banking executives on multi-million-dollar salaries who didn’t have to climb through a window — they were greeted at the front door.

And, according to the Banking Royal Commission this week, they didn’t steal $120 — they stole $120 million.

And that’s just Commbank, who the Commission called the ‘gold medallist’ in fee-for-no-service. Hell, they even slugged dead people fees for advice. For 10 years. Seriously, these guys are good!

All up, across the industry, some 306,000 people have been charged a combined $216 million for services they didn’t get.

And in the case of AMP, the Royal Commission found they’d even systematically lied about it to the corporate cops (ASIC).

(Though let me point out that while this has shone a light on what I’ve been saying about AMP for years, their investment bond — which I’ve previously said I’ve liked — is still a decent product.)

Yet let’s be clear — there will be no jail time.

Instead, the bosses will apologise — via their underlings, who they’ll send off to be shot on the Royal Commission’s frontlines — and they’ll quietly retire on their multi-million-dollar bonuses.

But here’s the rub: at its core, the banking and finance industry is based on trust. You need to trust that the company you’re dealing with won’t rip you off, and that they’ll have your best interests at heart.

What we’ve seen at the Royal Commission suggests we can’t trust them. And that’s backed up by ASIC, which recently found that in the case of bank employed advisors, in 75% of cases the adviser didn’t act in the client’s best interests.

Can you imagine our young thug appearing before the judge: “Look, Your Honour, I’ve made mistakes. I’ve robbed hundreds of thousands of defenceless pensioners for years. So it’s clear what I really need to do is … address my internal processes.”

Yeah, nah. I’m with ScoMo on this one. Lock ’em up.

Tread Your Own Path!

AFL Player Needs Help

Hey mate,

I am a professional footballer. I received a copy of your book through the Players’ Association, and it is honestly the first book I have read from start to finish ‒ overnight! I have learnt a lot from your book after being in almost $1 million in debt. My situation is as follows: I earn $220,000 a year, I own my own home (no mortgage), have $40,000 in a term deposit, $300,000 in an investment trust, and $200,000 in super. My question is, now that I am approaching 35 (I won’t be a footballer forever), how can I maximise my percentage growth?

Tim

Hi Tim,

I wish all the professional sportspeople I have dealt with were in as good a financial shape as you!

Look, so long as you don’t do anything stupid with your investments (read: Bitcoin, investing in a start-up, punting on property), and so long as you resist the need to upgrade to newer flashier digs ‒ you’ll be able to live out the rest of your days very, very comfortably.

You’ll never have to worry about money again: you have your home paid off. You have $40,000 in a term deposit, which I’m going to call your Mojo. You have a decent amount in super. You have $300k in a family trust (that’s hopefully invested in a low-cost share fund). If you tick the dividend reinvestment plan (DRP) box and let compound interest do its thing over the next 30 years, it’ll likely grow to $1.5 million in today’s dollars.

The main thing you need to maximise is your income after you hang up your boots. That’s where I’d be investing ‒  in education, training and career counselling ‒ because you’ve got everything else sorted. Well done!

Scott

Escape to the Country

Scott

I keep falling in love with the idea of moving to the country. Whether it’s you or a happy-go-lucky couple I recently met, it seems many people are singing the praises of the ‘simple life’ ‒ ditching expensive inner city rents for a modest country abode with a manageable mortgage. But is the country life only suited to freelancers who have flexibility and work from home, or is it still worth it for those of us in our early 30s who will face a long and possibly dreary commute?

Roxy

Hi Roxy,

You’re falling in love with the ‘idea’ of moving to the country. Understand that the grass never looks greener than when you’re stuck in the concrete jungle, tailgating a Kia Rio.

Now, if you can run your own show (like I do), living in the country is bloody brilliant.

The Australian Wellbeing Index has repeatedly shown that people living in regional Australia are among the happiest in the country. Part of that is because you can avoid becoming what I call a ‘postcode povvo’. Deakin University Emeritus Professor Robert Cummins and his team have found that financial insecurity (read: mortgage stress) produces similar feelings to that of physical torture. Struth!

However, the grass starts to look a bit patchy if you have to commute back into the city each day. A study from a university in Sweden found that relationships where one partner commutes longer than 45 minutes are 40 per cent more likely to end in divorce.

My view?

I’d look at it as a three-year plan.

First, swing on the employment trapeze by building up some freelance work.Second, after that, look at renting in the country for 12 months to try it out. (That’s what we did. While I’m from the country, I shacked up with a woman who was born and bred in the hipster suburb of North Fitzroy, where even the ducks have their own bike lanes. So we both had to be certain that country life would work for us.)

Finally, if after all that you’re still in love with the idea, make the move!

Scott

#DeleteFacebook

Clearly I was having a ‘moment’ on the 25th of June 2010.

My Facebook data says that was the day I officially put my profile into lockdown.

It wasn’t an “I’m mad as hell and I’m not going to take it anymore” kind of moment ‒ just a realisation at the time that Facebook was kind of lame, they were selling my data, and I was done stalking people.

Yet I didn’t delete Facebook totally.

Why?

Purely for practical reasons: there are a lot of old people in my life who have Facebook (hello Aunties!), and, let’s be honest, it’s an efficient and low-contact way of keeping up with them. A few likes every now and again, and a couple of ‘happy birthday’ wall posts (which Facebook even reminds you of!), are much easier than a phone call, right?

“Happy Birthday, Aunty Colleen!”

Of course you may be someone who’s still having a ball playing Farmville on Facebook. If that’s the case, knock yourself out, and congrats on doing your bit to pass around the hat for Mark Zuckerberg (Facebook only raked in around $US40 billion in advertising last year).

Yet this week, with 14 per cent wiped off Facebook’s value due to the latest hacking scandal, it’s not all likes and selfies for the world’s fifth-richest man. Heck, #DeleteFacebook is even trending on Twitter. (Which is kind of like Ronald McDonald passing around a flier to boycott KFC.)

Zuckerberg is now begging for our forgiveness ‒ he doesn’t want to make this his ‘Microsoft moment’, when, 20 years ago, Billionaire Bill got rogered by the US government.

Let’s be honest though, it’s high time you do some rogering of your own. Here’s how to do lock down your Facebook profile in three simple steps:

First, go to the upside-down triangle, click on ‘Settings’, and then ‘Privacy Settings’. Facebook makes the privacy settings intentionally confusing in the hope you’ll give up. Don’t. Just select ‘Private’ or ‘Only Me’ or ‘Friends’ for each setting. Then go to ‘Timeline and Tagging’ and do the same.

Second, cull your list of friends. I’ve got mine down to 112. Realistically that’s probably 50 too many, but some social connections are complicated, right?

Third, download a copy of your Facebook data (‘Settings’, then ‘Download a Copy of Your Facebook Data’), and see what they’ve got on you. At the very least, strip out personal details like your phone number, email and date of birth.

Roger that!

Mortgage or Super?

Hi Scott,

On page 156 of your book it says: “So with your home deposit saved and your house bought, it’s time to give your super contributions a boost.” Could you please settle an argument for my husband and me? Do you mean house bought as in mortgage paid off, or do you mean purchased but still paying off the mortgage?

Kirsten

Hi Kristen

After you buy your home, you boost your super.

As the little girl on the taco ad says, “Why not do both?”.

To clarify, here are the relevant Barefoot steps:

Step 4: Buy your home.

Step 5: Increase your super to 15 per cent.

Step 6: Boost your Mojo to three months of living expenses.

Step 7: Get the banker off your back.

Now, there are three reasons you should follow the steps and the little Mexican girl:

First, for the average wage slave, super is still the best tax dodge going round.

Second, you’re diversifying your nest egg ‒ most people end up retiring with too much home and not enough super.

Third, it puts your retirement savings program on autopilot. The current compulsory employer contribution of 9.5 per cent isn’t enough ‒ you need 15 per cent if you want to spend your golden years swilling sangria in Spain rather than necking a stubby in Shepparton.

Finally, if you follow the Barefoot Steps, you’ll use your ‘fire extinguisher’ account to eventually hose down your home loan quicker (Step 7), which will have you livin’ La Vida Loca sooner.

Thank-you for reading.

Scott

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!