I thought it would be a good way for me to recap books and knowledge I have come across to share with you, and hopefully make it stick more for me to apply too. I will take the parts of the book that really resonated with me and explain how I am applying them into my life. I will also touch on the areas of the book I am not so sure about.
I had read The Barefoot Investor a few years ago and have since bought it for a few people that I care about, hoping they use the guidelines to help them in their financial journey. I am excited to say that my husband has been listening to the audio version these last few weeks, and it has been great to hear his comments and take-aways. He doesn't do much on our finances, but this book helps him understand the effort and passion I have been tasking myself with for a long time. It also helped me, getting a recap of the book with fresh ears!
Tip My husband doesn't read a lot and certainly is not interested in reading a whole book on finances! 4WD, camping or skiing ... maybe 😊. So I was inspired by a lot of peeps in this community about tapping into our library resources and borrowing books. Even better, we can borrow audiobooks! So, I reserved Barefoot a few weeks ago and only had to wait 2 weeks. I set up the app on hubby's phone and voila ... he is listening to Scott Pape and telling me about things Scott said, AND he found $1800 in lost super!!!
The Barefoot Investor, by Scott Pape
"Most people totally overestimate what they can achieve in 1 year, but totally underestimate what they can do in 6 years"
SECTION 1 - PLANT
STEP 1 & 2 – Schedule Date Nights and Setup Buckets (aka budgets)
It is key to own your expenses and get them in order.
"Making a ritual of focusing on your money is the most powerful thing you can do"
Scott suggests setting up 5 bank accounts and putting most of your incoming dollars on semi autopilot.
Date nights are really important to get both of you on the same page. Even if one person might be more interested in the finance stuff, it is critical you are in it together. Having a quiet 'date', that could be a brunch, lunch or dinner, whatever works for you. My hubby is a TOTAL morning person so we do brunch and we only do it every so often.
If you're single, you could have a friend you trust to be your accountability partner. I like the quote "if it is to be, it is up to me" kind of thing so you can still create a mood or a certain ritual you do to get into the mode of all things financial on your own too.
I have used some of his strategies and tweaked it along the way for my family. See my earlier blog on budgeting and how we manage our buckets.
Storytime Hubby is reading, or should I say listening to Barefoot for the first time AND then coming to me with questions on how we break down our expenses. He also checked via MyGov, as per Scott's advice, for any lost super and found $1800! BOOM. That’s the most either one of us has earnt in 30 minutes of work! Lastly, Scott planted the seed in his head about knowing what all our accounts are and being able to log in (just in case something happens to me).
Best decision to borrow the audiobook for him to go through the book!
Back to Buckets 😊 .... work through all your expenses. Yes, it is time-consuming but worth it to understand where your money goes.
If DAILY EXPENSES are greater than 60% of your income, try to reduce your living expenses.
Cancel the expense
Negotiate better rates
Track a certain expense daily/weekly to see if you can reduce (ie, groceries, subscriptions, takeout)
these are my cards (i have the daily and monthly separate and of course my trusty 'Splurge' - hubbie has his own Splurge)
Get your Super Sorted
"The biggest difference this hour will make is that you won't have to worry about money when you're old"
FOCUS on the things you can control, like the fees you pay and the fund options you choose.
Scott suggests that you go online and find the PDS for your fund.
Google [name of your fund] and PDS (eg: MLC business super PDS)
Scroll down to the fee and charges section. NOTE: you may have to search as there is so much 'stuff' on these documents
A fund should be charging less than 0.85%. If yours is higher, you should definitely delve in more.
"Approx. 90% of the Australian population don’t choose where their superannuation money is invested. So they end up in their fund's default option. Not ALL default funds are created equal"
Things to consider
Fund options - depending on your age and risk tolerance will determine what the best fund is for you. Typically the longer you have to retirement the more aggressive the fund should be.
Insurance - your insurance may be a good one, so make sure you don’t close down the account before you have done your research on insurance as well
Your challenge and PRIORITY – reduce fees!
I have a blog on seeking independent financial assistance. It can be overwhelming, but it's really worth knowing. I will even help you find the needle in the haystack! If you can't find yours, DM me 😊.
Review, Reduce, Remove
Scott has a few rules:
Rule 1 on insurance Only insure against things that can kill you financially
House - building and content insurance
Car (use https://moneysmart.gov.au/car-insurance/choosing-car-insurance for more information)
Hospital / Health
Death & TPD
Income Protection if unable to work
Rule 2 on excess
"The more excess you are prepared to cough up, the cheaper your annual insurance premium will be"
If you have a healthy MOJO account, you can cover the highest excess so go for that as it can reduce your premiums significantly.
Rule 3 on autopilot
Don’t automatically pay your insurance premium each year. Ring around or hop online to check the latest rates. An hour or so of your time could save you hundreds!
If you are earning over $90k (or $180k for a couple) you need private health insurance to avoid taxes.
Purchase top-level private hospital
Don’t purchase extras. Allow for those expenses in 'Yearly expense' account
Only use www.privatehealth.gov.au for comparisons of all health providers.
Perhaps co-payment for each day in hospital
I have taken up health insurance for both private hospital and extras as we do use the extras quite a lot (dentist, optometrist, chiro, remedial massage). Each year I do check in with our provider and discuss if there are other options. I also jump on the govt website, above, to check what other providers are offering.
Protecting the family. Options to keep costs at a minimum:
10 to 12 times your annual income for life insurance & TPD (or the value of your mortgage only)
75% income protection until you reach 65, with 90 days wait to claim
Get a quote from your super fund and pay from salary sacrifice so fees don’t eat into your super. Or you can purchase outside of super and claim as a tax deduction.
Minimalism – money mindset
"Almost everything you’ve ever pined for in the past, you’ve now got. Think back to something you really, really lusted over. Maybe it was a car, maybe it was a new outfit. How do you feel about it today? And what did you purchase 5 years ago that still gives you genuine happiness today? Truth is for the millions of dollars most people spend over their lifetime, they get to the end of it and can count the truly meaningful things they bought on one hand. People dying have complete clarity ... often for the first time. When it's too late. Learn the 'art of conscious spending'."
Think about the things that genuinely make our lives more meaningful or more comfortable and spend extravagantly on them, guilt-free.
Domino Debts (except for HECS/student loan and home loan)
Be honest with yourself and write down ALL your debts. A simple handwritten page will do to get it all out. You may need to search a few emails or accounts to see all the things you are paying off.
These are just examples of how I see this working on a notepad. It allows you to focus on keeping them all moving but go for the kill on one at a time. In the examples, the SKYE finance is interest-free until Aug 2021 so there is time to remove the Afterpay @ 15% first.
Now, this is not to have you remove these debts and add new ones! Whilst the above plan of attack is happening, it's guaranteed that something else will go wrong / break that you need to pay to fix. Things like your fridge not working, flat tyre, flat battery, school uniforms ... whatever. The key from the earlier step is to have an Emergency Fund that helps pay for these unforeseen expenses so that you can keep on track.
As mentioned in Scott's book (and I have seen it in action for us), having funds in an account for the 'just in case' is a total game-changer and especially when you are focusing on becoming consumer debt-free. Sell whatever you can, work overtime, find $2,000 to stash into the MOJO/emergency fund account and you will sleep better for it (on the Dunlopillo Pillow that Scott recommends 😊.. you have to read the book to understand this).
SECTION 2 - GROW
"There is a limit to how much you can save, but there's no limit to how much you can earn"
Double your Income
Go back to school
Excel in your performance review to make the review count and get a pay rise or a bonus
Make a commitment to yourself and grow.
Buy your home
"Owning your own home is like a 30 year enforced saving plan – and any gains you make over that period are tax-free"
This is a hard one as it has so much emotion in it. There is definitely a movement to rent AND aggressively invest in the stock market/investment property to increase wealth. The problem with this strategy is that most people don’t do the investing part of this duo. It is a touchy one.
We did follow the typical Aussie dream and purchase a house and have been on the mortgage route for 25 years (definition of mortgage: from the Latin word, meaning 'agreement till death'!). One thing I would suggest is to buy a house that is less status level than your income is. Think twice before getting the 'McMansion', especially if you're going to have to live with a huge mortgage and more than 50% of your income tied to that loan. That’s my 2 cents worth on this. It’s a hot topic and I am still working through it myself.
Increase your super to 15%
Make your own choice as to what type of super fund and shares to invest in.
Understand your fees – this is suggested throughout the book as it is so important.
Have salary sacrifice on autopilot. You can start small and as you have more money to access for growth, increase your salary sacrificing.
Boost MOJO to 3 months
Calculate what your barebone expenses are per month and work towards boosting the MOJO account to 3-6 months of this figure. When you have this amount it feels so empowering and you will never have to worry about money again for living expenses.
SECTION 3 - HARVEST
Scott discusses paying off your home loan, having your retirement number worked out and leaving a legacy.
We are at this phase of our life now and I am torn between my deep respect for what Scott has advised and what I have discovered and researched on my own financial journey. I agree that having your home loan paid off will be an awesome feeling however I do feel that to grow your wealth you have available to you the equity in your home to grow income-producing assets. When you get to this stage, options like using the equity to purchase shares or a deposit for an investment property are possible. This is where I believe you MUST have your money work HARDER for you. Not only are you working your day job for the dollars, but the dollars you have as 'assets' work whilst your sleeping.
I think this is ever-evolving and I am keen to work through some scenarios over the coming months.
Scott talks about retiring and how a portion of your yearly retirement income can come from the government pension. I strongly disagree with this and if you are 50 or younger, YOU have the opportunity to grow your super/retirement fund way more than Scott suggests. This I am strongly passionate about and for us, I am determined to push through this one and do everything we can to be totally financially independent.
To have or not to have a Financial Planner? Scott doesn't seem to like this option much and feels that the expense is too high for the benefit. Professional expertise at different stages of your journey is vital to ensure you know what is POSSIBLE. We do need to be wary and ensure it’s the right fit because, as Scott states, it can be tens of thousands of dollars that you will be handing over (or taken out of your super as a fee). If it’s approached with a responsible attitude that it is YOUR money and you should understand everything the FP is suggesting, I believe they can help contribute hundreds of thousands back into your portfolio. Refer to my previous blog Financial Planner for more on this.
Have your Will in order and have all your key documents in one folder, including account details, investments, passwords (I think these should be somewhere else!) for the people you may leave behind that may not be as intimate with all the household finances.
Leave a legacy
As you reduce your debt, it's important to 'pay it forward'. It may be with money, however can also be with your time.
Ever wondered how much is a fair amount? I know a lot of advice is 10% of your income. To be honest, at different times of your life, that may feel like a lot so then you don't do anything. A great website for this, that I discovered via @lizgetsloaded can help work out from your country and your income, what would be the amount you could invest in charity. It can help give you a benchmark. I found it very helpful.
An example below of a charity and how they can display how much of your donation goes to those in need. Each charity should have this on their website.
I don’t agree with everything that Scott lays out in The Barefoot Investor book however the foundation is 100% spot on. You may disagree with his NO CREDIT CARD and use a credit card or use your offset account on your mortgage to keep your MOJO and monthly expenses. It depends on what stage of the journey you are in and your discipline and confidence with your financial situation.
This book can be an EXACT PLAN of what to do if you don’t have a clue or are stuck ... OR it can be the beginning of your financial journey and once you build confidence and understanding of what financial freedom means to you, you may steer your own way.
Everyone is different and no one can write the exact thing to suit everyone.
Would love to hear what you have gained from the book if you have read it and what you agree/disagree with.