Checking your insurance (and other useful tips from my experiences this week)

NOTE: While much of the information below is still relevant, there’s a more recent version of this post which you can find here.

After losing our home to the Victorian bush fires, I have spent a huge amount of time this week sitting at my desk sorting through my own financial situation.

And with a calculator already in hand, I decided it was a good time to turn my attention to fighting the financial fires that often pop-up in my Barefoot mailbag:

Were you insured?

Dear Scott,

For years my wife and I read your column religiously each week.

We were heartbroken for you when we learned that you lost not only your home, but also all your possessions.

I trust given that you’re the Barefoot Investor, that you had adequate insurance?

Sincerely, Margo and Gary.

Hi guys,

Yes, we were insured.

Being the sort of Barefoot bloke that I am, a few weeks before the fire I upgraded our insurance to include big stuff like my wife’s wedding ring.

Still, it’s generally only when your home goes up in flames that you stop and realise how much stuff you accumulate over the years – and how expensive all that stuff is.

If we had to replace everything we had, I’m quite confident that we’d come up short. That’s okay, because we don’t plan on replacing a lot of it – and we have a very well-stocked Mojo account exactly for these situations.

People have asked me what they can do for us, and here is it: over the weekend, grab yourself your favourite beverage. Then, slowly walk around your home, from room to room, and in your head – quickly, and roughly – add up everything you see (open your cupboards too): books, toothbrushes, televisions – the entire enchilada.

Then call your insurance company and make sure you’re covered for roughly that amount. While you’re on the phone check what the sum value your home is insured for as well. Until last weekend, I never thought it would happen to us either.

The Two-Fingered Salute

Hi Scott,

I’m about two months away from paying out a part 9 debt agreement, and having it removed from my credit file.

I am 33, I have no debts, I have no defaults on my credit file and I earn around $40,000 a year in a permanent part-time job that I have been in for 15 months.

I want to apply for a $5000 personal loan. I do not own any assets of value. Will my application be declined and what do I need to do to improved chances or am I destined to always pay for having an act of bankruptcy on my file?

Cheers, Brenda.

Hi Brenda,

Well done for fighting your way out of debt. The only problem is that you still sound like a debt-drunk: you may have successfully completed the 12-steps – but you’re still craving.

Here’s the truth: you don’t need personal credit from a bank (or anyone else).

Up until relatively recently, people survived just fine without credit cards, car loans or a David Jones card. Personal credit is a relatively modern invention, and one that makes the bank and retailers billions (which is why you’ll have no problem getting a $5000 loan).

Brenda, it’s time to give these bastards the two-finger salute. After all, you’ve played their game and lost. Now it’s time to win. Make a vow to never, ever, touch a credit card or personal loan again.

Go forward confidently with cash in your back pocket, and you’ll never feel vulnerable again.

Own your own ATM?

Hi Scott,

I recently read about an investment where you own your own ATM. Basically you pay for an ATM and they pay the running fees and guarantee you a minimum 20% return each year for the ten year contract length.

There’s always a catch. So far the main issue I see is that you have to sell the ATM back to them for 10% of the original cost at the end of the contract.

I believe if you look at what you end up with and what you began with it equates to an annual return of approximately 7.5% not 20%, however that’s still a decent return. What do you think?

Cheers, Tommy

Hey Tommy,

Thank you for sending this through, I’m in need of a good laugh, and your question did the trick!

First off, anyone who takes out an ad that promises punters 20% returns have about as much integrity as a Craig Thomson work expenses form.

Really it’s a dead giveaway that slimy salespeople are involved – and, as you correctly discovered, ‘what the headline giveth, the fine print taketh away’.

Second, the (bogus) 20% return is guaranteed – but by who? A guarantee is only as good as the group behind it – just ask the Port Adelaide AFL footy club.

A few years ago their major sponsor was a mob called My ATM. Their business involved taking out ads that promised punters 20% returns if they stumped up $14,000 to buy their ATMs (sound familiar?).

They went bust, reportedly owing the club $350,000 in unpaid sponsorship.

My husband will soon be laid off, what should we do?

Hi Scott,

My hubby works at Alcoa’s Port Henry plant and will lose his job as part of the operation’s closure by the end of the year.

We’re a one-income family with two kids and were wondering how do we deal with the payout? We have no mortgage and would appreciate any advice you have.

Thanks, Lisa.

Hi Lisa,

There are three things I want you to do.

First, make sure you have six months of family living expenses in a high interest online account. Because you’re husband is receiving a payout, he won’t automatically be able to register for Newstart.

Second, grab him a copy of the book, Who moved my cheese?. It’s a cheesy title, but a quick read. Losing your job can really hit you between the eyes – especially when you’re the main breadwinner.

His golden handshake will get a slight shakedown from Canberra. Part of his payout he gets at the end of the year will be tax free ($9246 as a base, and then $4624 for each year he’s worked at the company), and the rest will be taxed at his marginal rate, like any other earned income.

Depending on how long he’s worked at the company, it could result in a big tax bill. So the third and final thing I want you to do, is look at chipping some money into super (just watch your $25,000 limit).

And finally on a personal note, I’d like to thank all the lovely, loyal readers who have taken the time to send me hundreds of supportive emails, bottles of wine, and a mountain of clothes for my baby son – who I’m pretty sure has a bigger wardrobe today than he had last week.

Tread you own path, thanks for your support and have a great and safe weekend.

Help! I’m paying too much tax!

Hi Scott,

My husband and I both work as senior marketing executives and we are lucky to be earning a combined $350,000 income. I know it sounds good, but we live in Sydney, and have a $780,000 mortgage. Our biggest expense is the tax we pay!

I have been reading a rival financial advisor, who always seems to suggest that people borrow to invest in shares, though I’ve noticed that’s not something you recommend. Can you help us pay less tax?

Best,

Heather.

Hi Heather,

The world’s smallest violin is playing for you right now. You’re biggest expense isn’t tax – you’re a citizen of this country – and therefore unless you want to live in Zimbabwe, you’re legally obliged to pay tax based on your assessable income.

The truth is there’s a limit to what you can do to save on tax – especially when you’re an employee. The most obvious strategy is for you to both max out your superannuation contributions.

If I were you I’d focus on knocking out your mortgage as quickly as possible, and then look to invest your cash flow – in good quality businesses.

Finally, smart, wealthy people have make dumb costly decisions all in the name of saving money on tax.

So watch out for anyone touting tax ‘solutions’ that will see you spend a dollar just to get less than half of it back.