I Got This!

Hi Scott,

I spent my twenties telling myself I could never afford to own a home, so I just spent my money. Then I started reading your stuff. When I saw that even singles on the minimum wage could make a go of it, I kicked myself in the backside. I got a better job where I could put in heaps of overtime, I sold my car, and I set about paying off my personal loans (plural, because I was still paying for the car before it too!). I stopped using drugs (all of them, massive effort) and I saved.

I found a sense of self-worth, pride and confidence. I met an amazing woman, and we bought a house together. We have a small mortgage on a beautiful home, and no other debt. We own shares (something else I thought was beyond my reach) and we have cash in the bank.

We will pay our home off just after my 45th birthday -- I am 33 now. We got married two months ago, we have been on holidays together (I never had money to travel before) and now I am moving into a new career over a period of a couple of years because it is time to spend my days doing something I enjoy rather than something that pays me enough to survive. And all this in just under five years, with so much time left to achieve more. Thanks mate, you changed my life.

Chris

Hi Chris,

I didn’t do anything.  That’s what happens when you give up your excuses, and fully commit. Well done!

Thank-you for reading.

Scott

Rich Girl Loses it All

This week we’re going to do something a little different.

See, right now, the newspapers are full of the tragedy. It’s desperately sad and heartbreaking and futile all at the same time: but the fact is, none of us can control the acts of terrorists.

So this week I’m going to focus on things you can control. I’m going to introduce you to three Barefooters — readers of this column. Each of them reached a turning point in their lives — a teenage rich kid who suddenly found herself homeless, a go-getting bloke whose financial advisor almost ruined him, and a woman who stared down her violent husband.

But the real story … is what they each chose to do next.

Rich Girl Loses it All

Courtney grew up an only child in a middle-class family.

By her own admission she was extremely spoilt, always getting whatever she wanted, whenever she wanted.

Yet when her parents separated, when she was 13, her childhood ended and things unravelled — quickly:

Courtney went to live with her father in January of that year. Tragically he suddenly and unexpectedly died in September of the same year. So she moved in with her mother.

Courtney knew that one of the reasons for her parents’ break-up was her mother’s drinking. Yet what she didn’t know was that in the year since the separation her mother had turned into a full-blown alcoholic, drinking from the moment she woke up until she passed out.

A few weeks after Courtney moved in, her mother abruptly took her keys and kicked her out. At age 14, she was homeless. For the next five years Courtney spent time on the streets, in refuges, couch-hopping, and in and out of government housing.

At 19, with $1.92 in her bank account, Courtney reached crisis point. Here’s what she did next.

“I went back to school and completed Year 12. I surprised myself when I got good enough marks to get into uni, where I’m currently studying commerce. I can only do it part time, because I work to support myself. Along my journey, I have read every single one of your newspaper columns. I have 412 of them marked ‘financial’ in case I have to re-read any of them. I feel like Barefoot is the financial parent I never had.”

The Go-Getter

Mick was always a go-getter.

He didn’t want to live an average life like other people. And the key to living the life of his dreams was to build wealth, so he hooked up with an equally go-getting advisor.

Over the next few years, Mick’s advisor took him down the ‘borrow to invest’ path, and go-gettered him from one investment turd to another.

He was losing money. The interest payments were crippling. The stress began to jeopardise his marriage. Mick had reached crisis point. Here’s what he did next:

“One day, while up in the mountains (must have been the fresh air), the penny finally dropped. My wife and I decided there and then to become debt free and take control of our lives.

“The first thing we did was dump the adviser. Then we offloaded the crap he’d signed us up to — the margin loan, the costly managed share funds. And then we paid off our house — in three years — and began stashing cash into super, into an index fund, and buying shares in low-cost index funds.

“Until we became debt free, I had no idea just how much of a burden it is. The best advice I could give anyone is to follow the Barefoot principles and KEEP IT SIMPLE. We all work too hard for our money to blow it by making mistakes. Funny, but through my mistakes I found financial freedom.”

He Has No Hold Over Me Anymore

Sandy was happily married for 10 years, and had two lovely children.

Three years ago she was sitting in the backyard when her husband announced, “I want a divorce”.

Like every woman who faces this situation, she was terrified:

“How am I going to support my kids?”

That fear stopped her from ‘rattling the cage’ for the next two-and-a-half years.

It kept her from having the courage to leave the house (or boot her husband out). And whenever she tried to broach the idea of finalising a property settlement he would threaten to not pay child support. Sandy knew he was controlling her. She knew she had to stand up and take care of herself. And then one night he became violent.

Here’s what she did next:

“It wasn’t until I read Scott’s book that I fully believed I could do this on my own. Now I’m taking back control. True to form, once my husband wasn’t getting his own way, the child support ceased. However, I’ve now sorted my buckets and I’m days away from the property settlement being finalised, which will allow me to purchase a home on my own.

“I’m also looking at investing for the future for me and the children. My plan is to be financial independent and not reliant upon what child support he deems fit to pay. I used to rely on it, but now — if I receive it — it will be a bonus that goes into the Grow Bucket for my children’s education.”

You Have More Power Than You Think

What I love about these stories is that they’re so different, but they share one similarity: each person found themselves in deep trouble and then took control of their situation — and changed it.

Over to you.

Tread Your Own Path!

Barefoot Confessions

Hi Scott,

I am 25 years old, newly married. I am the worst spender I know. I have about $8k debt that my husband doesn't know about.We want to start a family but I'm worried I’ll get stuck as a stay at home mum and be in debt forever. I can’t control my money. I want to pay off my debt and get my finances into order but I don't know where to start. I really need your help.

Jessica

Hi Jessica,

Where do you start?

You’ve already started, by admitting what’s going on in your head. Now you need to share it with someone who can help you -- your husband. The way you’ll get out of this mess is to fess up to the man you married, and tell him what you wrote to me: that you’re worried about being stuck as a stay at home mum, that you’re depressed, and that you self medicate by spending (okay, you didn’t say that -- I did).

The good thing is that you’re fronting up to him with an $8,000 debt. That’s not a lot of dough in the scheme of things. If you work together as a team, you can pay it off by the end of the year.

However, let me give you this warning: if you continue to keep this a secret from your husband, things are going to get a lot worse. Your debts will grow in line with your depression. The truth is that your current financial situation is a symptom of what’s going on in your head.

Luckily for you, you have a bloke that loves you, and wants to help you.

Let him.

Scott

The Chicago Bull

Hi Scott,

I have a terrible credit rating. I'm 45 and only have a couple of thousand dollars in savings, and $6k in super. I also have have $15k in credit card debt. I earn $800 a week. My question is, when is the right time to enter the housing market?

Chris

Chris,

You’re like a middle-aged tubby little fella limbering up to have a crack at the NBA! Dude, you’ve got no savings, fifteen grand in plastic, and you’re earning below the average wage. Right now you’ve got as much chance of buying a house than being drafted to the Chicago Bulls. So let’s keep it real. You first need to increase your income, then knock out your debts, build up your savings, and only then will you be ready to shoot for the stars.

Scott

No Such Thing as a Silly Question

Hi Scott,

I am loving your book and have one (probably silly) question. My husband and I, both 40, are tackling a $45,000 credit card debt on $70,000 a year combined income. Most of it is business credit card expenses -- his small business has had a very quiet start to the year. Do we redraw this amount from our mortgage (we have $300,000 in equity), pay off the credit card and start again, or keep chipping away?

Kelly

Hi Kelly,

Yes, you can refinance the debt onto your mortgage to get a lower rate.But there are a few things to remember:

First, it’s no magic wand. You’re eating into your family home, and there are only so many times you can do this.

Second, you’re turning a short-term debt into a long-term debt.

Third, you’re putting a bandaid on a deep gushing wound.

The wound was caused by your husband’s flailing business. Paper-shuffling your debts doesn’t mean it won’t happen again. So I’d sit down with your husband and have what comedian Tom Gleeson calls a ‘hard chat’. If the business doesn’t improve by Christmas, it’s time for hubby to get a job.

Scott

Pay Off Your Home in 10 Years

Hello,

I read a book about property investing by Konrad Bobilak and there is a chapter on how pay your house off in 10 years with no extra payments. The deal is using a 55-day credit card, keeping all your earnings in an offset home loan account, using your credit card daily, and setting up an automatic transfer before 55 days to pay back from the offset to the credit card. But in your book you do not mention this. I am confused -- what should I do to pay off my mortgage quicker?

Des

Hi Des,

What you’re referring to is a ‘sweeper strategy’: parking your salary in your offset account, spending everything on a credit card, and then sweeping your entire credit card balance clean before your credit card repayment is due.

It looks awesome on a spreadsheet, but I’ve seen it harm more people than it helps. Reason being, most people end up spending too much on the credit card and get whacked with a backdated interest bill. Then, instead of saving interest you’re paying it.

Here’s you: “I won’t miss a repayment … ever.”

Here’s me: “You probably will at some stage. The Australian Bureau of Statistics suggests that about two-thirds of credit card holders miss a repayment at least once a year.”

My advice?

Get an ultra-low-cost variable home loan, forget the credit cards, and focus on making extra repayments each month.

Scott

I'm in Love

Scott,

I’m in love! I met a guy six months ago, and he’s now moving into my house and wants to put his income into paying down my mortgage while we use my income to live on. I am on $105,000 and he is on a $90,000 base (more with overtime). He has no debt, while I owe $330,000 on my home, $250,000 on an investment property (barely breaking even), and $20,000 on my credit card (from a holiday). We are going to get married eventually, but the plan is to live together and pay down my mortgage for a couple of years until we need more space for kids. The trouble is, I do not want him taking on my debt. So should I sell and start again together?

Melanie

Hi Melanie,

“I feel it in my fingers, I feel it in my toes, when love is all around me” …… you’ll probably make dumb money decisions.

Seriously, I’ve had little lambs last longer than you’ve known this bloke. (And you know what eventually happens to them, don’t you?)

A few things:

First, keep everything separate until he puts a ring on it. If you want to live in sin (as my grandmother calls it), charge him rent, and pay that straight off your mortgage. Easy.

Second, get rid of the credit card debt pronto. (Seriously? On a holiday? WTF?). Do the sums on your investment property and then ask yourself the ultimate question: would I buy this property again today? If not, get rid of it.

Now’s the time to get on top of your debts. But don’t do it for him. Do it for you. Repeat after me: “This man isn’t my financial plan.”

Finally, it sounds like you’ve fallen hard for this bloke. The best way to see if he’s as committed to your future as you are (other than checking his phone) is to sit back and watch what he does over the next 12 months. If he’s serious he’ll be working and saving like a man possessed. “Come on and let it show!”

Scott

What Should I Do About My Crazy HECS Debt?

Hi Barefoot,

I will get straight to the point. I have a crazy HECS debt to the tune of $70,000. I am getting hitched in September to the the most amazing girl on the planet. What should I do?

Tom

Hi Tom,

First, you should definitely marry her.

Second, don’t bother paying any extra off your (admittedly gigantic) HECS-HELP debt.

Not even a dollar.

All the hoo-ha about the Government’s proposed changes to the HECS-HELP rules are focused on the compulsory repayments that come out as a percentage of your salary: they’re proposing to lower the starting income threshold by almost $13,000 (to $42,000).

In doing so the Government has all but given up trying to get people to make voluntary contributions -- the bonus was scrapped from 1 January 2017. So why would you bother rushing to pay off the cheapest loan you’ll ever get -- it simply increases with the general cost of living -- when it’ll come out of your salary anyway?

The answer is you shouldn’t, Tom. Forget about paying any extra and direct your cash into saving up for a deposit on a castle to share with the most amazing woman on the planet.

And one more thing for readers:I’m writing this from a hotel room in the US of A, where the average college student graduates $35,000 in debt to a financial institution that charges commercial interest rates. And it’s one of the few debts that doesn’t get wiped out in bankruptcy. We got it good!

Scott

We Can’t Sleep at Night

Hello Scott,

My husband and I are on the age pension and receive $2,200 per month. We also receive an overseas pension of $700 a month. We have a combined super balance of $32,000 and a home worth $600,000.

We owe $25,000 on our car, $24,000 on our home, and $25,000 on a bank overdraft (we used to have a business but it collapsed). We are considering borrowing $100,000 for debt consolidation, paying off the car and overdraft, putting some into our home loan, and topping up our super with the balance. The payments on such a loan would be $600 per month (based on current interest rates). Please help, as this is leaving me anxious and sleepless at night.

Kathy and Kevin

Hi Kathy and Kevin,

You’re going to struggle to get a $100,000 loan when you’re on the pension, and with good reason:

Pensioners can’t afford to be repaying debts!

If I were in your shoes, I’d downsize your home, pay off all your debts, and keep the money in super as a backstop.

Otherwise you could: withdraw your super as a lump sum and pay off the highest-interest debt. Then both of you could go back to work a day or so a week (combined you can earn $13,000 each before it affects into your Centrelink pension), and possibly rent out a room until you’re debt free.

Good luck.Thanks for reading.

Scott

Set Yourself Free From Credit Cards

Let me tell you about my radio interview from hell.

At the start of each year I do about twenty back-to-back interviews on financial resolutions for the new year. It’s meat and potatoes sort of stuff that I’ve been doing for over a decade (and will be doing a decade from now).

Only this year, I snapped.

I felt like Michael Douglas in that movie Falling Down, where a mild mannered dude has bottled things up for too long and goes absolutely bonkers.

I was halfway through my spiel: ‘Aussies have some of the highest household debts in the world. The average credit card debt is $4,377, and if you only pay it off at the minimum -- which is all the banks encourage you to do -- it would take you…thirty one years to pay off, and cost you $14,900 in interest...The bubbly radio host interjected and said: “Oh sure, but I still couldn’t imagine my life without a credit card...I even hide my statements from my hubby!”

“That is just so incredibly...stupid” I blurted out.(

Awkward radio silence).

Bubbly radio host: “But….how do you afford nice things?”

Barefoot: “I have this weird thing called savings”.Bubbly radio host: “Oh I could never live like that”.

Now, the radio script I’d been given had me giving her tips on how to ‘manage’ her credit card.

Bugger that. It was time to go rogue.“You need plastic surgery. Cut the damned things up and be done with them” I told her.

That’s the only advice to take for anyone who has got credit card debt right now.

See, I’ve noticed that people who try and ‘manage’ their credit card debts, are nearly always broke. They may be able to pay it down at times, but it always shoots back up.

Why does this happen? Is it because they're weak-willed? Not really. It’s because they keep their card in their wallet.

That’s like a drunk keeping a beer in the fridge for hot days.

The truth is, if you have credit card debt you are not in control of your financial situation.

In fact, the truth is that you don’t need a credit card at all. I haven’t had one for most of my adult life.

When I was young and just starting out, I couldn’t afford one. My logical brain said: ‘credit cards make everything more expensive. I can barely afford anything now, so a credit card will make life impossible’.

Now I’m older I can afford one -- but I still won’t get one.

Why?

I see it as a reverse status symbol.

I’m showing people that I don’t need a credit card. Kids learn by observing what their parents do -- and my kids will grow up watching Dad pay his own way with cash. (Seriously, how’s that for the ultimate rewards program!?).

Here’s you: “Uh, dude, you’re missing out on rewards points. Pay it off each month, and you get free stuff!”

Here’s me: Bitch, please! Credit card rewards programs are a con job. The value of each point is manipulated by sophisticated marketers to keep you spending. They have a track record of devaluing points each year (a Qantas point is now reportedly worth about 0.6 cents), while simultaneously making it harder to claim rewards (Qantas actively limits the number of rewards seats on flights). And then there’s the annual fee.

In Case of Emergency...

A credit card isn’t about convenience, and it sure as hell isn’t about emergencies -- trust me if you’re in a genuine crisis, the last people you need to call on are these pricks.

Ask your granddad how he survived genuine financial hardships without a high interest rate loan from a bank in his pocket.

The truth is you need to have some ‘no matter what’s’ in your life.

No matter what, I’m not going to take out a high interest rate loan to fund crap I don’t need.

No matter what, I’m going to pay my own way, and claw back my financial confidence.

Know this: the moment you say ‘no matter what’ -- and really mean it -- you no longer have a debt problem. It’s simply just a matter of time.

Now, here’s how to acquire the ultimate anti-status symbol:

Step 1: Save up $2,000 Mojo in an online account.

Step 2: Do your sums and work out how many months it’ll take to clear your credit card in full.

Step 3: Double it. (Life happens).

Step 4: Apply for a balance transfer card, and when it arrives in the mail, destroy it.

(This is critical. A zero-balance transfer offer is the financial equivalent of selling gym memberships in January: ‘roll your lard over to our card, porky, and you’ll have be in great shape in 18-months time.’ A study by ME Bank last year found that 29 per cent of people who tried a zero-rate balance transfer deal didn’t clear their card before the end of the interest free period. Don’t be a financial fatty).

Step 5: Set up a direct debit each time you get paid, and get rid of it once and for all.

In all the years I’ve been doing this -- with thousands of people -- no one has ever come back to me and said: ‘you bastard, you made me pay off my credit card, and forced me to live on my savings’.

Tread Your Own Path!

I need your help

This week marks our two year anniversary of losing our home -- and everything in it -- from a bushfire.

I made a pact with myself that each anniversary I’d remind you to take a look at your insurance. However, as insurance is possibly the most boring topic in the world, I’ll keep this ridiculously brief:

I need you to dig out your insurance statement this evening (please put a reminder in your phone, now). Make sure you are insured for “Total Replacement”. This is where the insurer agrees to pay the cost of replacing your building to the standard it was in before it was damaged or destroyed.

Most people have ‘sum insured’ policies, which cover you for a specific predetermined amount in the event of a claim. It’s easy to get screwed with this deal. You don't want this cover. Stick with a “total replacement” policy.

Happy Anniversary.