Husband is Terminal

Hello Scott,

My husband, Trevor, has recently been diagnosed with a terminal condition. He will get a super payout of less than $100k. I work full time but am currently on leave caring for him. I have about six months of leave left. We have no debts, rent our home, and have recently used our savings on a final overseas holiday while Trevor is still well enough to travel. My question is, what is the best way to invest his modest super payout while still ensuring we can access it if needed?

Janet

Hi Janet,

I’m so sorry for your situation.

You’ve got a chance to sort out your financial affairs together, which will give your husband the peace of mind that you don’t have to do it on your own.

So I’d like you to review his will and any accounts that are in his name. Then I’d like you to call a FISO (Financial Information Service Officer) on 132 300, who’ll be able to advise whether you’re eligible for a carer’s allowance. (Note: the FIS is a free government service.)

Finally, in answer to your actual question, if you have any debts you should pay them down as a priority, then keep three months of living expenses in an online savings account (I call it ‘Mojo’). Any left over should be invested in shares, preferably through your super fund. This is something you can ask the FISO about as well.

Scott

Backyard Blitz

Hi Barefoot,

My husband works full time on his own business and I am a stay-at-home mum to three kids. We recently finished building a unit in our backyard and we have not subdivided yet, so they are on the one title. The back unit we own outright, and we owe $160k on the one we are living in. Hubby wants to rent both out and hope the bank will lend us enough money to buy our dream home. I cannot help thinking maybe we would be better selling both properties and living debt free. What do you think?

Lucy

Hi Lucy,

First, the statement ‘the back unit we own outright’ is irrelevant, because if they are on the same title the bank will hold both as security. Second (even though I don’t know the value of the units), your hubby’s plan sounds … terrible. You’d be living in a home with a big mortgage while renting out two units with only $160k owed. I agree with you. Sell, use the proceeds to buy your dream home, and live debt free.

Scott

Puff the Magic Dragon

Hi Scott

Interesting article you wrote on National Fraud Week. Your article hit home. I have two brothers: one living at home (aged 42) and the other (aged 50) living just around the corner. Both smoke the ‘magic dragon’ on a daily basis. Being from an Italian background, my mother will not kick out the one who’s living at home. Both are constantly asking for money, which she hands over, feeling sorry for them. Mum is on the age pension and has $70k in a savings account. What do I do?

Tina

Hi Tina,

It sounds like your mother is a wonderfully kind person.But this situation is totally her fault. She’s the one who’s enabled this behaviour with your brothers.And as a result they’re basically little boys living in grown men’s bodies. It’s all very … sad.I wouldn’t expect the ‘boys’ to have the ability to change -- we’re a few decades late for that. The only way anything will change is if you can convince your loving, caring mother that she’s actually causing her sons harm by enabling this behaviour. She’s not helping them, she’s hurting them (and herself). That’s the truth.Good luck.

Scott

The Biggest Mistake You’ll Make With Your Retirement

Well, it looks like the nation’s superannuation reforms are now in the hands of ... Pauline Hanson.

And that’s quite concerning, given that I seriously doubt Pauline could tell the difference between a hedge fund and a halal burger.

“Please explain?”

So until Canberra clears its political bowels, it seems that detailed financial planning is off the agenda. But that’s not necessarily a bad thing, because it gives us a chance to talk about the number one mistake people make when they retire.

And no, it’s not retiring with too little dough.

In fact, just the opposite. I’ve found the people who make the biggest mistakes in retirement tend to be those (particularly men) who have million-dollar nest eggs.

The Biggest Mistake You’ll Make With Your Retirement

It’s said that the two most dangerous years of your life are the year you’re born and the year you retire.

You made it through the first one, so let’s talk about the second, with the help of a case study:

Fifteen years ago, a friend of mine’s father retired.

He’d spent 30 years working as an engineer in a government department.

Then he turned the magic age of 54 and 11 months, which was the kick-off age for what is arguably one of the most generous retirement schemes in history -- a defined benefit pension that paid out a factor of his final wage, every month, until the day he died.

He’d never have to worry about money again.

As was the tradition, his workmates gave him a send-off on his last day. The irony wasn’t lost on him: he’d spent his entire life rushing around chasing his tail. And the day he could finally put his feet up and relax they gave him… a bloody gold watch.

Tick. Tock.

On the first day of his retirement, he woke up at the same time he always had. Had a shower. Put on his suit. Made some breakfast. Caught the bus into the city. And then … sat in a coffee shop and read the newspaper for three hours. After that he caught the bus home, wondering what the hell he was going to do with himself for the rest of the day.

The Curse of the Million-Dollar Super Fund

Here’s you: “Curse? A million bucks in my super? I’d, I’d…”

Here’s me: “Wake up whenever you want?”

Here’s you: “Yeah!”

Here’s me: “Go on the Baby Boomer equivalent of a Contiki tour (hello Trafalgar) and get pissed with other suburbanites?”

Here’s you: “Well, maybe once a year...”

Here’s me: “Sure. And for the other 11 months of the year you can sit at home, make smalltalk with your wife and her friends, and wait for your kids to drop off the grandkids ... every second Thursday.”

Here’s you: “Ummm, I guess. What else have you got?”

Here’s me: “Death?”

Most people work incredibly hard throughout their careers to provide for their families -- especially those who beat the odds and retire with million-dollar super funds.

And, particularly for men, their work comes to define them. Not only does it build their super, but it gives them their self-worth and something productive to do.

These workhorses don’t realise that their career has been to the detriment of friends, hobbies and cultivating other interests (well, besides drinking beer and watching the cricket), till after they get home from the Trafalgar tour.

So, what’s the solution?

The Golden Rule of Retirement

The golden rule of retirement is ... keep working.

Of course most people don’t have a choice, given that research from the University of Melbourne suggests that only 53 per cent of couples and 22 per cent of singles are on track to achieve a comfortable level of retirement income.

Yet that doesn’t mean you have to keep your existing job (especially if you’re a tiler with dodgy knees).

You can do something less labour intensive, and possibly not full time. And if you do, the Government will bend over backwards to help you.Once your reach your Age pension age, you’ll not only be able to draw a tax-free pension from your super, but in addition you can both earn up to $28,974 each without paying a cent of income tax. You can save up for a trip of a lifetime, and stretch it further by making it a working holiday. Throw all that into a retirement calculator -- it works better than Viagra!

Yet what if your advisor says, “You’re a winner, you don’t have to work another day in your life.”

Barefoot says, “Work anyway” (even if it’s a day or two a week).

Work is good for you: retirees who continue doing some kind of part-time work are found to be the happiest and the least likely to suffer depression.

Why not use the skills you’ve honed over your career to do some useful work?

I meet so many Uber drivers who are well-to-do retirees who don’t need the money -- they just like chatting to people and earning their keep at the same time.

And I’ve got one final tip for you: think about your legacy. What do you want to be known for? What is it that you could be known for?

You don’t even need to be wealthy. I know of a bunch of old tradies who build wheelchairs for kids in third world countries. And last week I wrote about a stay-at-home mum who built a hospital in Uganda. One of the greatest human needs is the desire to be useful and appreciated. Helping people is the key to your own happiness.

The bottom line is this: in retirement you need enough money to live… and enough to live for.

Oh, and you may be wondering what happened to our ‘coffee shop’ engineer.

Well, after three months of reading the newspaper, one day he looked at his gold watch and decided it was time to do something. He needed meaning and purpose. He had something more to give. So he went back and became a teacher, and worked happily away for the next 14 years.

Tread Your Own Path!

Dial a Bin, Get a Raise

Hi Scott,

I have recently become a Barefoot member and have changed so much of what I was doing with my money. Thanks very much! But I have a question for you: I am a small business owner of a skip bin hire company in Melbourne (Unlimited Bins) and, as I cannot go to my boss and ask for a pay rise, what can I do to get ahead?

Troy

Hi Troy,

Make each Friday afternoons a ‘Financial Friday’. First, look at your sales for the last week and make a stretch goal to beat it next week. Then, do one thing that will bring in more bucks before you clock off for the week (advertising? Chasing up a lead? Getting a testimonial?). Second, look at your expenses for the last week. Then, look at one expense and try and eliminate it, or at least minimize it, again before you clock off for the week. Financial Fridays are a bit like putting a Fitbit on your arm. The ritual of focusing on your revenue and expenses each week will have a dramatic effect on your profitability.

Scott

AMP Screwed Me

Scott,

I have invested $200 a month over the last 20 years in an AMP whole of life policy. After 20 years, I have a withdrawal amount of… $64,196! Divided by 240 months (20 years), that is $267 dollars per month -- or about what I gave them. I feel cheated -- I can’t even use that money for a house deposit. What’s more, the payout on my death would be $300k, which is not enough for my kids to buy a house outright in Brisbane. What do you recommend?

Dennis

Hi Dennis,

A whole of life policy is an old-school product that bundles together an insurance policy with a managed fund. It’s a wonderful investment -- for the insurance salesman who sold it to you. He would have been slung 125 per cent of your first year’s premium plus an ongoing trailing commission as high as 8 per cent.

You got snookered.

Now, I assume you already have adequate term life insurance in your super fund (if not, call your fund and get it). So now you need to focus on getting out of this policy without getting a thousand amps (or AMPs) up your rear end.

Let’s look at your options. You could keep paying your premiums. If so, your policy will mature when you reach 95 or you die (whichever comes first) and you or your beneficiary would receive the full insured sum of $300,000 tax free. But I wouldn’t recommend it. Or you could surrender the policy and take the $64,196, but I wouldn’t recommend that either. Your best option is likely to be to convert it to an ‘endowment policy’, which can mature in at least five years’ time.

Still, given the thousands of dollars of commissions you’ve paid over the years, I’d encourage you to ring up AMP and ask them to run the numbers on the best outcome over the next five years.

Scott

Brexit Blues

Hi Scott,

My husband just inherited money from his mother in the UK. Unfortunately, the transfer to his UK bank account came through late last week as Brexit unfolded. We plan to use the money (250,000 pounds) for our retirement funding. However, the exchange rate has just wiped out a depressing chunk! We need to know what the cheapest and most reliable way is to get the money out of the UK so we can act as soon as the exchange rate looks more favorable. We're hoping it will bounce back up at least partially over the next few days or weeks. Help!

Marg

Hi Marg,

Yes, the pound got shirt-fronted by the Brexit vote. (My view is that Brexit will be like any other divorce: it’ll get dirty, it’ll be expensive, and it’ll drag on longer than it should.)

Right now the market says a pound is worth $1.80. However, if you look at it over a 10-year period, the pound has traded from as low as $1.44 (just over three years ago) to a high of $2.62 (during the GFC). So in that context, last week’s fall was a mere blip.Now, unlike most finance guys (middle-aged white men in suits), I’m honest enough to tell you that I have no idea what the pound will do in the future. No one does. ‘Hoping’ the currency will bounce back over the next few days or weeks is not a strategy.

The bottom line is that you can’t control the currency, but you can control how much you pay to transfer the funds to Australia. Generally speaking, avoid the banks (who will slug you with fees, then hit you again with a terrible exchange rate). Instead, use a regulated currency exchange specialist like OzForex or CurrencyFair.

Scott

A Nasty Surprise from the Bank

Hi Scott,

After saving for eight years, my husband and I finally have a deposit to buy a family home. So there would be no nasty surprises when applying for a loan, we ordered copies of our credit files. As it turns out ... we don’t have one. We’ve never had any debt before, or even a phone plan. I’ve been advised to get a credit card ASAP or we won’t get a loan. Is this true? I thought maybe our proven savings and reliable employment history might be enough for the bank to lend to us.

Penny

Hi Penny,

Lean in close, because this is very important.

The next time you meet the person who ‘advised’ you to get a credit card, here’s what I want you to do:

Cock your head to the side. Raise one eyebrow. Purse your lips. Then say, “Talk to the hand, girl, cos the face ain’t listening”. Next, lean back, and wave your index finger at them, while wobbling your head, and say: “The Barefoot Investor tells me that all I need to get a loan for a home is a good deposit, a great savings record, a reliable employment history, and the basic 100 points of identification.”

Puh-leez!

Scott

Who You Should Have Voted For

Happy new financial year!

Actually, the start of the new fiscal year won’t be that happy for everybody.

I’ve always thought that politics was showbiz for ugly people, and the weekend’s non-election had more twists and turns that an episode of House of Cards.

It seems like the only real winner from the election so far is Nick Xenophon, who looks like he’ll be able to wield a big stick in the new parliament. Over the years I’ve had a bit to do with him, and I quite like the guy.

So, how will he influence your hip pocket?

Well, negative gearing reform is all but dead and buried.

Xenophon is pro-negative gearing … he’s apparently got eight investment properties himself.

He’s also in favour of a Royal Commission into the banks, and for cutting super entitlements for the wealthy. Though we’ll have to wait a while to see what happens with the Coalition’s proposed changes to superannuation.

The bigger problem is this:

With a potentially hung parliament, whoever becomes Prime Minister will spent much of their time just trying to keep their job (and the rest of their time massaging the egos of the cross benchers).

So in terms of reform, don’t expect much to happen in the next three years (or until we get sent back to have another go at voting). And if there’s crisis, like a GFC Mk 2, don’t expect any strong leadership at the helm.Of course we don’t actually know how any of this is going to pan out yet … but we’ll keep you informed.

And now, here’s my nationally syndicated newspaper column.

Who You Should Have Voted For

As a finance guy, I look at both political parties the same way I look at a separated couple who have leased BMWs and $48,000 each in credit card debt, but are trying to one-up each other to win their kids’ affection.

“Hey Tammy, do you want a pony?”

“Hey Timmy, do you want … umm… Delta Goodrem to play at your eleventh birthday party?”

Let’s be honest: what both sides really care about is who gets to drive around in the fancy white car with the little Aussie flags on the bonnet (hell, even the Greens want flags on their Prius).

It’s enough to turn you into a ranty-tanty Alan Jones. Or, in my case, to feel fed up with the lot of them.So today, in honour of the political Punch-and-Judy show, I’m going to share with you the stories of two people who genuinely deserve your vote.

They’re not wealthy. They’re not seeking election. They’re not wanting handouts.

They’re people like you and me.

The Country Mum Who Built a Hospital

“What am I going to do now?”

Helen Brown was a typical stay-at-home mum, wondering what to do with herself after her fourth and final son left the nest.

“We are not wealthy. We live in Kyabram, and my husband runs a small signwriting business. We’d never been overseas before, so when the boys left we decided we should have a holiday”, says Helen.

So in 2007 Helen and her hubby saved up and went to Uganda.

They quickly realised they were more interested in meeting people than watching animals, and they struck up many friendships during their travels. They stayed in touch with one bloke they met, a community leader called Ssenwogerere (or David for short).

After they got home, David wrote to them and mentioned that five elder women from his village needed to raise $200 as seed capital to get into the chicken business. Helen decided she’d do some fundraising in the Kyabram community, and ended up raising the dough.

The following year, she saved up and took two of her sons to the Ugandan village to meet the women.

That trip was a turning point for Helen and the village of Lubanda. When she returned home she started up HUG (Help Us Grow) as a not-for-profit organisation to help the village community help themselves.

Helen is not religious, she believes passionately in a hand up rather than a handout, and she doesn’t draw a wage from HUG. “Every last cent goes to the community”, she tells me.

Small chickens?

Hardly.

Since 2008, HUG has built the village a community centre where the locals come together and learn new skills, a secondary school, and a medical clinic that serves a population of around 50,000 people.

How’s that for a legacy?

“I go every year. This is my tenth year … and I spend three months there each time”, she tells me.

“Why do you do it?”, I ask.

“Because it fills me with absolute joy.”

The Man Who Never Forgot

Chennupati Jagadish grew up dirt poor in a small village in southern India.

He may never have gone to high school if it weren’t for a kind teacher who invited him to live with his family and study.

And you could say that Chennupati made the best of it. He went on to become one of the world’s leading physicists, lauded for his pioneering work in nanotechnology. He’s even received an Order of Australia for his contribution to physics, engineering and a whole bunch of other stuff that goes straight over my head.

The dude is seriously accomplished (and what’s more he’s a Barefooter, which is how I heard about him!). For a boy who studied by a kerosene lamp, he’s come a long way.

Now there are plenty of people who get to the top of the tree, only to forget the kind people who helped them along.

Not Chennupati.

Despite being on an academic’s wage, he wanted to repay the favour by giving students from the developing world the same opportunity he had all those years ago.

So he and his wife ploughed $140,000 of their own cash into an endowment fund. It pays all the students’ costs -- airfares, living expenses, the whole enchilada -- while they’re studying away from home.

“It’s important to remember the people who helped me, and to express our gratitude. I want to leave my mark behind me, and our endowment will continue for ever.”

Again, how’s that for a legacy?

“I’m a scientist, and I publish a lot of papers”, says Chennupati, “but the most satisfying thing in my life is helping young people.”

Living Your Legacy

I’ve shared these stories with you today for two reasons:

First, for the past 55 days you could be forgiven for thinking you live in southern India, or Uganda, with all the problems the pollies have spooked us with.

The truth is we live in the greatest nation on earth. I mean, where else in the world could one of the biggest election issues be changes to super: “You mean I can have only $1.6 million in my super fund tax free … THIS IS AN OUTRAGE!”

Second, you don’t have to be a politician to make things happen. Hell, you don’t even need to be wealthy.

And that’s the real story here: Helen and Chennupati have, each in their own way, created a legacy that will live much longer than the next election cycle.

Tread Your Own Path!

Money Makeover

Hi Scott,

My wife and I used to have three investment properties -- and we hated every minute of it. Now we own our house outright, and it’s a bloody good feeling. We are happily married with two kids (5 and 7). Our situation now is like this: we have NO debt (I mean zero), a combined income of $90k, super of about $75k, shares worth $25k and cash $25k. For the first time we have surplus cash that is not going to banks or rental agents, so please give us some direction. I do not want to waste it.

Jim

Hi Jim,

You rock.

When you don’t have to make a monthly repayment to a bank, you can really start to build wealth.

Here’s how:

Based on what you’ve told me, you’re probably picking up some Family Tax Benefit (around $118 per fortnight, more if one of you is on a low income).

So start up an investment bond for your kids (a bond can be kicked off with about $1,000) and then every month add your Family Tax Benefit to the bond.

You won’t pay any tax on the earnings, and in 10 years you can pull out the lot tax-free (or leave it to grow, and give it to your kids when they’re older).

Best of all, Centrelink ignores investment bond earnings when they work out your Family Tax Benefit.

Then I want you to turbocharge your super.

Make sure it’s in an ultra-low-fee fund. My standard advice is to boost your pre-tax super contributions to 15 percent (talk to your bosses about salary sacrifice).

If you do that, by age 67 you’ll have over $600,000 (in today’s dollars). But with your mortgage paid off, and your Mojo, I think you should challenge yourself to do more than that.

Scott

Life in the One Per Cent

Hi Barefoot,

I am 21 and in my third year of a medicine degree. I have just found out that I will be receiving a generous $100k inheritance from my late grandfather to be held in trust until I am 25. The executor is arranging an accountant to sort out the trust. Firstly, do I get any say in how the money is managed? Secondly, how would you recommend I invest it if I am able? I realise this is a huge headstart in life and want to make the most of the four years in trust.

Sincerely,

Tom

Hi Tom,

You’ll have to read the trust deed, but I doubt you’ll have much say in how your money is managed. Given your grandfather was smart enough to make you wait till you turned 25 (and shaken a bit of stupid out of your system), to get your hands on the loot, I’m sure he’s thought it through. Best to talk to the executor.

Now, in four years’ time you’ll have $100,000 (plus earnings) and you’ll have your medical degree. From an income perspective, you’ll eventually reach the top 1 percent. That doesn’t automatically mean you’ll be wealthy, though -- god knows the doctors, dentists and football players I’ve worked with who don’t have two bob to rub together. So the way to honour your grandfather is to start preparing now, by learning the basic building blocks of wealth and low-cost, long-term compound investment (keep reading my column!).

Scott

I’m a Scaredy Cat

Hi Barefoot,

I am a financial scaredy cat with no idea! I am 34, my partner is 24, and we are awaiting her permanent residency to come through as she is English. We have almost $50k in an ING savings account and no assets but want a house and children (has to be IVF for lack of male parts in our relationship!). I also have a car loan that is costing me almost $600 a month. We earn $85k and $50k but my partner is only on a temp contract until she gets residency. What should we do?

Kim

Hi Kim,

There’s no need to be a scaredy cat -- we’ll make this really simple.Use some of that $50,000 to pay off the car loan immediately. Then promise me you’ll never borrow money to buy a car again.

Next, open another account and call it ‘our IVF account’. Instead of paying $600 every month towards a car, pay it towards the IVF. In eight months you’ll have nearly $5,000, which is enough for a single-cycle IVF treatment with a top-notch provider.

In the meantime, keep bashing away at your home deposit. With a combined income of $135,000, it won’t take many years to save a 20 percent deposit -- as long as you master the trick of living on one income and saving the the other.

In a few years’ time you should almost have the Triple Ms -- Mortgage, Midget -- and, depending on who wins the election, maybe even Marriage!

Scott

Help, I’m Desperate

Hi Scott,

I am writing this because my wife told me last night that she has run up a large credit card debt (the figure she will not say). We are both in our mid-forties, earning $80k and $65k. We have a mortgage of $465k and personal loans of around $25k. I feel really stressed about our financial situation. To me it feels like we are running out of time to own our home before we retire. Please help, I’m desperate.

Adrian

Adrian,

I could be wrong, but in almost every case I’ve come across where a partner has secretly run up a large credit card bill, there’s something deeper going on. In other words Adrian, they do it for a reason -- even if they don’t know it. Gambling? Spending? It’s all an escape from something. Until you find out what your wife’s running from, you’ll continue running in different directions.

Thanks for your support.

Scott

The Nosebleed Section

Hi Barefoot

I have an SMSF with $2 million in cash and shares. I visited a financial planner and was recommended a plan that would cost $1,100 to draw up. It involved purchasing a number of Australian shares, a number of managed funds (both Aussie and international equities), and cash. The goal is to provide $100k income per year. The initial cost is $33k, which involves moving all my shares to a management platform and purchasing shares and managed funds. After that, there is an annual cost of $12k. Is this reasonable?

Terry

Hi Terry,

They’ve charged you a special rate that is only for high net worth individuals.

It’s called the ‘rich bastard rate’.

That upfront whack of 1.5 per cent of your assets is a real ‘bend over and touch your toes’ type of fee.

And, if you’re trying to earn $100,000 a year, these turkeys are putting you 12 grand behind the eight ball from the get-go.

The longer I do this job, the more I’m convinced that most people would be far better off investing their money in an ultra-low-cost superannuation fund, which will provide you with professional trustees and a range of index investments, at a fraction of the cost of what you’d pay these turkeys.How cheap? Well, you could bring your upfront down from $33,000 to ... zero. That’s because most of the big industry funds charge no entry fees on their investments. You could reduce your ongoing management fees from $12,000 a year to around $1,500 a year by substituting their actively managed funds with low-cost indexed options. And if you really feel the need you could spend $1,100 each year to sit down with an independent professional planner and have them review your strategy.

Terry, if you’ve earned $2 million bucks you’re no dill. Stop acting like one.

Scott

The $40,000 Phone Call

Hi Scott,

Last week's column about the ‘$40,000 phone call’ got me thinking. I had heard before about ringing the banks to get them to renegotiate, but I’d always been too nervous to do it. This long weekend I decided to bite the bullet and ring our bank (one of the Big 4), loaded with info about competitors’ rates (mainly UBank). And I was able to get a 0.5% discount on our loans. Awesome! Thank you so much!

Andrew

Hey Andrew,

For most people it’s easier to bitch than switch. But Andrew, you bitched, and then didn’t even have to switch! My good man, you deserve to be congratulated with a frothy beverage of your choice from your lady friend.

Scott

Doggy Doo-Doo

Scott,

It's disappointing you perpetuate the attitude of dumping dogs at the pound for misbehaving one too many times. I don’t know if it’s about your ‘country lad off the farm’ persona. As a volunteer at my local pound, I know that if people took time to train their animals we wouldn’t see 200,000 dogs euthanised each year. I usually enjoy your content, but it’s a shame to read this coming from one who advocates taking personal responsibility.

Jenny

Hi Jenny,

Woof! I really deserved that. This week I’ve been chased around my inbox by dog-lovers from across the country. (To clarify, last week I stepped in some doggy-doo-doo by making a very poor analogy that a home isn’t like a pet you can drop off at the pound.)

For the record I totally love my two dogs, Buffett and Betty, and I apologise unreservedly.

Scott

They’re Taking My Home!

Hi Scott,

My partner has informed me he has a tax debt of $260k and that it has been placed in the hands of the debt collectors. He also has $30k in credit card debt. My car is in both our names and we have a mortgage of $200k. My partner has decided his only option is to go bankrupt and wants to transfer the house into my name only. He has been communicating with a ‘debt specialist’, which sounds to me as dodgy as the mess he is in. Is bankruptcy the only option?

Nicole

Hi Nicole,

Your partner is getting bad advice.Transferring the house into your name won’t work. The Bankruptcy Act has clawback provisions that last up to five years for any asset that is transferred or sold for less than it’s worth, prior to going bankrupt.

In your case, once your partner goes bankrupt the trustee will become the owner of his share of the house. Depending on how things go, they will probably push for you to sell your home.

Now, I don’t know what a ‘debt specialist’ is, but it sounds like he’s got the financial equivalent of a reiki healer trying to help him with his financial heart attack. Don’t make his mistake: call Financial Counselling Australia on 1800 007 007 and get a meeting with them, pronto.

Scott

The ATO is targetting you this year

This week, in preparation for tax time, I spoke to one of the most powerful people at the Australian Tax Office, Assistant Commissioner Graham Whyte.

Or Whytey, for short.

(I don’t know if anyone has ever referred to him as that before -- but I’m going with it).

Whytey (straight off the bat - no hellos, just tax, tax, tax): “Did you know it’s the 101st year of the tax return?”

Barefoot: “I did not know that.”

Whytey: “Income tax was brought in with the war, in 1915.”

Barefoot: “I did not know that.”

Turns out Whytey’s a treasure trove of tax history, and with good reason: he’s been working at the Tax Office for 35 years. In fact, he’s been there so long that when he started his career, he did tax returns ... by hand.

True dinks.“Back then, I would do 441 individual tax returns every single day”, he tells me.“Why 441?”

“Because there are 441 minutes in a working day”, he says.

Seriously, how freaking hardcore is that? No checking Facebook in those days. Just tax, tax, tax.

Whytey’s career reveals just how sophisticated the tax system has become: a bunch of bureaucrats with muttonchop sideburns and ashtrays on their desks scanning every single tax return have now been replaced by one bloody big computer (my description, not Whytey’s).

The ATO’s supercomputer collects 650 million separate transactions -- cross-referencing bank accounts, share certificates, Centrelink payments and more.

And when I say ‘more’, I mean Facebook. “In certain instances”, Whytey confirmed, though he wouldn’t elaborate. But I will. I’d say it’s a good bet is that if you declare a taxable income of $23,000 but you’re prone to posting selfies in your Ferrari on Facey, don’t be surprised if one of Whitey’s crew hits ‘Like’.

Seriously, these guys are watching you closer than your crazy ex-boyfriend.

So who are the ATO stalking this year?

Well, in the past, just putting a job on the hit list would apparently boost the tax take from workers in that occupation by 22 per cent for the year (like when they targeted Aussie actors who played the starring role in Crocodile Dundee).

This year Whytey says they’re not targeting any one profession.They’re targeting you.

(And me, and every single taxpayer.)

Here’s how it works: let’s say you’re a tradie living in Brunswick. As you’re putting in your tax return, the ATO supercomputer checks your deductions against other tradies living in Brunswick. If your claims are materially higher, the computer will pop up a message that reads: “Hey, buddy. Maybe you should take a second look at what you’re claiming, eh? Otherwise you may get a visit from the Deputy Prime Minister, Barnaby Joyce.”

(Actually, that’s not true -- Barnaby has more important things to do than tax compliance, like threatening to kill Johnny Depp’s handbag dogs.)

However, it is true that the ATO’s system does automatically warn you. And if you don’t heed their warning, Whytey tells me, the ATO will sends out 460,000 ‘please explain’ letters to individuals each year, resulting in an extra $1.1 billion in tax being paid -- which more than covers the cost of the stamps, and the 20,000 staff the ATO employs to lick them. (Seriously, what do they all do?)

In that respect, the ATO's supercomputer could be thought of as a sniffer dog at the airport. It's the first tip-off. Being audited is when the security officers take you into that little room, close the curtains, and pull out the rubber gloves. (And we’ve all seen Border Security. “I didn’t pack my boogie board” is just as lame as “I didn’t do my tax return, so I have no idea why Dennis my accountant claimed my nine-year-old son as an office expense”.)

The bottom line is that the ATO operates under a self-reporting system, which means it’s up to you what you put on your tax return.

Meet Your New Accountant

So if the ATO already has your number -- what extra value can an accountant deliver?

Well, if you’re a business owner they can be invaluable. Same if you have complicated tax structures like family trusts. But if you’re an average wage earner, you don’t need them. (Time to kick H&R down the block.)

Still, 74 percent of Australians use a professional to lodge, according to the ATO -- and they typically pay between $300 and $400.

What do you actually get for that?

A few forms to sign that totally indemnifies the accountant, and the predictably desperate, self-serving pitch, asking if you’d like to open a Self Managed Super Fund (SMSF).

You would?

Kerching!

Would you like audit insurance with that?

Kerching! Kerching!

Seriously, if you’re a wage earner with a simple set of affairs (i.e. most people), you should get a new accountant. In fact, I have the perfect guy. He’s reliable. He won’t get you in trouble. He’ll come to you. And best of all, he’s free.

It’s called ‘myTax’ -- the ATOs supercomputer’s brother from another mother.

With myTax you can do your return on your phone -- in around five minutes -- because the system pre-fills your information. So all you need to do is double-check the info, enter any deductions, and hit submit.

Ah yes, but what about those deductions?

Well, the ATO now has an app for that too. It’s called myDeductions, and it’s actually pretty good.

It allows you to take photos of receipts and enter work-related deductions on the fly. If you’re claiming a car expense, it has a built-in GPS tracker to record car trips. Best of all, it feeds directly into myTax.

The bottom line is that the ATO operates under a self-reporting system, which means it’s up to you what you put on your tax return.

My final question for Whytey could have skewered him -- but he came up with the goods.

“So, who does your tax?”

“Me! I do my own, always have done”, he says.

Tax, tax, tax!

Tread Your Own Path!

How to Score a $1.6 Million Pay Rise

Let me share with you an actual email I received from a former employee a few years ago:

Hey Boss,

I know I haven’t exactly lived up to expectations since I started, but in my contract there’s a clause that says I’m entitled to ask for a payrise each year. So I was hoping we could talk about it? :-)

Regards,

XXXX

Let me point out a couple of things about this approach:

First, never use an emoticon when writing to your boss (even if he or she is 20 years younger than you).

Second, hope is not a strategy.

And given that we’re getting close to the end of the financial year -- and, with it, annual performance review time -- today I’m going to show you the easiest way to make more than a million bucks, with a simple five-step strategy that I call ‘Career Compounding’.

I’m serious when I say more than a million dollars. Let’s look at two 25-year-old graduates, each starting on $35,000 a year. One gets a 3 per cent annual increase, while the other gets a 5 per cent increase. The difference over their working life is $1.6 million.

Now, here’s the important point: the biggest source of wealth is your salary. Yet the truth is that most people are as unlikely to compound their salary as they are to earn compound interest. Instead, they look back after a lifetime of working and all they have is excuses.

Your Excuses For Not Earning More

Question: do you know what the biggest mistake most people make when it comes to getting a payrise?

Answer: They don’t actually ask for it.Instead they come up with excuses like:

“Maybe my boss will notice if I put my head down and keep working around the clock”

Maybe, but it’s unlikely. Though it will definitely lead to you picking up the slack for your lazy co-workers, who sit on Facebook all day or waste company time arranging their honeymoon.

“I’ve done my job, as per my position description, so I’m entitled to a pay rise”

Actually, no you’re not. All you did was what you were employed to do. It means you held up your end of the bargain. That means you’re entitled to be paid what you signed on for. You don’t get promotions and above-average pay rises when you do your job -- you get them when you go above and beyond to become a linchpin for your boss.

“I don’t know how to negotiate … I feel awkward”

Seriously, 90 per cent of the negotiation is done before you sit down with your boss. In fact, it’s done over the preceding 12 months. And if you follow my five-step Career Compounding strategy, the only awkward thing will be how much your boss gushes in the performance review.

Introducing: Career Compounding

Did you know that, on average, you’ll spend 90,000 hours of your life working.That’s a huge chunk of your precious time on earth -- add in sleeping, your daily commute, and sitting on the can, and there’s not much time left over. You’ll actually spend more time at work than you do with your family and friends.

And here’s the killer: odds are you are totally unfulfilled with what you’re doing at work.

According to a Gallup poll in 2011, almost two-thirds of Aussie workers consider themselves to be ‘emotionally detached’ from their employer. That results in them turning up, punching the clock, and doing the bare minimum to keep their job.

The solution is to stop being passive. If you’re going to devote 90,000 hours of your life, you want to make it pay -- you want to Compound Your Career.

Step 1 -- Commit to being the best employee in your company

The simplest way to become a multimillionaire is to commit to being the best at what you do. Very few people you work with have ever made that commitment. Those who do, get paid a disproportionate amount of money. Do you think a CEO works 200 times harder than a regular worker? Of course they don’t. And trust me, they’re sure as hell not 200 times smarter either. They’re just committed.

Step 2 -- Make a list

Take out your position description, but this time look at it from your boss’s point of view. How does your job make her life easier? How does it contribute to your company? Most jobs can be boiled down to three fundamental tasks. Write them down. Then set yourself an ambitious goal for each task that you’ll have to stretch to achieve over the next 12 months. Write them down too.

Step 3 -- Arrange a meeting with your boss (no emoticons)

Present to your boss your list of prioritised tasks, and your goals -- and genuinely ask her for feedback.

You’re not doing this to be a brown-noser. You’re going to devote the next 12 months of your working life to this, so you want to be crystal clear that you and your boss are on the same page.Once you’re both in agreement, ask her if you can have a follow-up meeting every eight weeks or so to track your progress.Take notes on whatever she says, and for godsakes, smile.

Step 4 -- Put your goals into your calendar for a daily reminder

You now have your ambitious 12 month goals. The key to progress is doing a little bit on them every day, and tracking your progress. You’ll be surprised how much you can get done by hitting your goals for an hour a day, rather than bitching about the boss.

Step 5 -- Follow up with your boss

Never talk about money, or promotions, in these meetings.

Always talk about what extra you could do to help your boss. What can you do to make her life easier?

The bottom line is this: you want to frame it in your boss’s mind that you’re hungry, but humble. Be grateful for the opportunity to take on more responsibility. Then show her the daily progress you’re making towards your goals.So that’s your 12-month Career Compounding Plan.

Now my original suggestion was that this could earn you a 5 per cent raise. But if you actually do these five steps, I think you’d probably get a 10 per cent raise.

Stop for a minute and think about what a difference that could make to your life.

Then shut down Facebook

.And do it.

Tread Your Own Path!

Getting the Banker off My Back

Hi Scott,

My husband and I recently received an inheritance, which we have used to pay off our home loan -- which is obviously great. We are ready to discharge the mortgage and get the title deeds to our home back from the bank. But the bank is saying we should leave it with them to avoid tens of thousands of dollars in future mortgage stamp duty (say, if we decide to invest in property down the track). What to do?

Michelle

Hi Michelle,

Here’s what I’d say to them: “Screw you bastards, give me my bloody title!” The only reason they want to keep your title is so they can lock you in and sell you more debt.

Scott