Knock Some Sense into My Mum

Hi Scott

I need you to knock some sense into my mum! My parents are both in early 50s, and both have no money in super (they are self-employed and do not pay themselves any). She now says she does not want to “keep paying someone’s else's mortgage”, so they are saving madly for a house. She is looking at houses worth $600,000 with a deposit of 10%, but I am suggesting she should start paying into her super, buy a small house when we all leave the nest, and enjoy her later years (not in debt!). What say you?

Matt

Hi Matt,

You’re making total sense, and you’re totally right -- but that totally doesn’t matter. Your parents don’t want to have their dreams doused by their own son! They are thinking emotionally, while you are thinking mathematically. So take a leaf out of a politicians playbook -- get someone else to deliver the bad news. Arrange for your parents to see an independent financial advisor, who’ll surely tell them the same thing. Then just agree with the advisor.

Scott

Double Your Money

Hi Scott,

My waffle-free question is this: is Saivian a scam/pyramid scheme? I searched your website but “Nothing Found”.

Cheers,

Ian

Hi Ian,

Unfortunately I don’t keep a list of every internet scam on my website. So go to Google, right? Well, interestingly, the scammers seem to be getting better at gaming Google -- manipulating the search engine ranking so they can bury their bad press. (Even searching ‘Saivian scam’ brings up pages in which they say how good it is.)

That means you’re going to have to do something people haven’t had to do since Google was invented: think for yourself.

The Saivian website describes their service, which appears to be some form of network marketing, as “almost like DOUBLING your money in value every year by simply doing something you have always done”. Sounds like bulldust to me. Frankly, their website has a distinct ‘spray-on-hair-in-a-can’ feel to it.

Scott

Saving for Our Disabled Son

Hi Scott,

Our 18-year-old son has a disability. He is still at school and earning a pension, which provides him $18,950 p.a. We are saving all this money, and so far have $35,000 in a high-interest savings account (earning around 3%). We would like to invest some of his money wisely in an ethical fund. His income can then grow until the day he can live independently. We guess this will be over five years away. What would you recommend?

David

Hi David,

As far as an ethical fund goes, investment bank UBS has launched a series of Exchange Traded Funds (ETFs) with ethical ‘tilts’ that screen out companies involved with tobacco, weapons and Mariah Carey. Your son can earn $4,264 without the pension being reduced, so he’d need over $150,000 before there was any impact under the Centrelink income test.

But there’s also a ‘question behind the question’ here: how do you deal with the fact that, one day, you’ll be gone and your son will have to fend for himself? Depending on the nature of his disability, I’d use the next five years to teach him the behavioural building blocks of personal finance. My direct experience working with people with mental disabilities is that they have the ability to be very good money managers.

Scott

The Acorns App

Hi Barefoot,

I was wondering if you could look into ‘Acorns’ and give us your thoughts. This new investing app was on the news last week.

Thanks,

Monique

Hi Monique,

In the last few weeks I’ve had a closer look at Acorns.

It’s basically just an app designed to make investing small amounts of money easy.

The app collects small amounts from your bank account (like rounding up your purchases), so it’s like investing loose change. You can set it to regularly drag money out of your account as well. Acorns then invests your money into Exchange Traded Funds (ETFs).

My problem with these ‘robo-advice’ apps (as they’re sometimes called) is that they add another layer of fees. It’s cute if you’re just getting started (you have to be over 18 to have an account), but if I were serious about investing my savings, I honestly don’t think I’d bother.

Scott

Professional Poker Player Says “Hit Me”

Hi Scott,

I am 23 years old and play poker full time. I currently earn about $150k a year. The scary thing is, my family have come from nothing and have struggled financially their entire lives. I now have around a $250k net worth (though it fluctuates a lot) and am really unsure what to do with my money. I have zero debt, and have about eight accounts for budgeting as I am very strict on where my money goes. I also have $40k invested into Vanguard index funds. Do you have any advice?

Craig

Hi Craig,

I can help you with your finances, but with your poker playing I’ll have to defer to my good mate Kenny Rogers.

What advice would you give to Craig, Kenny?

“On a warm summer’s evening…”

Kenny -- get to the point -- we’re on a word limit here.

“Oh, sorry! You’ve got to know when to hold’em, know when to fold ’em.”

Thank you, Kenny.

Craig, you’re basically like any small business owner just starting up: you have fluctuating income but fixed living costs, and there’s a chance your business could go bust. So I’d treat your poker-playing like a business: have a set amount of capital you put into the business (and no more), then analyse the returns you’re achieving each financial year -- and only continue if it’s profitable. You should be proud of yourself -- there are very few people in their early twenties worth a quarter of a million dollars, and even less that are smart with their money.

Scott

Why Your Bank is Lying to You

Malcolm, I feel for you, brother.

On Wednesday, after the banks behaved like brats by not passing on all of the Reserve Bank’s rate cut, the Prime Minister held a press conference. He said -- essentially word for word -- the same things I say to my toddler each night at the dinner table:

“Your behaviour is just totally unacceptable. We treat you so well -- and this is how you repay us?! I think you need to explain your behaviour -- very clearly -- to your mother … because I am very disappointed in you. Now I demand that you eat all your vegetables!”

At which point my son pushes his bowl off the table and brussels sprouts go everywhere, and he grins at me as if to say, ‘and what are you going to do about it?’

Or in the case of the banks, they collude, collectively trouser $917 million … and grin even harder when Malcolm ‘demands’ they pass on the cut in full. They know he doesn’t have the mettle to put them over his knee and give them a politically incorrect spanking.

Yet the truth is, it’s not the banks’ fault for acting this way, any more than a tantrum-throwing toddler.

It’s our fault.

Just like parents, we set the rules and we decide what is acceptable behaviour:

We created these four precocious banking brats when we enshrined the ‘four pillars’ policy.

We underwrote their deposits.

And we have continually turned a blind eye to their naughty ways -- like when they rig interest rates, or when their financial planners rip off their customers’ life savings. Or, in the case of Commonwealth Bank, when they callously knock back insurance claims (like the case of the young dad with terminal cancer), simply because they can.

Former ANZ chief John McFarlane this week said he was ashamed at the reputation of our banks. "I joined the industry over 40 years ago where the bank manager was the doyen of the community".

McFarlane says that it’s no longer sufficient for banks to have an agenda "purely around shareholder value".

Easy for him to say, of course -- he retired in 2007 with a final salary of $4.2 million and a swag of shares worth $61 million. The bloke who took over from him, Mike Smith, was paid $88 million for his eight years of service -- over which time ANZ’s market value actually fell by 6 per cent. Where’s the value for the shareholder in that?

The banking lobbyists -- who I know and love so well -- will trot out the only argument they have: the Australian economy needs strong banks. And they’re totally right. The ‘net interest margin’ (the difference between what they pay on deposits and what they charge borrowers) needs to be maintained. Yet when four companies make a collective $30 billion in profits this year -- they’re in no danger of going broke.

Yes, we need strong banks, but what we need even more is strong customers.

The truth is that the banks are lying.

They can afford to give you an interest rate cut -- maybe even two or three.

You see, it costs your bank about $1,000 in marketing costs to replace you (and about six times that amount if you come via a mortgage broker they pay kickbacks to). That’s your negotiating power right there.

Here’s how to use it.On your way home from work, ring your bank and say this:

"I’ve decided to move my business over to Reduce Home Loans, who are offering me a comparison rate of 3.44 per cent. I’ve completed the online application, so can you please tell me what steps I have to do to move across my mortgage?"

This is a bluff, of course.Yet the bank’s sales team have strict targets (backed by incentives) they have to meet -- one of which is retaining profitable customers by giving them discounts to keep their business.

Sure it’s not as sexy as giving you a stock tip, but it works, and your gains are guaranteed.

Now let’s talk about another petulant child, Donald Trump.

Trump Says It's Time To Sell Stocks, Warns Of "Very Scary Scenarios" For Investors

Yes, you read that right.

The man who wants to be the leader of the biggest and most successful economy in the world is advising people to sell their stocks.

And maybe we should listen to him, because, like all things Trump does, he says he's the best.

While he’s admitted that he’s not much of a stock investor, he’s also claimed that 40 out of 45 of his stock purchases “rose substantially in a short period of time”. Analysis by Bloomberg suggests that if this is actually true it would rank him among the world’s top stock pickers.

More likely is that Trump is the Kim Jong Un of the stock picking world. The tubby leader doesn’t always play golf, but when he does he scores a hole in one, on every hole!

The world’s greatest investor of all time, Warren Buffett, is not having a bar of the Trump bulldust.

Says Buffett of Trump: “In 1995, when he listed Trump Entertainment and Resorts on the stock exchange, if a monkey had thrown a dart at the stock page, the monkey on average would've made 150% over the next decade. But the people that believed in him, who listened to his siren song, ended up losing well over 90 cents in the dollar. They got back less than a dime. I've really never known another businessman that brags about his bankruptcies.”

Yet maybe Trump has another angle for talking down the share market.

After all, according to S&P Global Market Intelligence, the performance of the Dow Jones in the three months leading up to a presidential election has displayed an uncanny ability to forecast who’ll win the White House. Historically, if stocks rise in price in the next three months, the incumbent party -- this year, Hillary -- wins the election 82% of the time. (And the opposite is true if stocks drop -- at least that’s what Donald’s banking on.)

Yet another reason to will the sharemarket higher.

Tread Your Own Path!

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

Defence Force Housing

Hi Scott,

We’re in our late 30s with three kids (16, 14 and 5) and a household income of $220k. Here are our assets: home $350k (owe $190k), holiday cabin $40k, boat $55k (owe $20k), Mojo $10k. Our accountant is recommending we buy an investment property from Defence Housing Australia -- taking out a $400k loan and only paying $100 a week. He says we will get a bigger tax refund and set ourselves up for retirement. I want to pay off our home asap and then invest. My husband says I am impacting our retirement success. What do you think?

Jenny

Hi Jenny

First, you shouldn’t invest solely for tax reasons -- though some accountants do, which is why so many of them got their clients caught up in those awful Managed Investment Schemes (MIS) which wiped out the life savings of thousands of retirees.

Anyway, if I were looking at your situation, I’d knock off the boat debt first and then salary sacrifice into super at $25,000 each. Then I’d aggressively pay down the mortgage. If you want to invest in a property thereafter, you should buy a quality family home in a good area, from a local real estate agent.

Steer clear of packaged ‘investment opportunities’ like Defence Housing Australia (DHA). Why? Because they’re too expensive. Generally you’ll pay anywhere from a 10 to 15 percent premium for a DHA property -- and the areas they build in may not be high growth. Plus, DHA charges a nosebleed 16.5 percent management fee each year of the lease. Tell your husband that I’m on your side.

Scott

I’ve Been Nabbed!

Hi Scott,

I read your column in the Herald-Sun on Saturday (“NAB-MLC Super Funds”) and became alarmed! My super fund is with MLC (Super Fundamentals, Horizon 6 -- Share Portfolio), which it seems you were saying has one of the highest fee structures (in relation to NAB). I have around $100,000 in super -- not much, I know. Should I change it to another fund and, if so, could you suggest one or two? Thank you.

Peter

Hi Peter,

The NAB, via their MLC brand, have the biggest retail super fund in the country -- but they’re a very long way from being the best. As I mentioned in my ‘road test’ of their super offerings, they’re the Holden Cruze of the financial world: average in almost every way -- except for their fees, which are way too high for my liking. Then again, what else would you expect from a bank?

I’d draw your attention to the latest super league tables, which show that the top ten performing super funds are all not-for-profit industry funds. SuperRatings data shows that industry super funds have outperformed bank-owned retail funds by more than 2.2 per cent over 10 years. That’s not necessarily because they’re any smarter -- it’s because they charge less fees.

Scott

My Husband Says I’m Playing Defence

Hi Scott,

My husband is out of bankruptcy in March 2017. He now looks after our three kids, while I work full time, earning $120k. I have a $200k home loan (value $850-900k), credit card/car loans totalling $20k, and $90k in super (my husband has $75k in super). Is it as simple as paying off the debts and investing $30k in super (pre-tax)? What about positively geared property? My accountant tells me I have to negative gear, but I want security!

Donna

Hi Donna,

If you want security, you should do the following.

First, open an online savings account and deposit $2,000 into it -- this is your Mojo account.

Second, pay off your credit card and car loans -- that’s the best return you’ll get on your money.

Third, increase your pre-tax contributions (to your ultra-low-cost super fund) to $18,000 a year.

Fourth, boost your Mojo account to three months of living expenses.

Fifth, sack your accountant.

Scott

Credit Card Roulette

Hi Scott,

I've recently received an inheritance of $200k. My partner and I have $60k debt due to his past job loss coinciding with my maternity leave. What should we do regarding the debt repayment of $60k, creating a Mojo fund and preparing to buy a house? I have some hardship agreements with closed credit accounts at 0 percent interest -- do I repay these? And can I negotiate a lower figure to pay out my debts without damaging my credit rating for future lending? It's hard to get a straight answer from the banks!

Mary

Hi Mary,

The first thing I’d check is whose names the debts are in. If they’re in your partner’s name, and the inheritance is in your name, you may be able to cut a deal with the banks. However, part of being a grown-up is honouring your debts. If I were in your shoes I’d repay the debts in full, regardless of whose name they’re in. It’s the right thing to do.

Next, I’d open up an online saver account and deposit three months of living expenses in it ($12,000), so that you have a sense of Mojo in your life. Then, I’d deposit the rest in another high-interest online savings account and label it ‘deposit’, and continue to add to it for the next two years (even if you can afford a home right now).

In the meantime, I have a challenge for you. Over the years I’ve helped a lot of people who’ve come into large amounts of unearned money. Most of them end up blowing it -- especially people like you, who have a track record of spending more than they earn. Please prove me wrong!

Scott

Five Questions You Need to Ask Before You Give Your Boss the Bird

Have you ever thought about flipping your boss the bird, and doing your own thing?

I’m sure you have.A survey released last week by the NAB found that one in three Aussies want to be their own boss.

The urge to bird is even stronger for young people -- one in two want to run their own show.

So let’s get one thing clear: owning your own business is the most reliable way to get seriously rich.

Yet it’s not all sunshine and cupcakes.

Like you, I’ve read the motivational stories of entrepreneurs who say relatable things like “I’m just a normal girl who sort of just stumbled onto this million-dollar business”.

Unlike you, I get to meet many of these entrepreneurs. Most of them are a little cray-cray. They are not normal. The people who make it to the top of their field in business are, in most cases, total workaholics, completely ruthless, and quite often a little unhinged.

(Guilty, as charged.)

It makes sense. After all, we’re talking about people who are willing to throw in a dependable wage, with entitlements like sick leave, holiday pay, superannuation and normal work hours, to back themselves against against better funded, more experienced competitors.

Okay, maybe you’re not setting out to be the next Richard Branson, but regardless, it’s a huge life-changing decision. So here are six questions to ask yourself before you flip the bird:

Question 1: Have you spent 20 hours a week on your start-up, while holding down your full-time job?

That’s the first question I ask people who tell me they want to quit their job to start their own business.

You’ll clock up 60 hours a week in a start-up … and that’s in a slow week. If you’re not already devoting 20 hours a week to your start-up, there’s a good chance what you’re really doing is running away from a job you don’t like.

You can do both for at least 12 months. If you can’t, you’re probably not cut out for business.I call this the ‘Trapeze Strategy’: don’t let go of the bar (your secure paycheque) until you’re safely holding the next one (your successful business).

If you start your business off part time, you may work out that full-time business in not for you -- but what you’ve got is a great part-time gig that can turbocharge your mortgage or build a huge investment portfolio. What’s so bad about that?

Question 2: Where are your customers?

That’s the second question I ask people.

Most of the time they come back with the three F’s: ‘friends’, ‘family’ or ‘Facebook’ (as in, ‘my friend says they’ll be my first client’ or ‘I’ll spread the word on Facebook’).

That’s not a strategy, it’s a plan for the weekend.

You need to know how much your best competitor has to lay out to attract a customer, and then work out how much profit they make on each sale.

The bottom line is that it’s not enough to be a good programmer or a good jewellery-maker -- you have to enjoy making sales and must be prepared to devote at least 50 percent of your time to doing it.

Question 3: Are you planning on getting into bed with anyone?

That’s the third question I ask, and there’s only one correct answer.

The answer is ‘no’.

I can count on one hand the truly successful business partnerships that have lasted decades, while the vast majority end bitterly. It’s like a marriage, only with money and no sex.

If there’s someone you want to get into business with, by all means sit down and create a sweetheart deal commission structure for them, but you want to own 100 percent of a business or zero. Trust me on this.

Question 4: Are you ploughing your life savings into the business?

Again, there’s only one correct answer.

Again, that answer is ‘no’.

(I’m not classifying a franchise as a business -- in most cases you’re basically buying yourself a 100-hour a week job. The real business is in selling the franchises, and it can be very, very lucrative.)

Small businesses are risky, and most of them fail.

Yet the good news is that you don’t have to stump up large sums. Case in point: half the small businesses from the NAB survey were started with less than $5,000.

Question 5: Does your family support you?

This question trumps the lot of them, because it will have a huge impact on those you love.

When I first met my wife (who, unlike me, wasn’t brought up in a small business family), I explained that owning a business is a lot like having a kid. The first year is like a bombshell -- you suffer sleep deprivation and total exhaustion. It gets a little more manageable over the first five years, but it’s still a slog. And, just like a parent, you’re never totally free from worry.

That being said, it’s the best thing I’ve ever done and, family aside, it’s my proudest accomplishment. I can work from anywhere in the world, see my kids grow up, and be 100 percent in charge of my time, and my income.

So if you’re thinking about starting a business, look at it this way:

The easiest way to make money quickly -- as in next week -- is to freelance. Even better, freelancing cuts through the bulldust and allows you to road-test your ideas, your pricing strategy and your skills … all without leaving the security of your day job.

In other words, start swinging on the trapeze!

Tread Your Own Path!

The Real Estate Mistakes Most First Home Buyers Are Making

“Aussie Dream is Dying” read a newspaper headline earlier in the week.

I happened to be reading the article as I was waiting for a coffee. So I turned to my hipster barista -- who was all beardy and tattooed and David Beckham-like -- and read him the following sentence:

“The Australian dream of homeownership will reach a tipping point, possibly as soon as next year, when fewer than half of all adults are expected to own a property.”

Barista: “Bang on, brother! Why would I bother spending my twenties saving for a deposit … it’s hopeless prices just keep going up. And what do you have to show for it -- nothing!”

Barefoot: “Well, nothing but … EIGHTY THOUSAND BUCKS.”

By my reckoning he’d put precisely as much thought into getting his neck tattoo as he had his long-term financial security. He’s not unique. After being Barefoot for 15-odd years, I’ve spoken to literally thousands of young people about making the biggest purchase of their lives -- here are the five biggest mistakes they make.

Mistake #1: They’ve given up

Ever wondered why news websites publish so many stories about an impending housing crash?

Because it’s clickbait to a generation that’s priced out of the market and have given up -- thinking their only hope for buying is a crash.

That’s a cop-out.You can’t plan your life around something you have no control over -- the only thing you can control is yourself, and your savings situation. The time to start preparing to seize opportunity is right now.

Brass tacks?The average full-time pre-tax wage in Australia is $75,000, or $4,800 a month in the hand. So, a couple both earning full-time wages could live off one income (very frugally) and save a $100,000 deposit in 21 months.

Still, your mind should be set on owning your home outright, rather than just limping over the line with a deposit. Think of it this way: saving a deposit is like the Socceroos beating Togo to qualify for the World Cup. It’s the beginning of the campaign, not the end.

Which leads me to the second mistake first homebuyers make.

Mistake #2: They buy a home when they can’t afford it

They mortgage themselves to the hilt.

There’s a reason Australia has the highest household debts on the planet: we borrow too much.

One rule that I’ve lived by, is to borrow less than the bank is willing to lend.

What comes after a bird makes its nest?

Babies … and Baby Bunting bills. And sleep deprivation. And, later, school fees.Professor Bob Cummins from Deakin University has found that financial stress has similar effects on the body as physical torture.

Is it any wonder that the median duration from wedding bells to divorce bills is 12 years?

The truth is that buying a home creates financial stress and insecurity -- until you manage to get ahead of your mortgage. As all homeowners know, running a home is expensive, costing up to 5 per cent of the purchase price each year.

And this is compounded if you take on more debt that you can afford.

Mistake #3: They buy an investment property first

Here’s the pitch that young couples give me: “We’ll buy an investment property to start off with, just to get our foot in the game, and then we’ll use the equity to buy our family home in five years.”

I’m yet to see this plan work (the only exception being couples who buy an investment property to eventually move into). Reason being, the upfront costs of owning a home, and the ongoing costs, take years to recoup.Bottom line: If you want a family home, save up and buy one.

Mistake #4: They don’t consider other options

My hipster mate had written off the entire housing market, because he wouldn’t live in a suburb whose cafes didn’t serve organic tofu and coconut water.

However, there are options if you really want to buy your own place. You can move to the city. Currently my prediction (made 12 months ago) of an apartment bloodbath in capital city CBDs by 2018 is going swimmingly, especially in Melbourne, with press reports of apartments being re-sold at discounts of up to 30 per cent from their original off-the-plan purchase price.

Some desperate developers are offering holidays to Fiji and Bali worth $5,000, for buying a $350,000 one bedroom apartment. (Is anyone that stupid? It reminds me of Homer Simpson buying a pirate pregnancy test just because it came with a free whistle.) Don’t trip to Bali or Fiji just yet. Prices are likely to go lower as the oversupply really kicks in.

Or you can move to a country area and have less of a mortgage, less stress, and more time to spend with their kids. That’s what I did.

Mistake #5: They don’t back themselves

Yes, we’re living through the greatest housing boom in history (according to The Economist).

However, there’s no reason you can’t get yourself a home if you want to -- even if you’re single.

When I met my wife, she’d bought a little apartment on her own (with an oven she found on the side of a road, no less!). No help from anyone -- just savings and a determination that a man didn’t need to be her financial plan. And the Barefoot community has heaps of single people on average incomes who’ve bought their (capital city) homes.

They’re everyday people, just like my hipster mate.

Tread Your Own Path!

Mixing It Up

Hi Scott,

Mate, what percentage of an investment portfolio should be Aussie shares compared to international shares? Considering Aussie shares provide dividends more than international shares (which are more growth oriented), I am not sure what mix I should have. What is your rule of thumb here? (Love your work -- keep it up!)

Cheers,

Arthur

Hi Arthur,

Very good question.When it comes to international markets, Australia is like a chihuahua at a dog show -- we represent only around 2 per cent of the world market. (Though we do have a big bark for a lapdog-sized market.)

Over the last century Australia has had the best performing stock market in the world. If you look back over 40 years, we’ve achieved roughly the same 12 per cent per annum returns as the rottweiler of the financial pound, the US. (International shares which include other countries have returned slightly less over the same period.)

It’s been a remarkable run; $10,000 invested 40 years ago would have compounded into $900,000 today -- even more remarkable considering the backdrop of the dot.com bubble, the Asian debt crisis, the GFC, a couple of wars in the Middle East … and Pauline Hanson.

You’ll generally get better tax-effective income through Aussie shares (thanks to generous franking credits), but that’s not a reason to avoid going international. To diversify your holding it makes total sense. For a passive, very long-term approach, consider a split along the lines of 60 per cent Aussie, 40 per cent international.

Scott

Virtual Reality

Hey BF,

I am 26 years old and have about $6k tied up in CBA and AFIC shares, with the plan of buying another $5k worth and sitting on them for as long as possible (while incrementally buying more). However, I was recently looking into investing in VR (Virtual Reality) as it seems to be the next tech hit, and apparently the time to strike is now before it blows up. So I have two questions: what are your thoughts on investing in VR, and what is the best way for Aussies to buy overseas shares?

Thanks,

Mark

Hi Mark,

What are my thoughts on investing in Virtual Reality? None. I have no thoughts whatsoever.

What I do know is that most of the big tech companies are already ploughing billions of dollars into VR — Alphabet (the company formerly known as Google), Facebook (which recently paid $2 billion for VR company Oculus, which at least has a product on the market), Microsoft, AMD, Samsung and dozens of others.

Who’ll win the race? Again, I have no idea. However, I do have a solution for you. If you invest in a global exchange traded fund (ETF), you’ll get a small stake in all the technology giants in one easy purchase.

Scott

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

Breaking Bad (Advice)

Hi Scott,Due to bad advice 20 years ago, my wife and I put the family home in a company name which she had tried to get off the ground as a small business. We still have the company because we believe that to close it and return the property to our names would trigger a massive CGT impost. We just go on paying ASIC fees and land tax every year, and when the kids inherit it, same thing. Is there any point to us seeing a solicitor about our plight? Or can you see any way out for us?Regards,

Phil

Hi Phil,

Holy smokes!

The ASIC fees and land tax aren’t the issue here - it is, as you suggest, your capital gains tax (CGT) bill.

I’m guessing your words about the business which you ‘tried to get off the ground’ mean it didn’t take off. Whether there’s a loss from that which might offset the gains on the house is something you could look into. The problem is that CGT will need to be paid one day (and to make matters worse, you won’t even qualify for the 50 per cent concession on CGT that individual investors get).

If you’re going to stay living in the family home, then you could always handball the problem to the next generation - that is, assuming your kids inherit your shares in the company, they could decide themselves what to do. This is one of those situations where a good accountant can help -- preferably not the same accountant who advised you to buy the house in a company name.

Scott

Eat Pray Love

Hi Scott,

I am 31 and my wife and I have a nine-month-old child. I am long overdue a career change -- my current job is driving me insane! I want to start a career in a different field, but to do that I feel like I have to start at the bottom and work my way up. I feel like I am trapped because we have worked out our budget and cannot go below my current wage. I can't find any entry job that pays the wage I am on now. I feel trapped. How do I get out? My wife works three days and can't do more due to our child. Help!

Craig

Hi Craig,

You know, there are times when you really just have to throw caution to the wind and back yourself.

Now is not one of those times, Craig. You’re a father, and it’s your responsibility to provide for your family. No Eat, Pray, Love for you, my friend.

Well, not in a traditional sense. You can eat leftovers as you hustle each night (after everyone else is in bed) to get both the skills and the contacts you need to land your dream job. You can then pray that if you work hard enough you’ll be presented with an opportunity to work in the field full time without taking a pay cut (though you’ll have to really hustle for this to happen). Only then will you be able to look after the people you love.

Scott

Credit Card Pensioner

Hi Scott,

I am retired and have a superannuation balance of around $126,000 from which I draw down a monthly pension of $1,925. I also have a current credit debt of around $4,500 which is being paid off at approximately $150 per month. Should I withdraw a lump sum from my super to pay off the credit card?

Colin

Hi Colin,

It’s time to wake up and smell the coffee, cobber.

You’ve got a spending problem.

All up you’re after-tax income of $45,800 (combining your monthly amount with the age pension of $22,700), should be more than enough to fund a comfortable lifestyle, according to ASFA (Association of Super Funds Australia), who track these things.

Yet you’re spending more than that.

You can keep this up for about six years -- that’s how long I think your super will last, based on your current drawdown rate. Then it’s baked beans for breakfast, lunch and tea.

It’s time to start acting your age. Withdraw the lump sum, pay off the credit card, cut the damn thing up, and start living within your means.

Scott

You’ve Gotta Know When to Fold ’em

Hi Scott,

I’m a 35-year-old man with a $70k annual salary, $100k in super, and a problem with gambling online (I am currently $60k in debt). The only way to control myself is to not have access to my overall finances. My goals are clear and mapped out, but I need help to execute them. What are your thoughts on money managers like ‘MyBudget’ in my situation?

Dennis

Hi Dennis,

Congratulations on confronting your addiction. Having helped a lot of people with the financial ramifications of gambling, I know how big a step you’ve taken.

Your next step is to call ‘Gamblers Help’ on 1800 858 858. You need counselling and treatment for your disease -- do not do it on your own. If you had a ruptured appendix you wouldn’t do a DIY job with a pair of pliers and some kleenex. Same rules apply.

Under no circumstances should you go anywhere near MyBudget.

First, because they charge too much. (You not only have to pay off your debt, but their fees as well, and if they’re running your budget, guess who they pay first?)

Second, because no one should hand over the responsibility of managing their money. Period.

Let’s be honest: if you’re still in the throes of your addiction, and you get the urge to gamble, you’ll find a way to do it whether you’re with MyBudget or you’ve locked your money away in Scrooge McDuck’s bank vault.

Your healing process will come from learning how to confidently manage your money in the face of your recovery -- and the best way to do that is not with MyBudget but by working with both a gambling counsellor and a specialised community-based financial counsellor (Gamblers Help will set you up with both).

The bottom line is this: just like there is no such thing as a ‘quick win’, there’s also no ‘quick fix’ for a serious addiction. Please, reach out for help.

Scott

The $31,203 Road Test

Are you looking for Australia’s biggest and best super fund?

Well, that’s what we’re going to cover today.

You see, the front page of the Australian Financial Review this week said that NAB is the new king of super, claiming the bragging rights of Australia’s biggest retail super fund.

It’s a fair bet that either you, or one of your family, or at least one of your ex-boyfriends, is with NAB.

Now I wouldn’t be doing my job if I didn’t do a road-test on Australia’s biggest retail super fund. So buckle up (because I’m also going to show you how to make $31,203).

Guaranteed.

The Holden Cruze of Super Funds NAB’s super offering (from this week, branded as ‘MLC Super’) is the financial equivalent of a Holden Cruze.

No-one consciously chooses a Holden Cruze.

It’s just the car that the bored middle-aged woman behind the counter of Budget rent-a-car hands you the keys to. The Cruze is a car that’s foisted upon you. Eventually you’ll get a better one, but right now, well, who gives a toss?

That explains NAB’s super offering right there.

No-one actually does independent research and chooses a NAB fund.

That’s because their performance over the years has been, well, Cruze-like.

According to SuperRatings, over 1, 3, 5 and 7 years, it’s come in near the back of the pack.

That perfectly explains NAB’s hierarchy of needs, which are as follows:

1. NAB.

2. NAB Funds Management.

3. NAB Financial Planner.

4. NAB Banking (investment loan, mortgages, and credit cards referrals).

5. Client.

Holden versus Ford

Yet rather than just kick the tyres and drive around the block, I thought I’d line it up in a proper drag race against Australia’s biggest super fund.Hang on, didn’t I say NAB was the biggest?

No, there’s a difference. NAB has been crowing about being the biggest retail super fund (which means it’s run by a financial services company for profit).

The biggest super fund is AustralianSuper, which is an industry fund (i.e. not for profit). It manages $100 billion on behalf of more than 2 million members.

Retail funds have been battling industry funds for years (a real Ford vs Holden battle).

Up until now, industry funds have been out in front, mainly thanks to their lower fees.

Still, the entire industry is as seedy as a night at the dishlickers: Australians are still forking out some of the highest super fees in the world - between 2004 and 2013 the cost of the average fund fell from just 1.4% to 1.2%, even though the total super pool grew from $625 billion to more than $1.6 trillion.

To look at, there’s not much difference between our NAB and AustralianSuper contenders. We’re looking at the ‘balanced’ model for each, which means you’ll get a mix of shares (both Aussie and International), a bit of property, and some bonds and cash.

Where they differ is the sticker price.

AustralianSuper is the poverty pack. You’ll pay an investment fee of 0.57% (which gets the Barefoot rating of “meh” as it’s not the lowest in the market -- not by a long shot), plus a $1.50 per week admin fee. Anyway, on a balance of $50,000, that’s costing you $363 each year.

Now for NAB …Their cheapest option will set you back $623 per annum on the same $50,000 balance.

Next in line is their mainstream model (with leather trim), called ‘MLC Masterkey Fundamentals’, which ups that slightly to $630.

Or, if you’re unlucky to be stuck in one of MLC’s older funds (but still called ‘Masterkey’), get ready to fork out $1,033 in fees every year on a $50,000 balance.If you (or your dad or your uncle) are still in that fund, then somewhere along the line a NAB salesperson took your boss to the corporate box at the footy and got them on the squirt -- in exchange for signing up his entire staff up to a stinker of a corporate super fund.

But maybe that’s about to change ...

“National Australia Bank is combining five of its superannuation funds to create the country's biggest retail fund, promising to share cost reductions from the merger with its 1.3 million super members” said the newspaper this week.

Huh?

“Promising to share cost reductions?”

That didn’t sound very banklike, so I rang up NAB and asked them “specifically how much are you sharing?”

“The majority of our Corporate Super members will receive a 0.04% reduction to their fees… that is the equivalent of $20 per annum on a $50,000 MySuper account balance” said the NAB spokesperson.

That sounds more like it!

The $31,302 Car Crash

When it comes to cars it’s not the driveaway cost that slugs you, what you really need to focus on is your running costs, over years and years and years … it’s the same with super. Let me explain.

Take a kid -- let’s call him Freddy Falcon -- with $10,000 in AustralianSuper.

He’s earning $60,000, and keeps his nose to the grindstone for the next 40 years.When he retires his super balance will be (based on very, very conservative projections)... $286,517 in today’s dollars.

His mate -- Harry Holden -- has the same $10,000, but he goes with MLC MasterKey Super Fundamentals.

He earns the same as Freddy, and works just as long.

And when he clocks off at 60, he’ll pocket $255,314.

In other words, despite being in a balanced fund just like Freddy, he’s $31,203 worse off.

Struth!

That’s enough savings to buy you a Holden Cruze… though I wouldn’t recommend it.

Tread Your Own Path!

The $500,000 Headache

Hi Scott

I have made two horrible financial decisions: I bought two apartments off the plan in the Pilbara a few years ago from a dodgy ‘armchair developer’. We paid $1 million, and they are now worth maybe $500k. Even worse, one is in a trust/company structure. Our cashflow can handle the costs, but we are left with no ability to invest. My question is, who do I go to for advice? Accountants do not ‘advise’ and there is no money in it for financial planners. I want to get my family out of the mess I put them in!

Christine

Hi Christine,

There are two questions here.

First, you want to know whether you should sell the properties.The only advice I can give you is common sense: time never turns a dud property investment into a good one … just an older one. So I’d suggest you offload them. But only you can pull the trigger -- it’s your money after all.

Second, if you do sell them you’ll incur a capital loss (in both your personal name and the trust/company name), which you’ll be able to bring forward and offset against the capital gains you get when you do make some better investments in the future!

Scott