Let's give it a rip

It’s Spring!

And you know what Spring means to me?

Cute little lambs! (‘Awwww..!’).

Getting paid! (‘Yeah!!’).

And, mint jelly! (‘Ohhh … I see where this is going’).

But for my mum, Spring means something totally different: cleaning.When I was a kid, it was time to eat all the weird and wonderful things lurking at the bottom of the deep freeze.

‘What the hell is this?'

(Brushing off the ice like David Attenborough at the North Pole.)

‘No idea, it could well be the cryogenic leg of Walt Disney.’

‘Bugger it, let’s put it on the pan and cook ’er up!’

Hmm, Spring.

Truth be told, now I’m getting older, I’m getting more like my mother every year. So here's one for her ...

The Ultimate Spring Clean

Each year we collect more stuff. First we put it on the shelf. Then we put it in the cupboard. Then we put in the garage (because we might need it). And then, when we can’t open the car door anymore, we put it in … storage! (Which incidentally is a booming industry, with over a thousand outlets across the country, mostly chock full of lemon-coloured sofas and footy trophies from yesteryear.)

Fight Club’s Tyler Durden was right: the things you own end up owning you. Well, Spring is an awesome time to liberate yourself from all the stuff that’s hanging around you like belly fat.

So with that, let me tell you about the ultimate Spring Clean.

There’s not only an art to it, there’s a worldwide bestselling book: The Life-Changing Magic of Tidying Up, by Japanese author Marie Kondo. (If you want to know about tidying up, just ask the Japanese -- their public toilets are clean enough to eat off.)

Well, today Barefoot’s turning Japanese. Here are five steps to cleaning out your clutter and bring in some cash:

Step 1: Pick a room

Begin with your ‘hoarding’ place -- it could be your garage or your living room.

Step 2: Dump everything onto the floor

Get everything out of the drawers, closets and any other hiding spots you have, and dump it on the floor in front of you. This is important because it’ll show you just how much you have.

Step 3: Pick up each item individually and ask yourself ‘is this useful or beautiful?’

Most things are neither useful nor beautiful (especially presents given to you by your family), so put them to one side. The mindset we’re looking for is to actively choose what we’re going to keep, rather than to justify what we want to hoard. In other words, you need a bias towards getting rid of stuff. This is about simplifying your life, unclogging yourself from all the junk.

Step 4: Label it with a Post-it note

For the stuff that isn’t useful or beautiful (the majority), grab two different-coloured Post-it Notes: green for stuff to give to charity, and yellow for stuff to sell on eBay or at a garage sale. Sort them accordingly. (Recycle the junk).

Step 5: Move around your house, and repeat

This exercise will take an afternoon for each room – but unclogging your life will give you a huge return in mental clarity. Even better, it’ll give you four other benefits:

First, you’ll find yourself enjoying the stuff you keep (some of which you’d forgotten about) -- it’s like getting the buzz from buying it all over again.

Second, the money from what you sell can be put into Mojo.

Third, you’ll feel incredibly liberated not having to tidy up so much junk all the time.

Finally, and most importantly, it’ll tattoo the concept of ‘conscious spending’ into your brain.

How could it not? When you look at the pile of stuff you’re throwing out, take a few minutes to think how much you spent on it.

Baaa!

Tread Your Own Path! 

Hater of the Week

I’ve been on holidays, sucking back on a Bintang in Bali, lounging by the pool, and reading… my hate mail. My favourite was from Todd (normally I change people’s names, but not for Todd).

Some context: a few weeks ago I did a column where I answered money questions from young readers. One of them was little Olivia, who wanted to know how to make her money grow.

But my answer so infuriated Todd that he got on the old tappety-tap and fired me this email:

Hi Scott,

I’m so disappointed in you. I can’t agree with your advice to 6-year-old Olivia last week! I have known a few lovely, intelligent ladies over the years who were truly hopeless with money, and your advice to Olivia (with no justification at all) is to spend everything that she gets! Isn’t this a dangerous habit to teach?Todd

Okay, let’s look at what I actually said ...

Hi Olivia ...

I want you to ask your mum to get three glass jam jars (without the jam!). Ask her to label them ‘Save’, ‘Give’ and ‘Spend’. Then keep them in your room, where you can see the money piling up inside them ...

The ‘Save’ jar is for something big you want to buy but you can’t afford right now (preferably something like a Super Soaker that your brother wants).

The ‘Give’ jar is for helping other little girls who are not as lucky as you. At Christmas time you can buy these girls presents, wrap them, and put them under a tree at the shopping centre.

The ‘Spend’ jar is for lollies.Not quite sure how this equates to ‘spend everything that she gets’, Todd.

If I can teach kids -- in a fun way -- the value of saving, the value of giving, and the value of enjoying the money they’ve saved, I’ll consider my job done. When Olivia grows up, I hope she’ll save for a home, give some of her money away, and do something enjoyable with her money.

Jam that up ya, Todd.

$2,964 Lunch Break

Hi Scott,

I went to see my bank in my lunch break and secured a reduction in interest rate for my loan. I gave the bank a nice ‘white lie’ about leaving and said I needed to know their best rate so I could shop it around to other banks before seeing a broker. The computer said ‘YES’ and the bank instantly dropped my rate by 0.72%, down to 3.95%. All up, it took around 30 minutes to save $2,964 p.a. Thank you, Barefoot!

Renee

Hey Renee,

Well done!Research from comparison site finder.com.au has found that, of the people who (like you) spend half an hour visiting their bank about their home loan, four out of five are successful in getting a better rate.

Scott

Dream Design

My husband and I are in our 40s and have paid off most of our house -- $400k remaining on a house valued at $1.9 million. Our neighbour has recommended we buy positively geared property with a company called DDP -- Dream Design Property. His philosophy is that you cannot have too much debt as long as it is positively geared. I guess it is easier to have a positive cashflow property with record low interest rates, but I do wonder what will happen when interest rates go up. Any thoughts?

Wendy

Hi Wendy,

Shrubs. You need to invest in good-quality, fast-growing shrubs that will block out your neighbours and their stupid advice. I googled the company you referred to. It showed a young dude standing in front of a Ferrari, with the headline: ‘From Student To investor With 15 Investment Properties In 3 Years.’

Shrubs, Wendy, invest in shrubs.

Scott

Why You So Crazy Barefoot?

Hi Scott,

I am a chartered accountant and love your commonsense advice. But I just do not understand why you tell people to pay more into super BEFORE paying off their home loan. Surely they should pay off their debts, THEN pay more into super?

Bruce

Hi Bruce,

It’s simple: I meet a lot of old people who have a lot of house but not a lot of income in retirement. I like the simple action of increasing your pre-tax super contributions automatically, and then forgetting about it (behaviour beats brains). Repeated studies show that saving 15% of your income will afford a comfortable retirement.

Scott

The $16 Million Farmer

Hi Scott,

I recently sold my farm for $16 million. By the time I pay Capital Gains Tax (CGT), pay off my debts, and give money to my ever-expectant family, I will have about $10 million. This amount will be paid in instalments over the next four years. Right now I have $980k, of which $180k is in super. I am genuinely scared of shares as I am worried about losing all my capital. The $180k in super is only earning 2.2% and the rest is with Westpac earning 3%. I receive $2.5 million in October. Help!

Bill

G’day Bill,

Ker-bloody-ching!

I’m guessing you’re now more popular than a ewe in a ram paddock, so today I’ll play the role of the bad cop. Blame the following advice squarely on me.

First, get yourself a new accountant.

I know you’ve probably had your current accountant for years (and I’ve got nothing against them personally), but you’re now at another level. Interview at least three accountants who have had direct experience in helping farmers in your position -- those who deal exclusively with high net worth farmers. And, before you commit to any of them, ask them to talk you through the advice they’ve given other farmers. If you understand their answer, consider them. If not, thank them and keep looking. You are in control.

Second, don’t let your new accountant end up help you ‘manage your money’.

Yes, I know you’re stressed out about the responsibility of investing millions of dollars. That’s totally normal. But you’re up to it. You’re a farmer, so you must be a practical sort of bloke. Trust your gut.

Now, you’ll find there are all sorts of people who’ll come at you with all sorts of plans. They’ll try and make your investment portfolio complex: hedge funds, active alpha managers, bonds, property deals. They’re not doing it because they have a crystal ball, but to justify the fees they’ll charge.If you were sitting across from me, I’d suggest that you keep things incredibly simple.

You could keep your money in cash and live off the interest if you like. Even with rates this low, you’ll never run out of money. However, you need to understand that this is one of the riskiest things you could do. Over time, inflation will eat away your fortune.

Investor Warren Buffett is leaving his entire estate to his wife as follows: 90% in a no-brainer ultra-low-cost index fund that tracks the 500 largest companies in the US, and 10% in cash. He believes the returns from this simple strategy will beat 90% of ‘smart’ investors over the long run. You could look at doing something similar, with a mixture of Aussie and international shares. The dividends you receive will give you more income than your farm has ever given you. (Though don’t expect any advisor who gets paid on a percentage of your assets to agree with me.)

Third, don’t retire.

The two most dangerous years of your life and the year you’re born and the year you retire. If you’re a cocky through and through, you’re naturally a worker. Just because you have enough money to never work again doesn’t mean you should hang up your Akubra.

Keep working at something, even if it’s a day or two a week. Keep the grey matter turning. You’ve been blessed with a huge fortune. The real joy comes in giving some of it away, and making a difference to people. And I don’t just mean your ‘ever-expectant family’; leaving huge amounts to family members who haven’t earned it is almost always a bad idea. (Though don’t expect any of your family to agree with me.)

Good luck!

Scott

Going Barefoot

Hi Scott

We have been doing our best to ‘go Barefoot’. My husband and I (aged 58 and 47, with kids aged 7 and 5) have downsized our home, from a $750k mortgage to a $420k one -- and loving it! We also sold our investment prop and pocketed $80k after CGT. Now we have a big decision to make: my hubby will inherit $250k soon and he wants to buy shares (to add to his $200k in super). But I’m thinking we put it on the mortgage. What do you think?

Greg and Tina

Hi Guys,

You should focus on three things: having your Mojo funded, being debt free when you retire, and maxing out your pre-tax super contributions.

So if I were in your shoes, I’d save about $10,000 in a high interest online savings account (Mojo).

Then I’d take the $240,000 and pay it straight off the mortgage. Then I’d increase his pre tax super contributions to the maximum $25,000 each year. You’re doing well. Keep going!

Scott

Aussie Working on a Ship

Hi Scott,

I'm an ozzy working abroad -- I'm the executive chef on a superyacht. I earn euros and the money is tax free! My mantra is to make 'smart decisions for the future' so I am investing in shares and cash. Unfortunately I had a restaurant for several years and now have a bad credit rating. I'm now kicking goals, making plans the for the future but I feel the credit rating is holding me back from moving forward into the property market. I'm not sure how to proceed best from here.

Cheers,

Chris

Hi Chris,

You sound like you’re living most people’s dream. Just remember to enjoy it.

Now, as far as your bad credit rating is concerned, I’d like you to quantify it. How bad is it? Have you checked? Veda.com.au will give you a free report once each year. If there’s anything on there that doesn’t check out, challenge it.

If I were in your shoes, I’d be saving as much as you can into shares. Of course there’s nothing stopping you from getting into the property market. Try looking at listed real estate investment trusts. Chances are you’ll get a better return from them than in a residential building.

Plus, you won’t have to get into debt.

Scott

Drinking from the Drip Tray

Hi Scott,

Freehill Mining Limited is undertaking a fundraising to complete acquisition of the Yerbas Buenas mine a producing magnetite sands mining operation in Chile. Our son has handed over $5,000 to this fundraising venture. What are your thoughts on this company. He processed the payment on Friday 29 July – could he get his money back? Help, help, help…..

Cheers

Jenny

Hi Jenny,

Understand that this is the investment equivalent of drinking from the drip tray at the pub.

Well, lickety, lick. Let’s take a gulp.

Freehill Mining lodged a prospectus with ASIC in December 2015 to raise $3.5M, by way of a backdoor listing (taking over a worthless company).

ASIC had some concerns with the prospectus in January, and said ‘more information please’.

It appears (but isn’t clear) that the company didn’t raise the minimum subscription within three months, and was delisted by the ASX in March.

Now, the company is planning a front door listing. However the prospectus available from the website is the old one from December last year. Presumably, there’s a new one somewhere, but I haven’t been able to track it down.

Either way it won’t change my recommendation: why drink from the investment drip tray, when you can quaff as much Grange (low-cost index funds) as you want?

Yes, he could get his money back if the listing doesn’t proceed. Either way I’d be asking the company secretary for a refund. It could work.

Scott

Get Off the Grass!

Hi Scott,

I am an avid reader of the Barefoot Investor. I have recently come across a company which claims they can help me pay off my principal place of residence in record time (through negative gearing, deferred investment mortgages and claiming a monthly tax return instead of waiting for the end of the year, showing a loss). Have you heard of anything like this?

Will

Sure, I’ve heard of it.

Let me explain the pitch: you buy an investment property with an interest only loan. You let the debt build up, and use the rent to pay down your home mortgage. Then you write to the tax office and tell them you’re losing money (it’s called a PAYG variation), so your boss doesn’t take as much tax out of your pay. Then your investment properties go up in value and you live happily ever after. The end.

There’s only three problems with this strategy:First, someone will invariably be trying to flog you an investment property (and trouser a commission), or flog you a lot of debt (and trouser a commission), or in most cases both.

Second, every single company I’ve seen that offer these deals are not people I’d trust to mow my lawn. And I’m not even that fond of my lawn. Hell, my dog defecates all over it. But I still wouldn’t trust them to cut it.

Third, I’ve never seen this work in real life. It only seems to work in the marketing brochures. That may have something to do with the fact that you’re aim is to get out of debt, and these morons’ solution is to get you into a lot more debt.

Scott

Do this for your Dad

Saturday at our house is father-and-son day.

Usually that means running around chasing chooks, manhandling the sheepdog, and getting as dirty as possible. However, when our house burned down (a couple of years ago) we found ourselves holed up temporarily in the city -- so I was forced to improvise.

Each Saturday morning, Louie and I would head off on a ‘great adventure’ around the concrete jungle.

Our first stop was Myer. We were nearly always the first people in the store. The shop assistants would be still applying their makeup, drinking takeaway coffee, and bitching about Myer’s share price.

As we approached the toy department I’d have my weekly Willy Wonka moment. Crouching down on one knee, I’d look little Louie straight in the eye and say:

‘See all these toys, tiger? Well, you can play with whatever you want … just put them back afterwards.’

‘Anything?’ he’d say, eyes bulging.

‘Anything!’

If you’ve ever experienced the toy section of a department store, you’ll know that toddlers are worse than teenagers: they completely wreck the joint.

Yet, for Louie, after an hour or so the excitement of playing with millions of dollars of the latest toys would wear off. He’d stumble back to me, exhausted, and announce, ‘Daddy … Louie go home now’.

Total cost of an hour’s worth of playtime with the best toys on the planet? Zero.

Priceless! And you know how the rest of the ad goes: ‘There are some things money can’t buy ... for everything else there’s MasterCard.’

And there’s the rub: practically everyone else in that multi-level department store was using their MasterCard to buy stuff that would eventually end up in their recycling bin.

Marketers have long understood that we spend on our emotions: on how something makes us feel and also on how we think it will make other people feel about us.

‘I’m a hipster … like David Beckham.’

‘I’m a middle-aged, professional white guy, so I wear chinos and polo tops that have little red horseys monogrammed on the breast … just like every other DIK (Dad I Know).’

‘I’m like Kim Kardashian … or at least I smell like her. I bought her Eau de Parfum, ‘True Reflection’, which is said to have the aroma of a sleazy sex tape, infused with the scent of Kanye West’s sweaty crotch.

Don’t Live a Label, Live a Life

Let’s be honest. No-one really gives a damn about your car, your house or your clothes (okay, maybe a few people you know who are really insecure will be as jealous as hell). Most people are too wrapped up in their own stuff to give a stuff about your stuff.

You matter a hell of a lot, but only to a handful of people -- and those people don’t give a rats about your status symbols. They just love you.Besides, isn’t it true that the people we admire are those who are genuinely happy in their own skin?

Kids inherently understand this. Your kids don’t care about your status. They just want to spend time with you.

Case in point: on our way home from Myer on one of our father-and-son Saturdays, Louie and I decided to catch the train. One whole stop (Thomas the Tank Engine has a lot to answer for). As the train arrived at the station, he almost jumped out of his skin when he saw the driver and did a ‘toot toot’ signal with his arm. ‘That’s Mister Conductor!’ squealed Louie.

‘Mister Conductor’ waved meekly, then looked away.

When the train stopped, I took my son’s hand and introduced him to his hero. He was in his 50s, pasty-white, with a mixture of dandruff and sausage roll covering his standard-issue Metro woollen jumper. He wore a wedding ring, and I assume he was someone’s dad. He wouldn’t lift his head to make eye contact with me, but then Louie caught his eye and greeted him like he was a god, almost peeing his pants to actually shake the hand of Mister Conductor.

And for our one-station train ride, the driver dutifully tooted his horn so many times for Louie that I’m sure our fellow passengers wondered if there was some emergency.

As we got off at the station, Mister Conductor waved to us like John Wayne sitting atop a stallion.

‘Seeya later, partner!’

He looked like he’d grown two feet taller in one stop.As we walked home from the station, Louie squeezed my hand and grinned up at me.

Paediatrician Meg Meeker says that if parents could look at themselves through the eyes of their kids -- and see just how big and important and powerful they are to them -- that’s all the status they’d ever need.

So this Father’s Day I want you to do something simple but meaningful with your dad.

The Ultimate Father’s Day Present

If you’re lucky enough to have your father still with you, here’s how you can give him the ultimate Father’s Day present. Go and see him, whip out your phone, hit ‘record’, and ask him the following questions:

1. How did you meet Mum?

2. What advice can you share with me about money, life and happiness?

3. What does being a dad mean to you?

4. What are you most proud of?

5. How would you like to be remembered?

This is not for Facebook or Snapchat. It’s for you and your family’s legacy. One day, it’s all you’ll have left of him.

And you’ll treasure it.

Tread Your Own Path!

Who taught you about money?

Right now I’m on holidays with my family in Bali.

The last time Liz and I were here, we were newlyweds without a care in the world.

I’d romantically feed her strawberries and we’d laze by the pool, armed only with our bathers, towels and a frosty beer.

“Tapas?” Liz would ask.

“Sure”, I’d lazily reply.

Things are a little different this time around.

I’m spoonfeeding berry puree at Eddie and we’re getting it all over both of us.

We’re still by the pool, though we now have head-to-toe rash shirts, zinc cream, insect repellant, floaties, and there’s no lazing:

“Are you watching him?”

“I thought you were?”

“You have to watch him!”

Yes, kids are demanding, which can be exhausting on your holiday, but it’s damned good when they channel it into learning about money.

Here are some questions I’ve received from Barefoot kids.

Mister Barefoot, How Do I Make My Money Grow?

Hi Scott,

My name is Olivia and I am six years old. I put my pocket money in the bank on Thursdays at school. How do I make my money grow? Mum says to water it.

From Olivia

Hi Olivia,

You are already growing your money by putting it in the bank on Thursdays at school!

However, I’d like you to ask your mum if you could stop putting your money in the bank from now on.

See, banking is very boring. The only people who really care about banking are the people at the bank. That’s why they give you all those comic books with silly characters like ‘Cred’. They’re trying to make it cool, but trust me it’s really boring.

But I pinky promise I’m going to teach you something very cool.

I want you to ask your mum to get three glass jam jars (without the jam!). Ask her to label them ‘Save’, ‘Give’ and ‘Spend’. Then keep them in your room, where you can see the money piling up inside them.

Next I want you to think about all the things you can do around the house (like watering the garden) that would help out Mum and Dad. Ask Mum if you can get paid in coins, but only if you do a good job.

When Mum gives you your pay, I want you to put one coin into each jar:

The ‘Save’ jar is for something big you want to buy but you can’t afford right now (preferably something like a Super Soaker that your brother wants). Each time you do a job and get paid, you’ll see the coins filling up in the jar. So long as you don’t take them out, you’ll be able to blast your brother with your Super Soaker!

The ‘Give’ jar is for helping other little girls who are not as lucky as you. At Christmas time you can buy these girls presents, wrap them, and put them under a tree at the shopping centre.

The ‘Spend’ jar is for lollies.

How Do I Earn More Interest?

Hi Scott

My name is Kyla and I am 14 years old. I get $40 pocket money per month, of which I save $10 into my saving account. I have also started delivering fliers and earn $19 upward per week depending on the number of brochures for the week. I save $10 per week of that money also. I do not get a lot of interest on my savings account. Any ideas?

Kyla

Hi Kyla,

Unfortunately I can’t help you earn more interest -- we’re all in the same boat at the moment -- but I can help you earn more money.

Now, you sound like a very smart person, so I’m going to get you to put a proposal to your mum and dad.

See, your parents are very busy people, they work really hard, but sometimes that means they don’t have a lot of time to hunt around and get the best deals on the things they buy.

But you do.

So over the next year, whenever your mum or dad pays a bill, ask them to show it to you, and then you can do the research online and see if you can get them a better deal. It could be on their electricity, or their mobile phone, or even when they’re shopping at the supermarket.And if you want to earn even more money, you could ask your parents if you can be in charge of monitoring the household power bill, and you could work out getting an extra payment if you can keep the bill under figure.

Good luck!

My Parents Are Losers

Hi Scott,

I saw your call-out for kids to ask you a question. Well, I am 16 and I have a question for you. What can I do about my parents? They are 46 (Dad) and 44 (Mum). They have always rented, and they have never had any money -- but Dad has always driven good cars like his latest HSV Commodore (bought brand new). They also have credit card debts. They have taught me what not to do about money.

Luke

Hi Luke,

You’re one in a million, mate.Kids model their parents’ behaviours -- especially when it comes to money. That’s why some families never seem to be able to get ahead. It’s like each generation gets stuck in a prison of poverty.

Not you. You’re smart enough to have learned what not to do from your parents.

I talk to teenagers all the time about money, but most of them are cocooned from the consequences of bad choices. You’ve lived it, and that’s why you’ll make better decisions than your parents have.

See, money is one of the great levellers of life: you don’t need a high-paying job, you don’t even need to be particularly smart, you just have to start. And that’s your power. You have the miracle of compound interest on your side. By starting to save and invest now, you’ll earn more money over your lifetime than your parents did working their entire lives.

Don’t bother trying to change your parents. It’s too late for them.

Love them. Just don’t live like them.

Tread Your Own Path!

Robbed With a Pen

Hi Scott,

I have an SMSF that I set up some years ago when I invested in land syndicates. The projected maturity date was somewhere between of 2012 and 2014 ... I'm still waiting. I've received some monies, with $99k outstanding. I have $50k in a no-interest Business Transaction Account, with plans to top it up before I retire in seven years. I want to place those monies, plus monies received from the land syndicates, into a low-fee, conservative super fund. How do I do this while meeting my ATO and legal obligations?

Elizabeth

Hi Elizabeth,

It's almost impossible to wind up your SMSF while it still has money owed to it. Still, that shouldn't stop you moving your superannuation to a more appropriate fund now. The first thing you can do is roll over the $50,000 of cash you're holding in your SMSF right now. There is nothing stopping you, and the rollover form is freely available on the ATO website.

You can treat the money from the syndicate the same if (and it’s a big IF) that starts flowing in. Each time you receive some of the $99,000 you can follow the same rollover process. Then, once all the money has been received and rolled over, you can then close your SMSF.

Scott

Help Me Buy a House

Hi Barefoot,

I’m wanting to buy my first home but don't have a deposit. I earn $37,000 a year. I have a car loan which costs me $327p/f and will be paid off in March 2018 (approx $10,000 remaining), plus a credit card with $3,500 owing ($4,000 limit). Would I be better off selling my car, paying off my debts, use the remaining money to buy a second-hand car, and then save for a deposit? I don't know which direction to take.

Rachel

Hi Rachel,

It sounds like you’ve reached a point in your life where you want some stability.

I’d suggest you do three things:

First, sell the car, pay off all your debts, buy a second-hand Toyota, and put $2,000 into an online savings account. That’s what we Barefooters call ‘Mojo’. Don’t use it for a house deposit -- this is the start of the security you’re chasing.

Second, repeat after me: “I, Rachel, promise that from this day forward I will never own a credit card or borrow for a car again.”

Third, spend the next 12 months working out how to make yourself more valuable to potential employers. Honestly, $37,000 isn’t going to cut it. Aim for $60,000 a year. That will probably require you to retrain so you can gain skills and experience in a different area (sales and leadership are where the money is).

I’d wish you good luck, but I don’t think you’ll need it. From the sounds of your question, you’re prepared to make difficult, disciplined decisions. Keep that up and there will be no stopping you. Email me back on your progress in 12 months. I’ll be here.

Scott

Self Managed Super Fund

Hi Scott,

Love your emails! My husband and I are looking into an SMSF. Is there anyone you would recommend to set this up? I was looking at ESuperfund -- they appear to make the administration side easier. Our plan is to purchase a small positively geared investment property and hold some cash in a higher interest online savings account in our SMSF. As our industry funds have insurance, we were thinking of still having our super deposited from work into existing super funds. Thoughts?

Mel and Trent

Hi guys,

I know it’s very un-Astrayan of me, but I don’t think buying a property in your SMSF is a particularly bright thing to do. First, because of the costs of borrowing in the super fund, second because of the current price of houses in most parts of the country, and third because if you own your own home you’re already overexposed to residential property.

Other than that, you guys sound smart: locking in low-cost insurance with your industry fund is a good idea. I’d stick with them and invest in shares, which historically have outperformed property over the long term.

Scott

So We Went on a $225,000 holiday...

Hi Scott,

We bought 36,000 points in Wyndham Vacation Resorts, but we were retrenched two years ago and have had only part-time employment since then and are struggling to keep up with the club fees of $219 per month. My partner needs two operations over the next year, and we don’t expect to be able to go on holiday anytime soon, or for any extended period in the future. We are considering just not paying the club fees anymore and forfeiting our points. What would be the consequences of doing this?

Amy

Hi Amy,

Oh for the love of coconuts!

You bought into a timeshare? Really?

Okay, I’m going to take my blood pressure pills and read their very glossy product disclosure statement (PDS). I’m guessing you haven’t read the PDS -- if you had you wouldn’t have given them a cent.

If you don’t pay your annual fees, the manager will slug you a $15 fee for every reminder letter, and charge you 15% interest on the amount due. They may also appoint a debt collection agency.

If you still don’t pay after a final demand, you forfeit your entire membership, not just your points for the year, which Wyndham will ‘attempt’ to sell for the full price. There’s no guarantee you’ll receive anything back at all.

You have the right to lend, give or sell your membership -- but, as Wyndham point out, you shouldn’t expect to get anywhere near what you paid. The only ‘bargain’ you got was in the beginning, when they bribed you with the free tickets to Sea World to sit through their high-pressure pitch-fest.

The current price for a membership with 36,000 points is $86,940.

Good lord.

If you’d put that money, plus your $219 a month, into a good Listed Investment Company (LIC), it would be worth around $225,000 in ten years’ time -- at which time you’d be earning $11,250 a year in dividends. That’s enough for a very nice holiday to wherever the hell you want. Plus massages.

You can sell your membership privately -- either on eBay or Gumtree, or through a number of web-based services which specialise in resale of timeshare ownership (though it’s unlikely you’ll recoup much of your initial cost). That’s what I’d do.

Scott

Double Tax Hit

Hi Scott,

After losing my engineering job last year, I have been working multiple part-time positions and taking occasional work opportunities when they arise. I am in the same position I was at university, with one job taxed at the normal rate and all other ‘second jobs’ taxed at a much higher rate. What is the Government’s rationale for taxing additional income like this, and is there any way around it?

Max

Hi Max,

One day a bloke who didn’t want to take a second job, and instead wanted to spend his weekends drinking frothies at the 19th hole, gave this excuse to his wife:

“Love, why would I bother working a second job … I’ll lose it all in tax.”

And from that point on it became one of Australia’s great urban myths. So let’s clear it up:

Whether you work one, two or 20 jobs, the same tax scale applies. Most people nominate one job to claim the tax-free threshold on (in fact they can claim the threshold from more than one job if their total income is below $18,200). And it simply makes sense to claim the tax-free threshold from the highest-paying job. This is good news for you because you now work as you want, and you know that you won’t be penalised.

Do the work, earn the money, pay the tax.

Scott

Tax-free Income

Hi Scott

We recently moved to Dubai (yay -- tax-free income!). In six months our first investment property in Australia, worth $230k according to the bank, will be paid. We plan to come back to Australia in March next year to purchase another property. Should we buy another low-value but positively geared investment similar to the one we currently have, or should we go for a negatively geared CBD apartment in the hope of a capital increase?

Liz

Hi Liz,

If you don’t have any significant Australian income, then negative gearing is a terrible strategy (because it works by giving you a deduction on your income tax). Basically, you’d be taking all the risks a ‘normal’ negative gearing strategy delivers but with only half the reward, i.e. no tax benefit. Worse than that, if you’re non-residents in Australia for a period of time, you may not even benefit from the 50% CGT exemption when the property is eventually sold. All up, your best investment (once you’ve paid off that property) is to diversify your investments into the owning the world’s best businesses.

Scott

50 is the New 40

Hi Scott,

I am a recently separated woman of 50. After settlement, I might get about $140,000. First, what are the chances of me getting a loan at this age? (I earn $70,000 a year.) Second, if I do get a loan, am I better off buying two smaller investment properties to rent out or one to live in?

Thanks,

Donna

Hi Donna,

Fifty is the new 40! You’re still young, though a bank will look more closely at your ability to pay a loan than with someone younger. What’s more important to a lender, though, is having a secure income and a decent savings history.

Assuming you’re planning on working until retirement age (which is 67 for you), you have 17 years to repay a mortgage. That’s totally achievable, given you’ve got a very healthy deposit.

I’d ditch the idea of buying two smaller properties. Instead, buy a home for yourself and make getting rid of the mortgage ASAP your priority.

If you want a tax-effective way to secure your retirement (which you also need to do), start salary-sacrificing into super. Yes, that’s going to be tight on your income, but plenty of people have bought a home, and topped up their super, on much lower salaries.

Scott

Love Me Two Times, Baby

Hi Barefoot,

My fiancé and I live in a large regional centre. We have a family home on a 30-year loan which we are on track to own in 12 years. We are now thinking of purchasing an investment property in an improving area -- a two-bedroom unit for around $120k returning $170 p.w. The thing is that in our town the real estate market does not grow quickly, so there are slow capital gains, though rental properties can yield 6% to 7% returns. Thoughts?

Tom and Rach

Hey guys,

That ‘6% to 7%’ is the gross return; let’s look at the net.

If your property is rented, say, 48 weeks per year (unlikely for a two-bedroom unit), you’ll bring in $8,160 in rent.

From that, deduct your loan repayments, agent’s fees, rates, land tax, maintenance, body corporate fees, depreciation, accountant fees … need I go on?

In a good year, you might break even.

In a bad year -- when the hot water cylinder blows up and your tenants go AWOL -- you’ll lose money.

If you lose money, you’re relying on capital growth (selling your house for more than you paid), which, as you say, doesn’t happen quickly in your area. And if interest rates rise, can you put the rent up? Probably not.

If you’re on track to own your family home in 12 years, you could probably bring that down to eight by concentrating on that, not being a landlord. When you don’t have a mortgage payment, you can really build wealth.

Scott

The Real Secrets of Success

Do you know the biggest lesson I’ve learned from answering thousands of people’s questions?

Most people ask the wrong question.

They frame it like it’s black or white. Cut and dried. A hopeless situation with no way out.

(Whether it’s true is beside the point -- it’s true for them.)

Yet every once in awhile I come across a crazy person who asks different questions. Today, I’m going to share with you three examples of thinking different, with three of the major financial decisions you’ll make: a car, a house, and a career.

The Car that Comes with a Year's Supply of Petrol

Car dealerships have their sales process finely honed.

The aim of the game is to upsell you -- that’s why each model has different price points.

Let’s take a look at the difference between the base-model Holden Commodore and the top-of-the-range Calais, which sells for $15,000 more.What do you get for that?

A wankier sounding name for starters.Leather seats, and a heater for your buttocks. Some faux-wood trim. A fancier gear knob. Alloy wheels.

“Do I deserve to have a toastie tushie?” you ask yourself.Yet you’ll make a better decision if you ask a better question: what could I spend 15 big boys on that would make me happier?This question leads to different answers. Fifteen grand could buy you:A year’s worth of petrol, insurance, registration, servicing, car washes, and pine tree air-fresheners.

Or a dirty weekend away each month for a year (with luxury spa treatments), plus a brand-new leather couch, a Sonos stereo system, and one of those over-the-top 60-inch televisions.

Or it could wipe your credit card debt, put three months of Mojo in the bank, plus pay for a slap-up celebratory dinner with an $80 bottle of hoity-toity plonk.

Or you could build a startup coffee-cart business which raises $30,000 a year and channels it to Vanuatu to help build classrooms, libraries and schools. That’s what Andrew Mellody, the 31-year-old founder of the award-winning social enterprise Co-Ground, would do.Then again, Andrew thinks differently.

The Caravan of Courage

Lots of young people complain that they can’t afford to live in a cool inner city area.

Andrew, who doesn’t draw a wage from Co-Ground, asked a better question: “How can I live in the area I love and still devote all my time and most of my money to my charity?”

That question led to an entirely different outcome. In fact, it led to him to Google Maps, where he pinpointed homes, with big backyards, in the area he wanted to live. Then he did a letterbox drop of those homes, explaining who he was, and that he’d like to rent part of their backyard for an old caravan he was doing up.

His plan worked. He got to live in his own four walls (with wheels!), in the area he wanted, for a fraction of the cost of renting. More importantly for Andrew, he got to devote his time and effort to Co-Ground, which he continues to do with impressive results.

The Multi-Millionaire Shoestring Start-up

Another mate of mine sold his financial services business and became one of the wealthiest people on the planet. (You and I are also among the richest people on the planet -- it’s just this guy is richer than all of us -- particularly after he and his partners sold the business for a nine-figure sum).

The business he sold had a thousand staff, offices around the world, and a corner office that overlooked the Sydney Harbour Bridge. Caterers would bring perfectly crafted cupcakes to client meetings, and real coffee (not from a pod).Yet it’s what he did next that’s really cool.

Having spent 30 years helping rich people get richer, he noticed that it didn’t seem to make them (or their families) any happier.

The clincher was that with the windfall from selling his business he was now in his former clients’ position. Yet instead of asking, “How do I turn this pile of money into an even bigger pile?”, he asked “How do I fix these people’s families and their finances?”

That question led him to starting a new business that helps ultra-wealthy families deal with the complexities and stresses of managing intergenerational wealth. And believe me, mix one part unearned wealth with two parts blended family, and you’ve got more drama than an episode of Real Housewives.

His business is doing pioneering work with ultra-high-networth families. He helps them create a legacy -- making meaning from their millions by helping others. He teaches people who are swimming in more money than Scrooge McDuck to spend it in ways that bring genuine joy to themselves and others, instead of living like, well, Scrooge McDuck.

You might think that if you’re targeting the Rich List crowd you’d need swanky harbour-view offices. Not so. He and his team work from their homes -- around their families. When they need to meet with their wealthy clients they use their boardrooms, or take them out to the best restaurants. “I’m having an absolute ball”, he says, “but, more importantly, so are my clients and the people they help!”

Let me close this column with possibly the hokiest thing I’ve ever written -- but it’s nonetheless true: the quality of your life, and your future success, depends on the questions you ask yourself. Ask different questions, and you’ll get different answers.

Tread Your Own Path!