Single Mum, Losing her Home

Scott,

I’m scared. I’m 35 years old and have recently separated from my husband. I will get to keep the house (valued at $1.4 million, with $640k debt) plus $60k in savings, and I have $40k in super. My monthly income is $4,200, including child support for my 10-year-old son. Currently I work three days a week, but I may need to stretch it to four days to deal with the bills now that I am a single mum. I would like your advice on how to pay off my home loan and have a reasonable quality of life.

Rachel

Hi Rachel,

It’s totally natural to want to stay in the family home for your son’s sake -- he must have been through a lot. However, on your income you can’t afford it. Even if you did work an extra day per week.

You must have been through a lot as well. You need to look after yourself and your son, and the best way you can do that is to sell your home, rent somewhere for 12 months, then buy something you can afford -- no more than $900k.

Scott

Risky, Stupid -- or Both?

Hi Scott,

Thanks for the great advice -- we read your column out loud each week! Our current situation is this: we live in Geelong, have a home loan of $7k on a property valued at $500k, and have no other debts. I am 38 years old, unemployed and looking for work; I formerly worked in the contaminated land treatment business. My wife is on maternity leave with our first child. We are looking to sell the house, rent for a year and see how things go, then buy if the market falls. Risky, stupid -- or both?

Rick

G’day Rick,

$7,000! You don’t really have a home loan, mate. Shane Warne would spend more than your entire mortgage each month on blow-waves and hand-cream. What it sounds like is that you’re justifiably stressed about having no money coming in when you have a little baby at home. And if that’s your real question, I totally understand and hear you.

Yet the answer isn’t playing ‘real estate roulette’ to try and free up some money. For one, you’ll eat up thousands of dollars in selling fees. For two, you need to look after your wife. She’s just had her first little baby and doesn’t need the stress of buying and selling and moving. The easiest answer is for you to pull up your daddy pants and get a job. Doesn’t matter what it is. Then pay off the last bit of your mortgage and save up three months of living expenses (which will be a lot less than most people’s -- because you won’t have a mortgage).

Scott

What Do You Think of the Super Changes?

Scott,

I’ll keep this super-brief. What do you think of the latest super changes?

Gary

Hi Gary,

I think the Government has achieved the impossible: they’ve managed to turn people off the best tax dodge going around. Which is a shame because super is a much better long-term investment than buying an overpriced, negatively geared property.

For those readers who snooze when it comes to the mention of super, the Government has dumped their proposed $500,000 (backdated, lifetime) cap on after-tax contributions. Instead, starting on 1 July next year, you’ll now be able to put $100,000 in per year (rather than $180,000), after tax, on balances up to $1.6 million.

The best analogy I can give is that super is like marrying a hottie. Sure, with each passing year they get a little less attractive -- but it’s still a damn good deal compared to the alternatives.

Scott

It’s the End of the World As We Know It

Scott,

I am 43 with $240,000 in my SMSF, and I have liquidated my portfolio after reading up on the coming financial crisis. The US Federal Reserve will lift interest rates, which will cause a tsunami of defaults around a world that is addicted to cheap money. What are your thoughts?

Bill

Hi Bill,

I think you’re bonkers.

I also think you’ve been reading too many scary emails from too many financial gurus trying to sell too many get-rich-quick newsletters.

The world is far too complex for anyone to forecast anything with certainty. If these guys could accurately predict the future, they’d be rolling in it -- so why the hell would they be emailing you, mate?

Let’s look at someone who really is fabulously rich: Warren Buffett. He doesn’t waste his time trying to predict the economy, or interest rates, or anything else. He believes that our best days are ahead of us, and that you get rich by owning businesses that create prosperity. History tells us he’s right.

Another fabulously wealthy investor, Peter Lynch, said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

Scott

The Prodigal Son

Scott,

My son is 45 years old. He earns in excess of $200,000 but loves spending borrowed money. He has 10 per cent equity in his house, which is worth $1,000,000, and an apartment. He recently made an unconditional offer on a block for $750,000 on which he and his new girlfriend intend to build. The bank refused him a loan. He approached us (retired) and suggested we take out a $400,000 loan on our house, which he would pay back when he sells his existing house. I refused because I believe he needs to stop spending. What is your opinion?

Nella

Hi Nella,

I think 45-year-old men who are earning two hundred big ones shouldn’t be hitting up their retired parents for money. You made the right decision.

Scott

Who’d Work for Below the Minimum Wage?

Barefoot,

My husband owns a small CBD café which he purchased two years ago. After a lot of hard work, it nearly pays him a minimum hourly wage, while employing four staff. I am concerned he is in a vulnerable position if there is a recession. Do you have any general advice for small business owners to help futureproof themselves? The business lease is up for renewal in two years, and any advice on negotiating terms based on the potential economic climate would be appreciated.

Donna

Hi Donna,

The best way a small business owner can be ‘futureproof’ is by not owning a dud business. And judging by your brief description, that’s what your husband owns.

Let me put it this way: do you think he could employ a manager to work around the clock, have the responsibility of paying staff, suppliers and the landlord -- and pay them below the minimum wage, with no holidays? Of course not. It’s against the law!

What I’d do is this. I’d sit down with your hubby and help him set a goal. Work out what the business needs to do to generate him a decent wage -- one that will compensate him for all the work and stress, and will earn him a decent return on his invested capital. Give him 12 months (or at a stretch two years, when the lease expires) to reach this goal. If he can’t, encourage him to sell the business -- and get a job in a bottleshop. At least he could enjoy a stress-free stubby after knock-off!

Scott

You’re Wrong, Barefoot

Scott,

Last week you wrote about MyBudget, saying it is not worth the money. But you’re wrong. Not everybody is good with figures like you. Some are very bad, like me. MyBudget has been brilliant at helping me set up a budget, pay my bills, and organise my financial year. I have found it a great stress-reliever to have skilled people close by to help me. I have referred several friends, who also love it.

Jane

Hi Jane,

Here’s my take.

To get out of debt -- and to stay out of debt -- you’ve got to get a bit of mongrel in you. You’ve got to get as mad as hell. You’ve got to reach the point where you scream ‘enough!’ and cut up your cards, pay the suckers off one by one, and swear to yourself ‘never again’. I’m talking about making deep behavioural change -- and that can only come from you.

You don’t get it by paying some overpriced, glorified budgeting software sales outfit thousands of bucks to wave some pom-poms and chant ‘you can do it!’

Last week’s question was from a couple who had $37,000 in personal debt, and they were asking whether they should pay MyBudget over $3,500 in the first year to help them tackle it. My advice to them -- and to you and your friends -- is to get angry and then put the money you’re paying to MyBudget towards paying down your debts even quicker.

Scott

When will the housing market crash?

Donald Trump reminds me of the bullies who teased me at school.

Anyone who stands up to him gets a put-down: ‘Crooked Hillary’, ‘Little Marco’, ‘Low Energy Ted’. His aim is to get everyone laughing at them, just like in a classroom.

And like all bullies, he only wins by getting you to doubt yourself -- rather than getting you to believe in him.

And that’s because it’s hard to believe in Trump.

He’s a liar. He cheated on his wife(s). Heck, he even wrote a book with the ‘Rich Dad, Poor Dad’ guy (Robert Kiyosaki) entitled Why We Want You to Be Rich -- ironic, given the authors have notched up five corporate bankruptcies between them.

And yet, in this week’s presidential debate, the ‘Big D’ actually said something intelligent:

“We’re in a bubble right now, and the only thing that looks good is the stock market. But if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble. And we better be awfully careful.”

Okay, so only a shrink can fully explain why Trump feels the need to label everything ‘big, fat, and ugly’ ... yet he’s right on one thing: we are in uncharted financial territory.

Right now, global interest rates are the lowest they’ve been in recorded history. In fact, in many countries interest rates are negative. Since the dawn of civilisation savers have earned interest, borrowers have paid it. That’s now been flipped.

Park the fancy economic talk and think about how ultra-low interest rates are affecting you:

Interest rates are the main reason your house value has increased so much. People aren’t earning more -- they’re just borrowing more. That’s how Australia wound up with some of the highest levels of household debt (compared to income) in the Western world.

And ultra-low interest rates are forcing retirees out of (safer) fixed interest and cash accounts, which pay two parts of bugger all, into the (riskier) stock market to earn dividends.

When interest rates go up, as they surely will, the bubble will burst -- and house prices will come down.

Here’s you: ‘Dude! When will that happen?’

Here’s me: ‘I have absolutely no idea, and neither does anyone else. Not even the comb-over king.’

Here’s you: ‘So what should I do in the meantime?’

Here’s me: ‘Read on.’

When Will the Housing Market Crash?

I’ve been the Barefoot Investor for 15 years. And for all that time I’ve been warning about our unsustainable debt levels. However, in that time I also bought my family home.

At the time I bought, I was convinced the market was overvalued. But I was sick of renting, and I fell in love. And history had taught me that prices can remain overvalued for many, many years.

Besides, no one can predict the future. As the excellent book Future Babble, by Daniel Gardner, proved, the more famous the forecaster, the more likely they’ll be as accurate as a dart-throwing monkey.

The truth is that there are no answers.

That’s why I saved up a 20 per cent deposit, and factored in a repayment interest rate of 10 per cent. And then I set about working my arse off to get the banker off my back, once and for all.

And lo and behold, over the years, interest rates halved, and the joint doubled in price.

Things could just have easily have gone the other way, of course. After all, I don’t have control over house prices. Or the direction of interest rates. And that’s why I didn’t bet on any of this happening.

I just bet on myself.

When Will the Share Market Crash?

Back in January, things looked grim.Wall Street had the worst start to the year on record.

The esteemed Royal Bank of Scotland’s dedicated analysts ... cracked.They told their clients to prepare for a “cataclysmic year”.

It made global headlines, and freaked everyone out with their bone-chilling recommendation:“Sell everything”.

Hold your haggis!

Truth is, scary headlines are good business, especially when they coincide with a market going down (remember that old adage, ‘if it bleeds it leads’). And besides, in an era of 24-7 tweets, and Brad and Angelina, no one ever has time to go back and check what they said.

So let’s do that.The Royal Bank of Scotland predicted that markets could drop by a fifth, and that oil could drop to $16 a barrel.

How’s that call looking today?

Well, oil is up 40 per cent, emerging markets are up 29 per cent, the US S&P 500 is up 14 per cent, US high-yield bonds are up 13 per cent, and even the ASX 200 is up 10 per cent.

Look, I’m not talking a potshot at a bloke in a kilt.

All I’m saying is that you could be right about a crash in the market, but wrong about the timing. And the upshot is you could be left blowing your bagpipes while the market doubles or triples.

So what can you do?

Well, when all else fails, use common sense.

I’ve long advised people heading to retirement to go from having three months of living expenses to having three to five years of living expenses by the time they retire. That gives you time to ride out the inevitable downturns. The rest of your money should be invested in good-quality shares that will keep your nest egg growing faster than inflation.

Finally, recognise when you’re getting played. One of the oldest tricks in the book is to prey on people’s fears. It gets people to do irrational things -- like voting for a big, fat, ugly orangutan.

Tread Your Own Path!

Barefoot, should I call off my wedding?

My column last week -- why engagement rings are a scam (and why you’ll buy one anyway) -- went off like a drunk uncle on the dance floor. I was flooded with emails.

Perhaps it’s because we’re in the peak season for weddings.

Or maybe it’s because it coincided with the finale of The Bachelor, where Richie chose his winning woman. Richie gave us a candid insight into the depths of his love and devotion when he confessed to the media:

“I had the biggest blue balls in Australia.”

What a man! What a catch!Now my older readers may not know who Richie is or, for that matter, what "blue balls" are.

Try googling it.

On second thought, don’t do that. Seriously. You really don’t want to do that.

Instead, let’s shift our attention from contrived reality television to three real wedding emails I received this week -- enough to make the Bachelor look blue.

Should I Call Off My Wedding?

Dear Scott,

I am 28 and getting married in two weeks. I am having doubts about going through with it for many reasons, most of them financial, which is why I am writing to you.

My fiancé is a real estate agent and owns his own agency, which is set up in a trust. There have been instances where employees haven’t been paid. He’s a big talker, which doesn’t go down well with my father, or my brothers, all of whom are tradies.

We bought a home for $1.2 million two years ago, but he borrowed the money, not me. So is the house debt mine as well? He also took out a credit card in my name, without my approval. And there are lease payments on his Mercedes-Benz (I drive a Kia -- but again, do I have to pay?). Please help me! Please don’t publish this!

Lisa*

(*name changed)

Yes, this is a real question … and yes, she didn’t want it published.

So I called her.

Barefoot: “Hi Lisa. Now I’m no Dr Phil, but when a bride-to-be is two weeks out from her wedding and she’s more concerned with her financial exposure than her flower arrangements … well, I think that’s telling.”

Lisa: “Do you think so?”

Barefoot: “Yes, I do think so.”

Lisa: “It’s just that we’ve already paid for everything ... and we won’t get our money back … and everyone’s RSVP’d … and it’s in two weeks!”

Barefoot: “You’re thinking about the next fortnight -- I’m thinking about the next forty years.”

Lisa: “I feel sick.”Barefoot: “This could be the luckiest day of your life.”

Postscript: On Wednesday morning this week I received the following text message from Lisa:

“Thank you for taking the time to call. I really needed to hear your advice. Wedding has been called off. Surprisingly, he took it well! Everyone has been supportive of my decision. Feel free to publish. It could give other people hope if they’re in the same situation!”

One wedding down, let’s go to the next email.

Who Keeps the $11,000 Engagement Ring?

Barefoot,

I just read your article on engagement rings being a rip-off. It was very timely because I certainly got ripped off. I proposed to my girlfriend of three years last November with a 1.2 carat ring which cost $11k. She said yes. Her phone went off one night when she was asleep and, long story short, she’d been banging another bloke! I called off the engagement, but get this, she won’t give me back the ring. Won’t even talk to me. I want the ring back. What can I do?

Ben*

Hi Ben,

Trust me, you don’t want the ring back.

What would you do with it? Give it to your next flame?

As I said last week, the truth is that buying an engagement ring is like buying a new car: the moment you walk out of the showroom, the price drops by 30–50%.

Now, given you were in a de facto relationship for at least two years, the ring will form part of the property division that you may want to pursue legally. The only problem with ‘lawyering up’ is that you could be throwing good money after bad (and money spent on lawyers in a relationship breakdown is almost always classified as ‘bad money’).

Instead, look on the bright side: she cost you only $11,000 (she’ll cost some other dude a lot more than that). You got off lightly. Good on you.(P.S. Tell her it was a cubic zirconia.)

Marriage, Mortgage, Midgets

Hi Scott,

Love reading your column each week! My fiancee is pregnant and we have a wedding coming up, all booked in. We then have less than five months to the birth of our child, plus a large mortgage that we cannot afford on only one income. Is my bank required to freeze my repayments while my fiancee is on maternity leave? I will be asking them either way, but please set my mind at ease. It is almost worth having her fired otherwise!

Terry*

Terry, Terry, Terry.

You really haven’t thought this through, have you, cobber!

What you’re referring to is applying for a ‘hardship variation’ on your home loan. You have the right to apply for a variation, and the bank is legally required to consider your application -- but they don’t have to agree to it.

Even if they do agree to temporarily freeze or reduce your repayments, they’ll get their pound of flesh by extending the loan and adding the interest on the end. It’ll cost you more in the long run. It’s like Usain Bolt sawing off one of his legs so he can compete at the Paralympics. Sure, it’s an option, but what’s the long-term cost?

Relationships Australia says that 80 per cent of relationships that break down do so because of money problems -- and you have more money problems than most. So look at the next five months as your Marriage Olympics: the two of you need to work out a realistic five-year plan. It’ll involve making tough decisions -- the first of which is to cancel your honeymoon. Sing it with me, Terry: “The honeymoon is over, baby, it’s never going to be that way … again.”

There’s No Need for Blue Balls (or Bank Accounts)

Don’t hold out like old Richie. If you’ve got a prolonged state of … monetary tension ... let it out by heading over to AskBarefoot and hit me with your best shot.

Tread Your Own Path!

The Barefoot Investor Made Me a Fortune!

Hi Scott,

You finally earned me some money! I looked in the paper and saw your horse -- Barefoot Investor -- running at Cranbourne last weekend. It was paying good odds and it came home! I turned a $10 punt into $63. Go you good thing!

Bruce

Hi Bruce,

A few of my punting pals told me about this nag. I’m the legal owner of the name and trademark, so I called the owners and made them an offer they couldn’t refuse: I told them that if they didn’t change the name they’d wake up with a horse’s head in their bed. (Only joking.) But they have changed the name. Now, I don’t encourage gambling, but in this instance … congratulations.

Scott

Go Pies!

Hi Barefoot,

La Trobe Financial offers amazing rates on term deposits -- 5.2 per cent for 12 months and up to 7 per cent for 24 months. You always say ‘if it’s too good to be true, it probably is’. (In fact, they sponsor Collingwood -- so that’s a worry!) I have $70k from a property sale and am looking to park it somewhere for 12 months. Should I check them out?

Paul

Hi Paul,

I wouldn’t do it. Then again, I’m a pretty conservative dude when it comes to lending my money out.

The truth of the matter is that La Trobe is lending your money out to people the banks won’t touch -- that’s why the interest rates they offer are so good.

Right now, everything is hunky dory: Australia has just notched up a record-breaking 25 years without a recession. But the law of averages says there’s a recession coming, and probably soon. And in the last recession depositors got screwed chasing higher interest rates.

The question you need to ask yourself is whether getting an extra 4 per cent on your money -- $2,800 a year -- is worth the risk of losing some of your capital, given that you’re not covered by the government deposit guarantee (which you would be if you put your money in a bank, up to $250,000).

Scott

Buying Bricks

Hi Scott

Just read about a company called BRICKX which lets you buy a ‘brick’ in a property investment with very small amounts of money. (They split a house into 10,000 bricks you can invest in.) With houses prices so crazy at the moment, is this a clever way of getting into the market? Any thoughts?

Natasha

Hi Natasha,

‘Shoot a brick!’, as my old man would say (well, something like that).

I took a look at one of the properties they’re selling a ‘fractional ownership’ of on their website: a two-bedder in Prahran for $1.2 million which currently rents out for $750 a week ($39,000 a year).

If you invested $100 into this property, it would take you roughly 31 years to get your money back via the rental income, assuming it’s rented out continuously (which it won’t be) and assuming there are no maintenance costs (which there certainly will be).

Ah, but what about the capital gains? Well, that’s what you’re banking on, obviously. But prices in Melbourne and Sydney are in a bubble and, in my humble opinion, are ripe for a correction. Then there’s the fees: BRICKX takes a 1.75 per cent clip when you buy and when you sell.

You’d have to have bricks in your head to touch it.

Update

BrickX have been in contact with me.

They tell me that some people have misconstrued my answer.

So, in the interests of clarity, here’s the deal:

There are two ways to make money in any investment:

First, via the income it delivers while you own it.

Second, via the capital growth.

BrickX provides a market to sell your bricks at any time. Depending on the cycle, that could be at a profit, or a loss.

My view?

If readers misconstrued my original answer, they will almost certainly misconstrue the “Total Estimated ROI” figure that’s stated for each of the properties: https://www.brickx.com/properties

Case in point:

A beginner investor could be seduced by the stated Total estimated ROI, thinking that’s the return they’ll receive.

However in reality, that ROI figure is based largely on the recent boom-time growth in property values, and it’s unlikely to be repeated.

Honestly, the only thing you can reasonably estimate is the net income it will deliver you. And that’s why I personally wouldn’t purchase a two-bedroom apartment for $1.2 million on a skinny 2.48% yield ...  and it’s also why I certainly wouldn’t be buying the above Balmain property on a 1.13% yield.

Scott

Can I Afford to Keep the House?

Hi Scott,

I am currently going through a separation and want to know if I am in a financial position to keep the house. The mortgage is $506k; the house was bought for $665k 18 months ago and is valued at $730k. I am now a single mother of two children on a full-time wage of $93k. I have job security as I work for the police. I was wanting to buy my ex-husband out, unless you can suggest something else I can do to keep the house.

Emma

Hi Emma,

Most mums naturally want to keep their kids in the family home after the divorce -- but it’s almost always a bad financial decision that puts them under more stress in the long run.

Your income is $5,800 a month -- plus your child support. Even without buying your husband out, you still can’t afford to keep the house. If I were you, I’d sell it and walk away with $100k.Get yourself a nice, quality rental and re-evaluate things in 12 months’ time. You’ll be fine. So will the kids. The main thing they need right now is their mother’s undivided attention, and with $100k in the bank you’ll be free to give it.

Scott

The Financial Fitness Trainer

Hi Scott,

My partner and I are looking at using a budgeting advisor like MyBudget to help us create a plan and stick to it. We earn $90k combined but have $7k on a car loan, $17k on a personal loan and $13k on a credit card. All due to our wedding and holidays! What is your advice?

Nate

Hi Nate,

I can see how MyBudget would be appealing. They bill themselves as being like a ‘personal trainer for your money’, motivating you to shed your debt. For this they charge a start-up fee of around $1,500, and then $40 a week. Yet maybe it’s the motivation you really need, right?

There’s just one little problem: you’re broke. And broke people don’t spend $3,580 a year on a bloody fitness trainer! Broke people find a piece of rope, tie one end around an old car tyre and the other around their gut, and jog up and down the street huffing and puffing.

It’s time for you to wake up and smell the seat salt son. The only way you’re going to get out of the hole you’ve dug for yourself is with grit, determination and a third job. Put your money where your debt is, and get puffing.

Scott

Terrified

Hi Scott,

By husband and I have $130k owing on our home, which is worth about $500k. We are in our mid-40s and only have around $300k combined in super. We are now thinking of purchasing a house-and-land package for $450k to rent out as an investment (and tax offset), but my mother says ‘no, pay the house off first’. I feel we have been too conservative with our money, and I am terrified that time is running out. It is time to take action, but what is the best thing to do?

Carla

Hi Carla,

I agree with your mum. Though that being said, what your mum or I think doesn’t really matter. What matters is that you and your husband decide to behave like grown ups and own your own freaking decisions. Know this: in all the years I’ve been doing this, the people who make financial decisions based on feeling ‘terrified’ or out of fear that ‘time is running out’, almost always live to regret it.

Scott

Burnt to the Ground

Hi Barefoot,

Our house burnt down due to my laptop catching fire. It is a total loss. I want to make sure I make the best decision with the insurance money, but it is overwhelming. Our mortgage is $286k, while our insurance is $280k for the house and $110k for contents. Our options are to rebuild the house (with the insurance company helping us) or to take the money. What should we do?

Mandy and Steve

Hi Guys,

I feel for you guys.

Hindsight is a wonderful thing, and a few years on from our fire, here’s what I’ve learned:

Your insurer is not your friend. They are not there to help you. Their job is to pay out as little as possible.

So, read your contents policy slowly. Then read it again. If need be, think about paying an insurance professional to act on your behalf.

The second thing I learned is not to rush any major decisions. When it happened to us, all I wanted to do was get back into our house, and get our family back to normal. Yet the truth is that things won’t be normal for two years -- at least. That’s your reality. The sooner you accept it -- the better long-term decisions you’ll make.

Scott

Father’s Day Present

Hi Scott,

I know this is not a money question -- I just want to thank you for your article on ‘The Ultimate Father's Day Present’. That is the best advice ever. I lost my husband (and our children lost their father) two years ago. Even though our children are adult age, your column still made me cry. I just wish they could have sat down with him and asked these questions. Thank you for being so sensible and for appreciating what you have. Let’s hope others appreciate the fathers in their lives. We miss Our Hero very much.

Di

Thanks Di,

I got a lot of positive mail about this one, but yours really struck a chord.

For those of you who missed it, what I advised for Father’s Day was to sit down with your dad and ask him some basic questions, like ‘How did you meet Mum?’ and ‘How would you like to be remembered?’

Even though Father’s Day is done and dusted for this year, it’s a great thing to do with your dad at any time. And you’ll always have something to remember him by.

Scott

A Binding Will

Hi Scott,

Due to tragic circumstances my son was killed over three years ago, and as a result I received his super. However, the claim process was an ordeal and most upsetting. I was a ‘non-binding beneficiary’ so I had to claim co-dependency. Now I am updating my own will and I am not sure what to do. Can you please explain it to me, and suggest where I can get some help.

Lisa

Hi Lisa,

I’m sorry for your loss. I see this all the time, most people don’t understand that your super is separate to your will. Basically, if you don’t specify to your super fund who you want your death benefit to go to -- the fund will have the final say. There’s an easy fix though: call your super fund and ask them for a ‘binding death benefit nomination form’. This allows you to decide who you want your death benefit to go to. It’s valid for three years from the date of signing, so keep it updated.

Scott

The Millionaire Hostage

Hi Scott,

I feel trapped! I spend my days doing a job that pays me over $400k per year -- but I hate it. I’m good at my job so I get away with it, but every day it kills me just a little more. The bigger concern for me is that it is beginning to affect my home life. I am in my mid-40s and I need a change. I have $1.2 million in cash and around $500k in my super account. What should I do? Grateful for your thoughts.

Sam

Hi Sam,

Wealth gives you a lot of things -- but it can’t banish your fears -- in fact, sometimes it creates them. You’re an excellent case study: you’re scared about leaving a job you hate, because you don’t want to give up the dough.

That’s a waste of your life, and a waste of your skills. Now you’re obviously a smart dude -- morons don’t tend to make four hundred grand a year (unless they play for Collingwood).

So what should you do?

You should definitely change your career -- but not until you’ve found your next adventure.How do you that?

Arun Abey, author of How Much Is Enough, has a thinking exercise called ‘the three circles’, that’ll help you get to the core of what makes you tick (and what gives you a tickle). For the next week, before you go to bed ask yourself these three questions:

What am I passionate about?

What am I good at?

How can I make enough money from it?

The truth that they never tell you in the Mercedes dealership is that adding another million bucks to your bank balance won’t make you any happier than you are right now. It’s time for you to get to the centre of your three circles.

Scott

How much should you spend on a wedding ring?

This column is dedicated to all the brothers out there who are buying an engagement ring this weekend.

And there’s a lot of you.

According to the ABS, 120,000 people get hitched each year.

That’s 60,000 blokes, and 60,000 rocks.

It’s stressful (you know her taste … right?) and bloody expensive.It’s a status symbol on a finger.

It’s a measure of your manhood.

The size of the rock is the size of your success.

But let me share a little secret with you: the engagement ring is one of the biggest marketing conjobs in history -- right up there with the Marlboro Man.

In the 1930s, less than 10 per cent of couples sealed the deal with a diamond -- today it’s around 80 per cent.

What gives?

Well, it began in 1938 when a mining company called De Beers set out to make diamonds the symbol of love.

(Actually, the story really began 70 years earlier when De Beers found massive deposits of diamonds in South Africa and shrewdly stitched up a cartel that controlled 90 per cent of the world’s supply.)

The De Beers marketing campaign infiltrated Hollywood, paying celebrities to parade their diamond engagement rings in the magazines and newspapers of the day. De Beers also paid for diamonds to be ‘placed’ in Hollywood films, and it’s rumoured they were behind Marilyn Monroe’s famous song ‘Diamonds Are a Girl’s Best Friend’.

It was stunningly successful.In 1938, De Beers sold million worth of wholesale diamonds in the US -- today it’s .4 billion.

And at the retail level, diamond jewellery sales were billion worldwide in 2014.

Diamonds are not only a girl’s best friend -- they’ve also bought a lot of cocaine for marketing executives:

‘A Diamond Is Forever’ has appeared in every De Beers engagement advertisement since 1948.

It was voted ‘slogan of the century’ by Advertising Age, and with good reason. The brilliance of this line is that if you’re convinced that a diamond should be kept forever -- and never resold -- then the De Beers cartel can effectively control the price. And that’s exactly what they’ve done over the years.

The truth is that buying a diamond is like buying a brand-new car -- in both cases, the moment you walk out of the showroom, 30 to 50 per cent of the value is lost.

Why?

Because diamonds are not really precious; they’re more common than dogs’ balls. Seriously, there are said to be 39 billion stones in existence -- more than five for every person on earth, according to diamond analyst Martin Rapaport.

And what about the saying that a man should spend ‘three months of his wages on an engagement ring’?

De Beers marketing genius at work again.It started out as one month, and it worked so well they bumped it up to two, then three.

On an average $65,000 wage, post tax, that’s a $12,750 outlay.

Remember, though, that diamonds are not an investment. They don’t increase in value. They’re just a multi-billion-dollar marketing machine created by a bunch of miners -- to manipulate men.

Now, by all means, forward this article to your fiancée and say to her:

‘The Barefoot Investor makes some really excellent points. So, my love (you bending down on one knee), here’s a $35 cubic zirconia ring I bought off Gumtree. I’m going to invest the money I saved in a diversified portfolio of quality shares … Will you marry me?’

No, you’re not going to do that.

You’re going to buy a rock. Just like I did. Just like your father did.

Welcome to the club, son.

How Much Should You Spend on an Engagement Ring?

As any bridezilla will tell you, selecting a diamond comes down to the four C’s: Cut, Colour, Clarity and Carat weight.

But I’m not a jeweller, I’m a finance guy, so let me add another ‘C’ to the mix: Cost.

You can get a beautiful rock for a couple of grand, as long as you shop smart.

Don’t buy your ring at a name brand jewellery store -- their markups are horrendous (especially Tiffany’s).

Instead, to get the best bling for your buck, do these three things:

First, go with a specialist diamond dealer for the rock itself, get some diamond prices based on having the ring set somewhere else (this is what I did).

Second, look at the prices from an online diamond jeweller. Most of the big players operate from the US and ship to Australia (and often their prices are often up to 30 per cent cheaper than you’ll find in a shopping mall here).

Finally, look at buying a ‘reject ring’ -- one that was bought by some poor bloke who then got turned down by his bride-not-to-be, and is now sitting on gumtree.

Harsh? Sure. But someone’s ‘no!’ is your ‘hell yeah!’

Just make sure you get it inspected (it should come with a valuation certificate from a valuer registered with the National Council of Jewellery Valuers, as well as a grading certificate).

Whatever you end up doing, don’t blow your wad on a ring.

Trust me on this. If she says ‘yes’, you’re about to enter the most expensive decade of your life -- the Triple Ms (Marriage, Mortgage, Midgets). Brace yourself for the wedding venue bill, the Bugaboo stroller, and the $100,000+ house deposit.

Shine on you crazy diamond.

Tread Your Own Path!