Mamma Wants Her Freedom

Hi Scott,

My partner and I have four houses -- three are investments. Together they are worth about $1.55 million, and we owe about $1.34 million on them. We each earn around $145,000 a year and each have about $175,000 in super. I have $52,000 in savings and he has about $15,000 (with two uni-aged children that he still heavily supports). We keep our finances separate. I want to have a baby in 2017 (I am 35) but not lose my independent position. How can I ensure smooth financial sailing?

Nat

Hi Nat,

Why are you planning on having a baby with a bloke when neither of you is prepared to share BSB numbers?

Okay, let’s sweep that elephant to one side for a moment and talk money.On your current income you’ll qualify for 18 weeks of paid parental leave (you may still be able to double-dip if your employer offers any entitlements, though that depends on what Derryn Hinch and his mates decide). Combine that with your $52,000 in savings and your ability to eventually go back to work, and you have the first couple of years sorted.

Now let’s get back to the elephant.

You’ve admitted that you are concerned about the risk of losing your financial independence. Good insight. Most women don’t fully understand the financial ramifications of their predicament until they’re knee-deep in nappies and suffering sleep deprivation.

So before he gets to the fun part of ‘creating’ the baby, you need to sit down together and address your concerns. Start the conversation off like this: “Honey, you need to understand that I’m going to have to take time out of my career and take a big pay cut so I can look after our baby.”

Understand this is not about your financial independence -- it’s about your financial security. In other words, you’re becoming a family so you need to tackle it together.

Scott

The Power of a Simple Plan

A couple of years ago my wife dragged me along to the opening of an art exhibition.

Dutifully, I stood there with a glass of bubbly in one hand and a quizzical look in the other. I felt as out of place as a sober dude on a dancefloor.

Worse, out of the corner of my eye I noticed a woman -- and what I assumed was her teenage son -- gawking at me.I caught the kid’s eye and he approached me.

“You’re the Barefoot Investor, right?”

“Yes”, I replied.He looked back over to his mother and nodded.

“Would you mind if my mum came over and spoke to you? She doesn’t want to bother you, but ...”

“Sure, I’m happy to help”, I smiled.

This happens to me quite a bit. I’m like Kim Kardashian, only people don’t want to take a selfie with me -- they just want advice on what to do with their Self Managed Super Fund.

She was a well-dressed woman in her 40s. She approached me nervously with a smile on her face, but as she got closer I saw tears in her eyes.

Then she said ...

“Two years ago I lost my husband. I was left with young kids. I didn’t know what to do. I was alone and I was really scared. I wrote to you one night, thinking you must get thousands of letters, and not expecting a reply.

But you did reply. And you gave me the advice I needed. You don’t know how much I needed to hear it at that point in my life. You can’t imagine how much you helped me”, she said with tears running down her cheeks.

So what amazing advice did I give her that produced such an emotional reaction?Nothing.

That’s right. I (basically) told her to do nothing.

She’d just received a very large life insurance payout and was overwhelmed with what to do. That’s totally normal behaviour by the way. It’s called the ‘paradox of choice’ -- an unlimited number of choices makes the decision process harder, not easier.

And her grief only compounded her indecision.The advice I gave her simply allowed her to release the pressure value.

I told her to pay off her mortgage (she was adamant that she wanted to stay in the family home), take her kids on a holiday, keep enough money on hand so she didn’t have to worry or work full time for the next year, and then lock the rest of the money up in a 12-month term deposit. That way she could spend the next 12 months grieving and caring for her kids.

In other words, keep it simple. And that’s good advice for you too. Let me explain.

We Don’t Know When We’re Getting Bad Advice

A major study conducted earlier in the year by the University of Sydney found that most Australians are unable to tell the difference between good and bad financial advice.

The researchers produced videos of a number of advisors -- some providing good advice and others providing bad financial advice. The videos were then shown to groups of people who were asked to identify which of the advisors they would trust.

The research found that trust in the advisors was easily manipulated. “We were able to show that if an advisor gave good advice on an easy topic (like paying off a credit card) that this formed a good impression in the mind of the client, so they continued to trust that advisor even when they gave them bad advice down the track”, said Professor Susan Thorp who led the study.We saw this in action this week.

The latest financial planning scandal reported by ASIC -- and there’s been a long line of them -- revealed that almost 200,000 clients have collectively paid for $178 million worth of ‘advice’ that they never actually received. In other words, those 200,000 people were so bamboozled with bulldust that they didn’t even know what they were being charged for.

Keep it Simple

So if the average person can’t tell whether they’re receiving bad advice, what’s the solution?

You should do what the widow did.

When you are presented with advice you do a gut check.

The simple plan of eliminating her debts and focussing on her family gave her an enormous sense of relief, a feeling of control over her life and best of all -- it was one she could understand.Here’s the rub: when you’re making a bad financial decision you almost never feel any of this.

If you don’t understand something -- or you are a bit hazy on the detail -- you should keep asking questions until the fog clears. Over the years I learned that whenever someone tries to makes things appear complicated it generally means they’re trying to sell you something.

I’ve helped thousands of people with their money over the past fifteen years, and the one overriding lesson is the power in keeping things simple.

You’ll never go wrong if you follow this advice:

First, saving is the bedrock of all true wealth and security.

Second, debt always adds risk. It always makes your life more complicated. If you can avoid it you should.

Third, the only thing you can control with your investments is the fees you pay. A wealth of research proves that the more your wealth manager takes the less you make.

And the final clincher is this: no one cares more about your money and your family than you do.

Tread Your Own Path!

Wave Your Wand

Hi Scott,

My wife and I, both 43, are having a difference of opinion. We owe about $8,000 on our mortgage and have $60,000 in cash. I hate debt, so I want to settle the mortgage right now. But she wants to take the cash and redraw another $150,000 off the mortgage to get wealth-creation cracking Barefoot style (we have only $150,000 combined in super at the moment). Yet in 12 months when we stop paying for childcare, we will be able to free up another $1,500 per month. Please, please wave your wand and make my wish come true!

Dom

Hi Dom,

Well this is interesting. In most cases that I see, it’s the husband who’s the risk-taker and the wife who’s wanting to put the brakes on. So let’s play a game of Family Feud. I’ll be Grant Denyer with the cheesy grin.

You said that you ‘hate’ debt. So your wife needs to understand that borrowing money against your home to buy shares is probably going to raise your blood pressure. If you don’t feel comfortable doing this, don’t do it. Besides, the good news is that you don’t need to take on more risk -- with your home paid off at such a young age, you’re going to be fine.

The biggest trap you can fall into at this point is upgrading your house or your lifestyle. If I were in your situation -- and planning on living in your place forever -- I’d do the following:

Pay the mortgage off immediately and get your title back.

Take the family on a holiday and celebrate your biggest financial achievement. You’ve earned it.Keep $15,000 in an online saver account for Mojo, and then put $30,000 into two investment bonds for your kids’ long-term future.

Then what? You could set yourself up for a multi-million-dollar retirement by salary-sacrificing $25,000 each into low-cost super funds and invest anything over that into shares (either through a family trust or in the lower earning spouse’s name).

Scott

Please Be Brutal, Barefoot

Hello Scott,

I am in my 60s and earn less than $30,000 a year. I have 1,000 Telstra shares which I am considering cashing in (I would get about $5,000) to buy my son a car. Yes, you are probably horrified, but seeing the joy on his face would give me more pleasure than the piddling dividends I receive. I also have $60,000 in a term deposit (another piddling interest rate.) Be brutal! I love your column.

Sandra

Hi Sandra,

It’s not about being brutal. It’s about being practical. You are nearing the end of your working life and your son is at the start of his. Smiles aside, who needs the five grand more -- you or him? (And Sandra, to avoid confusion, I think you do.)

I personally wouldn’t buy a car for my son -- mainly because he’s three years old and that would be ridiculous. Still, when he’s older, the best I’ll do is match whatever he saves dollar for dollar. A first car is a great tool for teaching your kids financial responsibility.

Scott

It’s 3AM and I Can’t Sleep

Hi Scott

It’s 3AM and I can’t sleep. I am looking at buying my first home and stressing about how much I can afford. I am single, earn $70,000 a year, and have a deposit of $175,000 (unexpected windfall mainly). The bank has approved me for a $340,000 loan. I have done the sums and it is pretty tight. Everyone says I am being too anxious, considering I also plan to rent a room out. Am I getting in over my head?

Sarah

Hi Sarah,

Here are three Barefoot rules that will serve you well.

First, always borrow less than the bank will lend you.

Second, do not spend your entire windfall on a home. Leave some aside for Mojo. Trust me on this. Homes are expensive.

Third, if you’re lying awake at 3AM and thinking of me, things aren’t right. You need to trust your gut.I’ve done the sums too, and it is a little tight even if you rent out a room.

Generally, I don’t like people devoting more than 30 per cent of their income to debt.I’m even more of a stickler for this given that interest rates are at all-time lows. Remember you’re taking on a 30-year commitment. Interest rates will rise.

So head over to Moneysmart.gov.au and check out their mortgage repayment calculator. Factor in higher interest rates -- say 6 or 7 per cent -- and redo your sums.

Scott

Granny is Flat

Dear Scott,

I am a 79-year-old retired lady, still active. I own my unit in Bentleigh, worth maybe $800,000. My son wants me to sell it, knock down their slum in Chelsea Heights, and build a place for all of us with a granny flat. I am unsure what to do -- I do not want to be out on the street should anything happen. What is your advice?

Carol

Hi Carol,

I think you sound like a very smart lady, and I wish more people asked questions like this.

Your son is proposing what’s called a ‘granny flat interest’, which basically means you’re paying for the right to live in the new place for the rest of your life, with your family looking after you. Even better, depending on your situation, it may not affect the age pension.

However, like anything involving family, things can go a little Gina (Rinehart). After all, we’re talking about a 20-year decision here. What happens if you decide you don’t want to continue living with each other? (And, if you have other children, what will you leave them?)

That’s why I’d like you to get some independent advice on this. Not because you don’t trust your son -- but because your relationship with your family is too important to leave anything to chance. As a first step, I’d suggest calling Seniors Rights Victoria on 1300 368 821 and speaking to one of their community-based solicitors.

Scott

Would you invest in ... whisky?

I often write about investments that sound too good to be true.There’s a reason for this: people continually ask me about investments that sound too good to be true.

So this week, just for kicks, I thought I’d revisit a couple of stories … a sort of financial catastrophe version of ‘Where Are They Now?’

Secret Property Options

In March I wrote about a ‘land banking’ scheme that once operated down the road from my family farm.

Busloads of mums and dads would do field trips to a farm on the outskirts of Melbourne that the developers had named ‘Secret Valley’. They’d wander around the paddocks sizing up what they were told was a canny deal.

The pitch was simple: Secret Valley is on the edge of the Melbourne sprawl. Eventually it will be swallowed up by suburbia. And if you’re smart enough to buy an option on a few plots of land from the promoters … you could become very, very rich.

How rich?

The marketing pitch to the people on the bus was that they could turn $120,000 into $1.2 million.

So what happened to the investors in the scheme?

Well, as I concluded at the time,“The investors in Secret Valley got roughly the same treatment that my ewes receive when I put a few daddy rams into the paddock.”

So what happened to the promoters of the scheme?

Well, this week they accepted 10-year bans from managing a corporation or operating a financial services business. They also agreed to pay ASIC’s legal costs of $50,000. However, they do not have to reimburse their investors -- who have likely lost millions.

Depressing? Too bloody right.

So let’s get on the grog.

Nant Whisky Barrels

Tasmania’s Nant whisky is a damn fine drop -- it’s been referred to as ‘liquid gold’ and it’s won gongs at the World Spirits Awards. But it was Nant’s ‘investment opportunity’, which I wrote about earlier this year, that really gave me a hangover.

Nant offered investors the opportunity to buy two barrels of their single-malt whisky for $25,000. Then they ‘guaranteed’ that in four years’ time they’d buy back the barrels for $36,007 (precisely). That worked out to be a 9.55 per cent per annum compounded return, which Nant plastered on their newspaper ads.

The entrepreneur behind Nant (and therefore behind the guarantee) was a property developer by the name of Keith Batt. (Well, he was a property developer until he went bankrupt owing $16 million.)

Two things happened after I published the story on Nant.

First, Nant investors came out of the cellar claiming that they were struggling to get Nant to buy back their barrels as promised.

Second, I kept tabs on Batt, figuring he’d eventually pull the pin.

That happened this week.

Nant’s assets are in the process of being sold to an outfit called Australian Whisky Holdings (AWH). This publicly listed private equity group has strategic holdings in other Tasmanian distilleries, and they’re apparently long-term investors in what is an exceptionally well-regarded world-class product -- Tasmanian whisky.

I called up a director of AWH, Chris Malcolm, and asked him whether the company will honour Nant’s guarantee to buy back existing investors’ barrels and deliver them a 9.55 per cent compound return.

Malcolm: “We cannot commit to anything until we have undertaken a full audit.”

Barefoot: “Why not?”

Malcolm: “Mr Batt has indicated there may be a … hole.”

Barefoot: “And just how big is this hole, Mr Malcolm?”Malcolm: “We do not know how big the hole is.”

Yet there was another Nant investment scheme that I wanted to ask Mr Malcolm about: cows.

Yes, cows.

See, after the barrels blew up, Nant came out with another opportunity for investors: the chance to buy a dozen purebred Black Angus breeding cows for $30,000.

Cowabunga!

And, just like with the whisky barrels, investors are lured by a guarantee. Nant will purchase the cows back in five years’ time for $47,335 (precisely) which delivers investors ... the exact same 9.55% compound return. Whisky? Cows? At least they’re consistent.

Unfortunately, there have been media reports of investors having a hard time tracking down the precise location of their cows -- and basically getting the same old beef jerky from Nant that the barrel owners are getting.

Mr Malcolm just laughed: “I can confirm that we are not ... haw, haw, haw … buying the cow business.”

And then his phone cut out.

Smelling the Bulldust

On the face of it, you couldn’t think of a more diverse set of investments: whisky, farmland, and cows. (Come to think of it, I’ve pretty much just described my father’s dream retirement.)

Yet while they’re all very different investments, they have four things in common:

First, their advertising made bold claims about their potential financial returns.

Second, they targeted mums and dads to invest via their Self Managed Super Funds (SMSFs).

Hold up for a second.

Anyone reading these ads would believe they were investing in a financial product, right? Especially given they were putting their superannuation nest eggs into these schemes.

Wrong.

That’s the third thing all these investments have in common. The promoters denied they were offering a financial product. And there’s a very good reason for this. If they were, they’d have to issue a Product Disclosure Statement (PDS) and be regulated by ASIC. They’d also have to apply for an Australian Financial Services licence, for which, among other things, you need to pass a good character test.

And the final thing they all had in common? They all sounded too good to be true.

Tread Your Own Path!

The Banks Have Nothing on These Guys

Hey Scott,

The banks were being questioned recently over their dodgy fees. So why aren’t member-owned companies -- like ASG -- in the same boat? I mean, instead of helping hardworking parents to save for their children’s education, they are taking money through high fees. For example, we invested $5,000 over five years and the balance looks like it is going be around $4,750. How is that supporting children’s education?

Mark

Hi Mark,

You’ve perfectly encapsulated everything I’ve been warning about Australian Scholarships Group (ASG) for the past 11 years. They’re a terrible (not-for-profit?) organisation. I chose your question for no other reason than each time I mention them in the national press, someone in ASG’s marketing department dies a little inside.

Scott

Love My Daughter

My daughter has a $300,000 home loan on which my wife and I have gone guarantor. The loan is split into two parts. Her payments have all been going to the larger proportion ($240,000), so she asked her bank about the best way to get rid of our guarantor commitment ($60,000). They have advised her to pay all her payments to the $60,000 component and change the $240,000 to interest only. I feel this may have long-term implications for her. What do you think?

Lorraine

Hi Lorraine,

My first thought is that if you’ve had the loan for a number of years, you should consider getting the property revalued. If the property has increased in value, you may be able to be released as guarantor. If it hasn’t, I have no problem with your daughter directing her efforts to knocking out your part of the loan. I hope she buys you a nice birthday present -- you deserve it!

Scott

Forex Millions

Hi Scott,

I recently attended a forex seminar. There was limited learning but much selling of a two-day course costing $13,000. Though with ‘amazing discounts’ the price was slashed to $5,500. I could not believe how many people signed up straight away. Soon I was receiving emails offering ‘more discounts’. Can regular people actually make money by investing in a short forex course?

Doug

Hi Doug,

I can’t work you out, dude. It’s like you don’t believe in the Tooth Fairy -- but you’re messaging me over the interwebs asking whether I think you should punch yourself in the gob, break off a tooth, put it under your pillow, and who knows … you could strike it rich, right?

Doug, there is no Tooth Fairy. And the only forex millionaires are the ones selling the courses.

Scott

I’m Terrified

Hi Scott,

I have been diagnosed with a brain tumour and require surgery with no guarantee of an outcome. I am 44 years old, married with twins (boy and girl, aged seven). Our home is worth $1.1 million with $85,000 owing, we have $110,000 in the bank. I earn $70,000 a year, and we have a combined $75,000 in super. My recovery time will be two to three years if all goes well. What should I do for my family’s security in this uncertain time? Thanks for listening.

Chris

Chris,

As a dad myself -- my heart breaks for you.

Thankfully, you’re in a very strong financial position. The $110,000 in cash you have is something we call Mojo. It’s used for emergencies -- and you, my friend, are having an emergency. With your small mortgage your Mojo should stretch the length of your recovery. And in a worse case scenario you could look at downsizing down the track. Though I think that’s unlikely.From a practical point of view, I’d do three things:

First, talk to your employer and take stock of your options -- will you be able to continue working part-time? Then look at your personal leave, annual leave, and any long-service leave.

Second, call your health insurance and review the likely out of pocket expenses you may be hit with. That’ll help you organise a budget.

Third, call your super fund and see what insurance cover you have. You may find that you have income protection which, after a waiting period, can provide up to 85% of your usual wage for up to 2 years and in some cases up to age 65.

Good luck, and good health.

Scott

I Need a Shiny New Car

OK, I have been driving my busted-arse Holden Astra for 15 years. I am turning 50 soon and my boyfriend is going to buy me a new car, so l am looking at a luxury Audi TT convertible. We both work really hard, have no kids, own our home, and have three investment properties. So l think, why can’t l have it? But the ‘fun police’ said to me today, “How much should we spend on a car?” Being female, l don’t care -- l just want a shiny new car. Scott, my boyfriend loves you, so can you get him to give me an answer?

Caroline

Caroline,

you are the reason that people stop me in the street and say “Those questions, they’re not real are they?” Seriously, I couldn’t make this stuff up.

Okay, so your boyfriend can obviously afford it -- but that doesn’t mean he wants to spend it.

From a Barefoot point of view, I’m with him. You’re asking him to spend $100,000 on a car, and your sole justification is that you just want a ‘shiny’ car?

If I were him, the question I’d be asking is: what could I spend the money on that would make us happiest over the long-term?

For that money he could buy you a nearly new second hand car, plus a once-in-a-lifetime overseas holiday, plus fund twelve dirty long weekends away, plus radically change the entire life of someone somewhere in the world.

But hey, if you like the Audi TT convertible -- I’m all for women’s lib -- buy your own bloody car!

Scott

Meet the pizza boy with 14 properties

“Former Domino’s pizza delivery boy who earned $10 an hour owns 14 renovated properties and is now semi-retired at the age of 28 (and he says you can do it too)” read the headline this week.

And all the renters groaned.

Okay, so paint me purple and call me Dorothy but after more than a decade of doing this, my bulldust detector starts beeping whenever a young buck appears in the press crowing about owning 14 properties and retiring before he's 30 ... especially when his version of ‘retirement’ is running a property investment advisory business. Or maybe I’m just a dinosaur?

Either way, this type of ‘property porn’ always sucks in the eyeballs -- and with good reason.

House prices are our Vietnam ... man.

The war between landlords and renters has been a bitter and bloody two-decade-long battle. Over that time home-ownership rates of people aged 25 to 45 years have been in free-fall. The result being that young people are now increasingly middle aged before they get the keys to their first home.

40 is the new 30

According to research last year from ING, the average age of a first home owner in Australia is 38.A generation ago you’d hope to own your own home outright by 40. Today you’re just getting started -- so you are basically the housing equivalent of Janet Jackson (who announced this week she’s pregnant ... at 50).

And of course the banks can, and do, discriminate against older first-time borrowers. It’s simple maths: if you’re 40 and you take out a 30-year loan, you’ll still be working at 70 … or the same age that Janet will be on her kid’s 21st birthday.

So is there a way to fast-track it into your first home?You betcha.Enter the bank of Mum and Dad.

The Quickest Way into Your First Home

Research released this week from Digital Finance Analytics (DFA) estimates that the number of first time home-buyers getting a leg-up from their parents has increased from just 3 per cent six years ago to more than half today.

In fact, DFA found that over two-thirds of older homeowners who refinanced homes worth more than $750,000 did so for reasons that included helping their kids.

And how much are they giving?

DFA states that at the start of 2010 parents were handing over $23,000 -- today it’s more than $80,000.

There are three ways parents give that gift.

They can guarantor their kids’ loan by taking out a second mortgage on their family home (and you’d be totally bonkers to do this).

They can offer a limited guarantee -- say for a 20 per cent deposit. This has a couple of advantages: the kids won’t have to pay expensive Lenders Mortgage Insurance (LMI), and the parents know exactly what they’re on the hook for. Yet in the words of Pauline, “I don’t like it.”

Or retired parents can take a lump sum out of their super and hand it over to their kids to use as a deposit. That’s the cleanest option, though I won’t be doing it for my children.

Why?

A couple of reasons:

First, if a bank that earns $10 billion a year in profits deems your kid a risk -- why should you stump up?

Second, mixing money with family is never a good idea.

For the parents -- many of who are trying to fund their own retirement -- it sets a dangerous and expensive precedent for other children.

And for the kids, having your parents as your financial backstop could invite ‘boundary issues’...

“You know your mother and I didn’t lay down carpet until 1982? We sat on a cement slab for the first four years of our marriage. It gave your mother piles yet she’s still around, isn’t she? But you kids have to have it all now, doncha, with your fancy carpet and curtains.”

And …

“Why are you going on an overseas holiday / buying that car / talking to me like that ... when we helped you out with your home? Is that all the thanks we get?”

Planning for the Worst, Hoping for the Best

I’ve been called everything under the sun for my steadfast advice to save up a 20 per cent deposit. People have accused me of being out of touch. Mortgage brokers disagree and say ‘just borrow 90% … or get an interest only loan’. Real estate agents say ‘house prices are going up faster than you can save’.

None of these arguments change my advice.

The fact is we live in a country with the highest household debt in the world -- at a time when interest rates are the lowest point in history. All I’m concerned with is keeping first home buyers safe. And the best way to prepare yourself for taking on a massive 30-year commitment is to cut the apron strings and spend three or four years saving like mad.And what about our property-mogul pizza delivery boy?

Well I called him up and had a chat with him this week -- and I’ve got to admit that I was impressed.

When he started out, he lived with his parents and saved up a 20 per cent deposit with a low-paid job (and they don’t come much more low paid than delivering plastic pizzas), and he bought a little unit in the boonies. In other words, he scrapped, saved, and made things happen.

And then … it seems the Capricciosa went to his head. He just kept on leveraging up. Now, owning 14 properties on a low income at a time when interest rates are at all time lows (and have to come up some time) is not something I’d do. Then again, what’s the worst that could happen? He could go bust and … end up delivering pizzas for a living.

Still, hats off to the kid -- he’s got more guts than a freshly delivered Domino’s MeatLovers.

Tread Your Own Path!

Scott

The $20,000 Win

Hey Scott,

Not so much a question, I just wanted to say thank-you. I read your article about calling your bank and bluffing to get a cheaper home loan rate. I did exactly that. Although, things have changed now. They won't offer you anything on the spot. Instead they'll send you the forms, you'll need to fill them out (with fake UBank details of course) send them back to your bank, and their retention team will make contact. Your idea has just saved me $20k over the life of my mortgage.

Rick

Hey Rick,

Given this column is read (or at least seen!) by a couple of million Aussies each week, maybe the banks are wising up to my script. Maybe. Still, research from comparison site finder.com.au has found that four out of five people that hit their bank for a better rate, get it. Either way, you’ve proven that sometimes it pays to go postal!

Scott

You’re Wrong, Barefoot

Scott

Are you kidding? Last week you advised ‘Rachel’ a single mother to let the family home go and then rent? When I got divorced, I had a terrible solicitor who lost me my family home. I had two children and ended up renting. We had to move five times in ten years due to changes with either the landlord or the real estate agent! Do you understand the stress that causes, including being at the mercy of an owner? I was never able to purchase a home again!

Bev

Hi Bev,

I’m sorry you got a dud lawyer. However that doesn’t change the facts: Rachel was a single mum earning $65,000 a year, wanting to take on a $640,000 mortgage. I told her that she couldn’t afford it, and that doing so would put herself under severe financial stress. That was the right advice for her well-being, and therefore for her kids. Most mums want to keep the house in the event of a divorce, but in most cases they’re better off without it.

Scott

How to Get a Big Tax Refund

Hi Scott,

I had my tax done this week and found out that I have (finally) paid off my HECS debt! This is great news, but my accountant advised me that I cannot let my workplace know that this is the case, so I can ensure a decent refund next year. This sounds like a great plan. But I am in my 30s and there is a reasonable voice in the back of my mind wondering if I should do something else with the money.

Sam

Hi Sam,

You don’t have a HECS-HELP debt anymore. So why is your accountant advising you to keep deducting repayments?

My guess is it’s one of two reasons: either your accountant thinks you’re a little dopey and that you can’t be trusted with your money, or your accountant is a little dopey and can’t be trusted with your money.

Over to you!

Scott

Fight Club

Hi Scott,

My partner and are currently having a massive argument: I am pro renting and she is against it. We do not have any debts, and have about $80,000 in cash and shares. We both want to buy a house -- but for me it is not the right time. I have put together an Excel spreadsheet to show her how renting is better, but for some reason I am unable to win this argument with everyone saying that house prices will go up. Scott, I need your help to show her that renting is not bad!

Sachin

Sachin,

Dude. Mate. Cobber. You’re going about this all wrong.

With a spreadsheet? Really? Come on! I can just picture you sitting her down at your computer:

“If we =Sum:B2-B11, clearly the figures show, darling, that we’re much better off renting this one-bedroom, half-a-bathroom apartment. I mean the spreadsheet doesn’t lie. It’s just maths, honey.”

No, it’s not.Buying a home is both a financial and an emotional decision.Your position is this: you’re worried about losing money if you buy and house prices go down -- or, that you could have waited till prices crashed and bought a nicer home for the money you spent.

Your partner’s position is this: she just wants a home to call your own.So who wins the fight?

Well, let’s go back to the spreadsheet.

Truth is that no matter how much you fiddle with your formula, your spreadsheet will never be able to spit out when (or if) the housing market will crash. So, you’re effectively delaying your decision (and your life) for something over which you have absolutely no control.

So now open a new spreadsheet. Use your analytical skills to work out whether you can comfortably afford a home. Do a forecast for the next ten years, factoring in outliers like getting married, having kids, going down to one income, and interest rates hiking to 10 per cent.

Then make the decision together, as a team.

Scott

If you were a drug dealer, how would you want to be paid?

If you were a drug dealer, how do you think you’d want to be paid?

PayPal?

No.

PayWave?

Well, no.

You’d want to be paid in cold, hard cash.

And if you were ‘Breaking Bad’ big, you’d only want to deal in $100 notes -- anything smaller would be too heavy to lug around in suitcases.

(This is for illustrative purposes only: I’m a married father of two -- the only drugs in my life are bottles of strawberry-flavoured Nurofen for teething tots.)

This explains the mystery behind why you rarely come into contact with $100 notes -- even though there are three times as many in circulation as there are $5 notes, according to the Reserve Bank.

Drug dealers (and tax cheats) are hoarding most of them.

So given these facts, it’s not surprising there are calls for governments around the world to kill off their large-denomination bills (especially the US$100 bill) -- as a way to make life harder for drug dealers, strippers, and terrorists.

Yet Australia is already ahead of the curve -- a report released last month by Capgemini found that we are one of the world’s top five cashless societies. So it’s really only a matter of time before large bills go the way of Clive Palmer. But it’s not just criminals that stand to lose with the shift to digital dollars; banks are going to be hurt too.

How My Phone Became a Money Machine

A couple of months ago I signed up with a bank that allows me to pay for things under $100 by tapping with my iPhone. Thankfully, my wife does the weekly supermarket shop -- god love her -- so almost everything I buy is under a hundred bucks.

Here is what I learned:

Like you, my phone is always within reach. That means I don’t have to lug around my wallet, whip out a bank-branded card, or even think about going to an ATM. My banking universe is pretty much just another app on my phone.

Portable Bank Accounts

And that brings me to the biggest news story of the week: the Government Banking Inquiry. Sure, the entire thing was a farce, yet the one interesting thing that came out of it was the concept of making bank accounts ‘portable’.

What does that mean?

Well, just like you can switch from Telstra to Optus without losing your phone number, you would be able to switch banks without losing your account number. (This means you don’t have to go through the hassle of changing over all your direct debits … and risk getting whacked with a dishonour fee if you forget one of them.)

Under the griller, ANZ boss Shayne Elliott said that he was ‘open’ to the idea.But really he’s not. He can’t be.

See, the banks are stitching us up. Everyone knows that we pay some of the highest bank fees in the world -- the politicians, the punters, and especially the bankers. Lucky for them, there are still enough people who see them as an institution (these are the people who once had to get dressed up to get a loan).

That’s all over. The bankers are now facing full on digital disruption. So the idea that they’d be ‘open’ to giving their customers the freedom to switch with a swipe is … suicidal.

After all, the real gangsters today are the bankers.

Not only do they get away with rigging interest rates and hitting people with shady fees -- they also get to spend their spoils (in the infamous case of ANZ) on cocaine and strippers.

The four families that make up the banking mafia pull in close to $30 billion in profits annually, and their respective Dons make over $10 million a year each … and none of it gets paid in $100 notes.Who’d be a drug dealer?

Hater Of The Week

Last week I wrote about Donald Trump. This caused a lot of people to lose their minds, including Bill, who was so infuriated that he got on the old tappety-tap and fired me off this email:

Scott,

I’ve always believed that you were a fool, and this week you proved it. The truth is that the only people who don’t like Donald Trump are ignorant people in the media LIKE YOU. Trump at least has the guts to talk about the massive financial bubble that global bankers have created. You have no business writing about politics. Please stick to what you (claim) to know from now on.

Bill

And here is my response ...

Hi Bill,Thank you for your comments.

You are in good company. I received a larger than usual amount of hate mail this week.However, like many American voters, you seem to be confused.

In my column last week, I actually started out by saying that I thought Trump’s comments on the credit bubble were intelligent (and that, by the way, is a ‘stop the press’ moment in itself).

Yet the real guts of my argument was about the the politics of fear -- and how the media picks up and promotes stories that scare us. The old saying ‘if it bleeds it leads’ is especially true when it comes to predictions about the stock market.

As I wrote last week:

Wall Street had the worst start to the year on record when the Royal Bank of Scotland made global headlines with their recommendation: “Sell everything.”

Plenty of people got freaked out and did just that. Yet since they made that call, oil is up 40 per cent, emerging markets are up 29 per cent, the US S&P 500 is up 14 per cent, and even the ASX 200 is up 10 per cent.

Anyway, I just want to thank you, Bill. I forwarded your concerns on to my editor. He loved it and suggested that I consider writing a political column. I told him that I know as much about politics as Trump knows about foreign policy. Then again, why let that stop me?

Tread Your Own Path!

Wedding Bills

Hi Scott,

I’ve never owned a credit card in my life but with my wedding coming up in 4 weeks I’m looking into one for a few expenses I can't pay upfront. I’m looking at a NAB low rate credit card, how does this one fare? I’d need it to purchase some flights, some everyday things and potentially to use in Bali for some accommodation.

Renee

Hi Renee,

Congratulations on getting hitched. (I’ve been getting a lot of questions about weddings lately.)

Straight up, you do not need a credit card. If you don’t have the dough for something you ‘must have’, woman up and do what everyone else does in your situation: whack it on your bloody bridal registry.

Meanwhile, just for giggles, I had a look at NAB’s Low Rate (Cough, Cough) Card.

They’re charging 13.99 per cent per annum, plus a $59 annual fee, and 21.74 per cent for cash advances. (Seriously, where the hell do they come up with these figures? Point seven four?! Really? You’re just messing with us, aren’t you guys?). Given you can get a home loan with the NAB for 4.5 per cent, and no fee, that’s quite a stretch.However, respect to the NAB marketing team, who are at the top of their game (of banking bulldust). On their application form they even put a cute picture of a guy putting money into a pink piggy bank …Or is he?

Maybe he’s stealing money from his daughter's piggy bank because he can’t afford the extra ‘point seven four’ on his Low Rate Card!

Scott

The Booby Prize

Hi Scott

About 10 years ago I won $2,000 in a competition. Part of the prize was a financial planning session with AMP. So I took up the offer and, on the advice of the financial planner, invested the $2,000 in two managed funds through AMP. I then added another $2,000 of my own money soon after. Since then, the funds have barely broken even -- in fact I currently have less than the $4,000 originally invested. I have considered taking the money out and investing it elsewhere but am worried about realising the loss. Any suggestions?

Dennis

G’day Dennis,

Sounds like you won the booby prize, mate!

It reminds me of the meat tray my father always seemed to ‘win’ every Friday night at the pub. How many tickets did he have to buy? How many beers did he and his mates have to drink? Why were the sausages a slimy green? But I digress.

The last decade hasn’t been great for the Aussie share market. In fact, if you look at a 10-year price chart it shows that the ASX 200 — which represents the 200 biggest companies on the share market — has done basically nothing.

If you’d invested in a low-cost index fund, you could have earned 6 per cent a year, factoring in share price gains and the all-important reinvested dividends. In other words, your $4,000 would be worth about $7,200 today.

Dennis, you may have won the prize, but judging on your returns I’d say your advisor has too!

Scott