What Should I Do About My Crazy HECS Debt?

Hi Barefoot,

I will get straight to the point. I have a crazy HECS debt to the tune of $70,000. I am getting hitched in September to the the most amazing girl on the planet. What should I do?

Tom

Hi Tom,

First, you should definitely marry her.

Second, don’t bother paying any extra off your (admittedly gigantic) HECS-HELP debt.

Not even a dollar.

All the hoo-ha about the Government’s proposed changes to the HECS-HELP rules are focused on the compulsory repayments that come out as a percentage of your salary: they’re proposing to lower the starting income threshold by almost $13,000 (to $42,000).

In doing so the Government has all but given up trying to get people to make voluntary contributions -- the bonus was scrapped from 1 January 2017. So why would you bother rushing to pay off the cheapest loan you’ll ever get -- it simply increases with the general cost of living -- when it’ll come out of your salary anyway?

The answer is you shouldn’t, Tom. Forget about paying any extra and direct your cash into saving up for a deposit on a castle to share with the most amazing woman on the planet.

And one more thing for readers:I’m writing this from a hotel room in the US of A, where the average college student graduates $35,000 in debt to a financial institution that charges commercial interest rates. And it’s one of the few debts that doesn’t get wiped out in bankruptcy. We got it good!

Scott

If you want to buy a cheap inner city apartment … read this

Tick. Tick. Tick.

That’s the sound of the inner-city apartment market.

There are 15,000 brand-spanking-new apartments due to settle before 30 June this year.

Many of these apartments won’t settle … because the buyers can’t come up with the balance of their money, after paying a deposit.

A couple of years ago I wrote a click-baity story:

“2018: The Year First Home Buyers Get Their Revenge!” (Not bad eh?)

I was writing about the opportunity for first homebuyers to buy a brand new inner-city apartment — at fire sale prices. Much, much cheaper than they were selling for at the time.

Here’s what I wrote: “In three years’ time there will be an oversupply of inner-city apartments in many parts across the country. It’s actually not hard to forecast today, because we can see what’s coming down the property pipeline in a few years’ time: apartment towers take years of planning and regulations to get approved. When the market is hot, like it is now, lots of developments spring up to feed the demand … but there’s a lag.”

Basically, I argued that too many investors had put down too little a deposit, and when payment was due they’d struggle to come up with the dough — causing them to either default with the developer, or sell at a massive loss.

Today I want to revisit that topic, to see how we’re faring.

Blood in the Streets

The housing boom has been fuelled by property investors, and in inner-city apartment markets it’s been driven by Chinese investors buying up big.

So this week I caught up with Li Ming, a co-director of Aussiehome, who specialises in selling Aussie property to Chinese investors.

Ming: “The Melbourne off-the-plan apartment market is the worst I have seen in the last 10 years.”

Barefoot: “How long have you been in the market?”

Ming: “5 years.”

Ming believes that around 80% of Chinese buyers won’t be able to settle on their Australian apartments.

So what’s happening?

Well, Chinese investors are caught in a ‘pincer grip’.

Here’s a real-life example of one of Ming’s clients:

Three years ago his client bought a yet-to-be-built, off-the-plan, two-bedroom apartment in Melbourne’s Southbank for $750,000.

They put down a $75,000 deposit (10%) and planned to organise a loan for $675,000 (90 per cent) in three years’ time when the apartment was built.

Now, at the time his client was flipping through the glossy apartment brochure Melbourne prices had soared 35% in the three years prior … so there was a chance the investor could turn around and sell the apartment for more than $1 million by the time the apartment finished.

Yeah, Nah.

Let’s get back to the present day.

The Pincer Property Grip

Because of the oversupply of inner-city apartments, the Aussie banks are now being cautious about how much they’ll lend (and they’re also charging investors a higher interest rate for their loans). They told Ming’s client they wouldn’t stump up 90% of the purchase price — only 80%.

Remember, Ming’s client was still contractually bound to pay $750,000 to the developer.

Bottom line: he was $75,000 out of pocket.

So where does he find the extra money?

Well, that’s the second part of the pincer grip: the Chinese Government.

For the past year, the Chinese Government has been clamping down on investors taking money out of this communist country. Investors used to be able to take out $US50,000 per person per year … yet now many state-owned banks are lowering the amount, or outright blocking the money going overseas.

“So what did your clients do?” I asked Ming.

“They had no choice. They walked away … and lost their $75,000 deposit.”

Ming told me he has other clients who flat-out couldn’t get finance from the banks.

“They managed to negotiate to flip their apartment for a 7% loss … but even that is getting harder to do. Everyone is getting desperate”, he said.

60 Minutes Says …

Australia’s ‘flagship’ current affairs program, 60 Minutes, did a story last week on housing affordability. They interviewed two of our biggest inner-city apartment developers about the issue.

However they didn’t press them on the fate of Chinese investors. They didn’t ask what effect the banks repeatedly jacking up interest rates on investors was having on demand. And they certainly didn’t ask why the Reserve Bank has openly stated this week that it’s worried about the inner-city apartment market … along with flat-as-a-pancake wages growth, heavily indebted households, and sluggish growth.

Instead, they simply walked around in hard hats, grinned, and pointed at skyscrapers. And, in turn, the two rich white dudes gave two bits of incredibly condescending advice to young first homebuyers:

“Suck it up” and …

“Let us build more apartments.”

Seriously, that’s what they said.

Angry Millennials took to Twitter to vent their frustration about being labelled unrealistic, coffee-swilling, avocado-eaters.

My advice?

Don’t get angry … get even. Falling prices are coming, and right on cue.

Tread Your Own Path!

We Can’t Sleep at Night

Hello Scott,

My husband and I are on the age pension and receive $2,200 per month. We also receive an overseas pension of $700 a month. We have a combined super balance of $32,000 and a home worth $600,000.

We owe $25,000 on our car, $24,000 on our home, and $25,000 on a bank overdraft (we used to have a business but it collapsed). We are considering borrowing $100,000 for debt consolidation, paying off the car and overdraft, putting some into our home loan, and topping up our super with the balance. The payments on such a loan would be $600 per month (based on current interest rates). Please help, as this is leaving me anxious and sleepless at night.

Kathy and Kevin

Hi Kathy and Kevin,

You’re going to struggle to get a $100,000 loan when you’re on the pension, and with good reason:

Pensioners can’t afford to be repaying debts!

If I were in your shoes, I’d downsize your home, pay off all your debts, and keep the money in super as a backstop.

Otherwise you could: withdraw your super as a lump sum and pay off the highest-interest debt. Then both of you could go back to work a day or so a week (combined you can earn $13,000 each before it affects into your Centrelink pension), and possibly rent out a room until you’re debt free.

Good luck.Thanks for reading.

Scott

I Ruined My Husband’s Life

Hi Scott,

My husband’s business has taken a massive hit, and I am entirely to blame.

He is a part-owner of a successful business for the past eight years. They have finally reached the stage where they are able to expand, and just a few weeks ago were approved for a significant loan.

Today, they received a call informing them the loan has been withdrawn: because years ago when they were setting up the company I was made a director, and I am bankrupt. (My husband and I have totally separate finances. I have nothing to do with the company, and own no shares. I am just a stay at home mum to three young kids).

When the business’s bank sent the paperwork to the seller’s bank, they were flagged my insolvency. The loan was immediately withdrawn. Because of me. Now I have single-handedly destroyed the future (and present) of my husband’s business partners, and the business they have all worked so hard to build. I am at a complete loss as to what I can do, short of divorce.

Ingrid

Ingrid,

Dial down the drama!

You haven’t ruined the business. And you don’t need a divorce, though a competent accountant would be nice.

You can’t be a director of a company if you’re bankrupt (so you should have left before you went bankrupt). But you can fix this; just call your accountant and have them lodge with ASIC and get it cleaned up. Then have your husband explain the situation to the bank -- that you’re basically a patsy director who owns no shares. If the business’s financials stack up (and the directors can offer the appropriate guarantees), they’ll get the loot. If the financials don’t stack up, they won’t.

Now the thing for me that is drama-worthy is that you and your husband still split the bills like you’re flatmates. That’s going to strain your relationship, if it isn’t already (and it sounds like it is). You need to work as a team, split everything down the middle, and make joint decisions. Do it for your kids.

Scott

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

Go Wash Yourself, Barefoot

Barefoot,

I have no question. I just cannot believe that -- in the paper last week -- you would be pushing a company such as Amazon.com. Talk about being a hypocrite! Here we are, us plebs who go to work every day, some of us for minimal wages, working 40 hrs a week to pay for our mortgages and living expenses, doing our damndest to make ends meet. And you are telling us how great this overseas company is just because they can deliver washing powder faster than Superman -- and cut back jobs. What about advance Australia fair?

Reg

G’day Reg,

Competition’s a bitch, ain’t it, Reg?

Whether you or I like it or not, Amazon is coming to Australia and it’s going to rock the retail industry. And that’s the point I made to my readers: there are 1.3 million Aussies retail workers, and jobs will go. (They’re called the ‘country killer’ for a reason.)

So what can we do?

Well, we can vote with our feet and buy everything locally from Aussie producers and retailers.But you and I know ... we won’t.

Scott

A Brick to the Head

Hi Barefoot,

I have been thinking about what I could do to have my deposit savings keep pace over the next couple of years before I buy my place. One idea I have is to invest my deposit savings into BrickX, which allows you to buy a share in an investment property. I see it as a hedge against rising property prices. What do you think?

James

Hi James,

I wouldn’t do it, even though it is a hedge (less their fees, and less any potential capital gains tax).

Reason being, I don’t advise people to buy an investment property before they purchase their principal place of residence, because in all the years I've been doing this I’ve never seen it work out. (And with a BrickX property, you don’t have the option of eventually living in it.)

ScoMo’s new ‘First Home Super Saver Scheme’ is admittedly a bit of a fizzer (maybe that’s why it’s got the acronym FHSSS)?

But it’s exactly where you should be saving for the last few years of your deposit. That’s because a couple earning $65,000 each will save an additional $12,000 by using the scheme -- guaranteed. And for the average Aussie trying to buy a home in one of the most overvalued patches on earth, every cent counts.

Scott

How to get into your home 30% quicker

When I was a kid, all I wanted for my birthday was a pair of Air Jordans.Mum and Dad got my hopes up. Then on the big day, they presented me with … a pair of Dunlop Volleys.

“They’re great sandshoes”, said Dad. “You know, Newk used to play in these. A phenomenal sportsman.”

Uh-huh.I felt the same way last Tuesday, on Budget night.

See, in the lead–up to Tuesday, the Government had been leaking like Clive Palmer, dropping hints that the centrepiece of the Budget would be a plan to tackle housing affordability — once and for all!

What we got was the legislative equivalent of Dunlop Volleys (before hipsters made them cool):

A feeble attempt to get some oldies to downsize, and an air kiss to negative gearing and capital gains tax reform. And … the First Home Saver Account 2.0* (*now with less KRudd!). In fact, the name is eerily similar — the ‘First Home Super Saver Scheme’.

“I was right!” I yelled at ScoMo (who was … talking on the telly).My wife sat there, arms folded, rolling her eyes.

“I predicted months ago in my column that the Government would only let people withdraw their voluntary super contributions to put towards a deposit”, I said, punching the air triumphantly.

“You are turning me on so much right now … my husband, the tax whisperer”, she said (mockingly).

Harsh … but fair. It’s not like I’d just answered the million-dollar question on Hot Seat.

Yet given that I’ve always been a fan of first homebuyers saving up to buy a home, let’s take a look at what’s on offer. Today I’m going to tell you exactly what you should do with the brand-new First Home Super Saver Scheme.

Specifically, who should open one  … and who shouldn’t.

How to Get into Your Home 30% Quicker

At least, that’s the line ScoMo used on Budget Night.

So let’s see how it works.From 1 July 2017, you’ll be able to ask your boss to divert extra money into your super fund to save for a deposit, and then draw it out to buy your first home (the earliest time you could withdraw it is 1 July 2018).

The maximum you can save is a piddly $30,000 per person (so a couple can save $60,000).

Why would you do that?

Because you’ll pay less tax … and the less tax you pay, the more money you’ll have to put towards your deposit.

Let’s take the case of Mandy.

Mandy earns $65,000 a year as a professional wrestler, and she’s saving a deposit for her very own wrestling ring.

At her top rate, Mandy pays out 32.5 cents in the dollar in tax, plus the Medicare levy. So she could earn $10,000 and be left with just $6,550. Yet if she salary-sacrificed the same $10,000 into her super fund (with a 15% flat tax rate), she’d be left with $8,500. Even better, the interest she earns on that money in super would also be taxed at the same rate — another tick for her super fund.

No-brainer, right?

Okay, so that’s quite simple.But the cardigans in Canberra love complexity, so let’s go deeper.

Game on!

First, Mandy is limited to putting in a maximum of $25,000 into super per year pre-tax, and that includes her employer contributions. (And if you’re self-employed, or your employer doesn’t offer salary sacrifice, you can still claim a tax deduction on your personal contributions.)

Second, how much interest does she earn?

Well, that’s the thing.

The money isn’t paid into a separate account; it all goes into the one super pot (deposit savings and long-term savings together). The ATO doesn’t want to calculate the interest Mandy will earn on her deposit savings, so they cheat and use a formula for guessing (they call it ‘deeming’). Currently, it’s set at 3 per cent plus the current bank bill rate, making a total of 4.78 per cent.  

Again, that’s not how much she’ll actually earn on her deposit savings, just what they deem she’ll earn. If the market crashes, her super balance will take a significant hit — but the ATO will still deem that her deposit savings increased by 4.78%, and she’ll be allowed to take it all out. Trouble is, it hasn’t actually increased, and what she’s taking out is dipping into her long-term super savings — not good. Now I’m not saying this will happen, but it’s possible.

Finally, she’ll be hit with an exit tax (set at 30% below her marginal rate) when she takes her deposit savings out of her super.

Seriously, can you imagine Pauline Hanson trying to work this out?

Please explain?

If your eyes glazed over for the last few lines, that’s okay. Here’s the guts of it:After three years of saving using the First Home Super Saver Scheme, Mandy will have $25,833 available for a deposit, or $6,314 more than if she’d saved via a standard bank account.

So how does this all apply to you? Well, it depends.

Who should open a First Home Super Saver?

If you’re planning on buying a home in the next few years, and you already have a decent deposit saved up, you’d have rocks in your head if you didn’t open one up.

That’s because it’s worth $12,628 extra to an average earning couple (based on Mandy shacking up with the Hulk), compared to saving in a basic bank account. Sure, that’ll buy you the equivalent of half a dunny in a capital city, but it’s twelve bloody grand for filling out a few forms! I’d bend down and pick up twelve grand if I saw it on the footpath. Wouldn’t you?

Who should not open a First Home Super Saver?

Anyone with a longer timeframe — who isn’t planning on buying for up to five years. Parents, grandparents — don’t open one up for young kids. Conscientious kids, that goes for you too.

Huh? Isn’t the Barefoot Investor all about the long term?

Sure, but there’s one more risk with this scheme that I haven’t mentioned yet — and it’s a doozy. What happens if you meet and settle down with a good-looking young rooster (or hen) who just happens to own their own home already?

Under the current rules, the money you’ve saved up can only be used as a deposit for your first home. So, because your partner has already bought a home, you’ll be forced to keep that money locked up inside your super and won’t be able to access it until you’re in sandals and socks.

Or Air Jordans.

Tread Your Own Path!

What a 90-year-old gardener taught me about real wealth

Today I’ve got a real treat for you.

I’m going to paint you a picture of what real wealth looks like.

I’ve spoken to a lot of amazing people over the 12 years I’ve written this column, but the two hours I spent with legendary ABC broadcaster and garden guru Peter Cundall proved to be one of the most thought-provoking discussions of my life.

And it began terribly.

“I don’t like economists … and I hate financial writers … ”, the 90-year-old told me gruffly.

“Oh…kay”

“… but I love the Barefoot Investor!”

“Okay!”

At this point, dear reader, you’re probably thinking to yourself, “what can an old gardener teach me about achieving real wealth?”

Trust me, keep reading.

Our tale of riches begins in the working-class town of Manchester, England, on the 1st of April 1927. Cundall was born in a room that his parents rented for a shilling a week.

They were dirt-poor, but at least Peter was born healthy. Tragically, two of his baby brothers died — one almost immediately after being born, the second when just two years old. “That was quite common in the 1920s … my brothers basically died of malnutrition”, he says.

This was at the height of the (not so) Great Depression.

Of the one hundred homes in his street, only five had a job: “We really were the poorest of the poor … though I didn’t know it at the time. After all, there was no television for us to compare ourselves to anyone else.”

His father was a violent alcoholic who repeatedly bashed his mother. And so it fell to young Peter to step up. Despite his love of learning, he quit school at age 12 and began working seven days a week, from sun-up to sundown, to support his mother.

And it didn’t get any easier as he got older — fighting not only in World War Two but also in Korea.

The avowed pacifist tells me the Korean War was non-stop slaughter: “We were surrounded by rotting corpses all around us. These were your mates. The smell of death never left us for a year.”

The Power of Perspective

Here’s the thing: right now my inbox is chock-full of people worrying about the ‘crises’ they face in their lives: “I can’t afford repayments on my Audi — should I sell it (sad emoji)? I have to pay tax on super over $1.6 million … it’s not fair! The housing market is …. brutal.”

Uh-huh.Cundall — by contrast — has lived through genuinely tough times.

In fact, looking back on his life after nine decades, you wouldn’t blame him for being a bitter old bugger.

But he’s not.

Cundall’s genius is his sense of perspective.

“I had a magnificent childhood … I was extraordinarily happy”, he tells me, without a hint of irony.

His fondest memory is of his mother encouraging him to grow veggies in the next-door council block, to feed his family.  “I remember when I was three years old, sowing some peas, pushing them into the soil. I started growing organic food way before it was trendy. The streets were strewn with horse manure … that was the food for the veggies!”

And here’s how he describes the time in World War Two when he was locked in solitary confinement (for six months): “When I heard the cell door clink behind me I thought …  ‘Aaaah, finally a room to myself.”

The fact is, no one could go through the devastation he’s seen without being changed. For Cundall (and many of his generation) it instilled a steely sense of resolve, self-determination and inner self-reliance that he could handle whatever life threw at him.

Case in point, here’s what he says about debt:

“I’ve never had debts … never! If I didn’t have money, I didn’t buy it. And if I still wanted it, I’d make it.”

And about government handouts:“I have never, ever taken anything from the government”, he says (despite being entitled to a military pension after years of service). “I have no interest on being on the public teat.”

Now Cundall may be 90 years old, but he’s still as sharp as an axe.

Throughout the interview he punctuates his stories with hook-lines with the skill of an old-school advertising man: “And let me tell you another thing  … and this will shock you …”

I’d find myself leaning in to find out what will shock me …“I like paying tax … because of what it provides! We need to pay more taxes in this country!”

The Power of Contribution

After surviving two wars, Cundall began his career in the media.In fact, he was the pioneer gardening guru, starting the world’s first gardening radio talkback show, in the late 60s. And a couple of years later he began presenting on television, which became Gardening Australia, where he stayed until retiring in 2008. (“I am totally unqualified for anything”, he says. “When I got on telly, I just bullshitted my way through.”)

Key point: he didn’t do it because he wanted to be famous. He didn’t do it because he wanted to become rich. And he certainly didn’t do it to fluff his ego. He did it because he wanted to help people and show them how to grow healthy, nutritious food.

Or as he puts it: “I don’t have ambitions for myself … I’m ambitious about what I can contribute.”

And after 60 years, he’s still contributing. Most nights he works until 3 am in his study, writing for the Weekly Times and the Organic Gardener, and he does a weekend talkback show on the ABC.

He also volunteers his time helping soldiers who’ve returned from combat. “These are veterans who are suffering. And when you’re stressed out, you should go to the garden and push the shovel in. As you turn the earth, it releases something back to you. It’s like an all-natural anti-depressant.”

You can learn a lot from listening to the wisdom of people who’ve lived through genuinely tough times. When it comes to Peter Cundall, you can learn just by watching what he does. My hope is that when I’m 90 years old I’ll still be furiously bashing away on my keyboard and helping families manage their money better.

That, for me, would be true wealth.

Tread Your Own Path!

The Professional Poor

Hi Scott,

We are in our early 40s and, despite a combined income of $185,000, are feeling like the ‘professional poor’. Working long hours, drowning in our mortgage, two young kids (with two depressed parents), no support to even have a Barefoot Date Night. Our last holiday was four years ago and we were all vomiting with a virus. We are sick and tired of life and need help. I would rather live in a tent, but can’t even afford one. We are a sinking ship.

Amanda

Hi Amanda,

Boo-freaking-hoo.

Let me hit you with the reality stick: according to globalrichlist.com, you are in the top 0.07 per cent richest people in the world, based on your income. That makes you the 4,262,959th richest person on earth by income. In other words, around 7.1 billion people would love to have your First World problems. You sound like what I call a ‘postcode povvo’: you’ve over-borrowed so you can live in a fancy house in a fancy suburb, and all it’s doing is making you miserable. Now, all jokes aside, I totally understand the depression that financial stress brings. It’s horrible and it’s no way to live. Thankfully there’s a simple solution: sell and buy something you can afford. On your income, and working as a team, you can do this. Then you -- and the kids -- can start enjoying life.

Scott

Aggressive Wealth-Builders Go for Broke

Dear Barefoot,

My husband and I are in our early 30s and we earn $175,000 combined. We are aggressive wealth-builders. However, one of our investment properties is in negative equity by $75,000 (we had a loan to value ratio of 97 per cent). We have no way of refinancing or selling as we cannot cover the shortfall currently. We have three other investment properties (one that we will move into in five years) and thought to sell them to cover the shortfall. However, we have just had independent valuations done and this would only cover $20,000 -- a huge mess! Do we direct our ‘fire extinguisher’ money to this and pay it down to where we can sell it? I say yes, partner says no. HELP!

Stacey

Hi Stacey, 

Aggressive is one word for your situation. Borrowing 97 per cent of the value of the property doesn’t leave you with any wriggle room (negative equity simply means you owe more on your mortgage than the house is worth, in your case to the tune of $75,000).

I understand the concept of aggressively using the equity to ‘leapfrog’ and buy more investment properties. There are entire books devoted to the strategy, and they all end with the landlord becoming filthy rich. In the book, that is.

The ‘only’ thing you need to watch out for is going broke in the process! To avoid that, you need a buffer.

So let’s talk about your buffer. You need to make sure that you have enough money to cover the impact of higher interest rates, prolonged vacancies, and maintenance costs. That’s just for the investments. You also need Mojo (and income protection) in case one of you can’t work.

Either way, I’d be aggressively saving -- and then potentially looking at unwinding the strategy.

Scott

Our Friends Almost Ruined Us

Hi Scott,

My husband and I lost $300,000+ in the GFC -- bad property, tax schemes (‘woodlots’), loans for shares, etc, all sold by a dodgy financial adviser and all of which collapsed! We have slowly shed the debts. We now follow Barefoot, are ‘hosing down’ our home loan ($185,000), have $65,000 invested, are building up our Mojo account, and have started giving Kiva loans. Despite all this, I cannot shed the resentment I have for our friends who promoted the financial adviser to us. In your experience, do people like us eventually forgive themselves for listening to bad advice?

May

Hi May,

You’ve managed to pull yourself out of a financial hole; now you need to let it go emotionally, for a few reasons:

First, the money ain’t coming back.

Second, it’s not your friends’ fault. Truth is, most people have no idea how to judge a financial planner: Did he have a nice smile? Nice suit? Salon-styled hair? More likely, he made your friends some money (well, before the GFC hit) and they were just trying to help you do the same.

Third, if you’re going to get angry at anyone, direct it at the financial advisor, not your friends. He was the one who broke your trust and did the wrong thing by you.

You know what? It’s highly likely your friends lost a lot of dough with this douchebag too. Why not have a chat to them and explain what you went through -- and how you pulled yourself back up again. Just sharing that story with them will make you feel better. Promise.

Scott

Worried Grandad

Hi Scott,

My granddaughter’s father (my son-in-law) died when she was 10 years old, and left her a legacy. She is now 19 and has a share portfolio worth $105,000 earning (around $7,000 fully franked) and cash investments of $30,000. She attends uni and has part-time work earning $20,000 p.a. All good. But for the past year she has been seeing a boy who only works part time and lives with his mother. I think they may be planning to move in together. How can she protect her assets if this relationship fails?

Doug

G’day Doug,

You could encourage them both to sign a cohabitation agreement, which is a legal document between a couple who choose to live together. Honestly, though, it’s not ironclad and it doesn’t necessarily stop things from getting messy if he’s got dollar signs in his eyes. You could choose to transfer the shares into a trust, or invest via an investment bond for another layer of asset protection, though you’d need to consider the capital gains tax implications of doing so.

For my money, the best way to protect your granddaughter is to explain, in as many ways as you can, what the money represents, namely her father’s dying wish that his daughter be financially secure. It’s her job (with your loving guidance) to honour him, and the way to do that is by learning to become a good money manager. She may need to hear it 30 times before it really sinks in: it’s not just shares and cash in a bank, it’s a bond she shares with her father. No one else.

Scott

Divine Intervention

Scott,

Could this be divine intervention? I have just read your recent article in which you saved a single mum from a property ‘guru’. It hit home for me because my husband and I are considering signing up for one of these programs -- a ‘step-by-step guide’ to investing in commercial property. It is not the $17,000 your article mentioned, but it is still $3,000 that we do not have and which we are considering paying for on our credit card.

My husband is excited and wants to go ahead, but I am sceptical. We follow your blogs, have read your book, and religiously read your articles in the paper. In the past you have advised that commercial property is a good investment, though you were referring to shares in commercial companies. We know a little about investing in property (having bought a property through our SMSF which seems to be going well), but we are scared to take the plunge. What would be your advice?

Natalie

Hi Natalie,

Tell your husband to pull his head in. You should both have an equal vote on where you spend your money. You’ve voted ‘no’ for what I think are intelligent reasons -- the biggest of which is that you don’t actually have the money to buy the course. Anyone who buys a $3,000 course on credit card should not be investing in commercial property!

Scott

Mojo or Offset?

Hi Scott,

We are absolutely loving your book -- we are on Date Night Three and already feel more in control than we’ve ever been. But the one thing we can’t get our head around is your advice on Mojo -- you say that people shouldn’t put their Mojo money in an offset account. We make $170,000 combined and have $342,000 on the mortgage, which has an offset account. Wouldn’t it be the best of both worlds to use our offset account as our Mojo account?

Kelly

Hi Kelly,

Great work on the Date Nights! As far as parking your Mojo money goes, I strongly favour keeping it in a totally separate account with another bank. It just gives another layer of separation from your day-to-day banking (and spending).  Yes, I know more tax effective to park your Mojo in an offset account than a savings account, but the real return you get from Mojo is being able to draw on it when life hits the fan. And I’ve met a lot of people who’ve ‘borrowed’ from their Mojo money and never replaced it. Ultimately, though, I suppose it doesn’t matter where you keep it, so long as you have it!

Scott

You’ve Lost the Plot, Barefoot

Hi Barefoot,

I always read your column and generally agree with your comments, but I strongly disagree with the thrust of your article on 29 January on ‘How to Retire Comfortably’. I do not dispute your arithmetic, just the logic that a couple need only get to the very bottom rung of the assets ladder (paid-off home plus $250,000 in super), and then rely on a taxpayer-funded pension for the rest of their lives. The reasoning is inherently flawed.

I believe people should be encouraged to provide for themselves and strive to live comfortably with NO government assistance. To me, your book seems to lower the standard of human endeavour and will only result in more and more taxpayer money being spent on welfare in future. The age pension is supposed to be a safety net for those who cannot fund their own retirement -- not a guarantee to be factored into retirement plans.

Jason

Hi Jason,

Don’t hate the player, hate the game.

The fact is that 80 per cent of Australians retirees receive either a full or part age pension. And let me raise your blood pressure a little higher: that figure is unlikely to reduce over the next 40 years, according to estimates from Treasury Intergenerational Report.

Having said that, I agree with you that being self-funded is the best way forward. That’s why I spend every other page of my book doing all I can to help people become financially independent. If they follow the Barefoot Steps a little earlier in life, they’ll be comfortably self-funded when retirement day comes.

Scott

I’m Accident Prone

Hi Scott,

I am 28 years old, earning $55k, and curious whether I should get private health insurance. I injured my ankle and had surgery through the public system after waiting a year. Even if I had bought insurance immediately after I hurt myself, there would still have been a year’s wait because my injury was ‘pre-existing’. So should I just continue to set aside some savings to cover my accident-prone tendencies, or should I take the plunge and get private health insurance before I turn 31?

Emma

Hi Emma,

I wouldn’t bother. You’re earning below the threshold for the Medicare surcharge slug, and you’re below the age of the lifetime health cover loading slug. Besides, you already have health cover -- it’s called Medicare -- and it’s one of the best healthcare systems in the world. My advice would be to do two things: take out a membership with Ambulance Victoria ($44.90 a year), and keep saving up your Mojo.

Scott

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

My Fiancé Had a Surprise For Me ...

Hi Scott,

First-time caller, long-time listener. In May I was all set to be married to what I thought was a lovely gentleman. I always had a sneaking suspicion that he carried a reasonable amount of debt (due to his lavish spending), but I finally pried it out of him: he owes $107,000 on credit cards! What should he do? What should I do? Can a leopard change their financial spots? I am 39 and was hoping to have a child ASAP!

Mandy

Hi Mandy,

Greetings, and welcome to the Jerry Springer section of my weekly Q&As. Actually, my first thought when I read your question was that you may have been a contestant on Married at First Sight. And I had the same reaction that my wife has when she watches that show (mumbling and shaking the head). Anyway, thank god you found this out before walking down the aisle. Your discovery is a game-changer, for a few reasons:

First, because there’s something off about a bloke who only admits to his fiancé that he’s got $107,000 in credit card debt when he’s pushed. That’s not normal. What other questions should you be pressing him on?

Second, because you’re planning on having children with this guy, so you need him to be a good provider. That’s not being sexist, it’s being a realist. You’re probably going to take time out of the workforce to raise children, so you need to be able to rely on him to provide. Unless he’s earning very good dough, he won’t be able to.

Finally, because he’s a financial loser. That’s not very nice to say, and very judgemental. However, there are two instances when you’re allowed to be judgemental: when you’re watching reality TV, and when you’re choosing a life partner.

Scott

The Government’s Plans to Fix Housing Affordability

“Waaaah!” wailed my son.

Tragedy had struck: our golden retriever had used his favourite toy tractor as a makeshift bone.

“Dad … can you fix it?”

I looked at my distraught son.

I looked at the mangled remains of his little John Deere toy tractor, covered in bite marks, missing two wheels, and encased in a film of dog slobber.

“You can fix anything  … right Dad?”

“Oh … umm … sure”, I mumbled, avoiding eye contact with son number one.

Hello, Mr Fix It

A thousand kilometres away another Scott (Morrison, the Federal Treasurer) was having his own chewed-up screwed-up moment: right now millions of kids are asking the Treasurer  … “Please Mister Sco-Mo, can you fix the housing market for us?”

Like me, deep down Sco-Mo knows he can’t really fix anything.

Like me, he also knows no one wants to hear that ... so he’s just trying to keep everyone happy (and keep his job).

Still, he and Malcolm-in-the-Middle have only themselves to blame for the political pickle they’re in. After all, they were the ones who boldly declared that the centrepiece of next month’s Federal Budget would be policies to fix the mangled mess that is housing affordability. And, just like my son, first homebuyers are now staring at Sco-Mo expectantly. A good example of which was the front webpage headline in the Fairfax papers this week: “Government aiming to fix housing deposit problem so young buyers can purchase ‘as soon as possible’.” (No pressure, Sco-Mo!)

And so the pre-Budget tradition of leaking ideas to the media to see what sticks or stinks is in full swing. The big idea that has had more leaks than the Titanic is allowing first homebuyers to raid a few years of their super contributions to build up a deposit. This week the Treasurer again refused to rule the idea out. Though in this he at odds with his boss, who described it in 2015 as a “thoroughly bad idea”. And, as I go to print, the Prime Minister appears to have put his foot down (though with Malcolm that would be a gentle tap of his $800 brogues) and said it won’t happen.

In reality, their hands are tied. The Government doesn’t have the political ticker to touch negative gearing, despite the fact that the current rules favour investors over homebuyers and encourage loss-making property speculation.  (Research from Digital Finance Analytics this month shows that one in three Sydney landlords risks being under financial stress should rents fall or rates rise. History shows that, when a downturn occurs, property investors often rush to sell -- unlike owner-occupiers, many of whom would sell the dog to keep their family home.) And while the Government is making noises about trying to encourage oldies to downsize, they don’t have the kahunas to include the primary residence in the asset test for the age pension.

Canberra Can’t Solve a Damn Thing

Look, I’m no Rhodes scholar (like, say, Tony Abbott, who incidentally is a big fan of raiding super), but the only sustainable ‘fix’ for housing affordability is lower property prices.  And it’ll happen anyway at some stage. Fact is, Australia’s household debt is out of control. Our household debt-to-GDP sits at 123 per cent -- the third highest in the developed world, and much higher than the Poms (88 per cent) and the Yanks (79 per cent), and basically twice as much as the bloody Greeks (62 per cent)!

So, as I’ve said many times before, we’ve got debts at all-time record highs when interest rates are at all-time record lows. When interest rates rise -- and they will, eventually -- house prices will fall, and housing affordability will be fixed (YAY!). The only problem is, you may not have a job as we slide into recession (BOO!).

But don’t expect anyone in Canberra to talk about this.  Even though they’re chauffeured around in fancy cars with little flags on the bonnet, that doesn’t mean they know what’s going on … or that they’ll admit how worried they really are. Heck, even the people who set interest rates don’t have much of an idea. Case in point: at the height of the US housing boom, Federal Reserve Chairman Ben Bernanke was interviewed on television:

Interviewer: "We have so many economists saying this is a bubble, and it could even cause a recession at some point. What is the worst-case scenario, if we saw prices fall substantially around the country?

"Bernanke: “Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow ... maybe stabilise.”

The US housing bust triggered the deepest financial crisis in living memory. Yet here’s the interesting thing: the beginnings of the US housing bubble can be traced back to 1995, when then President Bill Clinton passed legislation to … tackle housing affordability. So the lesson here is simple: don’t look to anyone -- except yourself -- to fix your problems. After all, Scott has enough of his own. “

Waaaah!” 

Tread Your Own Path!

The Revenge of the Oldies

You never actually know what will become a ‘hit’.

Case in point:  when I wrote my book, I had no idea that my ‘Donald Bradman Retirement Strategy’ would resonate so strongly with readers. To date, I’ve received literally hundreds of emails from people in their 50s and 60s -- some admitting they were in tears as they typed -- thanking me for taking away their fear of retirement.

For the first time, they realised they can live a dignified retirement even if they have far less than the minimum ‘magic million’ in super that everyone tells them they need.

For those of you who haven’t read my book (What’s your excuse? Buy a freaking copy! The royalty from each book buys me half a can of Coke), the aim of the strategy is for retirees to still be at the crease at 100, hitting it out of the park while enjoying a comfortable retirement.

(And by ‘comfortable’ I mean lapping it up on a nice three-week trip to Noosa each year with your mates each year. Regularly eating at nice restaurants. Going to the flicks. Driving a near-new Toyota. Spoiling the grandkids. Having enough money for top-quality health insurance. And having some Mojo stashed away for emergencies.)

The Donald Retirement Bradman Strategy is a four-step process: First, you need to own your own home before you retire.

Second, you (currently) need to have $250,000 in super (couples), or $170,000 (singles).

Third, you need to claim the full age pension.

Fourth, you need to continue working a day or so a week. And here’s where the gravy cup from Canberra really runneth over: retirees can earn $57,948 a year (couples) or $28,974 (singles) before they pay a dollar in tax. And if they just want to supplement the age pension -- and not reduce it -- they can earn $13,000 (couples) or $6,500 (singles) a year under Centrelink’s ‘Work Bonus’.

The Million-Dollar Myth

Let me be clear: having a million bucks or more in retirement is a very good thing, and if you follow my book from a younger age you’ll almost certainly achieve it.

However to say that you need a million-dollar nest egg is a myth, peddled by the finance industry who get paid by clipping a percentage of your assets. It’s also a myth that a successful retirement is never having to work again.  

It’s said that the two most dangerous years of your life are the year you’re born and the year you retire. (That’s possibly because your partner will kill you if you hang around too much messing up the house).

Now listen up: you don’t have to keep working at the same job. But it’s essential that you find work (paid or voluntary) where you feel like you’re making a contribution, helping people, and even learning something new. It’s good for your savings and your self-confidence.

And that brings me to a very interesting discussion I had this week.

A Few Good Apples

I caught up with Matt Higgins, who runs Australia’s largest online jobs board for more mature employees -- olderworkers.com.au. Matt started the business nine years ago with his old man, who at the time was struggling to find a job after being laid off and then being unemployed for two years. Today the site has over 50,000 registered older workers looking to connect with ‘age-friendly’ employers.

Who do you think these ‘age-friendly’ employers are?

Well, Bunnings (of course), the RSL (sure), and … Apple.

Huh?

Yes, Apple.

As in the technology company, not fruit-picking in Mildura.

In fact, at the moment they’re picking a bunch of oldies to work in their Apple stores across the country.

Why?

Well, Higgins says one reason is that Apple is getting a lot more older customers coming into their stores (and who knows, maybe the young blue-shirted hipster crew aren’t that jazzed about teaching grandma how to turn on her iPad?).

However, Higgins believes the main reason that Apple is advertising on his site is simple:

“Older people are bloody hard workers.”

Makes total sense. The older generation has a great work ethic. They turn up on time. They’re ready to work. They focus on the job at hand ... instead of standing around staring at their phones and Instagramming their lunches. Most importantly, when they’re on the job, they tend to really enjoy their work. In fact, a survey of 17,000 Aussie workers released week by Curtin University backs this up. It found that workers aged 70 or older were three times more likely to be happy at work than their melancholy younger colleagues -- Gen Y recorded the lowest level of job satisfaction, at only 24 per cent. And here’s the kicker: those who claimed to be very satisfied with their jobs earned a lower amount on average each week than their less satisfied counterparts.

And that, my friends, is why Apple is the world’s biggest company. Hell, they’ve not only worked out how to dodge paying billions of dollars in taxes -- they’ve cracked the code on hooking up happy, engaged workers!

The researcher behind the report, Professor Rebecca Cassells, said: “Our research suggests that people working beyond the age of 65 are less likely to be doing it because they need the money … they’re doing it for the love of the job.” Howzat!?

Tread Your Own Path!

P.S. Happy Birthday to Mrs Rickert, who turned 102 a few weeks back. You may remember that I interviewed her a couple of years ago to get a reality check on why all us young ’uns should harden the hell up.

She’s lived through the Great Depression, a flu pandemic that wiped out 100 million people, and two world wars. And how’s this for hard -- she gave me the interview just after she’d finished mowing her lawns!

I asked Mrs Rickert how it feels to be 102, and she told me: “I don’t feel a day over 100.”

I'm So Worried I Can't Sleep

“I wish I could be like you … and own my own business”, said a friend to me this week.

I bit my tongue.

Far as I can tell, he gets paid a comfy salary to essentially sit in meetings, drink coffee, eat nice pastries, and burp out the occasional “well, moving forward, we’ll cross-collaborate on our KPIs to achieve operational synergy with all stakeholders”.

(Okay, so that’s not all he does. He also spends quite a lot of time emailing … about upcoming meetings.)

Ain’t no small business owner I know who’s got time for that. We’re in the trenches, baby!

Small business owners are a different breed: they work their guts out — risking it all — even though the odds of success are well and truly stacked against them.

Case in point: this week I received this email from Tania, whose small business is at the crossroads.

I’m So Worried I Can’t Sleep

Hi Scott,

I feel sick to the stomach. After five years of owning our cafe (which we bought for $100,000 with a loan), we are still only earning about $45,000 a year. That’s after we pay the interest on our loans, and there are a lot of them!

We now have around $220,000 of debt across around seven sources (mainly one bank) and repayments are around over $1,600 per week. So far we have been able to meet loan repayments but are feeling financially stressed — not to mention the day-to-day running of our business.

The business is profitable but, with the debt the way it is and some bad advice that was given to us, we seem to be going backwards. We need to address this ASAP, so we are considering consolidating all our debts into one loan for $220,000 at 15 per cent, which would be only $1,000 per week.

I don’t want to go bankrupt as we are profitable, but we are experiencing a bad run. I am also wary that we have a portion of debt secured against our in-laws’ home. We are making changes to improve our business but it’s not fixing our debt issue, and I am concerned about being able to pay our suppliers and make all our debt repayments.

I am so scared of what could happen and am losing sleep.

Tania

The answer I have for Tania is applicable to many small business owners. Here it is:

The Crossroads

Hi Tania,

You’re at the crossroads.

Actually … no you’re not.

You were at the crossroads a couple of years ago, but for some reason you decided to put the pedal to the metal, speed through the stop sign and hope for the best.

And now you’re face to face with a huge debt truck that could wipe you out. (Guess who watched a bit too much of the Melbourne Grand Prix last weekend?)

Okay, so I’ve helped hundreds of small business owners over the years. While they were all different — and in vastly different industries — every one of those who went broke had two things in common:

1. They Take on Too Much Debt

Despite the marketing hype, banks generally don’t like lending to small business owners — unless they can get security over their family home (or, in your case, the in-laws’ home!). Then, when they’ve got the security, they’ll give you enough rope (credit) to hang yourself.

Here’s the thing: having the family home on the line compounds your stress dramatically — because it’s a highly emotional investment. No one wants to lose the roof over their head, or your in-laws’ heads.

Strewth! Christmas lunch at your house must be a real hoot. (Don’t even put butter knives on the table.)

2. They Don’t Know Their Number

As a small business owner, I’m obsessed with my ‘break-even number’: how much I need each month to keep the lights on and the employees paid (including my most important employee — me).

It doesn’t need to be fancy. Grab a piece of paper and write down — line by line — all your expenses (both variable and fixed). That’ll give you your break-even number. Then match that number against your expected revenue, minus 25 per cent straight off the top for tax.

Just being aware of your number can be enough to boost profitability.

‘Cashflow problems’ are weasel words — a fancy way of saying you’re spending more than your business earns. Other than making more sales, the only way to guard against going bust is to consistently focus on cutting your overheads and transferring those savings into a business Mojo account.

Assume Crash Position

This advice is all well and good for business owners approaching the crossroads, but not for you.

You bought the business for $100,000 five years ago. You now owe $220,000. Your profits haven’t increased.

That tells me the business isn’t paying its way.

Honestly, your chances of consolidating your debts without additional security are slim. More honestly, the biggest beneficiary of your business is the bank, from all the interest you’re paying them!

I don’t like the fact that you’re sick to your stomach and can’t sleep.

I don’t like the fact that you’re earning less than you could earn scrubbing dunnies.

And I certainly don’t like the fact that your parents have mortgaged their home for your business.

I’m all for the thrill of being in the trenches, but sometimes you need to wave the white flag.

Or, to quote esteemed management consultant Mr Kenny Rogers:

“You got to know when to hold ’em, know when to fold ’em, know when to walk away, know when to run …”

In your case, I’d fold ’em.

Tread Your Own Path!