Why Afterpay is the marijuana of credit

I think of Afterpay as the financial equivalent of marijuana.

Young people absolutely love it, and old people are doing a lot of finger-waving about the dangers of getting hooked on the newest financial drug to hit the streets.

This week the financial equivalent of a teacher, ASIC, busted into the school locker rooms (quick, hide the bongs!) and attempted to clear the air by holding its first review into the phenomenon that is ‘buy now pay later’, otherwise known as ‘young people’s layby’, otherwise known (by me) as ‘financial weed’.

Here’s some of what ASIC found:

The majority of Afterpay customers are millennials.

One in six of them are in financial strife … getting overdrawn, delaying bills, or borrowing more.

And these services are hot: the number of transactions has risen from 50,000 a month in April 2016 to 1.9 million in June 2018, with the collective tab now at a whopping $900 million plus.

Now, understand there’s nothing really revolutionary about Afterpay — men in grey suits have been dreaming up new ways to get people to spend money they don’t have since long before Bob Marley rolled his first spliff.

This is just the latest incarnation. (Case in point: when I was at uni the bank gave me a student banking package that bundled in a credit card with a $3,000 limit ‘just in case’, and effectively trained me to see their credit limit as my money. See? Same, same but different. Even the excuses are similar: “Oh, but if I pay off my credit card in the 55-day period, it’s free!”)

My opinion?

The actual terms on Afterpay are not that bad. As long as you pay off your instalments on time, you won’t be charged any interest or fees. So, as far as consumer credit drugs go, it’s not too heavy. Your financial life won’t be ruined by taking out a few Afterpay loans.

So chillax, right?

Well, no. See, the reason I compare Afterpay to weed is that it acts like a a gateway financial drug: it’s effectively training young people to rely on the bank’s money rather than banking on themselves.

Case in point: Afterpay claims their average purchase is $150.

A hundred and fifty clams!

Seriously, if you need instalments to cover $150, you need to check yourself before you wreck yourself.

And, once you get hooked on spending someone else’s money, there’s every chance you might graduate onto harder stuff — other millenial credit-drug dealers who really rip you off.

Who knows? Maybe in the future we’ll have before and after photos like they do with meth heads:

Before: This is a fresh faced Emma, aged 18, buying a pair of pink pumps on Afterpay.

After: This is a stressed out Emma, aged 23, buying scratchies with her Nimble loan.

Seriously, you’re never going to win if you don’t learn to stand on your own two feet and pay your own way.

And that’s why the ‘buy now, pay later’ phenomenon … is true to label.

Get hooked on this junk and you’ll pay a very high price later.

Tread Your Own Path!

Southern Cross Travel Insurance

Hi Scott,

This question is for my brother. After being diagnosed with serious bone cancer in March 2017, he proceeded to apply to his travel insurer -- Southern Cross Travel -- for a refund on his overseas trip, planned for April 2017. But Southern Cross have refused to pay up the $4,000. His doctors are at a loss as to why they won’t pay -- fairly cut and dried they thought. How damn sick do you need to be? Please help!

Nick

Hi Nick,

I read through Southern Cross’ Product Disclosure Statement.

It’s pretty clear: “This policy automatically includes cover … for actual and reasonable losses incurred by you because of an unexpected event, if you have to cancel or change the dates of your journey before leaving Australia.” And it details one of the ‘unexpected events’ as the “diagnosis of a terminal condition, or a condition requiring radiotherapy or chemotherapy”. They say they’ll pay up to $2,500 on a single trip.

Like your brother’s doctors say, it seems pretty cut and dried, so perhaps I’m missing something.

Or maybe it’s Southern Cross that’s missing something. Most big companies have sophisticated media tracking systems which alert them to when their names are mentioned in the media.

So, since this column is being published across the country, maybe they’ll pick it up.

Just in case, let’s throw in a few keywords: “Southern Cross Travel Insurance Fair Suck of The Sav”.

Let’s see if Southern Cross Travel Insurance reviews your brother’s case and, if he’s in the right, pays the claim.

Over to you, Southern Cross Travel Insurance.

Scott

Does Renting Now Make Sense?

Hi Scott,

I would like your thoughts on something that is bothering me. Forecasters think that house prices are set to fall at least 5% over the next year. If you buy a million-dollar house now, in a year you will have paid 4% stamp duty upfront and 4% interest in servicing -- and suffered a 5% drop in value. That’s 13% gone, wiping out over half of a 20% deposit! Isn’t renting at a 3% to 4% yield better? Should there be a ‘Barefoot Warning’ that rent money sometimes is not wasted?

Dee

Hi Dee,

My warnings for first home buyers aren’t about falling property prices, but rising interest rates.I devoted an entire chapter to it in my book: it’s called ‘The Curious Case of the Postcode Povvos’ … first home buyers who live in cafe suburbs … but can’t afford a coffee because they’re a slave to their mortgage.

In that regard, I totally agree that rent money is not dead money if you can’t afford to comfortably service a mortgage and have a commonsense buffer for higher interest rates (which will come at some stage in the next decade).

My view?

With falling prices, there is absolutely no rush to buy your first home. Yet don’t get paralysis by analysis. You’ll pay stamp duty and interest whenever you decide to buy. So, once you find a home you love, that you can afford, and that you will live in for at least a decade, buy it.

Scott

Boost My Super Just By Shopping? SuperSuper!

Hi Scott,

I am hearing a lot of advertising for SuperSuper ‒ a shopping rewards program that pays rewards directly to your super account with GuildSuper. It’s targeting women, enabling us to boost our super balances by doing nothing different ‒ we are shopping anyway! What are you thoughts on this?

Louise

Hi Louise

I actually heard SuperSuper advertised on the radio, and my first thought was:

“Well, this sounds like the financial equivalent of a Spice Girls song.”

Girl Power! Yeah! We can shop and save for our super!

So I’ll tell you what I want, what I really, really want.I want a super fund that doesn’t zig-a-zig-ah: GuildSuper has underperformed an average super fund over 1, 3, 5, 7, and 10 years, according to Superratings. I assume this is because their fees are a little, shall we say, Scary Spice. At 1.38% per annum plus $95 a year.

Bottom line? Any money you save from their slick shopping campaign, you’ll give back in higher fees and lower returns (and then some).

So, if you want to be my (super) lover, you’ve got to get with my plan.By all means score rewards from shopping, but you don’t need GuildSuper to do it (though hats off to GuildSuper for making it super … simple).

All you need to do is Google “Woolworths discount cards” and you can get 5% off your shopping. (Tightarse tip: most retailers offer these discounts if you buy their gift cards or e-vouchers … because they bank on a certain percentage of people losing the cards or forgetting about them, and they’ll pocket the money.)

Then, take your savings and make a contribution into an ultra-low-cost index super fund.

Spice up your life!

Scott

Buffett’s Secret Aussie Share Play?

Hi Scott,

I know you’re a fan of Warren Buffett’s Berkshire Hathaway. Well, there’s a relatively small listed investment company (LIC), called Global Masters Fund Limited (ASX: GFL), that invests in Berkshire Hathaway, UK shares and cash. It appears to have performed fairly well over the last five years or so. I am considering investing in it but have some reservations, like their exposure to the UK market given the Brexit situation. Is there any advice you can provide on weighing up a fund like this?

Terry

Hi Terry,

Yes, I’ve heard of Global Masters.

I wrote about them when they first listed in 2006, and then sent my column to Warren Buffett himself in the post (he doesn’t do email). A few weeks later, Buffett sent me a handwritten letter thanking me for alerting him to Global Masters, and for advising people not to invest in them.

As of 30 September the Global Masters portfolio has 63.8% invested in one stock, Berkshire Hathaway, 9% in ASX-listed investment company Flagship Investments, 6% in the Athelney Trust PLC, 6.3% in cash, and 14.7% in something they refer to as “other UK”.

(Interestingly, the Managing Director of Global Masters is also a director of Flagship Investments, and the Athelney Trust.)Global Masters estimates its fees at just 0.23%.

Which is fairly low. Cheaper than many exchange traded funds (ETFs).

Except … it’s not. Flicking open their annual report I see that shareholders also cough up for auditor costs, share registry costs, directors’ fees and admin costs. Put it all together and the true cost of investing through Global Masters is actually closer to 2.2% — and that’s bloody expensive!

So, Terry, considering you don’t even like the UK investments ... why not just Brexit?

With international brokerage fees as low $10 a trade (and there are some apps that are free, but they tend to screw you on the currency conversion), why not buy shares directly in Berkshire Hathaway (BRK.B) on the NY stock exchange?

After all, Buffett refers to his shareholders as partners, and treats them as such. A quick look at Berkshire’s annual report shows that he takes a salary of just ,000, and even reimburses the company for personal expenses.

Scott

19-Year-Old Girl Wins the Lottery

Hi Scott,

I am 19 and was given your book last Christmas. I am not the greatest saver — I like to splurge a little too often. Yet a year after reading the book I have over $16,000 in savings, $4,000 of which is in shares. Recently I did my tax return and the accountant was asking how a 19-year-old girl seems to have it so together. I explained that she could buy your book for $29.95 (or less at Big W), and while she was doing my tax return I drew your ‘serviette strategy’ on the back of an invoice sheet. She looked at me in amazement the entire time, even though I was basically regurgitating everything you had explained. It was an awesome feeling. So I wanted to say thank you — you have given me a $29.95 lottery ticket that has earned me thousands!

Zoe

Hi Zoe,

I’m punching the air as I’m reading this.

Most people leave school believing they have no idea about money, and then they prove it to themselves.

Not you!

I guarantee your accountant was thinking, “Why wasn’t I this sorted out when I was 19?”

(As are everyone reading this right now.)

Well done. You got this!

Scott

Don’t Raise a Tightarse

Hi Scott,

Loving your new book, but I have a question. If a child does not want to spend their accumulated ‘Splurge’ money, isn’t that effectively another form of savings? I am trying to identify the more important lesson. Is it the realisation through experience that splurging can result in the impulse buying of random, insignificant items or should it be rewarding the decision not to splurge at times and having that money to top up their savings?

Joanne

Hi Joanne,

Congratulations on doing the jam jars!

You’re well ahead of most parents, who do pocket money for a while and then let it fizzle out, and give up.

Getting your kids to dish their pocket money into three jars teaches fundamental life lessons:

The ‘Smile’ jar teaches them the power of saving up for something that makes them smile.

The ‘Give’ jar teaches them the joy of generosity, and breaks the entitled bratty mentality some kids have.

The ‘Splurge’ jar teaches them how to spend their money wisely and enjoy it.

(The biggest financial fear that I have for my kids — having the Barefoot Investor as their dad — is they’ll be so focused on money that they’ll become tightarses. I don’t want to raise stingy, money-hungry kids. There’s a fine line between “8-year-old Johnny’s such a good saver, he won’t spend a cent!” and “28-year-old John is such a tightarse, no wonder he doesn’t have a girlfriend”).

So, Joanne, I’d encourage your kids to splurge some of their money. Yes, they’ll make some mistakes, as we all do. But then again, that’s how we learn, right?

Scott

Eat, Pray, Dump

Hi Barefoot,

So I get a message from my wife at 2am while she is in Morocco (finding herself): “I think I’m going to move to Morocco, I’m so sorry.” This really was not expected, nor in my plan for the future. Now I am having to deal with all the financial responsibilities on my own, without a second income. I have a half-renovated house, our combined debts, and now legal fees to deal with the separation. I am 34 and earning good money ($140,000), but it feels like I have caught an STI from an overseas holiday that I didn’t even take!

James

Hey James,

It sounds like your ex-wife took the ‘Eat, Pray, Dump’ tour!

Seriously, I can’t imagine what it was like to get that text ‒ you must be going through hell. And while it probably feels like you’re the one here in Australia cleaning up the financial mess, you are both responsible for seeing this out.

So a couple of practical things: if you haven’t already shut down any joint bank accounts, credit cards or redraw facilities, do so immediately. Also, keep good notes on your finances, and engage a family solicitor.

You don’t mention kids and, given your age, it sounds like it may have been a short marriage. This will be taken into account, and should make things much simpler in coming to a final property settlement.

Obviously you are facing a financial setback, but at your age, and with your income, it’s something you will overcome. So think hard about whether you want to keep the house or sell and make a clean break … your ex-wife certainly has.

Thank-you for reading,

Scott

Is AMP Heading South?

Hi Barefoot,

On advice from our financial adviser, my wife and moved our super from Australian Super to AMP MyNorth Super a year ago. We have generally been happy with the advice we have received and, like all funds, in the past year MyNorth has had its ups and down. However, with the findings of the banking royal commission and recent stock market volatilities affecting AMP, we think we should maybe go back to the industry fund. Is it likely AMP could go under in future, meaning we could lose all our super?

Cliff

Hi Cliff,

I’ve had a number of people ask me the same question ‒ whether their money is safe with AMP.

Let me be clear: your money is safe.

That’s because the money you have in super is held via a legal trust for you. ‘(and this applies to AMP as much as any super fund)’. Super is strictly regulated, and the trustees have a legal duty to manage the fund for the benefit of members.

However, the same can’t be said for the suffering AMP shareholders.

The very fact that so many of its customers are questioning whether this 170-year-old blue-blooded company will survive is an indication of just how much the brand has been battered.

As Dr Phil says, it’s hard to win back trust.

Speaking of which, I’d ask your advisor to do a financial comparison between your old industry fund and your MyNorth fund since you switched.

Scott

Super Stressful

Hi Scott,

I am 27 and earn $95,000 a year, so my super is adding up. But I received my annual superannuation statement and found I am being charged three separate fees: administration fees (0.37%), investment fees (0.25%) and something called ‘indirect costs’ (0.64%). In your book you recommend paying no more than 0.85% in fees on super: does that refer to any type of fee charged, or only administration and investment fees? And do you have any idea what indirect costs are?

Lisa

Hey Lisa,

Good on you for being one of the few people who bothers to look at this stuff.

ASIC defines ‘indirect costs’ as costs “paid by your super fund to external providers that affects the value of your investment. Typically these are costs paid to investment managers.”

Bottom line? It’s another fee. All up, you are being slugged 1.26% of your balance each year.

If you’ve currently got $40,000 in super, that’s around $500 a year.

That doesn’t sound like much.

Yet, as a back-of-the-envelope calculation (6% real return, not factoring in tax), your super will grow to around $720,000 over the next four decades. However, the negative effect of the compounding fees will be roughly $220,000!

You’ve done the hard work by wading through the complicated, boring guff. Now comes the most profitable call you’ll ever make: call your fund and ask them if they have a high-growth, low-cost index super offering ‒ preferably one that charges less than 0.85% in fees, total.

Scott

Randy Andy

Scott

Today I called my bank to negotiate after seeing a special home loan rate advertised on their website. I followed your script and asked for the new rate. I was rebutted with “Sorry, that’s only for new customers”. When I replied with, “Well paint me red and call me Randy”, the operator laughed and said, “You’ve been reading Barefoot?”Then he gave me the lower rate. You saved me over $1,000 a year in a two-minute phone call. Thanks, cobber!

Andy

Hi Andy,

That’s totally wild!

I was speaking to a banker the other day who said that his call centre staff know when they’ve got a Barefooter on the line, following my script to get a better deal. He also said that if they’re a good customer they’ll “more often than not get a discount”. That’s not because the bank staff are kind hearted, but because they’ve also read the book, and they know my next step. They know that that customer (if knocked back) will move to another bank and get a better deal.

Thanks for reading,

Scott

The three questions my financial advisor couldn’t handle

A woman I’ll call Lynne emailed me with the subject line “Devastated”.

Here’s what she wrote:

Scott,

Over the past three years I had become increasingly anxious about the state of my finances, which have been controlled by my ‘trusted’ financial advisor of seven years. Finally, I sent him an email last Friday asking him the three questions you suggested in your book.

He replied the following Monday, terminating forthwith his services! I am a single mother of three adult children, without a home, living alone, paying rent. During the seven years he has been my advisor, my capital assets have been reduced by over $500,000 (to $800,000). What can I do?

Lynne

Bingo Bango!

I’ll answer Lynne’s question in a moment, but first, here’s the cut-and-paste email I wrote about in my book:

Dear (advisor’s name)

I’ve decided to do a review of my finances. Could you please do the following three things for me:

1. Print me a statement that clearly shows my annual percentage return since we began, net of fees.

2. Benchmark my return against the relevant accumulation index for the same period.

3. Provide me with an itemised list of fees (expressed in both dollars and percentages). Include any and all ongoing fees, commissions and administrative costs that I’m charged.

Kind regards,

Client

Lynne, you can almost picture how this went down:

Your advisor double-clicks on his email: “Oh, I got an email from Lynne, I wonder what she’s up to …”

As he starts reading, his eyes begin to squint like he’s getting a root canal.

And then he gets to the end of your email and theatrically spits out his frappuccino all over his mainframe, which ricochets and ruins his Roger David tie.

Lynne, know this: good advisors ‒ and there are many ‒ actually want their clients to ask them these questions. They can justify their fees because they’re working in their client’s best interests. A good advisor wants smart clients who understand and value good advice.

A shonky advisor, on the other hand, will do what this guy just did ‒ sack you and move on to the next chump. They see you as their meal ticket. It’s not personal. It’s just lunch.

Now, I spat out my coffee when I read that your assets had decreased by $500,000 over the past seven years (thankfully I was not wearing a tie).

Here’s why:

Aussie shares have achieved a compound annual return of 8.5% over the past seven years, while international shares returned 14.5% a year, according to Vanguard. In other words, a $10,000 investment would have grown to $17,701 (Aussie shares) or $25,801 (international shares).

Over the same period the average default super fund (with a higher weighting to cash and fixed interest) has returned 9.1% per year (industry funds) or 8.4% (higher-fee retail funds), according to ratings agency Chant West.

Someone needed to be given the boot here, Lynne, and I don’t mean you.

So now it’s time for you to write a few more emails. The first is to make a complaint to the firm. The adviser’s financial services guide will tell you how to do this (look through your paperwork and you’ll find it, otherwise call the firm and request a copy). The next is to lodge a complaint with the Australian Financial Complaints Authority (ACFA) via their website (afca.org.au/).

Look, one of the biggest fears we all have is looking dumb in front of others. And sometimes experts can use that against you ‒ whether they’re a mechanic, a doctor or a financial planner. Perhaps that’s why you didn’t act on the feeling you had in your gut about this bozo for three years. Yet the smartest people are those who fearlessly ask the simplest questions, and then back themselves.

So back yourself. Remember, no one cares more about your money more than you do.

Tread Your Own Path!

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

My Aunty Has 15 Credit Cards

Hi Scott,

My aunty has got herself into trouble with credit cards. She is not savvy with money and I really do not think she understood what she was doing. After a lifetime of work, she has $10 in her purse – and $211,000 in debt across 15 cards. She has been cash-advancing to make the minimum payments for years. I think most of the debt is interest, and she has nothing to show for it (no car, holidays or smashed avo). At this rate she is going to lose her home. Is there anything I can do to help her?

Max

Hi Max,

It sounds like your aunt is going bankrupt … or at risk of going bankrupt.It also sounds like she has a gambling addiction.

Now you don’t say whether your aunt has any loans against her home, but she’ll eventually be forced to sell it. If the credit card company, or a debt collector who has bought any of her debts (for cents on the dollar), works out that there’s a chance she may have money left after she pays out her secured mortgage, they’ll carve her up.

Your aunt is facing two battles that you can help her with, but I can’t fight for her:

First, you can help her get some independent financial advice.

Encourage her to sit down with a community-based financial counsellor (call 1800 007 007). They’ll help her weigh up her options (either a debt agreement or bankruptcy). They can also investigate the inappropriate lending she’s received. No one should have a $211,000 credit card debt. There are responsible lending laws in place to stop people getting themselves into this mess.

The second, and most important, thing you can do is get her some psychological support.

You’re right to be worried about the state of her mental health. The debts she’s racked up is a symptom of what’s going on in her head. Something is seriously wrong and she needs professional help. Money comes, money goes, but this really is life and death stuff.

Scott

Is your money in one of these ‘fat cat’ funds?

2018’s Top 10 ‘Fat Cat Funds’

I once knew a very rich guy in his sixties who prided himself on ‘calling a spade a spade’.

“You’re fat!” he once said to a bloke we’d just been introduced to.

“Hey!” I said, coming to the poor guy’s defence (while simultaneously sucking in my gut).

“What? It’s the truth! Look at him! He’s a prime candidate for a heart attack!”, he said (while the guy seemed to be having heart palpitations).

“You need to look after yourself. I’m telling you this for your own good”, he said condescendingly to the stranger.

True story.

(And also true that, ironically, he was himself built a bit like Shane Warne ‒ circa 1993.)

Anyway, my wife says that sometimes I behave like him when she wheels me out in social settings ‒ the only difference is that I’m brutal about people’s financial flab.

Case in point: a while back at a BBQ, a guy I didn’t know struck up a conversation with me (the token finance guy) by saying he had his super with what I knew to be a high-fee fund. He wasn’t asking for advice, just making polite conversation on a Sunday afternoon.

“What on earth made you go with them?” I asked, head cocked, eyebrow raised.

But before he could burble out an answer I said: “I mean it’s just a stinker of a fund.”

As I type, I’m literally cringing at reliving this moment.

My wife’s right: no one wants to talk about personal stuff with strangers in a social setting.

But, hey, it’s just you and me sitting here, and we’re old mates … so let’s say we poke a bit of fun at a few flabby funds.

Last week, investment group Stockspot came out with their annual Fat Cat Awards, which ranks the worst-performing super funds.

Stockspot Fattest Funds 2018

Each year the finance industry gives out thousands of awards to itself, but this is one award you do NOT want to win. Here are the Garfields of the game ‒ who’ve been effectively stuck in the cat-flap for the last five years licking the cream off your returns:

1. OnePath Masterfund ‒ OnePath Tax Effective Income Trust

2. OnePath Masterfund ‒ OptiMix Moderate Trust

3. OnePath Masterfund ‒ OptiMix High Growth Trust

4. OnePath Masterfund ‒ OnePath Balanced Trust

5. Perpetual WealthFocus Superannuation Fund ‒ Perpetual Diversified Growth

6. AMP Superannuation Savings Trust ‒ BlackRock Global Allocation

7. Queensland Independent Education & Care Superannuation Trust ‒ Conservative Growth

8. Labour Union Co-Operative Retirement Fund ‒ Targeted Return

9. AMP Superannuation Savings Trust ‒ Future Directions Moderately Conservative

10. StatePlus Retirement Fund ‒ Balanced

Source: Stockspot

What do all these crazy cats have in common?

They all charge high fees, presumably to pay for all their expert fund managers.

(Oh, and the ‘top four’ are all brothers from another mother.)

Now, if you’re a Barefooter you’ll know I’m a skinny cat who likes index funds (i.e. low-cost funds that mechanically track the stock market, rather than being actively managed).

Guess what Stockspot found?

“Over the past five years we found only 4% of balanced funds beat an index fund. And across all investment categories only 13% of funds beat the indexed option”, adding that this is a global phenomenon in which “actively managed funds have been unable to match low-cost indexed options”.

Faced with this research, they came to a beautifully simple conclusion. They say there are only two things to consider when choosing a super fund: first, find the right type of fund based on your capacity to take risk. (Which Barefoot decodes as “anyone under 40 should go for growth, anyone over 40 should find a bit more balance”.) Second, choose the fund with the lowest fees. (Which is the exactly the recipe I follow in my book.)

So, if you’ve read this far and are thinking to yourself “maybe I’m getting licked”, by all means get in touch with your fund and call a spade a spade.

Tread Your Own Path!

High Income Earners Completely Out of Control

Scott,

We are what many would consider ‘high income earners’, earning $255,000 a year ‒ and yet we are completely out of control. Our five years of DINK (Double Income No Kids) lifestyle came to a halt when we had three kids in two years, and we are now floundering month to month. I am struggling to change my shopping habits (expensive everything), and we have a large dream house that we started building before our unplanned children arrived. What can we do?

Bec

Hi Bec

I was reading a magazine profile the other day on Johnny Depp.Instead of buying his smokes himself, he has his assistant do it ‒ and gets them to scribble out the health warnings and horrific pictures of blackened lungs with a biro, so he doesn’t have to think about the health consequences. So far it’s working out well for him.

If you’re on a high enough income, you can apply Johnny’s smoke experiment to your money. You’d be surprised how many couples I meet who are in your situation and do just that. As long as the money keeps flowing, you’ll be able to smoke through your prime earning years.

However, it will catch up with you eventually. It always does. The damage you’re doing to your finances isn’t hit or miss. The black shadows, the worries that wake you up in the middle of the night ‒ and cause you to tap out a confessional email to me ‒ won’t go away. Eventually they’ll consume you.

My inbox is full of people who are 20 years down the road you’re on. They’re in their fifties and have suddenly been richoched into reality by a divorce, disease or retrenchment. They’re left bitter and twisted, and scared that they now can’t live any other way.So right now you’ve got a choice. It’s not too late. What you’re doing isn’t working. You’ve admitted that yourself. For the sake of your family -- and to be good role models for your kids -- it’s time to start doing something that will work.

This week I want you to have your first Date Night and set up your buckets. Then, start moving through the Barefoot steps together. They’ll work for you, just as they’ve worked for thousands of couples (and many on far less income than you). The steps work every single time. Not because there’s any magic, but because they’re based on good old fashioned common sense.

Email me next week after your Date Night, and let me know how you go ...

Scott

‘You need sleeping pills’, said my doctor

The Three Exams

Years ago, when I was cramming for my final VCE exams, I went to see my doctor.

I confessed to the old quack that I was stressed — wound up like a lacker band — and was having trouble sleeping.

He just started chuckling, and then pulled out his prescription pad:

“You need sleeping pills”, he said matter-of-factly.

Now, in hindsight, that was very bad advice.

Those pills were like horse tranquilisers. The first time I took one, I woke up 10 hours later with my face superglued to my textbook by my own drool. And to counteract the fogginess I began scoffing No-Doz caffeine tablets (one down from speed, one up from Red Bull). Seriously, my final year of school was like Charlie Sheen’s final season of Two and a Half Men.

Still, the good doctor gave me some wise advice that I’ve never forgotten:

“These high school exams aren’t nearly as important as you think. You’ll have much bigger ones in the future.”

The doc was dead right.

It was only as I got older that I realised that the really important exams ‒ the ones that will change your life forever ‒ don’t have a date, a time, or a room number. (And because of that, most people not only don’t study for them … they snooze through them, again and again.)

And given students across the country are sitting down to do their final exams this week, I thought I’d take you through them. The first life exam is finding a career you enjoy. The second, is to choose to become financially secure. The third, to invest in your family and friends. You’ll sit these three exams over the next decade (and beyond). Here’s how to ace them.

Your Career

The average Aussie teenager will have 17 different jobs, and five careers, in their lifetime, according to the Foundation for Young Australians.

Fair dinkum!

My first job out of uni was working on building sites with a joker called ‘Wolfy’ … who would (unsuccessfully) wolf-whistle at women who walked by. (True story: the day the Australian Stock Exchange called to tell me I’d secured a graduate position, I thought it was old Wolfy playing a trick on me, so I told them to bugger off.)

Anyway, while it’s very important to sidestep the working wolves, you don’t want to keep changing career like Australia changes prime ministers. Otherwise, you’ll never make a dent in the universe.

The smartest method I’ve found to think about such an overwhelming topic (what do I want to be when I grow up?) is to set aside an afternoon and do a thinking exercise that author Arun Abey calls ‘the three circles’:

“What am I deeply interested in?”

“How can I work, over many years, to become truly great at it?”

“How can I make enough money from doing it?”

Your killer career is found at the intersection of these three circles.

Your Financial Security

There are trophy degrees that will guarantee you a good income: medicine, engineering, finance, law. However, there’s no guarantee you’ll turn that good income into long-term wealth, and it’s certainly no guarantee that you won’t end up being ‘completely disengaged with your job’, as 70% of Australians apparently are, according to Gallup research.

Yet committing to being financially strong ‒ no matter what level your income ‒ will change the course of your life.
You’ll sit some form of this exam many times over your life: it starts the moment you get the letter from your bank saying “Congratulations, here’s your credit card!”, or when your employer automatically enrols you into their default high fee super fund.

The solution is to tell the bank you don’t do credit cards. And to tell your boss to put your super into a a low-cost super fund you’ve chosen yourself — then tick the ‘high growth option’ and let compound interest work its magic.

I like to think of compound interest like I do surfing. You put in a bit of effort paddling at the start, but when you catch a giant wave it carries you along without any effort. Which means that, instead of mucking around in the slushy waves later on in life, you get to lean back enjoy the ride.

Your Family and Friends

I’m totally unqualified to offer this advice, but I’ll give it anyway.

When you’re a teenager you think your friends will be around forever, because they always have been. However, unless you make a point of investing time in your friends, they’ll slowly drop away.

What does this have to do with money? Nothing. But it has everything to do with your long-term happiness. Wellbeing studies show that the happiest people are those with strong social bonds. Investing in your relationships, (especially your family) has the biggest payoff of all.

So there you have it. Sit these three exams and you may not receive a certificate in the mail, or attend a fancy ceremony when you ‘pass’ them. Yet the payoff is real. Because you won’t be one of those people who aces their ATAR exam and then snoozes through the exams that really matter ‒ and wake up 30 years from now and realise they’ve received an ‘F’.

Tread Your Own Path!

I’ve been a little low this week

I’ve been feeling a bit low lately.

My grandmother died last week, at the grand old age of 92.

My other grandmother died a few months ago, aged 93.

These two women shaped my life, and this week I’ve spent some time looking back at theirs.

These days it feels like we’re living through a time of rapid change: businesses are being disrupted, robots threaten to take our jobs, and your mother is now on social media (Hi Mum!).

Well, picture this:

Your family home doesn’t have a television. Or a refrigerator. Or a washing machine. Or an electric stove. Or air-conditioning. Or a husband, because he’s off fighting a deadly war in a place you’d never heard of.

Your home doesn’t even have the most important appliance: a flushing toilet. If you wake up and want to do your biz, you have to head out to the backyard with a candle and poop in a pot. A bloke empties it … once a week. (Can you imagine the smell after a week? Sure puts another spin on leaving the toilet seat up, right?)

Well, that was the life my grandmothers lived when they were raising my parents.

Now that is what you call massive change.

Look, things don’t change much year to year: there’s a new $2,300 iPhone that allows you to send a Poop Emoji. MySpace changes to Facebook. Cars get more safety features.

It’s only when you stretch out and look at the world over the course of somebody’s lifetime that you get a sense of how astonishing the changes have been.

Let’s face it: you wouldn’t trade lives with even the wealthiest people in the 1920s.

Especially if you were a woman.

My grandmothers were amazing country women who built loving families, yet truthfully they were never given the opportunity to do anything different.

Today their great-granddaughter — my daughter — has amazing opportunities they never had.

And that is one of the most exciting changes of all.

In loving memory of Kath and Lorna. Here’s to all the strong women!

Tread Your Own Path!

Is Dollarmites Done For?

Hi Scott,

I read in the news this week that ASIC are finally launching a review into school banking -- maybe it has something to do with that book of yours! What is your view on this? Do you think this could get the banks out of our schools, or is it still too early to get our hopes up?

Ethan

Hi Ethan,

Here’s what I hope the ASIC review will discuss:The Commonwealth Bank’s school banking program has, according to their website ‘been teaching generations of young Australians the importance of saving and lifelong money skills since 1931’.

So let me ask you this:

If what they did worked, why do we currently have record household debt, and low savings?

How did we end up with the horrors of the Banking Royal Commission (where Commbank received a gold medal for charging fees for no service to dead customers, ripping off millions of dollars of retirees’ money)?

And why are school leavers the most financially illiterate of all Aussies, according to ASIC research?

The answer, I believe, is that up till now many schools haven’t given financial education the emphasis it really deserves — possibly because they wrongly assume that Commbank is taking care of it.

The best outcome from this ASIC review would be that schools finally understand that financial education is a core life skill, that is far too important to be outsourced to a bank that pays millions of dollars to market to our kids.

Thanks for reading,

Scott

The Business of Buckets

Hi Scott,

I love your book and love passing it on to other people. But what comes back to me from some of my self-employed friends is that do not have a steady income. What is your recommendation for these people in setting up their buckets?

Deb

Hi Deb,

My book sets out how I manage my own money: I’m self-employed, and it works!

When small business owners tell me that the buckets strategy doesn’t work for them, it’s nearly always because their business isn’t making enough dough.

And it’s also because they don’t keep their business and personal finances totally separate. It’s all mashed together.

So, the key for small business owners is to ‘know your numbers’ -- that is, the absolute minimum you need to earn in your business to keep the doors open and the absolute minimum you need each month to live on personally.

Then you set up your personal buckets up accordingly.But I also have some business buckets:

I transfer 40% of whatever the business earns into a seperate business savings account to meet my tax obligations. (Yes, it can sit there for months … but I’m conservative. I’m simply the bagman for the taxman.) In addition, I have a business Mojo account (for emergencies) and I keep a very close eye on our working capital, so I can always meet my obligations.

If you think this sounds difficult, try running a business without it.

Scott

Should I Go to Cash in My Super?

Dear Barefoot,

I am a single working woman, 61 years old, planning to retire in five years. I am now wondering if I should be concerned about my superannuation reducing with the recent share market losses. If it is going to crash again, should I be moving to cash rather than shares?

Susan

Hi Susan,

I totally get how stressful it must be.

The truth is that -- if a share market crash coincides in the years leading up to or proceeding your retirement -- it can have a devastating impact on your plans.

Right now, your super contributions are most likely going into a share investment option.

However, I’ve always said that in your last few years of work you should divert some of those super contributions, into a cash or fixed interest option within your super.

How much?

Well, that’s up to you (and your advisor). However a good rule of thumb is having a minimum of two years’ living expenses (less any age pension you’ll receive).

Now, let me be James Blunt: the biggest risk you face isn’t the short-term wobbles of the share market -- it’s running out of money before you die. I see people who find themselves in this situation all the time, and if they’ve given up working there’s nothing they can do.

Susan, right now you have the power to change things. It’s not too late. So make an appointment with your super fund’s financial planner and work out how much you need to retire on. Get a figure to aim at. And hit it.

Scott