Go on, buy yourself a latte everyday

This week I did an interview for a women’s magazine.

It did not go well.

Journalist: “So what are the biggest money mistakes people in their 20s and 30s make?”

Barefoot: “Plenty.”

(I wasn’t being particularly communicative, so — much like my wife — she began filling in the blanks.)

Journalist: “Well … is it … buying lattes each day …?”

Barefoot: “How many 60-year-olds have you met who say: “Looking back, it was the lattes that did me in. If only I could’ve controlled my cafe-coffee spending when I was younger, I tell ya, I’d be on easy street today!”

(The interview went downhill from there.)

Truth is, my job gives me an awesome perspective on how people monumentally mess up their money. Most weeks I sit across a table from people in their 50s and 60s who are trying to sticky-tape together their retirements — but also young people in their 20s and 30s who are already off and running with scissors.

These are their stories.

The Dumb Loser

I’ve worked with a lot AFL and NRL teams in my time, as a financial physio, rubbing down the players’ finances. Travis came to see me after he’d been delisted from his club.

“I’m a dumb loser”, he said matter-of-factly.

With his footy days over, he was contemplating life as an office worker on $50k a year. “Enough to buy a house — in 2043”, he said.

For years he’d focused on his athletic potential. Now at age 25 he was telling me he was all washed up. Like many young people, he failed to see just how much potential he had.

So I took him through a drill. Together we googled a lifetime earnings calculator, which showed Travis that he’ll earn at least $4 million over his lifetime (pre-tax). It was the jolt he needed.

Most young people view their wage by what it won’t buy them (mainly houses). So they give up ‘doing something smart with it’ until they’re earning more. But that day rarely comes.

As my old man says: how you treat your Magna is how you’ll treat your Maserati.

The Defensive Wife

Mandy (or at least that’s the name I’m giving her) came to see me after being referred by a friend. “I’m getting a divorce, but I haven’t told my husband yet”, she confessed.

Eight years ago Mandy married a freewheeling, seat-of-his-pants real estate agent.  She assumed he was good with money because he talked a lot about it when they were dating — and he drove a nice car.

One of the biggest mistakes young people make is choosing a partner who doesn’t share their financial values. According to Relationships Australia, the biggest cause of bust-ups is arguing over money.

A bust-up is both emotionally and financially crippling, especially for women. According to an Australian Institute study, a the household income of a woman who has separated from her partner is 21 per cent lower on average than when she was in a relationship — and she’ll still be behind six years on.

Smart women marry for security – smart men provide it.

The Loathing Lawyer

Craig came to see me because he was angry about, as he put it, “all the tax I’m paying”.

I soon worked out that tax wasn’t the only thing he was angry about. Craig was a highly successful, but deeply unhappy, young lawyer. 

He was trapped in a self-made corporate cocoon. He hated his job – the long hours, the co-workers and the clients – but he was earning “way too much money to leave”.

I’ve never met anyone who came to the end of their career and was satisfied with the trade-off of spending the best years of their life in a job they didn’t like, simply for the money.

Your 20s are a great time to undo the subject electives you chose when you were still applying Clearasil.

In this day and age there are plenty of ways you can earn a decent income doing what you love – if you’ve got the courage to find it. And remember In your 20s you learn – in your 30s you earn.

The Property Porn Star

I once hosted a television show where I met a young 30-something couple that splashed out and spent $1.6 million on their dream home. 

They planned to sell their existing home and trade up to the trophy home – and a million dollar mortgage. They confessed they knew it could be a struggle (he was in sales, she was a stay-at-home mum), but justified it as a great investment. Their last home had boomed, so why would this be any different?

A home is an asset, but it’s certainly not an investment. Million-dollar digs will (over the long run) cost around 3 per cent a year to maintain. That’s a huge drain on your cash flow, and robs you of the opportunity to invest and build up a passive income.

Then there are the hidden costs that come with living in a million-dollar suburb: your kids tend to go to expensive schools, you tend to go on expensive holidays, and you tend to wind up leasing expensive cars.

None of this builds long-term wealth or security – only the illusion of it.

One Simple Rule

After speaking with literally thousands of young people in their 20s and 30s, the financial mistakes (or learning lessons), are never ending – but there’s only one dead-set giveaway that tells me whether a young person is going to be financially successful. It has nothing to do with their current income, or their education.

It’s whether they’ve made a habit of saving money. Not just for their next holiday or a new car, but habitually spending less than they earn. It’s a trait that’s shared by every single wealthy person I know.

Tread Your Own Path!