NEVER BE POOR AGAIN – The Barefoot Investor’s Guide to Financial Freedom.

Sometimes being a grown-up sucks – Life is Hard, Money is Confusing and Credit Cards feel like they are Free. You have way better things to do than speak to your Financial Advisor (yawn) about your long-term investments (double yawn). Compound Interest does not sound sexy. Retirement is a faraway land. And – oh shit – there is a sale on at Zara – See Ya!

It is the sad truth that our chance of winning Lotto is a paltry 1 in 2,000,000 and it is highly unlikely a distant relative is going to die and leave us wads of cash so it’s probably time to show up and sort this stuff out.

Today’s wisdom comes courtesy of Scott Pape, aka The Barefoot Investor and his totally excellent book ‘The Only Money Guide You Will Ever Need’. Scott is not here to tell us about his Rich Dad, Poor Dad. He is not encouraging us to Think & Grow Rich. He is just here to help with a step-by-step solution that works for everyone no matter how early/late you are to the game. The earlier you get this book the better but it still is very solid for the ‘Oh-Shit-We-Forgot-To-Save’ bunch in their 40’s, 50’s and beyond. Being in control of your finances is a damn fine feeling and is not as hard or boring as it sounds. I promise.

Here is the abridged version to get you started:

BANKING:

• Open 2 x Everyday Bank Accounts with ING (no monthly fees, no ATM fees if you put $1000 a month in – all online banking). Call one account ‘Daily Expenses’ and call the other ‘Splurge’.
• Open 2 x ING Savings Maximiser Accounts linked to the Everyday accounts. Call one ‘Smile’ and the other ‘Fire Extinguisher’.
• Open 1 x Savings Account with a different account (such as UBank USaver – NAB’s cheaper diffusion line). Call this account ‘Mojo’. Aim to get $2,000 in this account as soon as possible – sell stuff, work overtime, drive an Uber – anything….having some spare ‘mojo’ lets you breathe easier.
• Let your employer know your new account details and change any direct debits to your new account. After 1 month close old accounts and look forward to a fee-free future.

SORT YOUR SUPER:

• Super is your route to long-term financial freedom – it’s the best legal tax dodge as you only pay 15% tax on money that goes in to your super. You can retire with $1.6 million in Super without paying any tax and it’s also protected if you go bankrupt.
• The fund you are with (and the fees they charge) makes a HUGE difference ‘Let’s say a 35-year old has $50,000 in a fund and contributes $5000 a year over the next 30 years with an investment return rate of 8%. The difference between investing in a fund that charges 1 per cent a year in fees and one that charges 0.02 per cent is a whopping $226 484’ – Yowza! Look for an ultra-low-cost fund. Right Now. Scott recommends the Hostplus Indexed Balanced Fund (0.02%) which has also been one of the top performing funds over the years.
• Self-Managed Funds are not worth the hassle and high fees – unless you are a small business owner looking to purchase your premises out of your super.
• Find your lost Super at ato.gov.au/superseeker with just your name, address and tax file number.

INSURANCE – Where to spend and Where not to bother

• In short: ‘Only insure against things that can kill you financially’ – so its yes to life, disability, travel, health, home, car and contents. No to iphone extended warranty and the like.
• Choose a higher excess to lower monthly/annual premiums and negotiate before automatically renewing (there is a script for this in the book for those of you scared of strangers or confrontation).
• Private Health Insurance – Australia’s Public Health Service is awesome so you only really need this if you earn over $90,000 (single) or $180,000 (couple) to avoid the Medicare Levy Surcharge. Just get top level comprehensive hospital cover and forget about the ones with all the extras (which are likely to cost much more than forking out for your own glasses or getting $10 back on a remedial massage).
• The Big Important Stuff – You are ideally looking for 12 x your annual salary of combined Life and TPD (total permanent disability) and Income Protection at 75% of annual wages until age of 65 years old. There is also a script for this section too – worth the price of the book alone. Btw – get quotes via your Super Fund but ask how much you need to add each month to cover the premiums so it does not eat into your Super.

Now you can ‘become one of only 7 per cent of Australians who have right amount of insurance’

GOING FORWARD – Sorting your finances

Back to those bank accounts & how you should make them work for you.

• You should be aiming to live off (daily essentials rent/food/utilities/travel) 60% of your take home pay. So keep 60% of your salary in Daily Expenses Account.
• 10% goes in the Splurge Account (drinks with friends, a new pair of jeans you love)
• 10% goes in the Smile Savings Account – this is for bigger stuff during the year like holidays.
• 20% goes in the Fire Extinguisher Savings Account – Depending on where you are at financially this gets used to fight that fire – first off debts, next up buy a home, then build wealth and long term security – the book describes each section brilliantly. Buy It.

What Else Is In It?

Heaps – Including how to:

• Make more money.
• Feel like a millionaire right now.
• Understand shares & Compound Interest (which – it turns out – is indeed very sexy).
• Boost your super and your financial safety net.
• Never run out of retirement money. Ever.

This post is merely intended as a summary of the first steps on your way to financial freedom – as usual it comes with absolutely no professional qualifications on my behalf but with some serious expertise on the authors. BUY THE BOOK HERE (so I can continue to pay my bills)*

This Get Richer Post was brought to you by someone who does not want to be poor. It’s not cool, it’s not fun and it makes things pretty awkward when you get asked out for dinner.

*Being an Amazon Affiliate makes me about $6 a month so is not recommended as a solo source of income.