Book Club – The Barefoot Investor

TRANSCRIPTION

Now, we’re going to have a quick look at one of my favorite books on the subject of debt and how to get some financial freedom. And it’s actually written by an Australian guy, The Barefoot Investor. It’s pretty popular. It, at least, has sold a couple of hundred thousand copies in Aussie. And actually, quite a few people in New Zealand follow what this guy says.

And, it’s more like an introductory, how to get out of debt, and then how to structure your bank accounts, and then how to build up your wealth. And primarily, it focuses on building wealth through shares. So, it’s good to understand share portfolios and building your wealth on the stock market to help balance out that, if you’re trying to become a property investor, you know, it’s good to understand the pros and cons of both sides of the fence.

Scott Pape, the author, is not against properties per se, and he does own his family home and a couple of other properties, but he definitely is more in the camp of buying shares. So, he’s considered, you know, about the author, the most knowledgeable regarding financial matters, topping the ratings and areas of superannuation, investment, taxation, insurance, and economics.

Most trustworthy, truthful, and how he presents himself, it’s pretty straight up. You know, he calls out banks and bankers all the time and he’s particularly, like, gets quite pissed off about all of the fees that a lot of these big institutions charge. And, I would say he’s quite similar in some respects to Sam Stubbs who heads up Simplicity.

So, check out Simplicity KiwiSaver, that’s more like the New Zealand version of some of the stuff he recommends. So, we’ll jump into a few things and then I’ll talk quickly about the nine steps he kind of outlines. And he really does start with addressing objections and any, you know, false beliefs that you might have about the barriers that are going to get in the way of building up your wealth.

And, you know, he says that “The problem is that decades roll on by and life gets busy, and no one challenges, like, the negative scripts build up in your mind.” And so, we want to tear down these scripts and build you back up to have the belief that you can actually get the financial freedom that you want.

And, you know, relatively speaking, it is actually quite simple. So, you have to have a little bit of disappointment. It’s like losing weight. You can’t just drop 10 kilos all in one go. You’ve got to do it in small little steps and work towards it every day. And Scott really does hit on the fact that a lot of people get into debt troubles, and I see this all the time.

There are people who have what he calls the “McMortgaged McMansion. “People buying beyond their means. And I was just talking to a guy that has $110k of personal loan debt, credit card debt, and, you know, he’s got, you know, $500k plus mortgage. And if he sold his house and paid off his mortgage, then paid off all of his debts on top of that, he would have no money.

So, basically, he’s walking around and he doesn’t realize it, but he has no money. And he’s trying to build up his wealth by buying more properties and he’s got really bad habits. And so, you know, instead of focusing on a way, as the Charlie Munger approach on how to get rich, what you want to do is have a strategy on how to avoid being into negative debt cycles.

So, you know, the secret is to be a bit more practical, I guess. You know, focus on one thing at a time. If you say, “How am I going to build up $1 million so I can retire and I don’t have to worry about money?” There’s a really big thing to think about.

What Scott is saying is you focus on one thing at a time and let’s cover the nine steps. So, nine steps, you know, outlined with some nice cartoons here. Step 1, schedule a monthly barefoot date night with your spouse, or your partner. If you want to do this as a family, it’s really important that you guys are on the same page.

Set up your buckets, that’s step 2. Domino your debts, step 3. Buy your home, that’s step 4. So, if you haven’t bought your first home yet, it’s probably quite likely that you’ve got some credit cards or personal loans, or maybe you got a little bit of debt on the side of the cash savings that you’ve got. So, he’s saying maybe it’s worth getting rid of those other debts before you start buying the other house or your first house.

And he talks about increasing KiwiSaver percentage contribution. Boosting your mojos. A mojo account is like your fun account. and having a reserve set aside in cases of any emergencies. Get the bank off your back. So, he talks a lot about finding the right bank account structures and getting fees waived, and things like that.

Nail your retirement number and leave a legacy. So, not a lot of people talk about trying to leave a legacy, but, you know, it’s quite often that parents and grandparents, they want to leave something behind. And it’s very hard to provide for the next generation if you’re leaving lots of debt instead of good passive income and good assets.

So, now, probably the most important step is to make sure if you are married or you have a partner or you’re building up your wealth for somebody else, that you schedule a night that each month you’re talking about your finance. And he does and with a bit of cheek that he’s saying, “And fellas, spending an evening with your partner and talking about how committed you are to providing for your family, that’s some good financial foreplay right there, you know what I’m talking about.”

You know, this book is filled with little anecdotes like that that, you know, tongue and cheek, very Aussie twang. And he does have a good point. You know, a lot of people don’t want to talk about their finance because they feel like it’s a bit of a mess. And if you want to build up wealth, though, in the long term, there’s no point in one of you guys saving your money and the other one spending it.

It’s not going to work. Lots of case studies in the book of people getting out of debt, following a simple process. You know, Scott Pape, he talks about, “Don’t be loyal to your bank.” You know, “Call up your bank and say, ‘What are you looking for?’ And the bank is going to say, ‘What are you looking for in a banking relationship?'” And Scott says, “Well, you don’t want a relationship with your bank. You just want services provided.”

And, you know, I tend to lean more towards that camp. He says, “I’m sorry, I’m not looking for a relationship with a bank right now. And it’s not me. It’s you.” So, very, again, you know, in-your-face, a bit of a rant. He really does not like banks that much. He knows that the banks have got all sorts of tricks and tips to get people spending the way that they want them to be spending.

So, you know, there are lots of activities here. You know, week one, what to do, how to plan the night. And then, step two is picking the world’s best super fund. So, in Aussie, it’s a bit different. Over here, we’ve got KiwiSaver. And if you haven’t already, check out Simplicity KiwiSaver, it’s definitely the lowest fee KiwiSaver provider in New Zealand and it’s a not-for-profit one.

You know, that’s the one I’m with. So, my money is where my mouth is. And no commissions for brokers or bankers with Simplicity. You know, he’s got charts in here that show the difference between, you know, whether you put your KiwiSaver with a fund that charges low fees or not, and it does make, you know, $50, $100, even like $200,000 or $300,000 worth of difference, switching to a very low fee provider earlier rather than later.

And he says, you know, it’s very easy for $100k, at the end of your time, and to come off and that’s been paid to fees over the last 20, 30, 40 years. So, part of that Domino Your Debts strategy is, calculate, negotiate, eliminate, detonate, and celebrate. So, if you do have extra debt and you’re not sure that you better handle it yourself, don’t be afraid to reach out to a registered financial advisor like us, or find somebody that’s a bit savvier with money, and chat to them about how to get out of your debt.

And if you go and ask the bank how to get out of debt, they’re probably going to try to sell you something else. So, if you have a mortgage, you can consolidate into the mortgage and focus on the repayments and get back on top of the debt situation. So, Scott talks quite a bit about the property buying process. And he says a lot of people don’t take action because they’re making mistakes, like waiting for a crash or buying a home that’s a bit out of your financial means.

Scott’s not a big fan of buying an investment property before you buy a family home. And I’m not sure if I quite agree with that side of things, but rentvesting, which is buying an investment property and renting yourself can actually be quite a good strategy for a lot of people. But again, it’s good to see these stages in action. And if you are interested in investing in stocks, what Scott actually does, is he has this thing called “Barefoot Blueprint,” where you can pay, I think it’s about 400 bucks a year and you can watch how he’s investing his money and you can copy him.

So, he doesn’t actually coach anyone. He’s a financial advisor in some respects. But he says, “Hey, you can see how I invest my money and if you want, you can copy it.” Relatively cheap in terms of, like, when you think about all of the research that you’ve done, would do, and most of the things he’s buying is publicly traded stocks.

And actually, what he does is he announces his stock purchases before he does it five days early. And regardless of whether they go up or down, he still buys. So, you get the advantage of, you know, having a week ahead of Scott. You know, it’s a pretty good advantage to have. You know, there quite a bit in here about the Aussie property market, which, a lot of its peaks has been similar to the way New Zealand’s performed.

And, you know, he says over the last sort of 100 years or so, the average return, taking into account the inflation side of things, has been about 2.1% on property. And he says shares are much higher than that. And so, if you come into this with an open mind and not saying, “Hey, property investment, that’s the way to go,” you know, you will actually see the light on why shares can be a really good alternative as a form of diversification.

Property is really good for forced savings and using leverage. But it also has the pitfalls of, you know, big swings can make you…that you lose your money. And if you can afford the interest, then you can get forced to sell when you’re not ready. There’s obviously less liquidity in property as well.

When you need your money immediately, you can’t always get it. Yeah. Property versus shares. Again, he talks about how hey, you know, it’s complicated, but he gives you the same advice he gives his parents, his sisters, friends, and, you know, that he follows himself. So, that’s what we try and do at IRefi.

You know, there’s a lot of brokers that recommend specific properties when, you know, it might not always be in their best interest. So, you know, there’s a commission on it for the broker, it’s not always the best property that they could suggest, but it’s the one that makes them the money they want. So, you know, the Mojo is three months of living expenses.

And, you know, it does actually provide like a lot of relief from the anxiety of worrying about money when you’ve got a good emergency fund ready to go. And, if you are nowhere near having three months of savings ready to go, just imagine how nice it would be to not have to worry about living paycheck to paycheck.

And, you really can get there, it just takes a little bit of discipline. So, check out The Barefoot Investor. You can get it on Book Depository. It is a very, very good book. You can see all the bookmarks I’ve got in here. And, you know, I read this book well before I knew I was going to do a video on it. So, those are my personal bookmarks.

So, check it out, bookdepository.com, you can buy it. And it’s in most of the bookstores.