The Barefoot Investor is one of the best-selling books in Australia. Here’s how the Barefoot Investor helped Stephen with money and how it could help you.
Firstly, well done! Even just by taking an interest in your personal finance, you’re already ahead of the average Australian. Scott Pape’s The Barefoot Investor has been going gangbusters since it was first published in 2016, selling nearly two million copies.
There are lots of reasons why we don’t talk about money and the Barefoot Investor is changing that for some people, with members of Barefoot Investor Facebook groups numbering in the thousands.
In fact, the book has helped me quite a bit too. After reading it and then using Scott Pape’s paid subscription service, the Barefoot Blueprint, I learned how the share market works, and I now have a portfolio with compounding returns way bigger than what a bank account can give me. More importantly, it has given me a huge interest in finance in general, which will now lead to a long-term career, fingers crossed. Yipee!
So you’ve bought the book, and now you’re ready to jump in.
Get pumped, this is big! Now there are two main ways to go about implementing the tips and tricks on offer:
Method 1: Follow the Barefoot steps exactly
This can work well if you have no idea what the difference is between taxation and inflation. You can read the books, do the weekly Barefoot Dinners with your partner and open the bank and superannuation accounts recommended by Scott, and you’ll be better off than you were. If money terrifies you, the steps will ease your fears, hopefully fix bad habits, and get you back on the right path.
Method 2: Tread your own path!
I’ve seen a considerable amount of people who immediately went to buy the Dunlopillo recommended by Scott after they read about it in The Barefoot Investor. Lo and behold, some of them don’t like the pillow!
I find that the best way to tread the Barefoot path is to not follow the book to the letter. Heck, Pape himself signs off his email newsletters with ‘Tread your own path’! Don’t go out to buy a specific brand of pillow just because Scott likes it. Rather, learn the lesson that Scott is teaching, namely to ‘spend your $$ on the stuff you love – cut out the waste’.
Furthermore, whilst this book works for most people, it isn’t marketed towards those just starting off in life.
The Barefoot Investor provides what you might consider common sense ways to manage your money: Spend less than you earn, borrow less than you can afford, know how much you’re spending and on what, automate your spending if possible. These ideas aren’t new.
But reading beyond the book, there are some different ways to go about your financial journey:
- If you open all four accounts recommended by Scott, the Daily Expenses, Splurge, Smile, and Fire Extinguisher with ING Bank as Pape suggests, only one of your two savings accounts get the maximum interest rate but the other gets just 0.1%! Opening up your Splurge and Fire Extinguisher with a second-high interest bank fixes this problem and you won’t have two identical cards for your Daily Expenses and Splurge.
- Pape doesn’t really go into depth into the rise of neobanks in Australia. New financial institutions like Up Bank, Xinja, and 87400 offer potentially better and easier ways to manage your money, especially in an online banking world. Look around and find the best option for you!
- Choosing the Index Balanced fund recommended by Scott from a provider which rhymes with MostBlus is not necessarily the best way to go. You bear the full brunt when markets dip, and the insurance implications of changing super is something many don’t consider, alongside the myths we attach to funds like this with names like balanced or index funds.
- Pape gives a word for word script you can use to get a lower interest rate. But you can use this method for so much more than just your mortgage. Phone bills, electricity and gas, if you’re off buying a TV at a store, it all counts!
- Paying off your smallest debt first may work from a psychological perspective, but looking at the numbers, paying off the debt with the highest interest rate is the best way to go to save you money in the long run.
- Storing what Scott refers to as your Mojo account in a mortgage offset account is the most financially efficient way to go. Instead of putting it in a savings account and earning between 1-1.5% interest at the time of writing, you’re saving what your current mortgage interest rate is. What’s more, mortgage loans aren’t taxable, unlike savings interest, so the benefit only increases. Of course, offset accounts themselves aren’t always free, and it’s best to weigh up the numbers yourself. Pape is concerned with making sure that your Mojo is hard to access, which is understandable, but being honest with yourself and using self-control could put you further ahead.
- Doing all of the Barefoot steps in the order prescribed may not be the best way to go for you. For example, Pape doesn’t talk about investing outside of super until after you’ve bought your first home. However, when starting a share portfolio, the younger you start, the better off you’ll be in the long run. Need convincing? Check out the 2017 book edition where on page 179, Scott shows a chart of how much more you’ll earn through your investments compounding if you start investing at age 15 rather than 25. I should also point out that having the security of having a roof over your head is important as well. It all depends on your personal situation and what works best for you, which is this point of this second method.
Financial literacy is less than impressive in our education system.
You can see this in the prevalence of payday loans, and people withdrawing from their super without needing to! The Barefoot Investor goes a long way in improving that, helping many Australians move from being a complete beginner with money to not having to worry day to day about paying the bills. But rather than seeing this book as a Bible to be followed to the letter, instead see the main message, to ‘tread your own path’.
Read more: 5 Steps to Financial Fitness