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• At some stage you’re going to face your own financial fire

Plant, Grow, Harvest

• Nature has an easy-to-understand pattern: plan, grow and harvest
• We’ll plant the seeds of wealth. We’ll watch them grow and then, we’ll enjoy a life-changing harvest.
• Most people are groundhogs. They do the same thing day in, day out…and then bitch and moan that ‘nothing ever changes’.
• The goal of the Barefoot Investor can be summarised in one word: control.
• If you want financial freedom, you need to take charge.
• Here are some of the scripts that you may be thinking about finances.
• Here’s you: I’m not that smart with money.
• Here’s Scott: No-one is born ‘smart with money’. It’s a learnt skill
• Here’s you: I don’t earn enough.
• Here’s Scott: It’s not about what you earn, but what you save.
• Here’s you: I’ve left it too late…I should have saved more when I was younger.
• Here’s Scott: Stop for a second and tell me what age you’ll be when you die.
• Most people don’t think about their long-term future.
• Here’s you: The economy sucks
• Here’s Scott: More millionaires were created in the Great Depression than at any other time.
• In the past century the average lifespan has doubled, while the average income has tripled. Food is 10 times cheaper, electricity is 20 times cheaper, transport is 100 times cheaper and communication is 1000 times cheaper. These are the good old days.
• When it comes to money. It’s easy to hide your financial flab from the world.
• If you look like you have a financial sixpack, you’ve got zero motivation to change. And that’s why most people never do.
• Facing up to the fact that you’re not as successful or sorted as you tell yourself you are – or as your family and friends believe you to be – takes guts.
• Seeing your situation for what it really is and having the courage to change it.
• Success isn’t found in the eyes of others: buying things you don’t need, with money you don’t have, to impress people you won’t know in 20 years’ time.
• Be financially fireproof
• If you try to do a million things, you’ll do none.
• Yet that’s the power of focusing on just one thing- one step – and ticking if off the list.
• Have everything on autopilot.
• Introducing the Barefoot Steps
• They are nine specific steps that you complete in order, one by one.
• The power of the Barefoot Steps is that they focus on you doing just one things at a time.
• Step 1: Schedule a monthly barefoot date night.
• Step 2: Set up your buckets.
• Step 3: Domino your debts.
• Step 4: Buy your home.
• Step 5: Increase your super to 15 percent.
• Step 6: Boost your mojo to three months.
• Step 7: Get the banker off your back.
• Step 8: Nail your retirement number
• Step 9: Leave a legacy

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Part 1: Plant, it’s time to get your hands dirty

Step 1: Schedule a monthly barefoot date night

• First, because it’ll make you happier.
• The only thing that psychologists are unanimous on is that spending time with your family and friends is a direct predictor of wellbeing – and hands down one of the best things you can do for your relationship.
• Second, because it’s the two of you against the world.
• Third, because there’s no such thing as ‘get rich quick’.
• Most people totally overestimate what they can achieve in one year, but totally underestimate what they can do in six years.
• Making a ritual of focusing on your money is the most powerful thing you can do. Period.
• Barefoot banking
• Your current bank account is draining you: the average Australian household gets whacked with $515 in bank fees each year. Over $5150 in 10 years.
• Do not be loyal to any financial institution, it doesn’t pay to be loyal
• Banks are giant corporate octopuses with tentacles that wrap around you and squeeze out as much money as they can.
• Scott’s zero-fee everyday transaction account.
• ING Orange Everyday debit card. Set up two of them. Call one ‘Daily Expenses’ and the other ‘Splurge.’
• Scott’s linked high-interest online savings accounts.
• ING Savings Maximisers that are linked to the ING Orange Everyday account. I want you to set up two of them – and again I want you to give them nicknames. Call one ‘Smile’ and the other ‘Fire Extinguisher’.
• What you want is separate online saver accounts that are linked to your everyday transaction account. Zero fees. Good interest. All in one account. Simple.
• Get some Mojo, baby
• Finally, you should have one bank account completely separate from your day-to-day banking. Another financial institution altogether.
• This account will become what I call your ‘Mojo’
• The aim of the Mojo account is to get your Mojo back, baby. So you don’t have to stress about money like everyone else.
• Most people shuffle money around from one account to another without ever actually saving any of it.
• Scott’s Mojo account is UBank USaver. It’s for emergencies only.
• The world’s cheapest super fund
• Your super fund can gobble up a third of your savings in fees.
• Research by Rainmaker shows that a person who starts work at 20 could accumulate up to $663,000 in super over their working life. However, they will also pay $174,000 in fees on average.
• Choosing an ultra-low-cost super fund is the easiest way to win a game that millions of people lose.
• The paradox of choice. Faced with too many options, the average person will be inclined to choose none.
• Approximately 90 percent of the Australian population don’t choose where their super money is invested, so they end up their fund’s default option.
• The super fund Scott uses
• The Hostplus Indexed Balanced Fund, and it charges a tiny investment management fee of 0.02 per cent.

Your insurance sorted in one beer

• According to CommBank, for every family like ours that loses its home in a fire, four families lose their home because of the death of a breadwinner, and 48 families lose their home because of a breadwinner becoming disabled.
• The bottom line is this: you can do all the right things, you can have everything sorted, and something you have no control over can wipe you out financially.
• The golden rules of insurance
• Rule 1: Only insure against things that can kill you financially
• * Your house burning down, car, travelling overseas, hospital, being unable to work, permanent disablement and death.
• Rule 2: Choose a higher excess
• The more excess you’re prepared to cough up, the cheaper your annual insurance premium will be.
• Rule 3: Don’t automatically pay your insurance premium each year
• Protecting your family
• Your most powerful financial asset isn’t your home or your car: it’s your ability to earn an income.
• Australia has the highest rate of household debt in the world. Yet our massive debts are just a symptom of the real problem: our out-of-control spending. Did you know that Australians on average live in the biggest homes in the world? Our supersizes McMansions are 10 per cent bigger than the USA.
• How much is enough?
• So when do we ever have enough ‘stuff’? Never. That’s not how the game works. According to AdAge, marketers spent one thousand billion dollars (that’s $1 trillion) globally in 2015 trying to convince us to spend. Make no mistake, when an industry spends one thousand billion dollars a year on messaging, they want a return. This is a deadly serious business.
• Marketing is manipulation. Its chief aim is to create a big enough emotional void within you that you’ll pull out your plastic card and swipe. It creates the void in subtle ways, mostly by reinforcing the feeling that you’re dissatisfied with what you already have.
• To quote comedian Louis CK, ‘everything’s amazing and everyone is miserable.
• The art of conscious spending.
• Spend your $$$ on the stuff you love and cut out the waste
• The truth is you can live like a multimillion today by cutting back on meaningless crap and diverting your spending to the little luxuries you use every day.

Step 2: Set up your buckets

• The entire money management plan consists of dividing our income into three ‘buckets’
• * a Blow Bucket, for daily expenses, the occasional splurge and some extra cash to fight financial fires
• * a Mojo Bucket, to provide some ‘safety money’
• * a Grow Bucket, to build long-term wealth and total security
• If you really want to win, you should ditch tracking everything and instead simplify your choices.
• Willpower is like a muscle that becomes fatigues from overuse. Basically, willpower is a limited resource.
• People who succeed don’t have more willpower than you: they just develop better daily routines and habits, which after a while become automatic and require less thought – less conscious energy.

THE BLOW BUCKET

• The deal with the Blow Bucket is spending more money on the stuff you love and less on the stuff you don’t.
• The Barefoot benchmark: live off 60 per cent of your income
• Here are some rough percentages based on the average household income:
• * Housing (rent or home loan): 30 percent
• * Utilities (power, gas, water, broadband, phone): 5-10 percent
• * Transport: 5 percent
• * Food: 5-10 percent

The Mojo Bucket

• The aim of the Mojo Bucket is to get your Mojo back, baby. You know the feeling – it’s a spring in your step that says, ‘I don’t stress about money’.
• Professor Bob Cummins and his researchers from Deakin University found that financial stress produces feelings similar to physical torture.
• The Grow Bucket

• If you want to stay poor, focus on spending your money. If you want to become wealthy, focus on saving and investing your money.
• The aim of the Grow Bucket is to get a little wealthier every day. Every dollar you pour into the Grow Bucket should double every seven to ten years.
• Set up payment to your Daily Expenses account
• Your employer needs to put 100 percent of your take-home pay into this account.
• I want you to try and live off the Barefoot Benchmark of 60 percent of your take-home pay.
• The other 40 percent put into the three other accounts – Splurge, Smile and Fire Extinguisher.
• Set up payment to your Splurge account
• You are hereby directed to go out and blow 10 percent of your money on anything that makes you feel good. This is what your Splurge account is for. Set up an automatic transfer of 10 percent of your take-home pay from your Daily account, each time you’re paid.

• Set up payment to your Smile account
• Another 10 percent of your take-home pay should be automatically transferred from Daily Expenses to Smile (online saver)
• Set up your Fire Extinguisher account
• Finally, allocate 20 percent of your take-home pay from Daily Expenses to your Fire Extinguisher account (online saver).
• What’s a financial fire?
• It could be your crushing credit card debt.
• It could be the home deposit you’re saving up for.
• It could be paying off your mortgage.
• Your Fire Extinguisher account will be used for different financial fires at different times in your life. The 20 percent amount won’t change, but what you use it for will.
• Putting it all together

Step 3: Domino your debts

• Who taught you about money?
• Stop for a moment and answer that question: who taught you about money?
• You either learned money from parents or school.
• A ‘credit’ card has positive connotations. After all, who doesn’t want to be given credit for something? What it really is, is a ‘debt’ card.
• Debt cards make everything more expensive. And if they get out of hand, they destroy your self-confidence.
• Achieving a sense of financial control isn’t about your net worth – it’s about your self-worth
• The biggest purchase you make on your credit card is interest. Make no bones about it, the game is designed that way. Credit cards are compound interest in reverse: they’re designed to blow out and grow bigger and bigger, even if you stop spending. That’s why they set the minimum monthly repayment at 2 percent but charge 20 percent per annum (or more) in interest
• As your credit card increase, your self-confidence decreases.
• It’s time to call your bank and say, ‘Please cancel my credit card, and then change it over to a Visa or MasterCard debit card.’
• You need to have some ‘no matter whats’ in your life:
• * No matter what, I’m not going to take out a high-interest loan to fund crap I don’t need.
• * No matter what, I’m going to pay my own way, and claw back my financial confidence.
• * No matter what, I’m going to set an example for the people around me.
• The people who ditch their debts for good have one thing in common: they change their attitude.

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Domino your debts

• The bottom line is this: if you have a credit card debt, or a personal loan, or a car loan, you’re not in control of your financial future. You’re not free.
• Debt is slavery.
• Debt eats away at your self-esteem.
• There are five dominoes you need to set up to knock out your debts:
• * Domino 1: Calculate
• * Domino 2: Negotiate
• * Domino 3: Eliminate
• * Domino 4: Detonate
• * Domino 5: Celebrate!
• Domino 1: Calculate
• Write down all your debts – credit cards, car loans, parking fines, money you owe to friends – in the table below

• Domino 2: Negotiate
• Now that you’ve calculated all your debts, it’s time to negotiate. Hard
• Domino 3: Eliminate
• Domino 4: Detonate
• Rearrange your list of debts from smallest to largest. Single out your smallest debt.
• Debt is what I call a ‘financial fire’ so use your Fire Extinguisher (20 percent of your take-home pay) to ‘hose down’ your smallest debt.
• Domino 5: Celebrate!
• Being in debt is not the same as having a debt problem.

Recap of part 1: Plant

• You have:
• * Made a commitment to becoming a little wealthier each day.
• * Set up your financial infrastructure so you’ll pay zero bank fees, and, more importantly, put your day-to-day money decisions on autopilot.
• * Rounded up your long-lost super funds into an ultra-low cost fund.
• * Cut up your credit card(s) and begun the process of domino-ing your debts,
• Become one of the 7 percent of Australians who have the right amount of insurance.
• And we’re just getting started. Now it’s time to grow, baby, grow!

Part 2: GROW

• Now it’s time to grow!
• We’re going to focus on earning more, saving more, and then intelligently and tax effectively compounding your money over and over.
• How to double your income
• There’s a limit to how much you can save, but there’s no limit to how much you can earn.
• How to earn $5000 in an hour
• The difference between being broke and becoming a millionaire is as little as getting a $5000 pay rise a year.
• Mark a commitment
• Do your homework
• Take control of your performance review
• Put your goals in your calendar
• Casually follow up with your boss over the next 12 months
• The easiest way to make extra money quickly – as in next week – is to freelance.
• Freelancing cuts through the bulldust and allows you to road-test your ideas, your pricing strategy and your skills…all without leaving the security of your day job.

Step 4: Buy your Home

• Housing is ridiculously expensive
• Australia has one of the highest levels of home ownership in the world.
• * Australia has some of the most overvalued property in the world.
• * Australia has the highest levels of household debt in the world.
• * Australia has the lowest interest rates in history, so repaying that debt is (kind of) manageable today.
• The Economist magazine has labelled the Aussie housing market the biggest financial bubble in history.
• Financial stress rips families apart
• The word ‘mortgage’ comes from Old French and roughly translates as ‘an agreement till death’ – and that’s exactly what many young families enter into when they mortgage themselves to the hilt.
• Things tend to come in threes – Scott calls it the Triple M’s: Marriage, Mortgage, Midgets.
• The median duration from wedding bells to divorce bills is 12 years?
• The truth is buying a home creates financial stress and insecurity – until you get ahead of your mortgage. As all homeowners know, running a home is expensive, costing up to 5 percent of the purchase price each year. And this is magnified when you take on more debt than you can afford.
• Over a 30-year mortgage you’ll spend more money paying interest to the bank than you paid for the original cost of the house.
• A home should be your refuge, your castle. A place where you can relax and be yourself – like a comfy old jumper.
• The golden rule of real estate is not ‘location, location, location’ – its safety, safety, safety.

Step 5: Increase your Super to 15 percent

• We’re going to put your retirement savings on autopilot by increasing your pre-tax super contributions to 15 percent.
• I want you to put 15 percent of your gross wage (that is, pre-tax) into super. The official term for making pre-tax contributions is ‘salary sacrifice’
• Shut down your human emotions of greed and fear, and compound your wealth: put your investing program on autopilot.
• Your Golden Ticket – becoming an investor
• Scott’s recommendation for your first investment would be the Australian Foundation Investment Company (AFIC). AFIC is a business that trades on the stock exchange. Technically it’s a listed investment company (LIC). AFIC’s business is investing in great businesses.
• AFIC’s fees are around 90 percent less than the fees of managed funds – and yet AFIC outperforms the majority of these funds.
• The hardest thing about investing is actually starting.
• The longer you invest, the longer your money has to grow through the magic of compound interest (remember: this is when you reinvest your earnings so you earn interest on your interest).
• The future is going to be expensive – and the way we pay for it is by investing. And the best place to invest your money for the long term, regardless of your age, is super.
• Albert Einstein said that compound interest is the 8^th wonder of the world. What is compound interest? It’s when you reinvest your income so you earn interest on your interest.
• Debt is a four-letter word
• The greatest investor in history, Warren Buffett, is cut and dried when it comes to borrowing to invest. ‘Stay away from debt. If you’re smart you don’t need it. If you’re dumb you got no business using it.’
• The truth is this:
• * Debt always makes things more complicated.
• * Debt always adds more risk.
• * Debt always adds more stress (whether you admit it or not).
• * And if you can avoid getting into debt, you should.
• The number one secret to raising financially fit kids is to be a good money manager yourself.
• How not to raise a spoilt brat
• Grab three jars (without the jam!) and label them “Spend’, ‘Save’ and ‘Give’.
• Spend: kids need to learn how to become savvy shoppers, and the best way to teach them is through experience.
• Save: teaching them that they need to save for stuff is the cornerstone of an effective financial education, and pays lifelong dividends.
• Give: this is a life lesson in contentment – after all, the happiest people on the planet are those who give.
• The power of compound interest. That’s the power of time. This isn’t a new thing. It’s not hit and miss. It works every single time, and it’s the safest and surest way to become incredibly wealthy. So why don’t more people do it? Well, because it’s kinda…boring.
• People will always find a reason to ‘play it safe’ and do nothing. Those people will always be broke.
• The reality is that most people learn about compound interest in reverse – by buying stuff they don’t need, with money they don’t have, to impress people they don’t care about. Yet debt robs them of their financial independence. Debt makes things more expensive. Ultimately, debt is slavery.

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Step 6: Boost your mojo to three months

• Point your fire Extinguisher at your Mojo Bucket and boost it to three months of living expenses.
• The power of Mojo – never worry about money again.
• Repeated studies have shown that, beyond a basic level of income (around $70,000 a year), there’s no discernible link between a high income, or a large bank balance, and happiness.
• One thing that researches have repeatedly found does have a measurable impact on your happiness: savings. That’s because savings equal freedom. When you’ve got money in the bank, you’re free to live life on your own terms. You have the power. You call the shots.

Part 3: Harvest

Step 7: get the banker off your back

• There are only two ways to pay your mortgage off more quickly:
• Lower your interest rate.
• Make extra repayments.
• The curious case of the postcode povvos.
• A side-effect of living through the biggest debt boom in history is that some people view a house like a chess piece; you hold onto it long enough for the equity to rise – and then you trade up to a newer, flashier suburb with newer, flashier neighbours.
• The millionaire next door.
• The authors of the book set out to study the buying habits of the very wealthy. They began by interviewing people they perceived as rich: those in wealthy suburbs with big homes, expensive cars and all the other trappings of success.
• Yet their findings were puzzling. The people they interviews had high incomes, but they were asset poor. Worse, they were drowning in debt. In other words, they were ‘all show and no dough’
• Real millionaires, they found, create their fortunes by following the time-tested rules of wealth (which, incidentally, mirror the Barefoot Steps). They are long-term investors – a whopping 95 percent own shares. They avoid credit cards. They save. They don’t have boats, lap pools or Porsches. And they drive second-hand family cars.
• There’s not a home in the world that will make you as happy as being in control of your time. That’s true freedom. And the sooner you can wipe your mortgage, the sooner you can live life on your terms.

How to save $77,641 and wipe almost seven years off your mortgage

• Point the Fire Extinguisher at your home loan.
• Let’s have a quick recap of the Barefoot Steps.
• In Step 2, you arranged to have 20 percent of your take-home pay put into your Fire Extinguisher account, to be used for putting out ‘financial fires’.
• In Step 3, you pointed that Fire Extinguisher at your debts,
• In Step 4, you pointed that Fire Extinguisher at a deposit to save up and buy your home.
• In Step 6, you pointed that fire Extinguisher at your Mojo Bucket and topped it up to three months of living expenses.
• We’re now at Step 7 and you’re going to point that Fire Extinguisher at your mortgage repayments, so you can ‘hose them down’ once and for all.
• If you pay just $1000 extra (on top of your minimum repayment) a month off your home loan, along with getting a cheaper rate, you’ll save $77,641 in interest and wipe almost seven years off your mortgage (based on a $400,000 mortgage over 18 years).

Step 8: Nail your retirement number

• You must have the banker off your back
• Nail your number. You can’t retire until you’ve nailed your retirement number as a minimum.
• Never, ever retire.

Step 9: Leave a legacy

• For some people, the only thing they gain from money is the fear of losing it. They get so caught up in the game, they never work out if they’re winning. They never ask ‘How much is enough?’, and they continue spending their time in jobs they don’t like, to buy ever more expensive things to impress people they don’t like.
• Freedom starts today – you don’t have to wait.
• The golden triangle of happiness
• A sense of purpose
• Strong personal relationships.
• Financial control.
• Once you earn over $70,000 a year, money won’t make you much happier.
• The number-one cause of relationship break-ups is fighting about money.
• Money may not make you happy, but the research shows that not being in control of your finances will make you very unhappy.
• Achieving a sense of financial control isn’t about your net worth 0 it’s about your self-worth.
• You don’t have to wait until you’ve paid off all your credit cards.
• You don’t have to wait until you’ve bought a home.
• You don’t have to wait until you’ve paid off your home.
• You don’t have to wait until you’ve saved enough for retirement.
• You don’t have to wait for anything.
• You achieve the freedom of control the very moment you make the decision to commit to following a common sense plan.
• It then becomes a matter of time: so long as you keep following the plan, everything will be okay.

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