Barefoot Investor Scott Pape offers some words of advice for young Australians.
The Barefoot Investor Scott Pape has warned young Australians not to waste time or energy betting on cryptocurrencies and instead invest in skills that will pay dividends in the future.
He made the comments after a 22-year-old fan asked him for some advice on what to do about his declining crypto portfolio following Bitcoin's crash in May.
'You've got two things most people don't have enough of: Time and energy,' Pape told the young man.
'Now, you can waste that time betting on things you have no control over (like crypto) ... or you can invest it in skills and habits that will compound for the rest of your life.
'That could be finding a mentor, starting a side business, getting fit, or even just reading some good books (my pick: Extraordinary Popular Delusions and the Madness of Crowds – no talk of crypto, though, it was published in 1841).
'In other words, anything that you master now will compound over your life and make things exponentially better.'
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The Barefoot Investor basics explained:
Here's a summary of the most important points from Scott Pape's book The Barefoot Investor.
Schedule a monthly date night
Go on a monthly date with your partner or friend and discuss your financial goals. Make it enjoyable by going to a nice restaurant and review your expenses over a bottle of wine.
Set up your buckets
Barefoot Investor's money plan is to divide your money into three different buckets:
The Blow Bucket is for everyday expenses: food, home-loan expenses, your phone/internet bill, and to have some fun.
The Mojo Bucket is to provide rainy-day emergency savings. Think of it as a credit card replacement.
The Grow Bucket is for building long-term wealth through savings and investments.
The Barefoot Investor recommends listing your debts from smallest to largest, and paying off the smallest debt first. This will help you build momentum to pay off the bigger debts.
Negotiate with lenders to help pay off your debt faster – find out if your current provider can give you a better rate, if not move to another one that will offer you cuts.
Buy your home
Pape recommends that you buy a home as soon as you have the money and not to wait for a housing crash.
Pape believes you will need a 20% deposit for a home deposit. This will ensure you avoid Lenders Mortgage Insurance, which can add up to tens of thousands of dollars over the loan's lifetime.
He also advises you to borrow less than the bank will lend you. Your repayments should be less than 30 percent of your take-home pay.
Boost your super to 15 percent
Pape advises that you should increase your super payments to 15 percent after you've bought your first time. Because your employer is already paying 10%, you only need to increase it by 5%.
This reduces your taxable income, so you generally end up paying less tax overall. (You pay 15 percent tax on money going into super, which will be less than your marginal tax rate if you have a job earning more than $45,000 per year.)
Boost your Mojo bucket
Remember your Mojo bucket? This is your 'emergency fund'. Pape wants you to save towards three months of Mojo money so that you've got $6k securely stashed away.
Get the banker off your back
Pape wants you to save thousands of dollars on your mortgage payments. How? By lowering your interest rate and making extra payments.
'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,' he explains.
Nail your retirement number
Pape recommends you have your home paid off for retirement. On top of this, he suggests you'll need $250k of superannuation for couples, and $170k for a single person. This is the maximum amount of assets you can own (excluding the family home) to receive close to full amount of the aged pension.
Leave a legacy
Once you're financially stable, Pape wants to consider how you could help others. Consider giving away some money and time to those less fortunate.