The Barefoot Investor review: Is it really the only money guide you will ever need?

Scott Pape’s The Barefoot Investor: The only money guide you will ever need book, has taken on a world of it’s Barefoot Investor Book Reviewown and become a bestseller here in Australia.

Everywhere I turn someone is sporting their orange ING cards and referral codes are found at every turn (sorry I don’t have one).

I read his previous book which was written more than ten years ago now. Which detailed 5 steps to financial freedom for someone in their 20’s and 30’s.

The 5 steps were essentially setting goals, managing cash flow, debt reduction, investing (or working your Mojo account – yep the Mojo was around back in the early 2000’s) and insurances.

Given I was only in the early stages of my financial journey it was a good book to lay a foundation.

But after the latest book came out, I was not really that inclined to buy it. From what I had read on the steps I didn’t really think it could teach me anything I did not already know.

But since a reader reached out to me and asked me to do a book review, I bit the bullet and grabbed a copy.

Since reading it, I can see how it is a great book for a beginner. I think he has done a fabulous job in making more Australians comfortable with talking about money more openly, which in my eyes is only a good thing.

But as someone who is working towards financial independence there are some of his 9 steps that I am worlds apart in terms of my thinking.

Even if you have not read the book yet, you can check out a summary of the steps here, before I let you know where I think he has missed the mark for me.

Schedule Date Nights

The first step I am totally on board with.

It is all about making the time every month to track your progress (my spend tracker could help) and stay accountable.

Speaking openly with your partner about your debt as well as your joint goals is something that I think is essential in any relationship.

Hiding debt or spending from your spouse is a recipe for disaster, except in exceptional circumstances, such as the need to escape an abusive relationship.

Since me and my husband have two young children, we don’t actually get to go out to dinner really at all.

But we do find the time to chat about our finances and we are both very much on board with our main financial goals.

Set up buckets

The second step is all about managing your cash flow. Essentially it is the same as detailed back in the original book and where the Mojo account first made its appearance.

The current book details you want a Blow bucket for daily expenses, the occasional splurge and to fight any financial fires.

You then want a Mojo bucket which is some safety money, and then a Grow bucket which is to save and build for long term wealth.

The premise of keeping separate accounts is a great one. But I never really set my accounts up exactly like this in the past.

I basically had an everyday spending account, a bills account for irregular expenses and then a longer term savings account, which was for either holiday or house deposit savings.

These days we just channel all of our funds into our offset account. We don’t actually have any savings as such, just all of our money gets pooled in the one place. And we use our credit card to earn points.

If I am honest, I think the way we are currently doing things has resulted in us increasing our spending. So going back to the bucket approach is something I am looking into with my bank. To see if we can have multiple offset accounts against the one loan.

Domino Debt

Getting a handle on your debt is really important for financial freedom.

I agree with The Barefoot Investor approach to just focus on your consumer debt here. Negotiating a better deal on your interest rate is also sound advice.

Having worked in banking, I have seen it first hand that the bank wants to keep your business, so will very rarely not come to the party with a better rate.

Whilst it is suggested to cut up your credit cards, I think this is good advice for most people, but not everyone.

There are people out there who can have a credit card and use it to their advantage to earn Points for things such as free travel. These people are very disciplined and always pay off their card each month.

So here is where you need to make a judgement call on the type of spender you are. If you do decide like us, to keep a credit card, if you start to not pay it off each month then you should follow the Barefoot Investors advice to cut it up.

The approach to eliminating your debt in the book, is called the Domino effect. Which is basically paying off your smaller debt first regardless of if it is the lowest interest rate.

This concept is not new. Dave Ramsey speaks of this as the snowball method compared to the avalanche approach which is paying off the highest interest debt first.

I see the merit in the domino and snowball approach, and I think it works well to motivate people to stay on track.

But for me personally, if I had something on interest free and it was the smallest debt I would not make that my priority. I would calculate exactly how much I need to pay to pay it out completely before the interest free period. Not just pay the minimum as that is where they catch you out when it converts to an insane rate.

Once I have worked out that amount I would pay that amount each month, then channel all my other funds to another debt that I am paying interest on.

Buy your home

The Barefoot Investor advises to save a 20 per cent deposit so that you can avoid being hit with lenders’ mortgage insurance (LMI).

The premise behind it is if you buy a place for $500,000 you need to pay more than $15,000 for this insurance, which when added to your mortgage adds more than double that to the amount you end up repaying.

Now I see the point behind this, as you want to demonstrate that you can save and therefore be able to afford to pay off your home.

It also helps to have some equity built in from the start which give you a bit of breathing space and your repayments start at a lower rate.

For our first place we had a 20% deposit, but for our investment properties we definitely did not. And we have more than made up for the cost of the LMI due to capital appreciation over the past few years.

With prices the way they are in Sydney, I think 20% is a hefty goal but one worth striving for. The key for us to be able to achieve that was to not go in and buy the forever home. We started with a modest two bedroom dated unit and worked our way up from there.

Supercharge your wealth

This is the step where me and The Barefoot Investor come to blows. We are most definitely not on the same page with how to supercharge your wealth.

The book advised that the best place to invest, for someone of any age, is in Superannuation.Barefoot Investor Book Review where we disagree

As soon as I read that I groaned thinking there is the investment advisor in him coming out.

Now I get it. It is a tax-efficient strategy and the straight out maths would say it is better than investing your after tax dollars is something like shares or index funds.

But if the Barefoot Investor is able to go against the maths in his domino approach to debt, then I am able to here when it comes to growing your wealth.

If I was over 50 I might agree with his approach. But as someone in my mid-thirties who plans to retire well before the Government will let me access my own money, it is simply not going to happen me paying more than the employer contribution.

Fellow Aussie blogger, Pat the Shuffler, explains the case for and against Super over on his blog. It is a fascinating read.

My major problem with Superannuation is that I am not in control of that money. Sure I can change the balance of my portfolio, but at the end of the day the Government can up the age I can access my money and there isn’t a thing I can do about it. They have just changed a bunch of rules in relation to how much you can contribute, so my thinking is, when will they stop making changes?

I see why for the country it makes sense for it to be controlled so people don’t waste away their nest eggs, and we end up with a larger welfare bill.

But in my personal circumstances, contributing extra to Super is simply delaying financial independence.
The reason I feel so strongly about this, is because my dad died at aged 55. Before he could access what he had worked so hard for.

For me, if I can build up to my freedom number (the amount I need to be financially independent – which as a rule of thumb is about 25 times your annual expenses) over the next 8 years I won’t actually need to wait until I am 60 to retire.

The cynic in me also thinks the Government will increase the age you can access your Super to much older by the time I get to this point in time.

For me, my retirement is all about cash flow. If I can be earning enough from rent and dividends to fully replace my full time wage then I have hit the point of financial independence.

And I plan for that to be a long time before the Government will let me access my Super.

Boost your Mojo to 3 months

This step is all about having three months of living expenses saved up in the case of an emergency.

I definitely think is a good idea. Having peace of mind if you lose your job or are made redundant can help you to feel a lot more in control of your finances.

For myself currently, we don’t have a large buffer like this available. Two lots of maternity leave certainly tick a hit on our savings.

Whilst not ideal, if we were to face this kind of emergency, we do have a line of credit available which would mean we could be OK until we were able to sell one of our properties, which we are planning to do anyway.

Get the banker off your back

There is a school of thought that you should not pay off your home loan faster, as the interest rate on the mortgage is less than what you could potentially earn by investing the excess funds.

But I share the Barefoot Investor’s view here that you want to get the banker off your bank. The security of owning your home mortgage free is something that is very important to me, particularly after having kids.

In an upcoming blog I will go into more detail about ways to pay off your mortgage quicker. The Barefoot Investor suggests there is only two ways to do this.

Either lower your interest rate or make extra payments. Which is mostly true, but if you really wanted to get drastic with your mortgage free status you could consider downsizing or moving to a city that is not as expensive.

Nail your retirement number

This is another step where the Barefoot Investor and I come to blows.

I can see the value in him letting people know that you do not need a million dollars to retire. That for couples a paid off home and $250,000 is enough.

It makes people feel better about their current situation and causes them to be less worried about their retirement, as the goal is now more realistic and achievable.

But where I have a real problem is this will only afford you a comfortable lifestyle when combined with the Aged Pension.

As someone who is in my thirties, planning my retirement based on assumptions that the assets test will remain the same in thirty years times or that the rules to access the Aged Pension won’t change drastically by then is something that concerns me.

Plus the age to access the Aged Pension, I predict will continue to creep up, so I will need to be 101 by the time I qualify (OK 101 might be a bit dramatic but you get the idea).

Hence the safety net is not something I am willing to put all my cards on.

Instead of calculating my retirement number. I much prefer to calculate and work towards my freedom number. The amount of money I need invested in order to bring in enough income to cover my living expenses.

For me this amount is over the million dollar mark. And something I am striving to achieve.

Leave a legacy

This is all about giving to others as a way to be remembered for something.

To me, the most important legacy I can leave is to my two daughters.

Hence my focus on retiring early so that I can spend much more time with them whilst they are young.

With this extra time, I also envisage us being able to give back much more time in our local community.

Wrapping up

So now that all the steps have been discussed, I can now answer whether it really is the only money guide you will ever need.

If you were to only read one book on money in your life, it’s a decent one to read. The fundamentals of money management are all there. And in the end it will afford you a comfortable retirement.

But for me, reading other books and educating yourself about different schools of thought could add a more well rounded view of what you would like your retirement to look like.

So I would say, use your new found interest in the subject to go deeper and read some money books that interest you. Use the book as a starting point to fuel your interest and perhaps follow some other Aussie bloggers and see what they are up to as well.

What did you think of the Barefoot Investor book? Do you agree with all of the steps?

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  1. Love reading your thoughts on this Cath! I agree about the Super point – I think it was Paul Clitheroe that said when you have kids, you need to have the flexibility of having money availiable when you need it, and it doesn’t make sense to lock it up in Super when your needs are highest.

    1. Yes absolutely. Our financial commitment has changed so much since we have had kids.

  2. Interesting points on the Super debate. Over the last few years, we’ve actually started to do both. First we focused on the mortgage. Then when that was done we saved a decent amount that we could access whenever we needed it. Since then we’ve put extra into super primarily for the tax benefits. My husband also gets extra from his employer for making salary sacrifice contributions so in our case it’s been worth our while. But we’re also saving extra outside of super so that we can retire early!

    1. I think that’s the beauty of personal finance – it’s personal. If you can afford to put extra and it doesn’t hinder your early retirement plans than the tax advantages are definitely worth it.

  3. I strongly agree with your recommendation not to only use one source of information and to do some well rounded reading on all things finance and investing.
    The super debate is an interesting one. I, like Eliza above am doing a bit of both a the moment. Without kids or a mortgage or any other commitments I feel I can afford to lock the money away for a while and let it grow, while also more largely adding to investments outside of super. I plan on doing this for a couple of years, and then cutting back and putting my focus elsewhere.
    I am cautious the rules may change, though believe it is in the governments best interest to have as many people self-supporting as possible so I don’t believe they’ll do anything too drastic (fingers crossed).

    1. You are right the Government would want as many self-supporting retirees as possible. So whilst I don’t think they will do anything drastic, even know the current age you can access your funds mean you need outside investments in my eyes.

      1. They do want self-reliant retirees, which is why I predict they will start to restrict the way we can access it, eg an income stream over our life expectancy and no lump sum withdrawals.

  4. I also agree with you on super – though it has only been recently that I’ve pulled back my contributions as I wanted to get to a healthy super balance first. I do love most of Scott’s thoughts though, as you said he’s got more people talking about money, and that’s great.

    1. Absolutely. If nothing else from the book he has more people focused on managing their finances. Which is only a good thing.

  5. I think Scott is misleading people to think the pension and a little income is enough for an easy retirement. See my workings below, based on years of tracking my own expenditure;

    Household budget
    Groceries inc. alcohol $16,000 ($300 for couple per week)
    Dentist $500 (2 checkups each, a filling – after rebate)
    Doctor/chemist $5,000 (after rebates)
    Med insurance $5,000
    Home repair/maintenance $5,000
    Home contents insurance $2,500
    Electricity $1,500
    Gas $1,500
    Water $1,500
    Rates $2,000
    Phone $1,500
    Internet $1,300
    Extra misc. cash expenses $5,200 ($50 a week each)
    Clothes $5,000
    Haircuts/color $2,000
    Car insurance $600
    Fuel $2,000 ($40 a week)
    Registration $800
    Car service $1,000
    Presents (b’days, Xmas etc) $2,000
    Noosa 3wk holiday $5,300 ($210 a day inc airfare, accomm, dining out etc)
    Eating out $5,200 (ave. $100 a week)
    TOTAL $72,400

    No allowance for books, theatre/movies/entertainment, gym membership, education/courses, additional health costs (eg root canal, physio, accident, nursing home etc), dog care (eg vet), bank charges, gardening, cleaners, Netflix/Foxtel, holidays other than Noosa – nor unforeseen car accident/costly car repair, car depreciation, costly home furnishings or house repairs/improvements.
    Scott’s suggestion –
    Age pension $34,820 (indexed, for a couple)
    Super $12,500 (5% of $250,000 super after turning 65)
    Work $13,000 ($250 a week)
    Total $60, 320

  6. PS the above is assuming the couple owns their own home and has a late model Toyota Corolla. Scott said it could be assumed there was a 3 week holiday in Noosa with friends at a nice hotel, regular eating out and eating anything on the menu, enjoyment of wine every night, regularly buying nice clothes, keep going to same hairdresser/dye hair, using the internet to download movies etc., enjoy fishing with latest gear, pilates, art class, buy grandkids nice presents, take them out on day trips etc, go to a golf club, having top quality private health insurance – and have enough spare to replace kitchen/bathroom.

  7. My two biggest concerns with the recommendations in the book are:
    1. Move your Super to Host Plus Indexed Balanced
    2. Financial Planners aren’t worthwhile unless you have super complex needs

    The book is great for helping with general financial literacy, but I can see SO many people having their valuable insurances affected, or losing it altogether if they don’t satisfy the conditions stipulated by Host Plus.

    1. Thanks for stopping by Grant.
      Agree with you on both points. The whole recommending Host Plus and ING in general wasn’t something I was big on. I agree on the insurance front people are just looking at the fees alone. Of course fees will be lower if you have less insurance. I think educating people to do their own research and finding the best option based on more than just focusing on fees would have been something that sat better with me.
      I think the financial planner one is such a legacy of a time long ago when the industry was predominately commission not fee based. The premise of a few bad apples spoil the bunch. When I was looking for a planner about 10 years ago and I wanted to invest in property it was a little bit of a challenge to find someone who aligns with what I wanted to do. But great financial planners do exist and ours has been totally worth it.

  8. I agree with you about the reservations about super for younger people. I’ve shovelled as much into super as I can because I’m eying off a FIRE date in 5 years. With my sons, I’ve told them to ramp up super payments now, while in their 20’s, then when life happens in their 30’s and 40’s they can ease off the super and let the compounding start to burble away in the background while they get on with buying houses etc. Their future selves will be happy. It’s something I wish I had’ve done…

    1. That is a good strategy. In the early days, I paid extra in as well. But as soon as we looked to save for a house I cut that all back.

  9. I also agree with you about the super. I’ve boosted my contributions starting this year as my balance is VERY small after some withdrawals when I was younger and less financially literate (and boy do I regret that now!), and then years where I was being a stay at home mum and studying.
    I also disagreed with Scott on the need for a financial planner. We’re not quite in the position of requiring one but it’s definitely something that I’ll pursue further as I think, if you get the right one, they can be invaluable helping you along the way to financial freedom.

  10. Things I disagree with:
    1. Putting money in the ING accounts rather than an Offset account. In the offset there is much more interest being ‘earned’ and it compounds as you aren’t paying interest on the saved amount, also it is more tax effective as you aren’t paying tax on this ‘interest’
    2. Health Insurance: I think for some of us the extras actually do pay for themselves and getting the best hospital cover may not be the best as it may include items such as pregnancy , ivF, etc that we won’t need
    3. TPD, Life Insurance through Super: Insurance through Super is often a bit cheaper and easier to get but often there are no medical exams or detailed health questionnaires to complete. It may be harder to get payouts if you are trying for Total Permanent Disability

  11. You got a really useful blog I have been here reading for about an hour. I am a newbie and your success is very much an inspiration for me.

  12. Meagain,

    I think you’re missing the point of Scott’s book. Based on what you’ve stated, IMO I would consider your type of spending to be a very extravagant retirement lifestyle.

    For my family and I, even before reading Scott’s book, we were living an honest life that included holidays and outings, and continue to do so, without the extravagant costs you’ve mentioned.

    We don’t earn a lot of money, but we have two investment properties (both mortgaged), we rent in Sydney, and still manage to make our money work smartly for us. And we live frugally.

    For example:
    As a 3 person family, we spend around $110/wk on groceries, and spend about $50/ft. nt on alcohol at best. This totals $270/ft.nt on groceries and alcohol for us. Allowing $300 per couple each week seems quite extreme, even with alcohol included.

    We shop around for the best deal on clothes. I’d estimate we’d spend about $2,000 on clothes each year, not $5,000. And that’s including saving for a leather jacket that went on sale 6mths after I first saw it.

    I spend a bit on my hair with cut and colours, but even then, our total spend each year comes in well under $1,000, let alone $2,000.

    We don’t have a misc. spending account – we save every single cent, and if anything out of the ordinary comes up, we take it out of savings. After all – that’s what it’s there for.

    Our holidays – well, we stayed in a service apartment in Caloundra last year for 4 nights during Easter. We bought our own groceries and alcohol (we actually enjoyed cooking, knowing we could eat it at the beach, just a 2min walk away). Including accommodation, the holiday totaled $2,500 including entry to Australia Zoo, and petrol to and from Sydney.

    From my perspective, I think Scott has idealised how to live (what I would call) a secure, comfortable life in retirement – his sums will suit us perfectly.

    You can still live a good life in retirement without the extravagant spending. I would suggest looking around for good deals on clothes, groceries, alcohol, holidays, etc.

    You don’t need to spend lots of money to be happy and live such a life!

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