In the blink of an eye, 2020 is here and we hope everyone’s feeling refreshed for the year ahead.
Scott Pape is Australia’s legendary financial expert best known as the Barefoot Investor. Recently, he chatted to Master Plumbers’ Daniel Carroll on the new podcast, Masters Plumbers Radio, about the importance of understanding your money.
SCOTT We go through 2,300-odd days of school from prep to year 12, and really, not one of them is about financial education. Tradies can earn really good dough, they can be in a better position than a lawyer that goes to uni for five or six years but if they blow it all, they’re no better off.
DANIEL You’ve inspired what has been referred to as the biggest financial cult in Australia. When the idea for your book came about, did you have any idea how it was going to kick off?
SCOTT No. I basically sketched out how I would manage my money: I don’t like having a lot of debt, I hate paying bank fees and I think the finance industry is very good at flogging you stuff. What I wanted to try and do through the book is give everyone some financial confidence
DANIEL World-renowned marketer, Seth Godin, is quoted in the front of your book as saying that your story about the apple tree is worth the cost of the book alone. Are you able to give us a summary?
SCOTT This book was written after I was caught in a bushfire on the farm. We lost everything that day. Everyone’s going to face their own financial fire at some stage, whether it is becoming an apprentice and not earning a lot of money, whether it is getting laid off from work because there’s a downturn or whether it is getting a divorce. When I faced my fire everything was burnt, it was a mess. What we decided to do was to plant an apple tree. The idea was we would give it some water, nurture it. We knew that over the long-term, that was going to grow. We kept watering it. Years on, it’s now producing really nice apples. In 30 years’ time, my grandkids are going to be swinging on that apple tree and it will last for decades and decades. The analogy is that if things are completely messed up and you don’t know where to start, you plant an apple tree - you start putting some money in savings and it will grow. Just like compound interest is the eighth wonder of the world. You don’t expect it to grow amazing apples within the first week, but over 20 years, it does something really amazing. The stock market, your investments and your houses are just like that. If you give it enough time, it will produce amazing fruit.
DANIEL The Australian Bureau of Statistics reports that those earning the average Australian wage - around $80,000 - are in the top 0.28% of the richest people in the world. Yet, there are so many Aussies out there living paycheck to paycheck. What are we doing wrong?
SCOTT The problem is, we don’t compare ourselves to people in Africa, we compare ourselves to our neighbors and our mates. Our neighbors and our mates could be financially screwed, but they look good because they’re driving a brand-new Hilux and they’ve just got a jet ski. That guy that’s got the Hilux, he may owe more money on it than it’s worth. The jet ski could have been something that he’s borrowed for as well. So he may be all show and no dough.
DANIEL Why should we be more proactive with our superannuation and is there anything that tradies can do differently to prepare themselves for life after work?
SCOTT Superannuation is one of the biggest tax lurks in Australia, right? There’s about $30 billion a year in fees that are whipped out of our super accounts and given to finance industry people, and most don’t outperform a basic benchmark. They don’t do a good job but that’s because no one gives a crap. Most people spend more time on their footy tips than their super. If you spend even a couple of days on this, or evenings, with a beer … you can save tens of thousands, if not hundreds of thousands of dollars by the time you retire. For a lot of tradies, your first super will be with Cbus. Not a recommendation, but I actually think they’re pretty good. They’re an industry fund, so they’re a not-forprofit fund. What I think is good with Cbus is they tend to have good insurance because you guys need good insurance.
DANIEL You say that the goal of The Barefoot Investor can be summed up in one word - control. Yet, I see so many apprentices, friends and family, enter a trade, and they don’t understand that idea.
SCOTT What I would say is having all your pay go into one account is a recipe for disaster. Because what you will do is keep tapping your card until the point that it stops beeping. Most people do that, you know? They’ve got one bucket and it’s got a leak. One of the other things that I have suggested, again, in my book, is that idea of setting up different buckets of money. I narrowed my spending down to basically three buckets. So any dollar that comes in, I have an idea of where I put my money. One of the things that I do that I’m kind of maybe semi-famous for is to have a Mojo Bucket so that if anything bad happens, I’ve got the money there. The same thing applies to small business to cover tax obligations and GST. I always make sure that I siphon some of the money that I get paid into that account. The thing that I find, is that there’s a lot of people who’ve worked really hard in their trades that get to the age of 60 and they’ve got nothing to show for it. At that stage, it’s too hard to make back. So if you can get yourself sorted now and enjoy yourself, enjoy your money, just make sure that there are savings and trade-offs and get yourself a financial plan.