We’re about to head into the time of year when people start reconsidering their lives a little, you know, New Years Resolutions and all that. But it’s when the credit card statements hit in January, post Christmas spending, that people really start to reconsider how they’re doing financially.
I’ve recently been reading the recently revised version of Scott Pape’s ‘The Barefoot Investor’, as you do. There’s a lot of really great, easy to understand advice for building your finances, but even more importantly, your life – no matter what age or stage you’re at.
In a nutshell, Scott Pape, I’ll call him ‘Barefoot, talks about having three buckets if you will. One for spending, one for growing your wealth and one for feeling better about money.
Out of the spending bucket;
- 60% is for your daily expenses (this is everything from food, transport, petrol, household costs and even your mortgage).
- 10% is for short term splurging so that life is still enjoyable (think shoes, movies, a great dinner out, that cooking course you’ve wanted to do, or wall print or really expensive coffee table book you’ve wanted to buy)
- 10% is for longer term things that make you smile (like great holidays, weddings, truly expensive things that make you smile – maybe even a boat or a bike)
- 20% is your financial emergency money for putting out financial fires like credit card debt, extra to pay down the mortgage or anything else that requires chunks of money thrown at it to fix (it might even be for a home deposit).
You need to have separate accounts for each (he talks about how to avoid bank fees on those accounts so that it’s not cost prohibitive) and have a direct debit on the day you get paid so that you’re only left with your daily expenses (60%) in your main account.
Wealth growing bucket
The growing your wealth bucket is essentially your investments – returns from shares, property or your superannuation (he suggests 15% of your income as a minimum) – all of which you don’t touch, you just reinvest until later, much, much later – think retirement.
Feeling better about your financial state (or Mojo) bucket
This bucket is to help you feel safer about your financial state. It’s created any way you can, and he suggests that you put $2000 into it. How? By selling unwanted presents on ebay, putting your tax return into it, birthday money, working overtime, etc. In other words, it’s a place to park ‘extra’ money that you won’t touch until you desperately need it – ie: you’re sick, you lose your job, or some other catastrophe befalls you. You can’t have easy access to this bucket of money. It just sits there in a higher interest account until – well let’s hope – until forever. Just knowing that you have that money there, in case, will give you piece of mind.
There’s so much in this one little book that I really liked. There were a couple of small, we’ll call them ‘insignificant’ in the scheme of things issues that I disagreed with, but overall if you’re serious about building your financial future, this book is a great place to start. Plus there are stories about everyday Aussies who’ve found themselves in horrible financial places that have made their way back to great financial shape.
So if you’re wanting to get your financial life in better shape – before Christmas really hits – I’d highly recommend getting yourself a copy of the book and working through it – you even get to go out to dinner as you read! Yes, really.
Of course if you’re after personal advice regarding your personal or business tax position who understands your individual circumstances, or someone to act as your business’ chief financial officer, we’d love to talk to you. You can call us on on 02 6023 1700 or you can drop us a note.
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