Barefoot Investor: The top five money questions to answer before 2021

If 2020 taught us anything, it’s that life is full of surprises but these five key money questions will help you future-proof your finances for whatever 2021 has in store.

Let’s discuss what could go wrong in 2021, and what you can do about it. Of course newspapers are chock-full of experts making predictions about “what’s in store for the next year”, so, before I throw my hat in the ring, let me shake the sauce bottle.

How many smart sausages this time last year wrote, “We predict a pandemic will sweep the planet and lock down many of us in our homes. Our recommendation: stockpile toilet paper in February.”

That’s the err, rub, right?

Well, for what it’s worth, my view is that the next few years could be financially brutal for many businesses, for those workers who are laid off or underemployed, and for retirees who have had their investment income slashed.

However, it’s because of all this misery that things in 2021 could actually get a little … loose.

Here’s the two-hander: The Reserve Bank has set rates at (effectively) zero to stop you from saving and encourage you to borrow up BIG. The Government is even attempting to scrap responsible lending laws to get the party in full swing.

Heck, the RBA has given us a time frame, having all but promised doughnut rates for the next three years.

What could possibly go wrong?! Well, lots actually.

Like it or not, we’re living through a giant financial experiment: never has the world had so much debt.

Never have interest rates been this low (they’re at thousand-year lows, according to Merrill Lynch).

And so the lesson I’m taking out of 2020, our annus horribilis, is this: Life is unpredictable.

The truth is we spend most of our lives stressing about things that never happen.

And then one day a bat flies the wrong way, and the next day people are going the biff over bog roll.

Think about it: the riskiest things – the ones that knock you on your backside – are often a bolt out of the blue.

For my family it was a fire that burned basically everything we owned.

For others it could be a relationship breakdown. Or an illness. Or an economic meltdown. Or a global pandemic. So how can you and I prepare for them?

By asking yourself the following questions, today.

BAREFOOT’S TOP FIVE QUESTIONS FOR 2021

1IS MY MONEY SAFE?

Here’s the bolt out of the blue: You need to access your money quickly, but all your investments have tanked.

If you have money that you need to draw on in the next five years invested in anything other than a bank savings account or term deposit, you may well lose a chunk of it.

Like what?

Like property funds that offer a high rate of interest, or the share market, or cryptocurrency, or any other type of managed investment.

(The share market is not a safe place to hold your money in the next five years. However, it’s arguably the safest place to invest your money over decades, as it will outrun inflation.)

Here’s what you can do about it.

Keep any money you’ll need to spend in the next few years in a bank account (or term deposit) that is covered by the government deposit guarantee (up to $250,000).

Yes, that may sound like overkill, especially with interest rates this low.

However, it’s not about the interest you earn (which is pitiful), it’s the sleep-easy factor of knowing you’ve got a backstop. That’s worth more to me and my mental health than any gain I could make in the market.

If money you need to draw on in the next five years is invested in anything other than a bank savings account or term deposit, you may well lose a chunk of it. Picture: Dylan Coker

2 HOW LONG COULD I LAST IF I LOST MY JOB?

Here’s the bolt out of the blue: Your boss calls you into his (virtual Zoom) office on Friday … you’re being laid off. It’ll never happen to you, right?

Well, I believe the lasting legacy of COVID is to radically change the concept of what we call work. Think about it: employers have been thrown in the deep end of the productivity pool this year. Many have had to deal with a reduced workforce who are working from home.

And, now things are getting back to normal, I wonder how many will look at last year and think to themselves: “Maybe I don’t need all the staff I once had. And, even if I do, if they’re all working remotely … maybe I can hire cheaper workers elsewhere in the world?”

Yet one in five of us Aussies has less than $1000, according to ME Bank’s latest biannual Household Comfort Report.

Here’s what you can do about it: Follow the Barefoot Steps; after you’ve set up your buckets, domino-ed your debts and bought your first home (but not yet paid it off), the next Barefoot Step is to boost your Mojo savings to three months of living expenses.

I had a woman write to me in September telling me she thought having three months of Mojo was a total overkill. Yet, when they both lost their jobs, she said, “It was the most important thing in our world. It allowed us to breathe.”

3 AM I COVERED?

Here’s the bolt out of the blue: Your house burns down, and you’re not fully covered.

Statistically, if you’re a normal little vegemite you will be underinsured. And the moment you’ll find out is after the fire, or the car accident, or the illness, or … the rats.

(Yes, one of the downsides to living on a farm is rodents. They somehow managed to get into both our cars and eat through $35,000 of interior and electrical work).

Here’s what you can do about it: Dig out your insurance policies and check what you’re covered for, you may need to increase it.

If you’re unsure, call your insurer and ask them to review your policy. Life is full of dirty rats, so just make sure you’re fully covered for anything.

Relationships Australia tells us the number one reason for relationship breakdowns is fights about money.

4 IS MY PARTNER ON THE SAME FINANCIAL PAGE?

Here’s the bolt out of the blue: Your partner walks out on you.

Relationships Australia tells us the number one reason for relationship breakdowns is fights about money.

Here’s what you can do about it: The monthly Barefoot Date Night is the cornerstone of my entire plan.

Making a monthly ritual of getting on the same financial page as your partner – and working through the Barefoot Steps – is the most powerful thing you can do to ensure you don’t end up losing half your assets.

If you don’t schedule it, you won’t do it. (We have ours on the first Tuesday of every month, which coincides with the monthly Reserve Bank meeting: how hot is that?)

And remember, money talk goes better with a wine (or taco) in your hand.

5 IF I GOT HIT BY A BUS, COULD MY FAMILY PUT EVERYTHING TOGETHER?

Here’s the bolt out of the blue: You leave your loved ones with a financial Rubik’s cube of frustration. Picture your partner (or parents) sitting alone, distraught and grieving, trying to piece together your financial life.

They have no idea how to access your bank accounts, the password to your email and social media, your funeral wishes or where your will is.

Here’s what you can do about it: Spend an afternoon getting everything in one place. At Barefoot we call it the Fearless Folder, and once it’s done you lock it away in a secure safe. The feedback I get from people who have done it is that it’s Marie Kondo-cathartic to have it all sorted.

What’s more, it’s the final way you’ll say “I love you” to your loved ones.

And there you have it.

Each and every week, I show up and answer your questions.

Yet to really prepare for 2021 you need to ask yourself the right questions, and get the right answers for you.

Tread Your Own Path!

Laura Hopkins is starting her pllan to save, move out of home and look into investing for the future. Picture: Andrew Henshaw

SCORING FINANCIAL GOALS

Laura Hopkins, 25, said she made it her goal this year to secure full time work to become more financially stable in 2021.

Now an online merchandise co-ordinator for a major retailer, Ms Hopkins said she is on a better financial footing after this year showed her how unpredictable the economy could be.

“This year has challenged me to be adaptable, optimistic, and to re-prioritise my financial and personal values,” Ms Hopkins said.

After becoming reliant on JobKeeper for the first part of the year before cementing her career, Ms Hopkins said she now hopes to achieve concrete financial goals that will make her better prepared for emergencies.

“My goals are to find a shared rental closer to work, save 20 per cent of my income each month, and start investing in ETFs (exchange-traded funds),” she said. “If 2020 has taught us anything it’s to expect the unexpected. It’s important to have a ‘worst-case-scenario’ budget, and emergency savings.”

Pre-order The Barefoot Investor 2020 (The only money guide you’ll ever need) updated version now to make sure you get it before Christmas. John Wiley & Sons Australia, RRP $29.95.)

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Barefoot Investor 2020 update is now available
(Wiley Australia, RRP $29.95)

If you have a money question, go to barefootinvestor.com and #askbarefoot.

Originally published as Barefoot Investor: The top five money questions to answer before 2021