Warren’s free wealth wisdom

SCOTT Pape points investors in the direction of Warren Buffett’s free advice newsletter - and suggests cutting up the credit cards.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

QUESTION I have the same life goal as you — freedom. But at 40 I still haven’t worked it out. I’ve worked really hard and am still here ... with a mortgage, and throwing money away on ideas and courses ($25k to a US group recently) that get me nowhere. So I thought I’d get some sensible advice this time. I’m looking at trust deeds and land banking in the US to invest my children’s trust money for the best return possible. Is this idea silly?

Ken

ANSWER It’s not silly. Silly is buying a scratchie when you’re at the local newsagent. Blowing $25,000 of your family’s money on a get-rich-quick course is more like (as Cypress Hill would say) insane in the membrane. So demand a refund! Squeal like a pig until they give it to you. Then invest that $25k, not in rubbish real estate schemes but in Warren Buffett’s Berkshire Hathaway. Every year Buffett sends out a shareholders’ letter which has more wealthy wisdom than any of those greasy gurus. Best of all, his advice is free, and the returns are astounding.

 

FORGET SHARES, CUT UP THE CARDS

Q I have $6500 in savings and $7100 on two credit cards (which I’m paying off at $700 a fortnight). I also have $2700 in household repairs to make. Is the chance to buy Medibank shares (my first shares ever) a good enough reason to use $2000 of savings instead of using it to pay for the credit card or house repairs?

Tiffany

A A note to my loyal readers: you’d be surprised how many otherwise intelligent people ask me this question. So, while I feel like a broken MP3 player, bear with me while I cover it one more time. Thanks, Tiff. Don’t buy shares when you’ve got credit card debts. The easiest way you can earn a tax-free 18 per cent return on your money is to pay them off. Here’s what I’d do: cut your cards up, keep $4700 in your savings account ($2000 as a starter for your Mojo money, and $2700 for the repairs) and pay the rest off your card. Then clear your debts. Then invest — but not in Medibank. Instead, invest in Argo Investments.

CUP SCORE CAN BE A WIN-WIN

Q I’m in my 30s, with no debt and no assets (except for my 10-year-old Nissan). I earn $70k before tax, and have $1000 in my Mojo account. But guess what — I won $1000 today on the Cup with a $3 once-in-a year bet. Do I put it all in my Mojo account, or spend it?

Anna

A What a great return! Now if you never place another bet, you’ll be one of the few winning punters. I’d put $500 in my Mojo account, and I’d lend out the other $500 to hardworking Third World entrepreneurs via our Barefoot Investor Kiva Lending team. That way, unlike on the Tote, everyone wins.

BROKE, BUT CAN YOU FIX IT?

Q My husband is 66 and I’m 58. We have two investment properties as well as our primary residence. We have refinanced them all for a third time, after our business went bust. We owe $200k on our home, which is worth about $430k, while our two investment properties are worth about $320k and $350k, which we owe the full amounts on and are paying interest only. We also owe $17k on a credit card. My husband earns about $80k (commission based) and I earn about $40k. I work three days for wages and two days in my own client-based business. I have $30k in super, while my husband has next to nothing. We are totally over being in debt and are thinking about selling our home, moving into the $320k investment property, and paying down our debts. We would appreciate your thoughts.

Jen and Steve

A So you’re broke. You know that. And the three different lenders that shuffled your debts around knew it, too. My advice would be to sell your home and the $350,000 rental property, and move into the $320,000 rental property. Use the settlement money to pay out your credit card (cut it up, never get another one), and put $10,000 in a high-interest online savings account (not an offset account), and pay the rest off your home loan. You’re still going to have about $120,000 in debt after doing this. My advice would then be for your husband to start a transition to retirement strategy, so he can save on tax. If you can live off about $800 a week, you’ll be debt free within two years. Once you get the bankers off your backs, you’re going to need to save at least $250,000 to retire on $800 a week (which includes the aged pension). So keep putting as much into your low-cost super fund as you can.

THREE-CARD LOSER BACK ON TRACK

Q You probably don’t remember me, but two years ago you answered my question in the newspaper. I was a loser with three credit cards, a personal loan and a car loan, costing me a grand total of $47,000. I took your (tough love) advice, dominoed my debts and saved like a woman possessed. Now I want to report back that I’m about to make my final payment! Even better, I have $2000 in my Mojo account! My secret was that each week I read your column and it gave me a pep up that I really was on the right path. I just want to thank you for all your advice.

Kate

A I’m totally sending this to my grandmother. Here’s the thing: even though you’ve turned your financial life around, you’ll soon see that the confidence you gain from getting control over your money will spill over to other areas of your life. Well done.

 

 

YOUR QUESTIONS ANSWERED

If you have a burning money question, or you want to win a fight with your spouse, shoot over to Barefootinvestor.com and ask me a question.

Scott Pape is a licensed and totally independent financial adviser (though he doesn't mention this at parties). The comments in this column are of a general nature and are not intended as specific personal advice.

Originally published as Warren’s free wealth wisdom