Face up to your debt problems and take action yourselves

BROKE people should not spend $3580 a year on a “fitness” trainer to sort out their money problems. The way to get out is with grit and determination, writes Barefoot Investor.

What motivation is needed to get out of debt?

BROKE people should not spend $3580 a year on a “fitness” trainer to sort out their money problems. The way to get out is with grit and determination.

 

NATE ASKS: My partner and I are looking at using a budgeting advisor like MyBudget to help us create a plan and stick to it. We earn $90k combined but have $7k on a car loan, $17k on a personal loan and $13k on a credit card. All due to our wedding and holidays! What is your advice?

BAREFOOT REPLIES: I can see how MyBudget would be appealing. They bill themselves as being like a “personal trainer for your money”, motivating you to shed your debt. For this they charge a start-up fee of about $1500, and then $40 a week. Yet maybe it’s the motivation you really need, right? There’s just one little problem: you’re broke. And broke people don’t spend $3580 a year on a bloody fitness trainer! Broke people find a piece of rope, tie one end around an old car tyre and the other around their gut, and jog up and down the street huffing and puffing. It’s time for you to wake up and smell the sea salt, son. The only way you’re going to get out of the hole you’ve dug for yourself is with grit, determination and a third job. Put your money where your debt is, and get puffing.

LET THE HOUSE GO

EMMA ASKS: I am currently going through a separation and want to know if I am in a financial position to keep the house. The mortgage is $506k; the house was bought for $665k 18 months ago and is valued at $730k. I am now a single mother of two children on a full-time wage of $93k. I have job security as I work for the police. I was wanting to buy my ex-husband out, unless you can suggest something else I can do to keep the house.

BAREFOOT REPLIES: Most mums naturally want to keep their kids in the family home after the divorce — but it’s almost always a bad financial decision that puts them under more stress in the long run. Your income is $5800 a month — plus your child support. Even without buying your husband out, you still can’t afford to keep the house. If I were you, I’d sell it and walk away with $100k. Get yourself a nice, quality rental and re-evaluate things in 12 months’ time. You’ll be fine. So will the kids. The main thing they need right now is their mother’s undivided attention, and with $100k in the bank you’ll be free to give it.

HITTING A BRICK WALL

NATASHA ASKS: Just read about a company called BRICKX which lets you buy a “brick” in a property investment with very small amounts of money. (They split a house into 10,000 bricks you can invest in.) With houses prices so crazy at the moment, is this a clever way of getting into the market? Any thoughts?

BAREFOOT REPLIES: “Shoot a brick!”, as my old man would say (well, something like that). I took a look at one of the properties they’re selling a “fractional ownership” of on their website: a two-bedder in Prahran for $1.2 million which currently rents out for $750 a week ($39,000 a year). If you invested $100 into this property, it would take you roughly 31 years to get your money back via the rental income, assuming it’s rented out continuously (which it won’t be) and assuming there are no maintenance costs (which there certainly will be). Ah, but what about the capital gains? Well, that’s what you’re banking on, obviously. But prices in Melbourne and Sydney are in a bubble and, in my humble opinion, are ripe for a correction. Then there’s the fees: BRICKX takes a 1.75 per cent clip when you buy and when you sell. You’d have to have bricks in your head to touch it.

HIGH GAIN, HIGH RISK

PAUL ASKS: La Trobe Financial offers amazing rates on term deposits — 5.2 per cent for 12 months and up to 7 per cent for 24 months. You always say “if it’s too good to be true, it probably is”. (In fact, they sponsor Collingwood — so that’s a worry!) I have $70k from a property sale and am looking to park it somewhere for 12 months. Should I check them out?

BAREFOOT REPLIES: I wouldn’t do it. Then again, I’m a pretty conservative dude when it comes to lending my money out. The truth of the matter is that La Trobe is lending your money out to people the banks won’t touch — that’s why the interest rates they offer are so good. Right now, everything is hunky dory: Australia has just notched up a record-breaking 25 years without a recession. But the law of averages says there’s a recession coming, and probably soon. And in the last recession depositors got screwed chasing higher interest rates. The question you need to ask yourself is whether getting an extra 4 per cent on your money — $2800 a year — is worth the risk of losing some of your capital, given that you’re not covered by the government deposit guarantee (which you would be if you put your money in a bank, up to $250,000).

DON’T BET ON IT

BRUCE WRITES: You finally earned me some money! I looked in the paper and saw your horse — Barefoot Investor — running at Cranbourne last weekend. It was paying good odds and it came home! I turned a $10 punt into $63. Go you good thing!

BAREFOOT REPLIES: A few of my punting pals told me about this nag. I’m the legal owner of the name and trademark, so I called the owners and made them an offer they couldn’t refuse: I told them that if they didn’t change the name they’d wake up with a horse’s head in their bed. (Only joking.) But they have changed the name. Now, I don’t encourage gambling, but in this instance … congratulations.

 

barefootinvestor.com

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

Originally published as Face up to your debt problems and take action yourselves