Long-term plan to see the light

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

Desperate for advice.

Q

Hi Scott,

I am a single mum of two girls under the age of five. I do a little bit of childcare work for other mums - but I basically survive on Centrelink. My former partner doesn't pay child support regularly and, because of that, I am always short of money. I owe $4000 on credit cards, $500 in bills and $600 to a short-term lender, which I can never pay off. I read your book - but it didn't really apply to me. I'm barefoot all right - but I'm not an investor!

I'm sick of living this way and I am desperate for any advice you may have.

Renae

A Hey Renae,

Thanks for reaching out.

Let's not stuff around - you're in an incredibly tough position; you're living below the poverty line, and you've got payday loan predators feasting off the little money you have. You're in crisis, and you need to take back control of your situation.

Here's a plan for today, and a plan for five years' time:

The first thing I want you to do is to pay back the payday loan. Do whatever it takes: sell some of your stuff, or deliver pamphlets while towing the kids along in a pusher.

Second, don't pay anyone until you've first looked after your girls. That means you need to write down a weekly spending plan that covers food, power, rent, and your car and petrol.

Finally, when your kids are in bed tonight, write down what job will pay you $70,000 a year in five years' time (when both your kids are at school). What skills and education would you have to begin learning today, to get you there?

MEET THE TAX MAN

Q Hi Barefoot,

My 11-year-old son inherited $20,000 in BHP shares from my father's will in 2011. At the moment they are held in my name as trustee for him. I have decided to sell the BHP shares and invest in AFIC. Before I do, I wanted to check the tax ramifications - can you help?

Leanne

A Hi Leanne,

Your son effectively owns the shares in trust, so he'll be liable for any capital gains tax.

To stop toffs using their kids as tax deductions, the government has penalty tax for kids who generate "unearned income" (trading profits versus a paper round) over $416 a year.

So call your accountant and ask whether the shares form part of a testamentary trust (which is a trust that comes out of a will). If that's the case, your son will be entitled to pay tax at an adults rate - which means he won't pay any tax on a capital gain less than $18,200.

PRICE CRASH FEARS

Q Hi Scott,

I read this week US finance expert Harry Dent forecast that property prices may drop by 50 per cent. I'm struggling to save up for my first home, and I wanted to know whether you agree with this view?

Tim

A G'day Tim,

I'm always wary of overseas gurus. Actually, I'm wary of gurus wherever they come from. Harry Dent has worked out that the way to grab the headlines is by making big calls - the bigger, and more outrageous, the better.

That's why a decade ago he predicted that the Dow Jones Index would rise to 40,000 (it's currently at a record high of about 16,000), and it also explains why today he's forecasting that the Dow will drop as low 3300.

When you strip out the spray-on-hair headlines, Dent's economic theory is based on tracking how the life-stage spending of baby boomers affects the share market and property prices.

And that's one point we agree on: our demographics eventually become our destiny.

But as Dent has also proven, that doesn't mean it gives him a magic crystal ball to pick future prices. In that regard, his track record is no better than your average dart-throwing monkey.