Barefoot Investor: How to pick an accountant, and what you should do with your tax refund

It’s that time of year again. If you’re on the lookout for a new accountant, this is how you can find a great money mentor who provides trustworthy advice at tax time, writes The Barefoot Investor.

Barefoot Investor Scott Pape. Picture: Jason Edwards

Did you know that the average Aussie gets a tax refund of $2574?

Even better, this year the “Lamington” (Low And Middle Income Offset) of up to $1080 kicks in.

(The sweet spot for getting the full amount is earning between $48,000 and $90,000.)

So, how will you spend a grand in the hand from the taxman?

It’s enough to buy a cheap TV from Gerry Harvey, but not enough dough to change your life, right?

Wrong!

Today I’ve come up with three ways you can spend your tax refund that will change your life.

Go, Barefoot, Go!

Don’t pay off your credit cards with your tax refund, the Barefoot Investors says.

DON’T PAY OFF YOUR CREDIT CARDS

OK, so this is counterintuitive, but if you have credit card debt don’t use your refund to pay it off.

Wait, what?

Here’s the logic: most people have been trained to see their credit card as their “emergency back-up money”.

Yet, if you’re in trouble, high-interest-rate debt won’t help, it’ll just make everything worse.

So here’s what to do instead: save your refund into a savings account (we Barefooters call it “Mojo”). Cash is the ultimate emergency back-up.

Then, with your Mojo behind you, you can go ahead and confidently cut up your credit card and start paying that sucker (or suckers) off.

Escaping the credit card merry-go-round of misery will change your life.

GET YOURSELF A LAWYER, SON

There are only three certainties in life: death and taxes (and George Calombaris. Actually there are only two).

So, with your tax return, why not protect your loved ones from the greedy taxman, after your untimely demise.

While it may be daunting being prepared and sorting out a Will can save your love-ones heartache and headache in the long run.

Sitting down with an estate-planning lawyer and drawing up a will or, preferably a testamentary trust (plus enduring power of attorney and medical power of attorney), will help you navigate the “de facto death taxes”: capital gains tax, stamp duty, income tax, and (for adult non-dependent children) a 32 per cent tax hit on your super.

Getting this sorted is the final way you say “I love you” to the people you love the most.

GET A BIT ON THE SIDE

If you’ve got an idea of starting a side business, use your tax refund money to kickstart it once and for all.

These days you don’t need to put in much more than a couple of grand to get started: a basic website, some Facebook ads to attract your first paying customers.

See if you can earn your money back, quickly.

A final idea, and a plug so blatant that Gerry Harvey would be proud: days ago I released the updated 2019 edition of the Barefoot Investor: The Only Money Guide You’ll Ever Need. It’s in shops now, and to date 1.6 million people have used it to change their financial lives!

Tread Your Own Path!

Coles’ Little Shop latest collection includes a mini gift card.

COLES MINI MONEY

TAMMY ASKS:

I’m sure I’m one of hundreds of people emailing you about this, but thought I’d better, just in case.

As someone who is slowly paying down $70,000 worth of debt using your book, I was horrified when my three-year-old son opened a Coles “Mini” with a pretend credit card inside.

And the best bit — the QR code on the back takes you straight to Coles Financial Services. What a disgrace!

BAREFOOT REPLIES:

The Coles Little Shop phenomenon reminds me of the Tazo card craze of the mid-90s.

As a kid I remember working at Woolies (OK, mainly standing around, trying to flirt with the checkout girls), and seeing grown men hunting the aisles for “limited edition” plastic pog Tazos.

“Buy Woolies shares instead, toy-boy”, I thought to myself.

The Little Shop is big business for Coles: analysts estimate that it has boosted their profit by around $11 million.

I had a look at the pack (cheap plastic that would cost a few cents to make in China), and saw the card you spoke of.

It’s actually a Mastercard Coles Gift Card, so it’s not a credit card.

However, retailers love prepaid gift cards because they get the money upfront, and all too often the card gets lost in the sock drawer, thrown out, and never fully spent.

There’s a reason big financial corporations (hello Coles Financial Services, and CommBank) give kids plastic toys with their logos plastered on them.

It’s smart marketing and excellent brand association for them.

Yet this is also why I get my kids to use good old jam jars and coins for their pocket money: it makes money visual (“The more I work, the more money goes into the jars”). That way I — not the marketers — get to control the message.

HOW TO FIND A GREAT ACCOUNTANT

JANELLE ASKS: I am 51 and newly divorced, and for the first ever I feel the need to get some tax advice from an accountant. But how do I find one who is trustworthy and not just after as much of my money as they can get?

BAREFOOT REPLIES: The cost for basic compliance work — like tax returns and self-managed super fund auditing — has fallen dramatically.

Why?

Because pretty well everything is now data-matched and automated, so there’s honestly very little value they can add.

However, in your case it sounds like you’re looking for an accountant who can act as a money mentor as you start your new life.

That’s a very smart idea (even better, unlike many financial advisers, accountants charge by the hour).

So how do you find one?

The same way you find a good hairdresser: ask your friends.

That being said, bad tax advice is worse than a bad haircut, so I’d also suggest you jump on to the Tax Practitioners Board website (www.tpb.gov.au) and search for a few accountants in your area.

Finding a good accountant is like finding a hairdresser. Picture: iStock.

When you have a few options, send each of them the following email:

Hi, I’m looking for a caring, experienced accountant. I’m newly divorced and need help making sure my tax and assets are structured correctly. Moreover, I need you to explain the basics so I can have a better understanding of the financial decisions I make. To make sure we’d be a good fit, I’d really appreciate you replying on the following:

First, could you send me a short bio about yourself.

Second, could you send me an engagement letter explaining your terms and how you charge: is it by the hour or can you provide a fixed-fee quote — and what is and is not included in this fee?

Then you wait.

What do you want to see from their response?

That they get back to you quickly (preferably under 24 hours), that they sound polite and professional, and that their expertise lines up with your needs.

Good luck.

MORE BAREFOOT INVESTOR

AUSSIE HAVE LOST SIGHT OF WHAT IS IMPORTANT

WHY I’M NOT CHEERING THE LATEST RATE CUT

MY STEALTH CAMPERVAN

EVE ASKS: I am 48 and on a low wage. Do you know of any way I can get my super (about $30,000) out of the hands of my ‘park-and-pray’ financial Adviser? So far my only options look like having medical bills for cancer, being unable to pay my mortgage, or setting up a self-managed super fund. I want to use my super to build an off-grid ‘stealth campervan’. Once I have this in place, I can live very well below the poverty line!

BAREFOOT REPLIES: Just when I thought I’d had every question, you pop up! I’ve had people want to take money out of super for lap band surgery, but never a stealth campervan. (If you were morbidly obese you could access your super, but then you may not fit into the campervan. But I digress.)

There are strict rules on accessing your super early, and none of them involve buying a campervan to live off-grid. However, $30k is a modest goal even for someone on a minimum wage, and you have 20 years to achieve it before you retire, and you’ll also be building up your super.

So I’d suggest you keep your super in a low cost fund … and start saving!