Is owning a home your biggest liability or asset? Scott Pape says it's part of being a grown up

RICH Dad Poor Dad author Robert Kiyosaki described owning a home as your biggest liability — not an asset, but does the Barefoot Investor agree.

Creating your own castle involves sacrifice, hard work and commitment.

BUYING a house and taking out a mortgage is not a “game”. It is actually about being an adult and facing up to responsibilities.

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KATIE ASKS: My husband and I (in our late 30s, two kids) both run our own small businesses. We work part time and are not earning steady money, about $60,000 combined per year. Our incomes never meet our expenses — NEVER — and now we have stopped paying our mortgage because we are so tired of “the game”, as I call it. My question is this: is it really worth all the effort to own your own home? Rich Dad Poor Dad author Robert Kiyosaki calls a home your biggest liability — not an asset! Do you agree with him?

BAREFOOT REPLIES: Please insert your thumb into your mouth and begin sucking it while I pat your head and gently whisper: “Being a grown-up totally sucks, doesn’t it?” The “game” you say you’ve opted out of is called “being an adult and facing up to your responsibilities”. You made the decision to buy a house and take out the mortgage … so you either sell your home and rent, or you continue honouring your commitment. It sounds like you’re not earning enough money in either of the business (presumably because you’re both only working part time?). If they aren’t making you enough money, and you see little prospect of improvement, by all means get out of that game. Either way, my advice is simple but brutal: one or both of you need to get a job so you can put food on the table for your kids, and avoid losing your home. Now to your actual question: is it really worth all the effort to own your own home? Well, I agree that maintaining a home is expensive, and at times it can be a huge drain on your cash. But I still think it’s worth it. Yes, creating your own castle involves sacrifice, hard work and a commitment to providing stability for your family. Yet that’s what being a parent is all about, right? Finally, what would “Rich Dad” do? I have no idea, though I do know he filed for bankruptcy in 2012.

NOTHING ESCAPES ATO

LISA ASKS: I have had a friend of my brother’s flatting with me for the past seven months, for which I have been charging him $150 a week cash. Now he has moved on, I am thinking of renting out his room on Airbnb. Question: would I need to declare that money on my tax return?

BAREFOOT REPLIES: Yes, you would certainly have to declare it. Unlike with your mate’s brother, who presumably paid you in cash, Airbnb is all electronic payments. And therefore the ATO will be able to track the income that comes electronically to you from Airbnb, and they’ll send you a “please explain” letter. Given the ATO has the computing power to check these things, it’s also a fair bet they have the ability to send you another letter if you sell your home without factoring in any potential capital gains tax (CGT) ramifications. Talk to your accountant.

OH BROTHER

HAMISH ASKS: For the last year or so, my younger brother has been doing some online share trading. Long story short, he has lost it all — hundreds of thousands of dollars. In the process he has nicked money from some of my family members, which has wiped out their savings. He even took a loan out in the name of a family member without them knowing! Given he is family, is it better to keep this among ourselves or to involve outside parties?

BAREFOOT REPLIES: “Nicking money” is like $20 from your mum’s purse. You’re talking about wiping out their life savings! That’s not nicking, that’s fraud. And the fact that your mother used to change his nappy doesn’t change the fact that he’s committed a crime. It sounds like he’s an addicted gambler, yet rather than sitting in front of a pokie screen he sits in front of a trading screen. It’s the same thing (and has basically the same odds). What would I do if I were in your shoes? Well, I’d tell your brother that he needs to do three things: first, he needs to get legal advice (and so should your family, even if no charges are ever laid. It will bring home the gravity of what he’s done). Second, he should get professional help for his addiction. Third, when he’s sorted out, he needs to start repaying the family debts by getting a job and earning some real income. If he doesn’t do these things, I’d consider handing the matter over to the authorities. Good luck.

BE A LIFE SAVER

MARK ASKS: My mum and I always read your column, and it is one of few times we stop arguing and have great discussions. I am in year 11 and interested in sports journalism and management. I have worked at KFC for 18 months and saved 98 per cent of my pay, just over $3000. Thinking ahead to next year when I get my licence, I will not be able to buy much of a car so I was hoping to invest some of my savings. Would be grateful for your advice. Oh yes, and I turn 17 soon, so your book would be a wonderful gift, don’t you think!

BAREFOOT REPLIES: First of all, congratulations on being a saver; it’s the No.1 habit of financially successful people. However, the “11 secret herbs and spices” on how you’re able to save 98 per cent of your pay packet is … it’s your mother who’s picking up the tab. Finger lick’n good! So what should you do? First, put $500 into a Mojo account, so you can stand on your own two drumsticks. Second, if you’re focusing on long-term investing, think superannuation. Just make sure you’re not getting screwed with fees on your super, and think about opting out of the expensive (and automatic) life insurance while you’re young and still living at home. Third, start researching what wheels you can buy for about $7000 (like, say, an early noughties Subaru Forester … rugged, urban, yet understated), and then apply your hard work and savings ability until you get it. Oh, and if you’re saving 98 per cent of your income, buy your own bloody book … better yet, buy one for your lovely mum!

POWER THOSE BILLS

RECENTLY I received a request:

Q: Can you give us your top tips for saving on power bills?

Truth is, I don’t do money-saving tips:

“If Jenny uses her Hills hoist instead of her clothes dryer, she could save $384 a year on her power bill!”

Seriously? Jenny didn’t twig that the giant golden ball in the sky could dry her clothes ... for free?

Yet I get it, power prices are insane. Last week we learned that Australians are paying the highest power costs in the world … twice as much as the Yanks! (Hang on, aren’t we basically a giant coal pit?)

And a report by the Australian Energy Market Commission found that almost half of households haven’t switched their plan or retailer in the past five years … a “lazy tax” that costs on average an extra $507 a year on power and $285 on gas.

So this week I decided I’d buck the trend.

I typed “cheap power” into Google and started dutifully scrolling through the 136,000,000 results it served up. The top pages were power comparison sites, and they reminded me of walking through a market in Bali: “Hey Mister! You want free power?”*

“$2 gas for you!”*

(*Just sign up for a horribly confusing bait-and-switch plan that will see you rolling over and being charged an average $278 more for power the year after your deal expires.)

Thankfully, I came across a government website that makes it really simple: compare.switchon.

vic.gov.au (rolls off the tongue, right?)

It may not be sexy, but with a copy of my last power bill, and a few clicks, I saved $540 a year. (And then I put a note in my calendar to remind myself to go back to the site next year.)

Power to you!

Tread Your Own Path!

Read more Barefoot Investor: 

Talking dollars and sense with Prime Minister Malcolm Turnbull 

Wife is right to be wary on spouse starting his own business

Barefoot Investor talks to AFL coach Brad Scott about player finances

Barefoot Investor weighs in on booming Bitcoin

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