Giving a bank account a nickname helps give focus to your savings strategy, writes Scott Pape

YOU’VE got thousands of dollars sitting in a bank account doing nothing, but should it be invested in shares or property? Here’s what the Barefoot Investor thinks.

Follow a time-tested plan on saving and investment.

MAKE no mistake, the act of naming something — such as a bank account called “my house deposit” — is powerful. It gives you clarity and purpose.

RICK ASKS: I’ve just turned 28, and after reading your book I came to the realisation that my savings have been sitting in my bank account for several years doing nothing.

I have no investments whatsoever, but I do have $10,000 I could invest. Based on your previous advice, I am looking to invest $5000 into AFIC and $5000 into Argo.

Is this a good idea, thinking about the long term (30-40 years)? And if I continue to add to them over time, is that better than adding the money to my super?

BAREFOOT WRITES: If you’ve read my book, you’ll see that I set out a time-tested plan: do a monthly date night (Step 1), set up your buckets (Step 2), domino your debts (Step 3), then start saving a 20 per cent deposit for a home (Step 4).

Step 4 is where you’re up to at the moment.

So right now you have $10,000 sitting in a bank account. I want you to give that account a nickname, call it “my house deposit”.

I know it sounds like I’m making you suck pea and ham soup, but make no mistake, the act of naming something is powerful. It gives you clarity and purpose.

If you’ve been reading Barefoot for a while, you’ll know that I love AFIC and Argo as investments, but everything at the right time.

Now, after you buy your home, you’re on to Step 5, where you boost your pre-tax super contributions from the standard 9.5 per cent to 15 per cent (or up to the annual cap of $25,000).

If you can do that before you’re 35, your retirement will be soupy.

HEARTBREAKING

TOM ASKS: It is with a heavy heart that I write for advice.

Last week, my best mate of many years suddenly decided to end his life, leaving behind a young wife and two primary school-aged kids.

He also left behind a financial mess.

I have told his wife to call and get everything “frozen” while she comes to grips with it all, but is there any other advice you can give her?

 

BAREFOOT REPLIES: What a heartbreakingly sad situation. I’m so sorry for your loss.

The admin that’s required after someone dies can be overwhelming … especially if you’re grieving.

However, the first thing she should do is contact her husband’s super fund.

The final payout is called a death benefit, and it’s a combination of his final balance and any insurance held at the time of his death.

To get the ball rolling, she’ll need his death certificate (or, if that’s not yet available, the interim death certificate), his passport, his driver’s licence (or birth certificate), a copy of his will (if there is one) and letters of administration (if applicable).

Generally, banks and other financial institutions will need a death certificate before they can start the process of settling accounts.

From experience, she (understandably) won’t be in any state to make rational financial decisions for at least a few months.

What she needs is someone who can help her get a clearer picture of her financial situation. And that’s the job of a best mate.

Note to the reader: I’ve offered to help them through this process.

 

A TERRIBLE IDEA

SALLY WRITES: We have $300,000 in the bank, and owe $42,000 on our mortgage.

We have two kids (ages 6 and 7), but our marriage is shaky.

If it fails, I want to keep the family home with my husband, and I would move, then we would split time with the kids equally.

We are considering buying a block one minute’s walk from the family home, and building there.

If our marriage works out, the home would be an investment. If not, it would be my home, because being close would be important for me.

I am worried that if we do not buy now, we might not be able to afford to do so later if we do need two homes. What do you think?

 

BAREFOOT REPLIES: Now I could be wrong, but here’s my theory on what’s prompted this: your marriage was already on the rocks, but you’ve inherited $300k.

How else do you get to have $300k in the bank and $42k still owing on your mortgage?

That makes about as much sense as your plan: your marriage is shaky … but you’re contemplating building a brand new house together? This is terrible idea. (If my editor allowed me to write in all caps I would, but he doesn’t, so I’ll stick with the italics, but just know that my left eye is twitching uncontrollably at the moment).

After all, if you actually separate — and I think you already know you’re going to — who’s to say he’ll follow the plan?

My advice is to sort your relationship out first — before you commit to this big, messy purchase.

The best investment you could make right now is relationship counselling.

 

I’VE BEEN EXPOSED

NINA WRITES: I am a financial counsellor and I collect clothing for the homeless, particularly underwear.

Given the many sets of undies you’ve received recently (last week’s column), and given that you seem to love us financial counsellors (many columns in the past), I thought you might want to hand them over to those in need — what do you say?

 

BAREFOOT REPLIES: You’re right, I do love not-for-profit financial counsellors, so I’m more than happy to swing by and drop my dacks. Sorry, drop off my dacks.

Read more:  

How to save for a baby without going broke

Socially responsible investing begins at home

Bitcoin-fever fuels flock to digital goldmine

Six steps to ruin your financial life

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