‘Spend on what you love’: Scott Pape’s advice on how to save in a cost of living crisis

Times are tough on the hip pocket, but don’t panic yet. Barefoot Investor Scott Pape reveals the red flags you have to recognise – plus gives his tips on what to do next.

Buy the latte. Have the wine. Even order the smashed avocado on toast.

In these trying financial times, that’s the somewhat surprising advice from Australia’s best known financial guru, Scott Pape, better known as the Barefoot Investor.

Because in a world of skyrocketing interest rates, billowing inflation and soaring grocery and cost of living prices, Pape says a little bit of what you fancy will serve you well.

“I would much rather cut off my leg than not have a latte,” Pape confesses. “I find those types of money-saving tips to be demeaning and stupid. I don’t love cutting stuff out, it’s just not my approach to money.

“When you’re stressed, you want to be able to feel like you can treat yourself a little bit. Because that gets you nowhere if you just feel like you’re watching every cent.”

So, his advice?

“If you want to have a latte, and you’re a single mum and you work two jobs, f —king have the latte and have the glass of wine.”

Pape, who wrote Australia’s best-selling book, The Barefoot Investor, has been in the finance game for 20 years and he acknowledges Australians are experiencing an “economic shock”.

Earlier this month, the Reserve Bank lifted interest rates for a 12th time in just over a year, placing many people under huge financial strain.

And, according to Pape, relief isn’t coming any time soon so we need to get prepared.

Financial Adviser and author Scott Pape at his property in Chitin Victoria. Picture: David Geraghty.

“One of the big risks that people face now is that we’ve been so entrenched in low interest rates we kind of feel these kinds of rates will end up falling but I think that is the danger,” he says. “People don’t realise that this is potentially the new normal, interest rates will stay at these levels, if not go higher, and I think we have to adjust to that.”

There’s no “magic wand” to help Aussies get through the tough times, Pape says, but there are some strategies that could make a huge impact. “What I try and do is say you should spend generously on the things that you love but you should viciously cut the things you don’t love,” he says.

“I’m looking at (finding) new household insurance, car insurance, all the bank fees that I’m paying,” he says. “I’d be looking at all the bills I do not care about.”

If you’re a homeowner with “good equity in your home”, Pape’s tip is to investigate switching banks.

“I had somebody write to me … they got offered about three grand to switch over to another bank, so they did, a week later they worked out that their old bank was offering four grand for new customers, so they switched back again,” he says. So they made seven grand in a month – sure it took them a day in paper work but they were able to do it. You should definitely be talking to your bank and seeing if you can get a better deal.”

COMMON MISTAKES

There’s only a few topics Australians never like to openly discuss, according to Pape.

“Money is one of those taboos we don’t talk about … that and religion and whether we watch MAFS (Married At First Sight).”

But Pape is here to tell us that is the biggest mistake of all. Communication is key, with Pape encouraging open discussions about finances.

“If you find yourself stressed about money, you’re worried about being able to make your repayments and worried about interest rates, it’s when you stop talking about it with your partner, stop communicating with your banks or your lenders, that’s when bad stuff happens,” he says.

“That is absolutely when you lose control.”

Pape recommends using a financial counsellor (who are usually free) for guidance.

Financial Adviser and author Scott Pape and wife Liz on their property in Chitin Victoria. Picture: David Geraghty,

“If you have credit card debt, fines you haven’t paid, or you’re feeling like you’re going to your bank because you haven’t been making your repayments, financial counsellors are people who will stand beside you, negotiate with your banks and get you back on your feet.”

There’s been a rise in demand for these counsellors, Pape says, as Aussies are faced with job insecurity, casual jobs, rising rental prices and more.

“There is so much stress right now and a lot of it is because people keep it bottled up and never talk to anyone about it, so just actually being able to chat is a really big thing.”

Pape also notes young homeowners are vulnerable right now.

“There are a lot more young people who have bought properties in the last few years who are really struggling,” he says. “We’ve just seen so many rate rises, it’s really caught a lot of people off guard and there’s quite a lot of people who have too much debt. They borrowed too much. It was like musical chairs, the music stopped, interest rates are going up and they’re suddenly worried about what they can do.”

PREPARATION IS KEY

As rates rise along with financial pressure, Pape warns Aussies to prepare for the long haul.

“It feels to me when I talk to people anecdotally they think the interest rates will go back down and go back to normal. My question is, what happens if they don’t?” he says.

“I want to make sure you have got your bases covered, and if you don’t, the best thing you can do is either see a financial counsellor or go on a date night and start getting the plan in place.”

There are always options. It’s the message Pape hammers home, especially to those who feel like there is no way out.

“You have more options than you think,” he says. “It may just be that you need somebody who is impartial, independent and free who can look at your situation and give you a different option.”

Barefoot Investor’s financial advice in a cost of living crisis.

Scott ‘s   top   five   warning signs you need financial help:

1. Missing house repayments. If you are really stressed about finances, worried you’re not going to make payments or have missed repayments, talk to a financial counsellor.

2. Using Afterpay for groceries or everyday items. This is basically shuffling expenses. People say it’s a budgeting service but I argue it’s just more debt. I’m seeing a lot more people use it for everyday items, so if you’re using Afterpay, or credit cards, to buy food or pay bills, those are the warning signs for me. It’s money you don’t have for the things you do need.

3. If you can’t pay your bills. If you have to choose which bill you pay and say to yourself, “I’m not going to pay the power because I need to pay for water” or you’re not going to pay for the water and scrimp on food this week, or put it all on Afterpay, that to me rings alarm bells.

4. Stressed about money. Money problems have a ripple effect and can lead on to mental health issues. I would encourage anyone who is feeling like they’re stressed about not making payments or the general cost of living to talk to a financial counsellor.

5. Stopped communicating. If you are worried about your situation, the best thing you can do is keep communicating with your bank, financial counsellor, super fund, employer. It’s important to keep communicating with your partner. The number one cause of relationship breakdown is fights over money so that’s really important. Money is not that important but your relationships are. A problem shared is a problem halved. Having someone to talk to confidentially about your situation – someone objective and with expertise – can be great, especially if you have a lot of shame and fear around money.

Resources for financial advice:

Financial Rights Legal Centre, financialrights.org.au

National Debt Helpline, 1800 007 007, ndh.org.au

Small Business Debt Helpline, 1800 413 828, sbdh.org.au

Originally published as ‘Spend on what you love’: Scott Pape’s advice on how to save in a cost of living crisis