‘Give love a chance’: Barefoot Investor’s advice to bride who called off wedding over $9k debt

Barefoot Investor tells a bride-to-be who discovered her fiancé’s $9000 Afterpay and Uber Eats debt to ‘give love a chance’ before kicking him to the kerb.

Scott Pape is The Barefoot Investor. Picture: Jason Edwards

The stock market is flirting with all-time-record highs …

… and that’s my cue to cock my leg and pee all over your portfolio.

You see, I still have PTSD from the GFC, when retirees would write to me in tears as they watched their super balance crater. They had no idea how much risk they were taking in their super fund ... until it was too late.

I don’t want that to happen to you.

Here’s the problem: while the best-performing super funds label their default flagship funds as ‘balanced’ options, the reality is that they’re often quite unbalanced. They have a large portion of their funds devoted to shares and other growth investments … which juices their returns and helps them win awards.

In other words, if your super fund is consistently one of the top performers, it’s likely they’re taking more risks than the funds they’re competing against.

Now, taking on more risk is great for an 18-year-old dish pig with 50 years of work ahead of him, but it’s potentially disastrous for a 63-year-old executive chef who’s about to light the flame on his last flambé.

Bottom line: Australia’s biggest super funds use an aggressive ‘one-size-fits-all’ strategy which might not work if you’re nearing retirement.

Yet there is an alternative. They’re called ‘target-date funds’ (or ‘lifestyle funds,’ same thing), and they’re becoming more popular, with a large amount of funds offering one.

Here’s the gist:

You pick a target date fund based on your age, and it automatically adjusts your investments as you approach retirement. So, when you’re younger, it invests heavily into growth investments like shares (because you have plenty of time to ride out the ups and downs). As you age, it gradually shifts you into more conservative stuff, like cash and fixed interest.

These funds are a great hands-off option, especially if they’re built with ultra-low-cost index funds.

My advice?

Call your super fund and speak to one of their financial advisors (your first appointment should be fee-free and obligation-free). Ask them to review the asset mix you’re invested in, and have them compare it to the asset mix of an index target-date super fund for your age. Then ask them what they’d recommend, and why.

Tread your own path!

Should I Call Off My Wedding?

Hi Scott,

I’m blindsided but I am in love. I’ve just discovered my fiancé has $9000 of debt he accrued overspending on Afterpay and Uber Eats over a two-year period.

He consolidated this debt into a loan (at 17.5% interest!) and I only found out when I opened a piece of mail from a bank neither of us use (or so I thought). I’m not sure what to do. I’m not going ahead with the wedding now, so we’ve likely lost $10,000 in deposits, and we have $14,000 in savings. For context, we live in a three-bedroom townhouse that I own. I don’t know whether to try and make it work or cut my losses and run. Please help!

Renata

Let’s give love a chance, says Barefoot to a blindsided bride-to-be who is concerned about the spending habits of her fiancé.

Hi Renata

I know your type.

You really value financial security.

That’s why you own your home. That’s why you’ve already calculated how much backing out of the wedding will cost you. And it’s also why you’re asking me – a finance dude with no shoes – if you should call off your wedding, rather than, say, a relationship counsellor.

However, I don’t know your fiancé’s type … but you love him, so I’m willing to cut him some slack. After all, maybe he racked up the Afterpay and Uber Eats debts wining and dining you?

Like you, perhaps he’s also blindsided by love, but he just so happens to be clueless about money (which would make him a card-carrying Aussie).

My view?

Let’s give love a chance.

If you haven’t done it already, I’d sit down and paint him a picture of what your ‘happily ever after’ looks like. Go into all the scary details: a paid-off home, a million-dollar super fund, private schools for the kids.

And then smash him with the following line:

“I do not want to marry you if we’re not on the same page financially.”

Of course, there’s every chance this poor shell-shocked bastard will agree to whatever you say.

So, it’s then that I’d bust out my book and ask him to read it. If he takes it on board, sets up the Barefoot Date Nights, and starts aggressively paying down his debts, you’ll know your financial values are aligned.

But what if he doesn’t do the work? Well, he’s shown you what he values, and you can both move on and find people who are your types.

Have I Been Doing It Wrong All This Time?

Dear Scott,

Years ago I set up the Barefoot Bucket system and found it hugely successful, despite the ups and downs of my income. I religiously put money into my ‘Splurge’ and ‘Smile’ buckets, but I wanted to check with you that I’m using the ‘Fire Extinguisher’ bucket for the right reason – I actually use it to put 20% of my income towards regular bills (insurance, utilities, rates, body corp fees, etc). I suspect that isn’t right – can you confirm if I’ve been doing it all wrong all this time?

Lauren

Barefoot says the idea behind putting 20% of your income into the ‘Fire Extinguisher’ bucket is so you can use it to fight financial fires that keep you up at night.

Hi Lauren

Yes, I can confirm you’ve been doing it wrong all this time.

And your penalty has been … you’ve been ‘hugely successful’ despite a variable income?!

That doesn’t seem so bad to me.

The idea behind putting 20% of your income into the ‘Fire Extinguisher’ bucket is so you can use it to fight financial fires that keep you up at night.

Which (for me) means:

First, direct it to paying off any personal debts (other than HECS-HELP).

Then, direct it to saving up a house deposit.

Now once you’ve bought your home, you then direct it to building up three months’ living expenses in your Mojo savings (or offset) account.

After that, direct it to getting the banker off your back – paying off your home early.

Finally, use the Fire Extinguisher to nail your retirement, which you can do with both barrels because, if you’ve followed the steps, you won’t have personal debts or a mortgage repayment!

Is My Super Genocidal?

Own up, Barefoot, you support the war machine. I have often wondered why my super investments in a fund like Australian Ethical have not grown as much as others. It’s because people like you (who I respect) tell them to invest in the fund that will make the most money, rather than the fund that will be best for us as people on this planet. Vanguard enables genocide, mate. Find a well-performing alternate super fund that doesn’t decimate entire populations.

Sandra

“You get what you get and you don’t get upset,” says Barefoot of the sausage sizzle at Bunnings.

Hi Sandra,

I presume you are referencing a report from 2017 where activist investors wanted Vanguard (and other index funds) to dump their shares in PetroChina, Asia’s largest oil and gas provider, because of accusations of genocide.

Vanguard’s MSCI Index International Shares fund contains 1,439 companies (Apple, Nike, Netflix, etc), yet as of today it does not own shares in PetroChina. But it does raise a good point: an index fund simply owns the largest businesses – it doesn’t put an ethical lens on them.

It’s the investment equivalent of a sausage: when you’re at Bunnings on the weekend you don’t ask if the snags are beef, pork or sawdust, right? (“You get what you get and you don’t get upset”, say my kids, who love a bit of sawdust on a Saturday.)

So the solution is ethical investing, right?

Well, that’s like buying an expensive free-range chipotle instead of the humble snag … but you still need to know what goes into it.

Case in point:

AustralianSuper’s ‘Socially Aware’ investment option was found to have money invested in the coal, oil and gas industries, and to own shares involved in nuclear weapons.

Mercer claimed its ethical fund didn’t invest in booze or gambling companies, though it was holding shares in Heineken and Crown Resorts.

Thankfully the regulator is trying to enforce the claims made by fund managers: last month Vanguard copped a record multimillion-dollar fine for misleading investors about the green cred of its own ethical funds.

Enjoy the sausage sizzle!

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.