The importance of buying a home: the freedom to invest in finances and family, Barefoot Investor says.

OWNING your home outright means you have the banker off your back and can call the shots on how you “invest”, writes Barefoot Investor.

Fixing your finances gives you more time to focus on your family.

OWNING your home outright means you have the banker off your back and can call the shots on how you “invest”.

Read more Barefoot Investor: 

Talking dollars and sense with Prime Minister Malcolm Turnbull

Possible trust changes will not stop all tax minimisation

A suddenly single pregnant woman faces financial challenges 

TOM ASKS: I owe about $80,000 on a house worth a bit over $500,000. I am 29, earn $100,000 p.a, have a wife and two kids, and no debts other than the house. A person I respect said it is stupid to have equity sitting in a home and even stupider to own a home outright. He has used the equity in his home to buy real estate and make about $600,000 for “doing nothing”, as he puts it. He said at my age it is foolish to pay off my home. I must admit I am tempted, but what do you think?

BAREFOOT REPLIES: Dude! Well done! You’ve got yourself in a position that most 59-year-olds would like to be in — at age 29! (I’m so impressed with you, Tom, I’ve pulled out three exclamation marks! What the hell, let’s make it five!) Okay, so now let’s deal with your friend. You need to understand that they’re talking about their own personal experience … yours may be different. So let me share with you my personal experience. The day I paid off my home was the proudest (financial) moment of my life. I don’t want to get too Oprah on you, Tom, but it really was a life-changing moment: life became a lot simpler. See, whether you admit it or not, debt always makes things more complicated, and more stressful. But once you’ve got the banker off your back, you have the freedom to call the shots. For me that meant being able to “invest” more time into hanging out with my kids, and less time stressing about “stuff”. And being around my family is what makes me truly happy — that’s what makes me feel rich.

My advice? If you can wipe out your mortgage in the next few years, you’ll then have the ability to redirect your repayments into building up your long-term nest egg, via pre-tax super contributions. It’s simple. It’s tax effective. And if you stick at it over your working life, you’ll end up seriously wealthy.

SHARE THE GAIN

ELIZA ASKS: I am a 31-year-old stay-at-home mum of two kids. My hubby has a new job (paying $130,000 p.a.) and has arranged for payroll to pay the money into his account each fortnight. Once paid he direct-debits money into my account to pay all bills for the fortnight. He also has a (maxed out) credit card on his online banking, which he adds to. He works long hours and deserves some spending money, but I honestly do not know how much he spends each fortnight! Please help me address this issue without ruining us.

BAREFOOT REPLIES: This is going to sound like a blatant plug (because it is), but the easiest way to address this issue is to get a copy of my book. The book is set around Barefoot Date Nights, where the two of you sort out your finances as a team (with a wine in your hand). The book explains why married couples should share the same account. If he baulks at the idea, well, he has the rest of the dinner to explain why he doesn’t trust you enough to share money with you. Good luck!

CLEANING THE LEDGER

TEGAN ASKS: In my early 20s I had a drug addiction that resulted in me having my car repossessed and taking out huge loans I could never repay. Three years on, I am in a reliable job (earning $55,000 p.a.) and have paid off all my debts. However, as you can imagine, I have terrible credit. I want a chance at buying a house, but what’s a girl with bad credit to do? Please help!

BAREFOOT REPLIES: You’ve been able to beat drugs and you’ve been able to repay your debts, so I have no doubt you’ll eventually buy your own home. You’re a fighter! I’d suggest you grab a copy of your credit report (go to checkyourcredit.com.au and following the links to get a free file sent out in the post) and make sure any debt you’ve repaid is marked as “settled”. If not, you can ask your creditor to do it for you. Honestly, though, there’s no way to “clean” your bad credit file, despite what those dodgy “credit repair” companies claim. It’s really a waiting game: overdue accounts and defaults drop off your file after five years, while more serious matters last for seven years. What’s done is done. Instead, focus on increasing your income and boosting your savings. You’ve got this!

LOOKING AHEAD

OSCAR ASKS: I do not have a job or any real income, besides weekly allowances and lunch money, because I am only 15. I picked up your Barefoot Investor book (thought it might be an interesting read) and am halfway through, but I can’t really relate because I can’t save up or anything like that. Anyway, my question is, how do I make sure that I never have to turn my life around financially and that I am ready for any financial fires that come my way?

BAREFOOT REPLIES: Truth is, I get a lot of teenagers who write to me with concerns like yours. Often it’s because they’ve grown up in homes where a lack of money was a big problem. Often they learn what not to do from their parents. But you know what, Oscar? The cool thing is that it doesn’t matter who your parents are, or where you’re from, or what you look like, or whether you’re good at sport, or how popular you are. All you need to do is build some “million-dollar habits”: work hard, save, and compound your money. Money is the great leveller in life. All you have to do is have at least a passing interest in it, early enough. The fact that you’re reading a finance book and not on Snapchat tells me you needn’t worry about any financial fires. You’re going to tread your own path!

DON’T BE TRUMPED ON STOCKS

ARE we heading for a stock market  crash? Well, less than a year ago, the leader of the free world had this to say about the market: “We are in a big, fat, ugly bubble. And we better be awfully careful.” At the time, the Dow Jones was trading at 18,000 points. Recently the Dow broke through 22,000, but this time Trump tweeted triumphantly: “Stock Market at an all-time high. That doesn’t just happen!” Thought bubble? Well, we all know the Tweeter-in-Chief has four of those before breakfast. (And if you’re trying to make sense of any of this, you haven’t been paying attention.)

Whether Donald likes it or not, the share market has a nasty habit of crashing (on average) every 10 years or so: 1987 was the Black Monday crash. 1997 was the start of the Asian financial crisis. 2007 was the start of the global financial crisis. 2017 is … well, let’s not get carried away, because, just like the Trump presidency, there’s no logic to any of this. (Case in point: the “tech-wreck” happened around 2000, which didn’t fit the 10-year pattern.)

Again, to be clear, I’m not saying the share market is going to crash this year. However, I am growing more cautious, and taking my cues from another US billionaire … Warren Buffett’s Berkshire Hathaway currently has $100 billion in cash in its war chest. That’s the most they’ve ever had. As a percentage of Berkshire’s assets, it’s actually more than the prescient pile Buffett went into the GFC with, when he made good on his motto: “Be greedy when other people are fearful.”

Tweet! Tweet!

Tread Your Own Path!

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

Originally published as The importance of buying a home: the freedom to invest in finances and family, Barefoot Investor says.