 The economy is
slowing, prices are rising and belt-tightening is fashionable once again. Jim Buckell seeks some savings tips
from finance writer Scott Pape.
How far is your pay cheque stretching these days?
Maybe, like your muscle shirt from last summer, not as far
as it used to. Chances are you’re scratching around to find the cash to pay
your bills. Little wonder. Inflation and interest rates are up, petrol has hit
$1.50 a litre and the rising cost of housing has driven up rents.
Welcome to the economic downturn. Unlike the US, we’re not
calling it a recession here just yet, but no one’s denying we’ve come to the
end of the boom that lasted 16 years.
Those under 30 haven’t experienced anything like it before
and financial adviser and author Scott Pape (pictured) – aka ‘the Barefoot Investor’ –
says that although it’s true many Gen Y-ers are ill-prepared, it’s the same for
older generations as well.
“Tougher times are with us for the next while, so we have to
accept that, plan for it and try to take advantage of the rewards when they
come,” says Pape.
As an alternative to locking yourself inside over the
weekend, Pape, who is notoriously pragmatic when it comes to managing your own
money, promotes a more attractive approach
to staying in the black. He calls it Barefoot Bondage.
“It doesn’t involve whips or chains, but it can be just as
sexy,” says Pape. “Finance is fun, once you make your money work for you.”
Cheesy, maybe, but common sense too.
Pape is an avowedly metrosexual specimen from the Jamie
Oliver school of dispensing advice – quick, simple and rewarding solutions. A
former stock broker, he bases his philosophy on tried and trusted methods of
wealth creation.
“Sadly, these days most people get their financial advice
from a cold call from someone working on behalf of the finance houses, flogging
products they’re paid to get you in to,” he says. “Then there are all kinds of
spruikers trying to sell you dodgy get-rich-quick schemes that are loaded with
high fees and commissions and get you into even more strife.”
Instead, he urges a proven strategy: cut up your credit card
and start saving.
“The number one trap people get into is spending more than
they earn,” he says. “That means credit cards, store cards and personal loans.
With interest rates of up to 28 per cent, it’s just not sustainable.”
“Barefoot Bondage means adding up all your expenses and
allocating amounts into different bank accounts that serve different purposes
each pay period. The first account should cover the necessities of life – rent,
food, transport, health and wellbeing and any repayments you need to make.
“The second is a high-interest online savings account that
you throw ten per cent of your pay into each week. When it reaches a few
thousand dollars you can use it to go on a holiday or, even better, to start
investing.
“The third account is the everyday account you can blow each
week because you’ve covered all your bases. There’s no better way to manage
your money. This method gives you a bit of leeway for fun stuff. It means you
don't have to miss out on going to the movies, dinners or a regular night out
to party.”
Can belt-tightening also be fashionable, I hear you ask?
Pape likes to think so, with a little creativity and cutting out some
discretionary spending like buying your lunch each day or a coffee on the way
to work.
He advises allocating a wardrobe and partying allowance. Put
that into your weekly expenses and stick to it. Have some fun with it. Instead
of buying your clothes on Chapel Street, try op shops or discards from friends
and neighbours.
“The big retailers have cottoned on too,” says Pape. “When
we see a Collette Dinnigan lingerie range at Target we know times have changed.”
Freelance writer Jim
Buckell edited Scott Pape’s book, The
Barefoot Investor (Pluto Press).
Barefoot
top five tips for sorting your finances
- Don’t live a label life:
Overspending is driven by massive marketing campaigns designed to make us
envious of what we don't have. Once you grasp this the urge to splurge
will diminish.
- Set some goals and split your pay
cheque: Whether it’s a holiday, a new hi-fi or an investment account,
start thinking about what you want to do over the next ten years and
allocate some regular savings to those goals. Divide the rest of your pay
into separate accounts for living expenses and everyday spending.
- Get out of debt: No one should
have a credit card if they can't pay it off in full each month. Cut it up
and use a debit card for online purchases. When you spend your own money
you’ll be a lot more careful with it.
- Think long-term: There’s no better
way to build wealth than by taking advantage of compound interest and
strong interest rates that build money over time. When your savings grow
think about a managed investment fund. The experts do the hard work for
you and the fees are low.
- Have a back-up plan: Super and
insurance may not be high on your radar right now but they will help you
out when you need it – if you get sick or have an accident and when you
retire.
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