Introduction: Barefoot Investor Review
Looking for an honest review of “The Barefoot Investor- By Scott Pape from a fellow personal finance/ investor? Well you’ve come to the right page.
After reading the book I knew I had to give my thoughts on the content inside especially after purchasing a rental property and having a little bit of experience with personal finance/ investing.
I won’t cover EVERY little detail that’s gone into the book, this article will just end up way too big, bigger than the book itself LOL
But I will definitely credit and highlight some advice I think is sound and I’ll elaborate the areas I think need further explaining for you guys to better understand 🙂
Author of the Barefoot Investor: SCOTT PAPE
Scott Pape is an Australian independent investment advisor turned best selling author with his book The Barefoot Investor. For the previous 10 years he’s been writing articles and other journals for the newspaper columns and other media outlets.
So starting off, we already know he works in the financial investment industry (the share market world).
Since we know Scott tends to lean to the Stock market, I assume he’s had some success in that area.
However, it’s not the only way to invest to make money. There are actually 3 more investment classes out there. They are…
- business
- stocks/shares (Scott’s preference)
- real estate
- commodities
His advice on taking control of your money and protecting it is sound, and he gives great tips on managing and thinking about your finances which I absolutely love.
If you are new to Personal Finance, his book’s a good start.
I like his dominoing your debts strategy, where he outlines how to get on top of your credit card debt. Then create different accounts to allocate your expenses (Though not necessary) it’s a good way to start training your brain about money.
So other than the barefoot investor book is meant to be an entertaining way to help you control your financial life and securing your future.
In my opinion the books not really geared towards investing for profit.
There are lots of great books out there that teach you the fundamentals of investing for profit which I will link to VERY soon.
The 9 Barefoot Principles
The barefoot investor is centered around 9 simple steps which I’ll elaborate here for you now.
1. Monthly Barefoot Nights
I love that Scott starts off the book by creating a positive approach to your money and that is to start thinking and talking about it.
This is a great way to get into the right habits for massive transformations.
Talking About Money
To master anything in life we have to submerge our brain in the topic which includes, talking, listening, reading, writing and most importantly DOING it.
How do you expect to get better at something if we’re not able to talk about or practice it regularly?
2. Set up your buckets
The essence of personal finance is to make things easy for yourself . Thats why Scott illustrates this by creating a system that automaticaly allocates your money in the correct areas.
Blow Bucket:
This is the bucket that most of your money will go as its mainly used to keep you alive (70% of your take-home pay will be allocated here) Including 10% splurge money to have fun with.
Mojo Bucket:
This is your safety money pile (20% of your take home pay goes here)
Grow Bucket:
This is your long term investing money pile (10% of take-home pay goes here)
Finances On Auto Pilot 🙂
Now you don’t have to worry because everything’s is now on autopilot. You can start to live a little stress free 🙂
This is meant to be as simple as possible because simple simply works!
3. Domino Your debts
The barefoot investor review says knocking off your debts one by one by starting with the smallest debt first and working up to the bigger ones.
I agree with this strategy wholeheartedly, its worked great for me as it gives you the confidence to keep paying things off which I think we all need 🙂
Plus you can defer your higher interest payments to another company (balance transfer). Giving you even more time to pay off your bad debt.
Get out of (bad) debt
Bad debt are things that don’t increase in value over time like, getting a loan for a car and nearly all credit card debt. You’re just paying to access money you don’t have. So its like a downward spiral into financial chaos!
Bad debt should be avoided at all cost
4. Buy your home
Yay!…my favourite part of the book, real estate investing!
Using the buckets mentioned in the book before, we can now easily fast track the deposit process to put towards our first house.
Note: In this book, Scott is communicating more to families, rather than investors, who want to home occupy their homes. But still, you can learn a lot from everyone about a topic, no matter their philosophy.
One of my favorite lines in the book:
You can’t plan your life around something you have no control over – the only thing you can control is yourself and your savings.
Scott Pape
Mistake #1. Waiting for a crash: I don’t believe waiting for a crash is a good idea either, it probably means your looking at the wrong type of house or you’re looking in the wrong neighborhood. There are lots of great buys out there you just have to set your sights lower. Which brings us onto mistake number 2.
Mistake #2. People buy a home they can’t afford: I can personally relate to this myself as I wasn’t looking at all my potential options at the time. It’s not worth paying a fortune for a big home that will just keep you stuck down financially for years and years to come.
My Take On This Part
Bigger homes tend to fluctuate in price a lot more than smaller homes as a result of demand (or lack thereof) for these expensive homes.
This of course, can make them riskier if you’re not careful. Because of this it doesn’t make sense to spend a fortune on a big home if you’re not sure what you’re doing.
You’ll just be paying more in interest on your home loan every single month.
Before you buy anything. Make sure to calculate all the running costs of buying and holding the property. You just do this with practice practice practice.
Make sure to look at small (1-2 bedroom/ 1-2 bathroom) properties as well to get practice at calculating smaller (less intimidating) numbers. These homes are great practice and you might even be surprised how easy and profitable these types of homes can turn out to be.
They might even swoon your decision making 😛
So It just comes down to your needs and wants at the end of the day
Always start small. Get good at the numbers, then take on more debt if you want to later.
5. Supercharge your wealth
This part of the barefoot investor review Scott suggests supercharging your wealth by investing your money towards the share markets, not property.
Scott’s investing principles are more safety orientated, over profits. Hence why he avoids debt.
“what I’m about – is keeping you and your family safe.”
Scott Pape
The only problem I have is that he justifies his preferences by using a pretty bad example, which is why I don’t agree with this section of the book.
You just don’t pick any property and pray that it makes you money. Likewise, you don’t just invest in any stock or share fund that’s in front of you.
There’s a straight forward strategy I use to invest in a property that doesn’t require a lot of risks to be profitable.
The property Scott uses was WAY TOO expensive for what it was, which was bought at an auction! (You don’t buy your first investment property at an auction, you have NO NEGOTIATING LEVERAGE) Then he says property investment is RISKY…..no wonder.
OF COURSE if you borrow money when your sure what to do with it is risky! That doesn’t just apply to real estate ok! lol Just don’t go borrowing large sums of dough if you don’t know what to do with it.
6. Boost your mojo Bucket
Boosting your mojo bucket is the term Scott uses to describe your emergency fund or cash buffer. Early in the book, Scott tells us the average person ideally should have $2,000 (1 months expenses) saved up in the mojo account.
Once we have momentum through the barefoot steps Scott suggests we can increase the mojo bucket to $6,000
I think this steps such a great idea as it relieves us of having to worry about money ever again. If you for whatever reason couldn’t work for a few months, you can, and now you have the time to look for another job.
Happiness is freedom 🙂
7. Get the banker off your back
Getting the bank off your back (paying off your mortgage) is another “safe” strategy that aligns with Scott Pape’s money philosophy.
Because ALL debt is considered something to be avoided in this book, he suggests it needs to be avoided. So he likes the idea of focusing to pay off your mortgage.
Here’s my take on this. It’s not necessarily “bad” advice, its just average advice. It’s designed to save families, who live in their homes, money over the long run.
This mindset only really makes sense if you’re the only person paying the expenses in the house for the life of the mortgage.
Property investors however, don’t focus on “paying off” mortgages but rather they tend to concentrate more on acquiring more cashflow properties.
8. Nail your retirement
Nailing your retirement number is making sure you have enough in your superannuation account to retire on. Another safe strategy makes sense if you have no other income-generating assets in your portfolio.
The barefoot has 4 guidelines to making sure you won’t run out of money in retirement.
- Have your house paid off (This eliminates one of the greatest expenses you’ll ever have)
- 250K for couples / 170k for singles in your superannuation account
- Claim the Government age pension
- Never retire (Work at least one day a week)
These barefoot guidelines will help you live a comfortable 59K a year lifestyle.
Claiming the honored government pension takes a lot of the heavy lifting off your pensions so you don’t have to take out as much making it last A LOT longer.
Overall I think this is great advice here and was really fun going over it all 🙂
9. Leave a legacy
At last, The Barefoot Investors’ last step, Leaving a legacy. This is a nice way to conclude the book.
At the end of the day, money is just a tool to get what you want out of life. Its not the focus and be all and end all.
What is important is living a proud fulfilling life doing what we love and positively impacting the world while doing it with people we like and love!
The barefoot book outlines some great stories of people who go on to do some pretty neat things with their lives once the money is no longer an obstacle.
Start charities, help in 3rd world countries, donate their money. Help their kids, all sorts of things.
Conclusion of the Barefoot Investor Review
All in all, I think the material in the Barefoot Investor book is quite helpful to the average person and I think everyone should read it. I know I definitely learned a few things reading this book 🙂
I also love his philosophy on buying things of long term (the Dunlopillo pillow) over wasting it on things that decrease in value.
Safe Personal Finance Advice
As saving money goes this book pretty good as it lays a safe foundation the average person can apply to live quite comfortably.
So I really hope you found my Barefoot Investor Review helpful and it got you some great tips you can use straight away! 🙂 Please leave a comment below of what you thought about the Barefoot investor or my review of the book. Is there anything you would like me to elaborate on further? I’d love to hear it 🙂
Yours in being clever
kristian
