Finances

Phoebe’s Finance and Barefoot Investor Learnings – Chapter 2

The Barefoot Investor has given me basic tips and tricks for where to start investing for your future. Starting small and implementing the building blocks so you don’t have to worry later. This along with advice from Hamish Ferguson will help you find some balance and responsibility in your finances.

Financial security is the dream, right? Freedom to travel? To enjoy fancy dinners out with friends? That can be difficult to do when you’re living pay cheque to pay cheque. I definitely know how that feels, and I know that a fresh start is next best thing.

If you followed the advice from Chapter 1 of The Barefoot Investor, your money is now neatly divided up into three accounts: daily spending, expenses and savings. Scott Pape, author of The Barefoot Investor suggests using three ‘buckets’ that your income drips into. Following the ‘Barefoot Benchmark’, 60% of your income goes into daily expenses, 10% is set aside to splurge, and 30% is saved.

Hamish suggests tweaking this to make it more manageable. Once adjusted, your personal budget might look like this:

Blow (daily spending + expenses): about 70% of your income, to pay for things in the next 3 months such as rent, groceries and petrol, utilities and phone
Grow (savings): about 30% of your income, to pay for things in the next 3-12 months such as servicing the car, insurances and other expenses that don’t happen often but do happen
Mojo (fire fund): an optional account opened with a separate bank that you don’t touch and just drip money into for emergencies – like your house burning down.

With these three (or four) accounts, you simplify your financial choices.

You start to ask yourself important questions about your spending, like, ‘Where does this purchase fit?’ If you want to build a nice nest egg so you can retire earlier, stop focusing on policing your spending. Focus instead on saving and investing your money. That way, you become a little bit wealthier every day. Just make sure you tailor this advice to your current financial position and don’t hesitate to consult someone who may have a bit more experience (I’m talking about Hamish Ferguson).

Hamish also suggests defining what spending means to you.

Do you find it difficult to say no to an expensive dinner out with friends, or to a dress that is 70% off? The psychological and emotional pressure of wanting to spend money on something can put a strain on your finances. Consider putting some money aside for the occasional ‘splurge’ but make sure you don’t dip into your savings just for a new pair of shoes.

If you really want to dig those lines into the sand, use a separate card for your splurge account and label it. Then, program into your budget automatic transfers to your ‘new best friend’. Immediately separate your money so that you can’t accidentally overspend and keep it mentally and physically separate.

Don’t forget to consider where the necessities fit. Which account do I use to pay for my car insurance, going to the doctor or if my laptop breaks? This could tie into your savings account. But, if you are also saving for a holiday, don’t spend it all and leave yourself high and dry.

Remember what the end goal is. Is it an overseas holiday? Is it a home loan deposit? Or, are you saving for a wedding?

Adjust what you are putting into your savings depending on what the goal is and when you want to reach it. Staying in control of your finances, keeping focused and having a clear idea of where you want to be is the best way to build long-term wealth. Also, don’t forget the value of talking to someone that can help you improve your own systems.

Call Hamish Ferguson or Leigh Johnston on (02) 4014 1999 or click here to organise a no obligation initial appointment.

Happy saving!

Until next time,

Phoebe

P.S. See my first blog post on The Barefoot Investor here.

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