You guys loved part one of this topic… so now that you’ve got the basics down, let’s dig a little deeper. Here are Scott Pape’s next three steps to achieve your financial freedom from his book The Barefoot Investor – The Only Money Guide You’ll Ever Need.
Step 4: Buy Your Home
Pape reckons that despite the smashed avo and $4 coffee epidemic, buying your own home is still achievable in this market. He also reckons you can do it in 20 months.
Firstly, let’s go through the mistakes people are making when trying to buy a house:
- Waiting for a housing market crash (don’t plan your life around things you cant control)
- Buying a home they cant afford
- Buying an investment property first
- Renting rather than buying but forgetting to save while they’re doing it
- Don’t consider other options (for instance, move into an apartment in the city or move to the country)
Which of these are you guilty of?
Next, the hardest part: how to save for a deposit.
Look back to part one and you’ll see the Fire Extinguisher bucket. It’s time to use that cash.
Scott believes you need a 20% deposit for a home deposit. Not only does this prove you can save but you will avoid lenders mortgage insurance (LMI), which can cost tens of thousands over the life of your loan. Money down the drain for no good reason.
Pape then talks about how to get your deposit quicker. The average income earner in Australia can bring home $5000 net a month. A couple that can learn to live off one salary for 20 months can save $100,000. However, everyone’s circumstances are different, so don’t set up impossible savings targets that cannot be sustained in the long run. Be realistic to see the best results.
Tip: Borrow less than what the bank will lend you and your repayments should be less than 30% of your take home pay.
Step 5 : Supercharge Your Wealth
Here Scott talks about whether you should be buying an investment property. Pick up the book to read about the pros and cons of this one.
Next, the M word pops up. Millionaire! Wouldn’t it be nice? Pape says a great leg up towards the dream is to boost your super to 15% each year. As your employer is already putting in 9.5%, all you need to do is increase it by 5.5%. Not only is this a tax saving (speak to us about how) but it helps you save towards a comfortable lifestyle when you retire.
An example Scott uses is someone at age 30 who earns $72,000 and has $50,000 already in super. If they put super contributions on autopilot and contribute a total of 15% of their salary, that’s an extra $330 per month contributed to their super fund. By the time they’re 67, assuming the growth rate is 8% and inflation is 2%, they will have $569,073 more in their super fund than if they didn’t put that extra 5.5% in. By the time they retire, they would be on track to walk away with $2,063,179. It’s a no brainer.
Step 6: Boost Your Mojo to Three Months
Looking back to part one, we spoke about the Mojo bucket with $2000 in there. If you’ve followed the steps so far, you’ve made great headway on saving for that house deposit.
In step six, Scott wants you to save towards 3 months of Mojo money so you’ve got $6k stashed away. If you can get to this point and achieve the other five steps, you’ll be well on your way to never having that awful I’m-worried-about-money feeling again. Having savings has been shown to have a direct link to happiness. We believe it!
As always we’re here for a hand with any of the above. Being financially free is the ultimate goal for all our clients. Stay tuned for the final part three!