Barefoot Investor: I turned my debt into $1 million by committing to this simple strategy nine years ago

The Nightly
4 Min Read
Scott Pape, the Barefoot Investor believes kids should be taught financial literacy at school.
Scott Pape, the Barefoot Investor believes kids should be taught financial literacy at school. Credit: Natalie Richards/Supplied

A decade in the making

Sam says: Nine years ago I committed to following the Barefoot principles to change our family tree.

When we started, our net worth was minus $10,000, and last week we hit the magic $1,000,000!

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When I realised our position, I instantly remembered you saying most people overestimate what they can do in one year, but underestimate what they can do in 10. Thank you for all you do to help the community to take charge of their finances and accomplish their financial goals.

Barefoot responds: In this TikTok world of cringey 75-day hacks, it’s worth repeating that people massively underestimate the life-changing benefits of grinding away for years.

After doing this job for more than 20 years now — and receiving tens of thousands of emails — it seems most people who write to me get themselves from the financial edge within a year, and then go on to become successful in six.

From then on, as you proved, it’s all gravy, baby. Well done!

Help me, I’m a millionaire

Another Sam asks: You set me up on a good financial path when I started working as a graduate.

However, I recently inherited a fortune from my grandparents in the sum of $6.3 million. I’ve never had much money and I feel so blessed to have been gifted such a large sum. I want to conservatively manage this money. What’s the best way to invest it, taking minimal risks, for the next 50 years?

Barefoot responds: You just scored a ticket to Willy Wonka’s one per cent club.

And that’s how I’d think about the money you’ve just received: as a golden ticket.

If you invest that money into a number of ultra low-cost index funds, the income the portfolio will generate will be roughly $200,000 a year (after tax and inflation). Every year, for the rest of your life, shot directly into the bank account of your choice.

Even better, in 50 years those index funds will have likely doubled in spending power, which your future children will be very happy about (if you choose to create some trustafarians).

So how do you set up a golden ticket? First, talk to an accountant and an estate planning lawyer and have them set up a family trust.

Second, talk to a financial adviser who specialises in index funds and have them set up a simple portfolio of local and international funds.

Do not pay any ongoing advice fees. Finally, think long and hard about how you can ensure this money won’t totally screw up your life.

Wait! What?

I’ve seen it happen way too many times. It’s called a “poisoned chalice”, receiving unearned money often brings up feelings of guilt and sparks frivolous spending (big houses cost a lot to maintain), and the results can be a lack of meaning in life. Remember, the main lesson from Charlie And The Chocolate Factory is to work hard and help others. Good luck!

I just can’t get ahead

Sarah writes: I’m a uni-educated freelance graphic designer. I’m also a single mum, with a 10-year-old.

My rent is 85 per cent of my income and there are no housing solutions in sight. I receive no financial support from my family or my son’s father. We have moved 11 times since my son was born. I’m depressed, defeated, tired.

I have $8000 in debt and a $10,000 inheritance I’m scared to accept because I can’t do much with it except spend it on food and rent, and then it’s gone. I just don’t know where to turn or how to begin finding security for my son. I want off this rollercoaster.

I go day-by-day, meal-by-meal, always seeming to find a way to feed my child, but never getting ahead. With my massive living costs and high debt repayments (I’ve already talked to the various hardship departments), my question is, what should I do with the $10,000?

Barefoot responds: You’re doing an awesome job to just get through each day. In years from now your son will be proud of the sacrifices you’ve made for him.

However, the truth is that if 85 per cent of your income is going towards rent, you can’t survive long term. The numbers just don’t stack up.

You need to either earn more money or find cheaper accommodation — or both.

Which is very easy for me to say, as I’m not the one who’s had to move 11 times in the past decade.

As for the $10,000, I’d suggest you spend it on survival. Don’t spend it repaying any of your outstanding debts. In fact, right now you shouldn’t be making any repayments. The only thing you should spend your money on is essentials — a roof over your head, power, food on the table, clothes and medicine. What you do need to do is see a financial counsellor (1800 007 007). However, this week it’s going to be me who calls you, and I’ll do my best to help.

Finally, thank you for writing to me. There are well over a million people who have just read your question and, hopefully, it’s given them a window into the world of a low-income single parent trying to survive in the richest country on Earth.

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