If you’ve been poking your head around financial discussions in our corner of the globe, you’ve probably heard the name of the ‘barefoot investor’ (BFI) floating around. Read on as we explain who the Barefoot Investor is and how the BFI helps you make sense of your personal finances and plan your fast-tracked route to financial independence!
Who is the Barefoot Investor?
The man behind the legend that is the Barefoot Investor is no other than Scott Pape, an Australian author, radio and television host, as well as just an ordinary “country bloke from the bush who enjoys helping people take control of their own money”. With a history too wide and diverse to capture in this short article, we'll summarise by highlighting that his focus is on providing financial advice and education to the masses, launched into the spotlight with his 2016 bestselling book — The Barefoot Investor. This is the book that has spread its way into New Zealand along with Scott’s financial teachings, shedding light on the personal finance principles that has created “the biggest finance cult in Australia”. The insights provided by Scott Pape are the real deal, affirmed by everyday people, hard results, and his recent Medal of the Order of Australia for “services to the community and financial education”.
What does The Barefoot Investor teach?
So it seems obvious that he is worth listening to, but what exactly does his advice in The Barefoot Investor involve? Simply put, The Barefoot Investor is a collection of effective financial strategies, philosophies, as well as step by step actions that you and I can take on our journey to financial independence. Although this is catered to the Australian financial system, there are many parallels especially in philosophies that can be drawn and applied here in New Zealand. When considering the basics, often obvious but painfully overlooked by many, Scott pushes forward a strategy of separating money into three different categories (each with their own bank accounts): blow, mojo, and grow. These three core beliefs are the most important things for new readers to pick up and apply, and are the body from which many other teachings and concrete strategies are built off of.
What are these key teachings?
‘Blow’ is the category allocated to money that is to be spent, subdivided into (1) an everyday spending account, (2) a splurge account, (3) a smile account, and (4) a ‘fire extinguisher’ account. Everyday spending is as simple as the name implies, dedicated to paying daily/fixed expenses such as rent, food, bills, fuel, and the like; the costs in your life that are unavoidable and constant. Having a separate account exactly for these purposes can be incredibly helpful in highlighting your spending in this category, and thus showing you where you can make changes to cut down and minimise those everyday expenses. The splurge account follows suit, another account kept separate only for personal wants and desires, whether that’s a regular treat or a one off purchase. Don’t restrict yourself and your happiness, as any money in this account can be spent however you want — no guilt attached. As before, keeping money separate in this account helps you control yourself if you can’t yet afford what you are wanting, and ensures that you keep within your budget. The smile account is very similar, and can be a sub-account within either your daily expense or splurge bank accounts, but is dedicated for long-term saving for large purchases/goals that bring you happiness. This could be a big vacation trip or a new car for example, a big picture goal to combine with your splurge spending to keep you in good mental health. The last sub-category within ‘Blow’ is the so-called ‘fire-extinguisher’ account which is used to put out metaphorical financial fires. For any small but reasonable financial issues that inevitably crop up time and time again in your life, this is the preparation you make for them. Examples of this would be credit card debt, other debts, and car repair expenses, amongst many others. The Barefoot Investor recommends that your everyday expenses account should make up 60% of your income, splurge account at 10%, smile account at 10%, and your fire extinguisher account at the remaining 20%. This is of course subjective, and you may find that a different mix of percentages works better for you, or is more effective for your lifestyle. Any money that is in excess, especially in your daily expenses or fire-extinguisher accounts, should be moved out to your ‘Mojo’ account, which is explained next.
‘Mojo’ is the Barefoot Investor’s spin on an emergency fund, which can be incredibly important for peace of mind and financial stability. He advises that this savings account is created at a separate bank altogether, to remove temptations, and to begin with $2000 as a base to slowly start building up a sizeable nest egg. It follows the same principles as most emergency funds, aiming to eventually reach 3 to 6 months of daily expenses saved so that you have a safety net to fall back on. Of course, you can change your targets to suit yourself, especially as your situation may be more or less volatile compared to others. Once this emergency fund is made, any money in excess should be moved into your final category, the ‘grow’ account.
‘Grow’ is also as the name implies, an account dedicated to growing your wealth through whatever means you personally see fit, such as investments in shares, property, or personal business. There is no correct or “best” way to go about growing your wealth, so feel free to take whatever sensible avenues you wish, or if you truly are averse to risk, there is no shame in simply growing more savings. The Barefoot Investor elaborates on many tried and true methods of growth, such as investment into well-positioned index funds and exchange-traded funds which are relatively safe and excellent performing investment options. It is also important (and encouraged) to diversify the way you invest with your ‘grow’ money, simply not putting all your eggs in one basket. Evaluate your own choices and the risks associated with them, compared against their reasonable return, and allocate percentages of your ‘grow’ account to separate investments that aren’t closely interrelated. The Barefoot Investor also encourages investing in yourself, such as learning helpful skills that provide increases in income or improvements to your quality of life.
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Where can I buy The Barefoot Investor?
If this is starting to sound worthwhile reading to you, the original The Barefoot Investor book in revised edition can be found at Whitcoulls or Mighty Ape, with copies no doubt being available instore at major bookstores as well. Scott has also released The Barefoot Investor for Families which is targeted at helping your kids prepare as early as possible, so they get the best possible financial head-start and habits in life.
Where else can I get involved with the Barefoot Investor himself?
You can read more about Scott Pape and his activities as the Barefoot Investor at his website, and get involved with his podcasts, newsletter, articles, or even get in touch with him directly! He is still active and involved with furthering financial education and counselling to all, and traces of his wisdom can be found widely in the media.
Take the Barefoot Investor as a stepping stone that marks the start of your own financial journey, and control it the way you believe is right. Whilst his knowledge demonstrates savvy and expertise, use your best judgement and take charge of your personal finances yourself.