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 have 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.
This idea of financial independence really is what the Barefoot methods come down to. Scott Pape lays out a series of steps to help readers pay off their debt, buy a home, repay their mortgages and prepare for retirement.
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 (more on this later). 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 its 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.
The Barefoot Approach
Pape’s books take a refreshingly simple approach to managing your personal finances. If you’re like us, you’ve spent countless hours browsing the monotone abyss of articles and blogs by personal finance “gurus” just to come away with even less of an idea of how to get ahead.
The Barefoot Investor is different. Rather than set forth a set of wishy-washy philosophies Pape sets forth a clear, well defined and easily actionable set of steps in the form of “date nights”. The idea is, once a week for 5 weeks and once a month thereafter, you sit down and actually put these steps into practice.
By the end of the initial 5 weeks, you’ll have your banking sorted (and saved a small fortune in fees) and have developed a financial plan that is simple and more importantly already automated. This means you just need to sit back and wait.
The Barefoot’s Guide to Banking and Investing
Ever waited ever-so patiently for payday to finally roll around, open up your bank account and - it's all gone? The Barefoot Investor shows you how to plumb up your banking so you know what happens to each and every dollar.
When payday hits the money lands in your “blow” bucket. 60% of the money remains here, to be used for daily expenses (think housing, groceries, transport etc). 10% is diverted to ‘splurge’ (you know those guilty flat whites you buy on the way to work?), 10% to ‘smile’ (for long-term splurges that put a smile on your face) and 20% into your ‘fire extinguisher’ (for putting out what Pape calls ‘financial fires’).
The overflow from your fire extinguisher goes into your ‘grow’ bucket alongside any superannuation contributions (think Kiwisaver). The Barefoot Investor has a very simple strategy when it comes to investing. His recommendations, low-cost ETFs and long-term holdings in solid businesses would make Warren Buffett proud.
The Barefoot’s Guide to Insurance
Here at Quashed, you could say we’re pretty interested in helping people into the right insurance policies. So Pape’s thoughts on insurance were always destined to catch our eye.
The Barefoot Investor sets out 3 rules for insurance:
Only insure against the things that can kill you financially
Choose a high excess
Don’t automatically pay your premium each year
Pape strongly believes insurance can be invaluable, having himself lost his home in rural Victoria to bush fires. He recommends you only insure against things which could have debilitating financial outcomes for you. This includes insuring against losing your home, your car, overseas travel, hospital visits and loss of income.
His second rule follows in the spirit of this. If you’re only insured against potentially debilitating losses, having a slightly higher excess won’t make much of a difference in the event you make a claim but will save you on premiums.
His third rule is about making sure you’re always getting an up-to-date deal on insurance. He recommends phoning your insurance company annually with a competing quote and to try and get a new customer deal on your existing policy.
If you’re looking to follow in the Barefoot spirit and get the best deal possible on your insurance, give our Market Scan tool a spin! It’ll help you to easily compare quotes and benefits from leading insurers to make sure you’re getting a good deal while knowing what you’re getting covered for.
How does the Barefoot Method Stackup in 2022?
If you ask any economist they’ll tell you that both the global and domestic economies have been a bit… different this year. The decades-long run of low inflation and record low (even zero!) interest rates are over. Inflation hit 6.9% in March 2022 and the Reserve Bank of New Zealand shocked market commentators with a 0.5% hike to the OCR (that’s the interest rate banks get on reserves and it tends to flow through to borrowers and lenders). You can read more about the cost of living in our guide here.
So, with the cost of living on the up, and many Kiwis doing it rough, how useful are the teachings in the Barefoot Investor?
We think they’re more applicable than ever. Pape’s banking setup will help you to keep your spending under control without the need for a budget (that being said, a budget can be a valuable financial tool!). Your money is automatically divided between day-to-day expenses, splurging money and savings. This helps stop inflation creeping into your savings, people have a tendency of spending what they have.
Pape makes clear in his book that his methods are designed to withstand any economic conditions, and they certainly seem to stack up in 2022.
Does the Barefoot Method work in New Zealand?
Scott Pape is Australian, and his book is clearly written for Australians. This means Kiwi readers will need to do their homework, especially when Pape is talking about the Australian superannuation scheme, which differs from our Kiwisaver equivalent. Many of the tax points Pape brings up are also not applicable or different here, as we have our own set of tax rules. Ideally, you would talk to a qualified financial advisor here in New Zealand. But at the very least you should brush up on how tax and super work here.
Despite these challenges, the barefoot learnings are extremely applicable to Kiwis. At the end of the day, we are very similar to our neighbours across the ditch both in institutions and in nature. Aussies are just as property crazy as we are, and almost every step Pape lays out has a New Zealand equivalent.
Not convinced? Do a simple google search for “Barefoot Investor + NZ” and you’ll find many accounts of Kiwis finding success in the Barefoot method.
Where can I buy The Barefoot Investor?
If you’ve been impressed by what you’ve read so far, we would strongly encourage you to give the entire book a read! It goes into far more detail, giving practical (and humorous) advice on managing your financial life - from wiping out your debt to leaving behind a legacy.
The 2020 update to The Barefoot Investor, as well as his book The Barefoot Investor for Families, can be found in any leading bookstore (including Mighty Ape and Whitcoulls). We’d definitely say purchasing this book is a worthwhile investment.
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, get involved with his podcasts, newsletter, and articles, or even get in touch with him directly! He is still active and involved with furthering financial education and counselling for all, and traces of his wisdom can be found widely in the media.
Additionally, you can join a growing group of Kiwis going Barefoot on the Facebook group, Following the Barefoot Investor - New Zealand. There are some great tips on there for implementing the Barefoot method in New Zealand.
If you’re after some clean-cut advice from one of Australia's most trusted financial advisors, then take a step into the world of the Barefoot Investor.
No one set of financial rules will ever be truly perfect for everyone, because personal finance is personal. But Scott Pape’s methods are a great starting point wrapped in a book that's surprisingly light-hearted and enjoyable to read!
Good luck!
