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The Barefoot Investor: A Summary

The Barefoot Investor: A Summary

February 13, 2024

Schedule The Barefoot Investor by Scott Pape is basically Australia's version (because the author is Australian) of Dave Ramsey's Total Money Makeover. Here are the parts of the book I thought were noteworthy, but first a quote from the book.

"You can continue living in the past, beating yourself up about the money mistakes you made when you were younger, telling yourself it's too late...or you can rise up and make yourself proud."

Plant your tree

Planting an apple tree is not a short-term solution for getting apples. It would be faster to go to the store. If you want your tree to grow, you can't keep moving it to different spots in your yard to see which place it will grow better. You need to plant it in the ground, fertilize it, water it, make sure it gets plenty of sun, and trust the process. Keep deer away from it as well. The author refers to credit card debt and fees as deer in this analogy. Take care of your tree (savings and investment/retirement account) and you'll have enough apples (money to spend and live off) for yourself, your family, and the generations that follow.

The three common excuses

I'm not smart enough. I don't make enough money. I'm too old. Put in the time and study if you don't know enough about saving and investing. It's more behavior and discipline anyway. And it's not about how much you make, though that does help, it's about how much you save. A third of the population that earns $100,000 or more lives paycheck to paycheck. You may be on in years, but that doesn't mean you can't start now. Don't count yourself out.

9 barefoot steps

  1. Schedule a monthly review of your finances
  2. Set up buckets
  3. Pay off debts - The snowball method is used in the book
  4. Buy a home - build equity
  5. Increase retirement savings to 15%
  6. Boost emergency fund to 3 months' worth of expenses
  7. Pay off your mortgage
  8. Nail your retirement number - what's your goal retirement account number?
  9. Leave a legacy

Monthly review

Having the money talk is essential. Have it over dinner to make it more bearable. The author advises tackling the first month in a few different meetings. First meeting you set up bank accounts

  1. One for daily spending
  2. One for splurging
  3. A savings account labeled "smile"
  4. A savings account labeled "fire extinguisher"
  5. A savings account labeled MOJO

Another meeting to tackle funds in your retirement account. Scott recommends Googling "PDS+(the name of the fund(s) you're invested in). That will break down the fees and how much you're being charged by the fund. Fund fees <.85%/year - you should switch to a different fund.

The next meeting should cover insurance. Health, home, auto, and life insurance. There may be other coverages you need, but you should figure these ones out first.

Set up your buckets

  1. Blow
    1. 60% daily expenses
    2. 10% splurge - anything that makes you happy
    3. 10% smile - vacation, car, anything big
    4. 20% fire extinguisher - credit cards, down payment, paying off mortgage
  2. Grow - saving and investing for retirement. At least 9.5% of pre-tax income
  3. Mojo - emergency savings

Conclusion

This was a good read with straightforward advice that had a unique angle.

Here's what Google's Bard had to say about it:

The Barefoot Investor by Scott Pape is a comprehensive guide to taking control of your finances and achieving financial freedom, written in a down-to-earth and often humorous style. Here's a summary of its key points:

Philosophy:

    • Simple and realistic: Pape emphasizes taking small, practical steps rather than following complicated financial strategies.
    • Debt-free focus: He advocates paying off debts quickly as a first step to financial security.
    • Saving and investing: The book outlines a clear system for saving, investing, and building wealth over time.

Actionable Steps:

    • The "Bucket System": This core strategy organizes your money into different accounts for spending, saving, investing, and financial goals.
    • Automate everything: Pape encourages setting up automatic transfers and payments to make things effortless.
    • Invest in index funds: He recommends low-cost index funds for the majority of your investments for long-term growth.
    • Increase your income: The book offers tips on negotiating salary raises, building side hustles, and managing career opportunities.

Overall Message:

    • Financial freedom is achievable for everyone, regardless of income level.
    • Taking control of your finances reduces stress and improves your overall well-being.
    • Making small, consistent changes will lead to big results over time.

Who Is It For?

The Barefoot Investor is aimed at everyone, regardless of their current financial situation. It's especially helpful for people who are:

    • Feeling overwhelmed by debt or finances.
    • Wanting to take control of their money and build wealth.
    • Looking for a simple and practical approach to personal finance.

Additional Notes:

    • The book is written in an Australian context, but most of the advice is applicable to other countries as well.
    • Pape's humorous and relatable writing style makes the book enjoyable to read, even for those who find finance intimidating.
    • The book also provides templates and resources to help you implement the "Bucket System" and other strategies.