If you follow the Barefoot Investor’s instructions, you will know how to effectively manage your money.
There are some simple steps you can take to ensure your financial security and break your dependency on credit.
You may be wondering if you should read the book. This book review will tell you what important lessons you can learn from this book so you can decide if it is worth your time.
At the end of this book review, I’ll also tell you the best way to get rich by reading and writing.
Without further ado, let’s get started.
Lesson 1: Having a bank account makes managing money easier
Most people don’t spend much time thinking about their bank accounts.
Most of the time, we don’t give them much thought and just let them be, but with a little effort, they can become the foundation of your financial security.
A total of five bank accounts are required. Very seriously. Check that they are all free of charge. Also, look for a high-interest savings account where you can keep your money.
Each account serves a distinct purpose. Spend one on daily expenses and the other on small indulgences like eating out or buying a new pair of shoes.
Savings for the third account should be used for more expensive treats, such as holidays, and savings for the fourth account should be used for debt repayment and large purchases, such as homes or cars.
The final account should be used to save for retirement.
Although it may appear complicated, these accounts will work in tandem and in sync with one another.
Your monthly income should be deposited into your daily expenses account. Sixty percent of it should be directed there. You’ll use the funds in this account to cover rent, bills, food, insurance, and normal travel expenses. This is the money you need to get by on a daily basis.
Then, set up a monthly transfer of 10% of your income to your treat account. Make sure you have a separate debit card for this account – it’s for having fun without going overboard.
Make sure you plan your entertainment wisely, because the money will run out every month. Don’t lie! Once this account is depleted, you must wait until the following month to replenish it.
You will also receive a monthly transfer of 10% into your holiday fun account.
Your remaining 20% should go into a fire-extinguisher account, which you’ll use for larger expenses along the way, such as car repairs or debt repayment.
If you do the math, you’ll see that we’re at 100 percent in four categories. How will we fund our retirement? We’ll need to settle your debts before we arrive.
Lesson 2: Cut up your credit cards and pay off your debt
Debt is the most significant impediment to financial security and comfort.
Shifting is possible, even if it appears to be impossible. Furthermore, once you’re in the black, saving and ensuring your financial security will be much easier.
The first thing you should do is recognize that credit cards are not your friends.
Using a pair of scissors, cut them up. Credit cards are designed to entice you to spend beyond your means.
Determine how much debt you have on each card.
Call your credit card company if you want to pay no interest on your credit card debt for 18 months. Request that they match the transfer offer of another bank. Even if they don’t, there’s a good chance they’ll lower your interest rate if you stay firm. Do not succumb to their pressure!
Pay off your debts from your fire-extinguisher account month by month. The important thing is that you are not adding to your existing debt. It’s even faster than you’d think.
After you’ve paid off your credit card debt, use your fire extinguisher fund to pay off any remaining debts.
Consider a car that you haven’t paid off yet.
What should you do next? You should try to sell it. It makes no sense to pay interest on something that is losing value by the second.
You should buy a car outright with the money you’ve saved. All you need is a dependable vehicle that will do the job.
You don’t need anything more elaborate than that. If a lavish home or a flashy car make you poor in the long run, they aren’t doing their job.
When you think about it, having a solid financial foundation is preferable to empty emblems.
Once you’re debt-free, it’s time to start making plans.
Lesson 3: Save for retirement and get a bucket at the same time
Let’s talk about what to do with the fifth bank account now that you’re debt-free.
You can begin saving for your future at any time in your life. Savings accounts are the best way to ensure a comfortable and secure future, regardless of what life throws at you.
We’ll refer to it as your mojo account. It will be running at full speed at a high interest rate. This savings account will grow as you earn more money through overtime, selling items around the house, or picking up extra work.
Money deposited into this account is not refundable. At least, not until the end of your working life, or unless you are unable to work due to a serious and widespread emergency.
So those are the five accounts that have been covered. You still have one more thing to do. If you want to save money, you should get yourself a grow bucket.
Because the money in the bucket is not just sitting there, it is referred to as a bucket rather than an account. You can put it towards stocks or real estate. Make an investment to secure your financial future. Furthermore, they must be wise investments: they must continue to generate income even after you stop working.
Most laypeople find investing intimidating. It is, however, quite simple.
The best way to get started is to invest in an index fund. The fund will buy shares when the stock prices of the 500 largest companies are low and sell them when the stock prices are high. You are not required to conduct any of the research or work yourself. The key is to invest in an index fund with a low management fee.
Investing in index funds is not a gimmick either. Buffet has stated that upon his death, 90 percent of his assets will be invested in an index fund for his wife.
It all makes sense. Even with stock and bond market fluctuations, a dollar invested in 1802 would be worth $930,550 today.
Despite massive downturns such as the Great Depression, the recent financial crisis, and any other market fluctuations, this is the case.
Remember to reinvest your investment dividends into the bucket.
It is obvious that investing is always worthwhile in some way.
Lesson 4: Once freed from financial stress, you and your children will be able to enjoy a comfortable life
Wealthy people are concerned about more than just money. If you follow the rules outlined in these insights, you, too, can join the ranks of the wealthy. Wealth has less to do with the things you own and more to do with how much money you have.
Let’s apply this to your own home. Following certain steps can help you save for a home or even pay off your mortgage faster.
You’ll be able to organize your finances sooner rather than later if you use regular standing orders and multiple bank accounts. These procedures will be computerized.
Saving systems that automatically transfer money for daily expenses and fun money to different accounts will relieve stress.
Furthermore, once you’ve paid off your debts, you’ll have enough money in your “fire extinguisher” account to pay off your mortgage or save for a down payment.
You might have thought it was impossible before, but it isn’t!
Furthermore, your financial prudence and care will set a great example for your children.
If you are debt-free, you will be happier. Furthermore, you will be able to spend more time with your children because you will not have to work as hard to pay off that mountain of debt.
You can have more positive interactions with them if you set a good example for them. They will learn to never live on credit.
As a result, they are more likely to live happier and more financially intelligent lives as adults, free of the credit trap.
These observations should make it clear that financial security is not something you can create out of thin air. You must be patient. When you decide that financial stability is your goal and that you have control over your finances, you will see the benefits of doing so. You have no justifications.
About the Author
Scott Pape is a columnist for The Australian Daily Telegraph and an Australian author, radio commentator, and investment advisor.
His CNBC show is called “The Barefoot Investor.” He is professionally known as “The Barefoot Investor.”
Buy The Book: The Barefoot Investor
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