From the back (emphasis is mine):

At 26, Scott is a successful stockbroker and media commentator. He runs his own weekly finance radio show, chooses to drive a wreck and lives a full and rich life. His radio show has been described as finance for people don’t do finance. He makes money funky; your money can look after you once you learn to look after it.

The Barefoot Investor is the only finance book I’ve managed to read from start to finish; lets face it - finance is a bit of a boring subject for most people. The book distills much of the jargon and dry subject matter into a form which can be easily related to, easily understood, and easily acted on.

It’s hard to describe the difference this makes. While reading The Barefoot Investor, you start thinking about how you are going to implement the tips and ideas you get, and more importantly, when. This book makes you want to take control over your finances, and it gives you the information you need to do it.

It’s important to note that this book is (mostly) not about short-term gain. Most of the advice is based on long-term strategies which will make you “financially free” (i.e. not worrying about your finances and not living payday to payday). There are some short-term strategies for helping you get on the right track, but mostly the book looks at the “long game,” or - in Barefoot Terminology - “working your Mojo.”

For me, the best chapter (or “step”) in the book, is #3 - “Repo Your Repayments.” This chapter primarily deals with debt and what can be done about it. It clearly looks at many of the common forms of consumer debt, why they’re bad, and more importantly, what can be done to get out of the trap.

So in summary - buy this book. If you’re looking for a book to help you understand your finances, with clear, practical advice, I don’t think you’ll find one much better than this.

¹ Examples would include: Your Money or Your Wife, What Price the Little Things, and Be a Bank Account Tart

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I ask because I recently got sick. Last summer I suffered a stroke (I’m 23) and couldn’t work for 3 months. This year I’ve had to deal with a number of consequences of the stroke, the most serious of which is epilepsy and being prone to mental and physical exhaustion.

This exhaustion can take me out of pretty much everything (including this blog). I’m only just starting to get back on top of things after the last bout. That’s by-the-by however.

The point is I had to make sure I could have money coming in if I couldn’t work for a spell. Most employers offer sick-pay - where you get paid for a period of time if you get sick. Usually the time period sucks. Some employers offer a form of enhanced sick pay benefit, in the form of a salary-sacrifice scheme. That is, you give up a portion of your monthly wage to fund the scheme which gives you sick pay for a greater length of time. In my case, I would get 3 months full pay and then 12 months half pay instead of just 3 months half pay. By enrolling in the scheme, I ensured I had enough money coming in to pay my mortgage and utility bills.

Covering the very basics is all fine and well, but it would leave things rather tight. Plus, would you really want all your proverbial eggs in one basket? When taking out credit, many lenders will try and sell you unemployment insurance. The idea here is that for an extra premium, your repayments will be covered in the event you find yourself unable to work (through sickness or unemployment). My understanding of this type of policy is that if you ever do need to use it, your credit rating will be severely affected.

Another, more extreme type of cover is Critical Illness Cover. CIC is generally part of a life insurance policy. This type of policy will payout a large lump sum (usually tax free in the UK) in the event you suffer a “critical illness” as defined by your policy. Usually this includes stuff like heart attacks, cancer, most terminal illnesses… and strokes. I didn’t claim on mine. The only issue with CIC is if you ever need to claim (assuming you will survive), that’s it, you’ll likely not be able to get much in the way of CIC again, which can effect your chances of getting something like a mortgage. It was because of this and because I was going to make a full recovery that I didn’t claim on mine.

One final way to cover your self should something happen. One final way - and one which I am working on realising - is to have streams of AIS (Automated Income Source). I’ve talked very briefly about having systems that work on auto-pilot, but not in depth. Examples of AIS systems include niche content websites with advertising revenue, affiliate schemes, and selling information products with an payment/automated download system.

These are just some of the ways you can protect your income if you get sick for an extended period of time. As always, you should seek independent financial advice before making any decisions.

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At any given time, do you know when the next bill is due, how much it is and if you’ve got enough to cover it? Do you know how much you spend on living expenses (lunch, etc) each month? If so you know how to budget; well done you are better than about 80% of the people I know. Most people don’tknow how to budget, so also don’t know how it can free up extra money and generally make you feel a bit happier.

So What is Budgeting?

Boring definition time:

Budg.et n

1. An itemized summary of estimated or intended expenditures for a given period along with proposals for financing them: submitted the annual budget to Congress.
2. A systematic plan for the expenditure of a usually fixed resource, such as money or time, during a given period: A new car will not be part of our budget this year.
3. The total sum of money allocated for a particular purpose or period of time: a project with an annual budget of five million dollars.

Simply put, budgeting is planning your finances over a period of time. Knowing what is coming in/going out, and at what times is budgeting at the most basic level. The real power of budgeting lies in helping you achieve targets.

Finance is a Winding Road

Properly budgeting will help you get somewhere with the minimum of fuss and bother. It’s the financial equivalent of a road map, or SatNav if you want to get modern. With a good budget you can see where you’re ultimately going, and how to get there.

Lifehacker recently linked to 12 Reasons Budgeting can Improve Your Life on about.com. I agree with pretty much everything it says, but for me the chief point in the whole article is #5 (as it is for Lifehacker):

5. Following a realistic budget frees up spare cash so you can use your money on the things that really matter to you instead of frittering it away on things you don’t even remember buying.

My emphasis, by the way…

Don’t Make Yourself Feel Bad

Most budgets fail because their owners over-restrict themselves. For most people, budgets are about spending as little as possible. Preferably none. This is absolutely the wrong attitude to take. 99% of people will fail because they’re just not cut out for the life of a 16th century monk.

If I chose to I could reduce my weekly expenses (i.e. lunch) to just £5. So other than the usual monthly bills I could reduce myself to just £20. This would leave me with about £700 spare a month, but having a paper-thin ham sandwich for lunch wouldn’t exactly make me very happy. Instead I choose to spend a bit more on stuff like lunch and other luxuries like magazines and iTunes downloads to make life a bit more “rounded” and enjoyable.

A good budget always leaves you a sensible amount of money left over after bills and living expenses. What you do with that money is up to you. Personally, I (currently) advocate saving as much of it as possible, so long as you’re feeling happy and content. Of course you could take the opposite view and blow it on something ostentatious like oooh….. an Xbox 360 ;-) Whatever makes you (truly) happier.

And in that lies the kicker: a good budget should leave you feeling happier about your money and, by extension, yourself. A lot of financial advice is geared towards the future, but we shouldn’t ignore our short-term happiness in the mean time. That’s why over-restrictive budgets fail - we start feeling miserable, so look for a quick way to cheer ourselves up. The quickest way is normally to buy something we want, which can lead to problems if we’re not careful. If you’re feeling down about your money situation, try a sensible budget for a few months. You’ll learn to stop worrying so much and feel all the happier for it.

Learn More: Credit Card Deals Cash Back - up to 6% rewards on purchases.

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Money comes and money goes, but broken hearts can last forever. By sitting down and talking openly about your finances you may avert a potential disaster down the track. When all is said and done money isn’t as important as our relationships
– The Barefoot Investor (Scott Pape)

Money has long been a high contributor to strife relationships. Of the estimated 40% of marriages ending in divorce, finance issues must be up there with cheating partners as a reason. From personal experience and observation, the main problems are lack of communication and lack of understanding.

Hear No Evil, Speak No Evil

In the past my wife and I rarely - if ever - talked about money. When we were dating it wasn’t a big deal; I had my account and would pay for a night out and she would keep me fed for a few days and drive me here, there, and everywhere. Then we had our son and moved in together. I was paying almost all bills while the groceries were her responsibility, in addition to running her car.

On the surface things seemed fine, though a few times we’d turn to the other because we were short. The truth was we were both making a lot of mistakes and racking up more and more debt. Things compounded when we bought our house and started planning to get married. In the end I stumbled upon a load of stashed credit card statements which led to a “we need to talk” moment.

Looking back now, if we’d only been open and honest about what we were doing with money a lot earlier, a whole lot of trouble could have been avoided. So why didn’t we?

Most people don’t like talking about money with others, unless a) they absolutely have to, or b) they’re an arrogant, show-offy twat. Most people don’t want to be seen as the latter. When we talk to partners we might also fear “cheapening” the relationship by bringing money into it. In my case I was worried what my partner would think if she found out my level of debt.

In the end, this failure to talk about money stopped us from considering opening a joint account together. At the other end of the scale are couples who rush into opening an account together even though they have no idea of each others monetary habits. I’m saving joint accounts (and by extension, joint debt) for a later entry, so I don’t want to get into them too much here, but suffice to say that mixing both your cash together when you don’t talk openly about money is about as good an idea as the proverbial chocolate fireguard.

It’s often be said you don’t truly know someone until you’ve lived with them for a while, but if you’re thinking about moving in with your partner you absolutely must find out what sort of person they are with money.

Women Are From Venus, Men Want an iPod.

Next to communication, lack of understanding is the next main source of financial trouble between couples. By understanding, I mean the fundamental differences in attitudes to money.

It may be a gross generalisation, but men are programmed differently than women. This quote on Money Crashers summed it up beautifully. It certainly applies to my Wife and I:

…women could live with absolutely NO gadgets if they had to. Women would churn butter if it meant owning the house or car of their dreams. Men would rather buy a $200 gadget from sharper image to shave their face and iron their shirt at the same time. Okay, that would be weird, but you get my point.
Marriage and Money: Men and Women Have Different Financial Wants and Needs

I’ve previously mentioned I’m a gadget hound. I could happily live in a pretty crappy flat (and have done many a time) so long as I was able to afford what I desired whenever I wanted it. On the other hand, my Wife doesn’t understand this thinking. She would rather have the nicest house in the nicest area possible before anything else enters her head. The Money Crashers article mentions men want money so they can provide security and status (be it for partners or - my interpretation - themselves), while women just want to feel safe. I’d mostly agree with the thinking there. As said, this is a generalisation so if you disagree, let your feelings be heard in the comments area below.

If You Only Take One Thing From This Entry, Let it Be This:

Talk. Often and openly. Learn to understand how each of you perceive money, what it means to you, and - most importantly - what you do with it. If you don’t learn to communicate with and understand each other here, you’re heading for trouble somewhere down the line.

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The sight of my balance on Pay Day is enough to send shivers down my spine. I know for the next few weeks (until all the bills have been paid), everything I see which is remotely desirable will become a mini obsession for me. I may have written previously about not denying yourself the little things if you really want them, but the items I tend to look at are generally not small in price. Apple products, or anything related to mobile computing/media, are a particular vices of mine.

Self control and living within your means are two fundamental rules of good finance. I find remembering my goals is usually the best way to stop myself splashing out on things I don’t really need. It’s been working well recently. Another good one is imagining the ear-bashing (and face-slapping!) The Wife would give me if I spent the DIY Fund on “yet another toy”, as she would say. The only way to change your habits and mindsets is to stay strong and focused, remembering what is really important. Shiny gadgets are not one of them. On Pay Day I must repeat a mantra; “today’s iPod is tomorrow’s 8-track”.

Oooooh-kay then… As I’ve been writing this, Apple have launched new versions of their Macbooks (replacing the iBook). I’ve been waiting for these for a while now. Damn you Apple, you temptress! You just make my life difficult. I must not buy. I must not buy. I must not buy!

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