Book SummaryThe Barefoot Investor, by Scott Pape

1-Page Summary1-Page Book Summary of The Barefoot Investor

Many people feel helpless when it comes to managing their money. They’re consumed by debt or worry that they'll never be financially secure.

In The Barefoot Investor, Scott Pape offers guidance and a 10-step plan for how to manage your money so that you eliminate debt and build wealth. Though the plan is written for an Australian audience, the basic principles are universally applicable. Pape estimates that in just one year of following the steps in this book, you’ll have your finances in order, and in six years, you’ll have some financial wins under your belt.

Step 1: Plan a Monthly Date Night to Discuss Finances

For the next five weeks, schedule one night per week as a date night with your spouse to work toward financial improvement. If you’re single, work with a family member or friend or go it alone. For each date, go out to eat at a restaurant—don’t worry about the cost because the steps you’re taking will save you thousands of dollars over time. After the first five weeks, select just one night per month for date night.

Date Night #1: Open New Bank Accounts

On this first date night, you’ll open new bank accounts that allow you to avoid banking fees and start directing money toward five different purposes:

• Day-to-Day: basic expenses
• Treat: nonessentials that you enjoy
• Happy: long-term purchases that take time to save for
• Fire: pressing needs, like paying off debt or saving for a home
• Backstop: in case of emergency

You’ll learn more about the purpose of each of these accounts in Step 2.

Take Action

1. Set up two checking accounts with banks that offer online interfaces and don’t charge fees, including for ATM transactions. Nickname one account “Day-to-Day” and the other “Treat.” You’ll learn how to use these in Step 2.
2. Set up two high-interest savings accounts. Label one “Happy” and one “Fire.”
3. Set up an account at a separate bank that you won’t be tempted to use, called your Backstop account. Choose a savings account with a high interest rate, and deposit $2,000 in it to start with.

Date Night #2: Get a Better Deal on Your “Super” Fund

On this date, you’ll ensure you’re regularly directing money into a “super” account (Australia’s retirement savings plan) or an equivalent U.S. employer-sponsored plan that isn’t skimming off a large percentage of your deposits.

The Australian government encourages saving for retirement by having employers divert 9.5 percent of an employee’s wages toward their super account. Employees are typically offered a specific super account when they’re hired; U.S. employers offer similar retirement savings plans such as 401(k)s. But if you’re like most employees, you probably haven’t read the fine print—however, you should because you may be losing significant money to fees.

Take Action

Opt for a low-cost super or similar retirement savings account. For example, an account that charges 0.02 percent annually versus 1 percent annually can save Australians $226,484 (AUD) over 30 years.

Investigate the annual fee on super(s) by googling the name of the super and “PDS,” or “Product Disclosure Statement.” If you’re being charged more than 0.85 percent per year, choose another super to invest in.

Date Night #3: Choose Insurance Wisely

On this date, you’ll scrutinize your insurance choices and take action to support your financial well-being and your family’s.

Here are two pieces of advice to follow when choosing and managing insurance:

1. If losing it won’t affect your financial situation, don’t insure it. For example, if you damage your phone beyond repair, you’ll be able to get a new one without putting yourself at a financial disadvantage, so don’t insure it.
2. Negotiate your annual insurance premiums down. Companies want to retain your business. If you call them and tell them you’re thinking about switching, they’ll likely be willing to negotiate a better deal for you.

Australians can purchase insurance for income protection, life, and disability through their super fund. Parents with young children should aim to insure 10 to 12 times their annual income. In Australia, you can do this by calling your super fund and asking for three pieces of information:

1. A quote on 12 times your annual income for combined life and total permanent disability insurance.
2. A quote on 75 percent of your annual income until the age you plan to retire.
3. How much additional money you’ll need to put into your super to cover these new insurances.

Step 2: Create Your Napkin Plan

In this step, you’ll learn the purpose of each bank account you created in Step 1 and what to do on Date Night #4: Direct money from your take-home pay into each account. Pape calls this the “serviette” or napkin plan because it’s simple enough to write on a paper napkin you might encounter on the date.

Date Night #4: Allocate Your Income

Under the napkin plan, you’ll put money from your take-home pay into three main categories:

• Blow: general spending money
• Grow: long-term savings
• Backstop: emergencies

Blow

This category consists of money that you’ll spend on a daily basis, as well as savings you’ll put away for longer-term purchases. Each month, you’ll have your take-home pay deposited to your Day-to-Day account. Then, you’ll redirect some of it into your other accounts.

In general, spend no more than 60 percent of your take-home pay on essentials, like bills, shelter, food, transportation, and insurance. This will leave you 40 percent to put toward other purposes.

Here’s how it’ll work—set up your Day-to-Day account to automatically direct:

• 10 percent to your Treat account. You’ll use your Treat account for treating yourself regularly to whatever you like to buy, from pumpkin spice lattes to clothes.
• 10 percent to your Happy account. The money directed to your Happy account (a savings account) allows you...

The Barefoot Investor Summary Introduction

Many people feel helpless when it comes to managing their money. They’re consumed by debt or worry that they'll never be financially secure.

In The Barefoot Investor, Scott Pape offers 10 steps to manage your money so that you eliminate debt and build wealth. (Shortform note: This book was written for an Australian audience, but some tips are universally applicable. This summary includes comparisons to the U.S. where possible.)

Pape’s process is similar to planting a vegetable garden. First, you’ll plant the seeds for your financial future. Then, you’ll cultivate the plants and make adjustments to help your plants (your finances) grow big and strong. Finally, you’ll reap the rewards (your investments), which will become bigger over time, helping you to provide for yourself and those you care about.

The basic 10 steps are:

1. Plan a date night once a week for five weeks, then once per month. You’ll use these to regularly manage your finances.

2. Create your “napkin” plan. Write out your basic financial plan on the back of a napkin to keep it simple.

3. Get rid of debt. Pay off all of your outstanding debts.

4. Increase your income. Bring home additional...

The Barefoot Investor Summary Step 1: Plan a Monthly Date Night to Discuss Finances

In this step, you’ll learn how to set aside time to regularly discuss your finances and why regularly discussing them is important. Then, you’ll learn what you’ll do on the first three dates.

Making the Time

For the next five weeks, schedule one night per week as a date night with your spouse to work toward financial improvement. Working through the steps as a couple helps you ensure you can provide for your family, and when you work together, you both feel invested.

If you’re single, consider finding a family member or someone else who wants to work on their finances to do these steps with you. Though this is helpful for staying motivated, going it alone is also an option.

For each date, go out to eat at a restaurant—don’t worry about the cost because the steps you’re taking will save you thousands of dollars over time.

After the first five weeks and implementing the initial steps, select just one night per month for this date night. It’s helpful to do the same night of the month each time, like the first Thursday.

Why It’s Important

You may be tempted to simply complete these steps without treating yourself to a date. But there are two compelling reasons...

Shortform Exercise: Evaluate Your Insurance

Decide whether you should keep insurance coverage.

Make a list of the different kinds of insurance you have and what you pay annually.

The Barefoot Investor Summary Step 2: Create Your “Napkin” Plan

In this step, you’ll learn the purpose of each bank account you created in Step 1, as well as how to direct money from your take-home pay into each of these accounts.

Pape calls Step 2 the “serviette” or napkin plan because it’s simple enough to write on a paper napkin you might encounter on the date.

Date Night #4: Allocate Your Income

Creating a plan is the key to actually saving money. The simpler the plan, the easier it is to adhere to because when you don’t have to think as hard or make choices, saving becomes automatic.

Enter the “napkin” plan. Under this plan, you’ll put money from your take-home pay into three main categories:

• Blow
• Grow
• Backstop

Blow

This category consists of money that you’ll spend on a daily basis, as well as savings you’ll put away for longer-term purchases. Each month, your take-home pay will be deposited in your Day-to-Day account (In Australia, one of your two ING Everyday Orange accounts). Then, you’ll redirect some of it into your other accounts.

In general, aim to spend only 60 percent of your take-home pay on essentials, like bills, shelter, food, transportation, and insurance. This will leave you 40...

Shortform Exercise: Evaluate Income Versus Spending

Check whether you’re following the 60 percent rule for spending.

Calculate 60 percent of your take-home pay.

The Barefoot Investor Summary Step 3: Get Rid of Debt

Being in debt makes it difficult to spend your money the way you’d like to. Learning how to pay down debt will free you to save money for things you’d rather spend money on.

In Step 3, you’ll learn how to systematically eliminate your debts (except your mortgage, which will be discussed in Step 4).

Date Night #5: Make a Plan to Eliminate Your Debt

To understand your debts, it’s important to understand how you learned about money growing up. How your parents handled money can affect how you handle money. For example, if your parents spent more than they could afford using credit cards, you may have acquired the same habit. Or, you may have witnessed this behavior and learned to spend within your means.

In addition to lessons learned from parents, Australian children learn about money through school—Commonwealth Bank’s School Banking Program visits schools to teach students about money, and with their parents’ permission, sets them up with a bank account. Eventually, the bank offers all account holders a credit card on their 18th birthday.

You may not have learned about the risks of having a credit card from your parents, and banks won’t teach you, either, because...

Shortform Exercise: Examine Your Beliefs About Money

Think about where your beliefs about money came from.

Make a list of the different places or people you’ve learned about money from.

The Barefoot Investor Summary Step 4: Increase Your Income

To fill each of your spending buckets—Blow, Grow, and Backstop—work to increase your income as quickly as possible. In this step, you’ll learn some strategies to do so.

Strategy #1: Ace Your Performance Review

Acing your performance review could help you get a raise by showing you have the skills to achieve results. It could also help you move into roles that pay more. The best-paying roles tend to involve managing people or selling products.

To ace your performance review, take on work you haven’t done before and deliver on it. Here’s how:

1. Make notes of the main tasks involved in your job.
2. Set ambitious goals for each one.
3. During your performance review, ask your boss for feedback about your goals.
4. Over the next year, schedule time to work on your goals a little bit each day. This could include increasing your sales, or facilitating quarterly training sessions for your teammates.
5. Before your next performance review, prepare new goals and practice showcasing what you’ve achieved in the past year.
6. At the review, ask for a raise or a promotion into a higher-paid role. Ideally, aim to make an additional $5,000...

Shortform Exercise: Increase Your Income

Develop a plan to increase your income.

What do you like about your current job?

The Barefoot Investor Summary Step 5: Save Up to Buy a Home

Buying a home is one of the best investments you can make, despite fluctuations in pricing and shifts in the economy. It’s like a long-term savings plan—not only do you save money, but any increase in value won’t be taxable until you decide to sell.

In this step, you’ll learn how to save for a 20 percent down payment on a home in as little as 19 months. First, you’ll learn how to avoid common home buying mistakes.

Home-Buying Mistakes

Mistake #1: You Rent, but Don’t Save for a Down payment

Renting often costs less than owning a home due to a lack of maintenance costs, but renters often don’t put the difference into savings. Instead, while you rent, use the money that you would put toward maintenance to save for a down payment.

Mistake #2: You Think the Housing Bubble Needs to Break First

A housing bubble occurs when the prices of homes exceed their real value. Australia is currently in one of the longest-lived housing bubbles in history, though recently, prices appear to be coming down.

Regardless of what the market does, working to buy a home is worth the effort. **You can’t control when the bubble will burst, but you can control your income and your...

Shortform Exercise: Save for a 20 Percent Downpayment

Make a plan to save for a home.

Look back at your napkin plan from Step 2. What percentage of your income did you decide to put toward your Fire account each month? What was the dollar amount?

The Barefoot Investor Summary Step 6: Cultivate Your Long-Term Investments

At this point, you’ve gotten rid of your debt and bought a home. Now, you’ll learn how to boost savings for retirement, as well as strategies to invest in stocks and bonds.

Increase Your Super Contribution

Without your debts weighing on you, you can now afford to boost your contribution to your super. In Australia, as previously explained, the government mandates saving for retirement by requiring Australian employers to divert 9.5 percent of each employee’s pay toward their super fund—but this isn’t sufficient for employees to retire on. The average Australian runs out of retirement savings 13 years before they die.

The cost of living keeps rising due to inflation, so you’ll need more money to cover the cost of basic expenses in the future. For example, a loaf of bread will cost more when you’re 90 than it does now. You should contribute 15 percent to your retirement plan (Australians should boost the mandatory 9.5 percent by putting in an additional 5.5 percent) to ensure you have enough to retire. Though it will decrease your monthly take-home pay, it’s worth it in the long run.

Take Action

In Australia, call your super to direct more of your income...

The Barefoot Investor Summary Steps 7-8: Increase Your Financial Security

As you learned in Step 1, creating an Backstop account with a different banking institution allows you to save money that you can use in an emergency but that isn’t readily accessible to you most of the time. In Steps 7 and 8, you’ll greatly increase that amount by saving up three times your monthly living expenses. Also, you’ll pay off your monthly mortgage early.

These steps will provide you with further financial security by helping you save plenty of money for an emergency and freeing up some of your earnings to be paid toward other expenses or savings.

Step 7: Save Up Three Times Your Monthly Income

Research shows that having savings is a stronger predictor of happiness than how much money someone earns. Building up the money in your Backstop account will provide financial security to you and your family. For example, if a relative gets sick and you need to travel to see them, or your car breaks down and you need to get it fixed, the money in this account can help you cover the cost without having to dig into your other accounts.

Take Action

You put $2,000 in this account in Step 1. Follow these steps to save three months of living expenses:

1....

The Barefoot Investor Summary Steps 9-10: Plan for Retirement and Your Legacy

As you live your life, you may wonder about two things:

1. How to retire comfortably
2. How to give back to the world in a meaningful way

By following steps of this program, you’re already ahead in preparing for retirement. In Step 9, you'll learn:

• How much you need to retire and where the money will come from
• How to save three to five years of living expenses
• Where to seek financial advice

Then, in Step 10, you’ll consider how you’d like to give back to the world in a meaningful way.

Step 9: Plan for a Comfortable Retirement

The Australian government estimates that its citizens need the following amount of money each year of retirement to be able to live comfortably:

• Singles: $43,317
• Couples: $60,997

Here are the steps to reach those figures:

1. Own your home. When your mortgage is completely paid off and you have no debts, you can direct your money toward other expenses.

2. Save enough money in super:

• Singles: $170,000
• Couples: $250,000

In Australia, when you retire, you’re required to withdraw 5 percent of your super per year, or $12,500 for couples, to start. This amount increases slightly as you age because the...

Shortform Exercise: Plan How You’ll Give Back

Think about causes you care about and develop a plan to give back.

Describe one or two ways you’d like to contribute to the world.