by Erin Macartney
A few years ago, I went to pay for dinner at a restaurant with my ING Orange Everyday card and the waiter, trying to make a joke, said “using your splurge account tonight are you?” I instantly took offence and thought he was accusing me of ‘splurging’ out on dinner. Feeling embarrassed for offending me, he told me that he was referring to the Barefoot Investor. Now, after three or so years, I’ve finally read the Barefoot Investor and understood his joke.
While keeping on top of my finances became something I developed during my PhD (spurred on by the fear of the impending end of my stipend and post-PhD unemployment), I never thought a financial advice book would even marginally capture my attention enough to keep me interested beyond the first page, let alone to the end of the book. But after asking a good friend how she just bought her first home by herself off casual copyediting work, she recommended I read Barefoot Investor. After reading the first page, I was hooked! I stayed up for hours reading (something that probably hasn’t happened since the last Harry Potter book was released), and now I can see why it’s been called one of the “biggest financial cults in Australia”*.
1) Get a bank account with no fees (including ATM fees and annual fees). I bank with ING, which is also the bank that the Barefoot Investor recommends. Their Everyday account has zero fees, including international ATMs. This was great when travel was possible because you can withdraw cash in the local currency and not get hit with any overpriced fees.
2) Get a high interest savings account. Interest rates are very low at the moment, but you might as well choose one that has the highest rates possible. The ING Everyday account comes connected to a savings account which currently has one of the highest interest rates in Australia. They also have a great initiative called ‘everyday round-up’ which is a good way to save on top of regular payments. Basically, it rounds up every transaction you make to the nearest dollar (or $5) and transfers the difference into your savings. For example, a $3.50 coffee becomes $4 and 50 cents goes into your savings. This may not sound like much, but it adds up pretty quickly if you’re like me and buy way too many coffees (or wines in a pre-pandemic world), and you barely, if at all, notice that you’re transferring anything to your savings.
3) Try not to get into debt (i.e., credit cards, overdrafts, loans etc). If you do, make sure you know the terms and conditions on how to avoid being charged interest. Paying interest to a bank worth billions of dollars is the biggest waste of money!
4) This is a tip from Barefoot investor that I recently set up a couple of months ago and it seems to work really well and keeps me on top of my finances without having to do anything at all. For this, you will need four bank accounts: 2 x everyday accounts and 2 x savings accounts. Here’s what you do:
- Work out all your cost-of-living expenses. This includes rent, insurance, groceries, etc, but doesn’t include coffees, wine, takeaways, or any luxuries. Get your money paid into this everyday account and reserve it especially for ‘cost of living’ (Barefoot suggests that this should be about 60% of your income, but this is obviously income-dependent and is likely to be much more on a PhD stipend).
- Work out how much you need (and can afford) for all those other luxuries you spend in a pay cycle (i.e., for your coffees, weekend activities etc). Set up an automatic payment on payday to go into you second everyday account. This will be your ‘splurge’ account (i.e., the account the waiter thought I was using) and will be the one you use for anything other than cost-of-living.
- Work out how much money you can afford to allocate to savings and divide this between the two savings accounts. One will be a long-term ‘fire-extinguisher’ account and will only be touched in worse case scenarios (i.e., that scary gap between PhD and Postdoc). The other will be your ‘smile’ account that you can spend on something special (a holiday, a new outfit etc). Barefoot suggests that savings should be 30% of your income, but again, this is likely to differ substantially based on income.
Following these four steps should get you well on your way to financial stability and good financial practices. Saving can be really hard, depending on your financial situation, but even transferring a small percent of your income each payday will have many benefits, including a greater sense of security in case of emergencies as well as knowing you have an account that is specifically dedicated to making you smile one day!