General Advice Warning. The information on Dad Mode is intended to be general in nature and is not personal financial or product advice.
My journey to financial stability started only a few years ago when I met my wife.I was stuck in traffic on a busy road in Melbourne one day, staring aimlessly out the window.
My eyes skimmed over plastic bags and cigarette butts littering the ground and eventually locked on to some band posters on a nearby fence.
After sifting through who had upcoming shows (no one interesting), I noticed an unfamiliar face staring back at me. There was a poster of a bloke with a friendly smile on his face and no shoes on.
Was this some new alternative folk-rock band fronted by a middle-aged dad? With closer inspection, I saw it was, in fact, a middle-aged dad. He wasn’t in a band though. He was claiming that he could help me with money.
Admittedly I was a little disappointed, dad-folk-rock is my favourite genre, but his face and name — Scott Pape — stuck in my head.
Fast forward a week and I have his book “The Barefoot Investor” in my hands and I am devouring it rapidly. For all of my non-Australian readers, Scott Pape is now a very prominent personal finance columnist turned guru. He is well known for his ‘domino your debt’ and ‘cut up your credit card’ personal finance strategies. After finishing the book my mind was blown. Never before had I seen personal finance strategies so easy and simple. It always felt as if you needed a degree in economics to get your money right. Turns out all you need is Scott!
I immediately began to implement his strategies and actually started to feel an increase in financial control as soon as I got my next pay. My savings began going up and my stress was going down. My then-girlfriend (who I had only been with six months) and I even combined our money at the advice of Mr Barefoot.
Fast forward four years, five moves, and quite a few jobs and we are well on our way to financial security. We even funded our own wedding (in our garage) and had a baby! All of this was achieved while never earning over 50K AUD a year.
Now I’m not writing this article to toot my own horn or anything. I just wanted to illustrate that with the right strategies and CONSISTENT action, you can do big things. Even on a beer budget.
I don’t want to cut Scott’s grass (Aussie slang, look it up) and give away all of his principles here. So go read his book; you won’t regret it. My wife and I, however, have added in one ‘bucket’ to his budgeting method that we feel have really transformed our spending and saving. We never worry about missing bill payments anymore and I always know how much money I have leftover for fun stuff (like investing).
Here’s our strategy. I like to call it…
Making Direct Debits your bitch!
But you can call it whatever you want.
Here’s how it works.
1. Automate your expenses
Try to automate as many of your expenses as possible, and turn them into regular payments. An example of this is getting your household products on subscription, like toilet paper and washing detergent. This does two things. First, it makes sure you’re never caught out on the loo… And second, it makes your regular expenses easier to predict. It’s the same bill, every month. Obviously there will be things that will vary, like groceries and fuel bills but try to automate as much as you can.
2. Calculate the total
Next, list out all of your regular bills on a spreadsheet (sorry Scott). This should include rent/mortgage/strata payment, loan repayments, toilet paper, phone bills, and anything else that doesn’t change. The pay frequency of each of these is probably different (eg. mortgage monthly, strata annually, toilet paper bi-monthly). You need to work out the cost of each expense based on the frequency of your pay cycle. So, if you are paid weekly but some of your bills are paid fortnightly, halve them. Once you have each individual bill done, add them all together. You will need this number for step 4.
3. Open a new account
This part is crucial!
Open a separate account just for bills. Ours is called ‘Bills’ as I am very creative. Set up all of your direct payments to come out of this account.
4. Feed ‘Bills’
Now to fund the bills account. Each time you get paid, you need to deposit the amount you calculated in step 2 into your bills account. We have an automated transfer set up on payday so we don’t have to think about it. I have a $10 buffer added on just in case something changes slightly (and also in case my math was wrong) but you don’t have to if you don’t want to, or can’t afford to.
Okay, that’s it! Once this system is set up, all of your regular bills are taken out as soon as you get paid. You won’t even think about it. You will know exactly how much money you have to spend/save and you’ll never have to pay late fees again.
You’re welcome.
I know that this looks complicated on the surface and kind of annoying to set up. Trust me though, it’s easy and you’re going to love how much more relaxed you are about your bills.
If you haven’t already, go and read his book The Barefoot Investor. You can pick up a copy HERE. It will change your life, even if it is missing the ‘Make Direct Debits Your Bitch!’ chapter.
All hail King Scott.
