Scott Pape says saving is more important than spending post COVID-19
Scott Pape says saving is more important than spending post COVID-19

Why Treasurer’s advice will leave you broke

The Treasurer would not like the article you're about to read.

Why?

Well, because I'm not being a 'team Australia' player.

The centrepiece of the government's budget are tax cuts that encourage us to 'spend, spend, spend'.

Yet after pouring over the budget papers, the message I'm giving you is to 'save, save, save'.

 

 

 

 

Yes, I know that 'cash is trash'. The return on term deposits, and savings accounts are next-to-nothing. And they're going lower. Still, I view having cash on hand as an investment in piece of mind. It gives you choices. And as this budget sets out quite clearly - we're heading into the deepest economic downturn in our lifetime - so having abit of padding is a bloody good thing!

The government’s tax cuts encourage us to ‘spend, spend, spend’, but we should be doing the opposite right now. Picture: iStock
The government’s tax cuts encourage us to ‘spend, spend, spend’, but we should be doing the opposite right now. Picture: iStock

Besides, the fact is that 'normal' in this country is to be heavily in debt, and close to broke; not only do we have some of the highest household debts in the world, a survey earlier this year by St George Bank found that one in five Aussies have less than $500 in cash savings. One in two have less than $3,000 on hand. And as the budget papers outline, over half those who raided their long-term super did it to pay short-term household bills.

So if you're struggling right now, save your tax cuts or use them to pay down high interest rate debts.

And what about for the rest of us?

Well, let's cut to the chase: does anything in the budget affect the Barefoot Plan I lay out in my book?

No, not at all. In fact, some of it is downright helpful, like the government's focus on super fees.

One in two Australians have less than $3,000 in accessible savings. Picture: Graeme Taylor/Foxtel
One in two Australians have less than $3,000 in accessible savings. Picture: Graeme Taylor/Foxtel

Collectively we're gouged $30 billion in fees each year - more than the average gas and power bill combined.

Yet because it's automatically taken out (rather than sent as a bill to pay), most people miss it.

In response, the government is cleaning up multiple super accounts, holding dud super funds' feet to the fire, and creating an online comparison tool ('YourSuper') to help people compare. Brilliant.

Then there's the First Home Loan Deposit Scheme which has been extended. This allows first home buyers to purchase a house with as little as a 5 per cent deposit.

Didn't we learn anything from the subprime disaster in the US? It's a dud policy that will lure the wrong people into the market: broke people.

The First Home Loan Deposit Scheme has been extended, but that’s not necessarily a good thing. Picture: iStock.
The First Home Loan Deposit Scheme has been extended, but that’s not necessarily a good thing. Picture: iStock.

And finally, there's tax cuts which for the typical Aussie earning $80,000 a year they will get an extra $40 a week in their pay packet.

As I said before, if you're struggling, squirrel it away or pay down debt.

Some will argue that if everyone followed my advice and saved, rather than spent, the economy (and jobs) would suffer. Yet I think there's a long way from that happening!

Besides, ultimately the long term success of the Australian economy relies on consumer confidence.

This budget tries to conjure up that confidence with tax cuts, and spending hits. Yet they're short-term fixes.

If you follow my lead, and follow a plan that has a bedrock of saving, rather than spending, over the long-term you'll build up both your resilience, and your financial confidence.

That's good for you, and good for the economy. And that's something I think that even the Treasurer would agree with.

Tread Your Own Path!

 

 

 

 

Originally published as Barefoot Investor: Why Treasurer's advice will leave you broke


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