The Barefoot Investor, Scott Pape, has gained widespread acclaim for his straightforward and pragmatic approach to achieving financial freedom. His philosophy centers around simple yet powerful concepts that are accessible to individuals, couples, and families alike, regardless of their financial starting point.
At its core, The Barefoot Investor emphasizes a step-by-step method to manage personal finances in three main stages: Plant, Grow, and Harvest. Learn more about the Barefoot Investor’s steps and how to implement them in your personal finance journey in this article!
Key takeaways
- Set up financial date nights: Regular, relaxed discussions about finances with your partner can help you align your goals and approach to money. If you’re single, these dates can be solo sessions to review your own financial situation.
- Create financial buckets: Use the “Blow,” “Mojo,” and “Grow” buckets to organize your income. This strategy helps you manage day-to-day expenses, build an emergency fund, and invest in long-term wealth.
- Domino your debts: Focus on paying off the smallest debts first to gain momentum and motivation. Once a smaller debt is cleared, move on to the next one.
- Buy a modest home: When ready, aim to buy a home that is financially manageable. Avoid becoming “house poor” by purchasing within your means and ensuring affordable mortgage payments.
- Supercharge your wealth: Review your retirement fund (superannuation) for low fees and strong growth options. Making small, consistent contributions can make a significant difference over time through compound interest.
- Boost your mojo savings: Strengthen your emergency fund by saving six months’ worth of living expenses to cushion against unexpected financial setbacks.
- Pay off your mortgage and remaining debts: The ultimate goal is to be debt-free. Paying off your mortgage and any remaining debts allows you to achieve financial freedom and opens up more opportunities for your future.
Stage 1: Plant
The first part of The Barefoot Investor’s plan is all about setting the foundation for your financial success. It involves getting clear about your money, organizing your financial life, and eliminating debt.
Step 1: Set up date nights
It might seem unusual to associate romance with financial discussions, but Pape suggests setting up regular “date nights” with your partner to talk openly about your financial goals and plans. These are not meant to be dull financial meetings but a relaxed time to check in with each other about money matters.
The idea is to bring transparency into your financial life as a couple and ensure that both partners are on the same page. By doing this regularly, you’ll not only grow closer as a couple but also be more prepared to tackle financial challenges together. And if you’re single, don’t worry — this step still applies! Take yourself out for a coffee or tea, bring along your notebook, and spend some quality time reviewing your personal finances.
Step 2: Set up buckets
The Barefoot Investor “bucket” system divides your income into separate accounts for different financial needs. The three core buckets are:
- Blow Bucket: This is your everyday spending money for things like groceries, bills, and entertainment.
- Mojo Bucket: This is your emergency fund, which is crucial for financial security. The goal here is to save up three months’ worth of living expenses in case life throws you a curveball.
- Grow Bucket: This bucket is for your long-term investments, such as retirement savings or future wealth-building ventures.
By setting up these buckets, you create a simple, stress-free system for managing your money and ensuring that you’re consistently working towards your financial goals. For a more in-depth take on the three buckets, head over to our companion article, How to Implement The Barefoot Investor’s Bucket Strategy.
Step 3: Domino your debts
Debt can be one of the biggest barriers to financial freedom. “Domino” your debts by focusing on paying off the smallest debt first. This psychological boost gives you momentum as you tackle larger debts.
The idea is to list all your debts (except your mortgage) from smallest to largest and begin paying off the smallest one while maintaining minimum payments on the others. Once the first debt is cleared, move to the next one. This process not only simplifies debt repayment but also keeps you motivated as you see tangible progress.
Check out more articles on managing debt to help you domino your debts!
Stage 2: Grow
Once your finances are in order and your debts are being tackled, it’s time to move to the next phase: growing your wealth. This stage focuses on increasing your income and setting up long-term investments to help secure your future. This stage involves making bigger financial moves.
Step 4: Buy your home
For many people, owning a home is a major financial milestone. Pape advises aiming to buy a modest home that you can comfortably afford. The key here is to save up to a 20% deposit, avoid taking on more mortgage than necessary, and ensure your mortgage repayments are manageable.
A home should be seen as a place to live, not an investment. Only buy a home when you are financially ready and can do so without stretching yourself too thin. The goal is to avoid the trap of becoming “house poor,” where all your income goes towards mortgage payments, leaving little for anything else.
Step 5: Supercharge your wealth
Once you have your home, it’s time to shift your focus towards growing your wealth. This step involves taking a closer look at your superannuation (or retirement fund). Choose low-fee funds and make sure your money is invested in growth options when you are younger, as the fees you pay over the long term can dramatically affect your retirement savings.
Additionally, consider making extra contributions to your retirement fund. Even small, consistent contributions can make a big difference over time due to the power of compound interest.
At this point, you can also start investing in other wealth-building ventures, whether it’s stocks, real estate investment, or starting your own business. The key is to focus on opportunities that align with your long-term financial goals.
Step 6: Boost your mojo
By this stage, you should have a solid emergency fund, but it’s important to “boost your mojo” by saving even more. The ultimate goal is to have between three and six months’ worth of living expenses saved in your Mojo account. This extra financial cushion will give you peace of mind and protect you against larger life disruptions, such as job loss or unexpected health issues.
Stage 3: Harvest
Now that you’ve planted the seeds and grown your wealth, it’s time to reap the rewards. The final stage is all about achieving complete financial independence by eliminating any remaining debts and securing your financial future.
Step 7: Pay off your mortgage (and any remaining debts)
The final step in the plan is to pay off your mortgage and any remaining debts (such as student loans). Being debt-free is the ultimate financial goal, as it means you can live comfortably without worrying about monthly debt repayments.
At this stage, focus on paying off your mortgage as quickly as possible. Once the mortgage is gone, you’ll have the freedom to make choices about how you spend your money. Whether it’s travelling the world, retiring early, or pursuing passion projects, paying off your mortgage is the key to unlocking your financial freedom.
Final thoughts
The Barefoot Investor’s approach to personal finance is both simple and powerful. By following these steps — from setting up your financial “date nights” to paying off your mortgage — you can take control of your finances, eliminate debt, and build lasting wealth.
It’s important to remember that this plan is not about getting rich quickly but about taking a steady, sustainable approach to financial independence. So, grab your partner, pour a cup of tea (or your drink of choice), and get started on your own Barefoot journey today!
FAQs
1. What is the purpose of financial date nights in The Barefoot Investor’s plan?
Financial date nights create a relaxed and open environment where you and your partner can discuss your financial goals, plans, and progress. It encourages transparency and helps both partners stay aligned. If you’re single, you can use this time to review your own finances.
2. What are the three buckets in The Barefoot Investor’s strategy?
The three buckets are (1) Blow Bucket: For everyday expenses like groceries and bills. (2) Mojo Bucket: An emergency fund with three to six months’ living expenses. (3) Grow Bucket: For long-term wealth-building investments like retirement savings, investment properties, a share portfolio and businesses.
3. How does the domino method for paying off debts work?
The domino method involves listing all your debts (excluding your mortgage) from smallest to largest. You focus on paying off the smallest debt first while making minimum payments on the others. This approach builds momentum as you eliminate each debt one by one.
4. When should I consider buying a home according to The Barefoot Investor?
You should consider buying a home only when you can afford it comfortably. Save at least a 20% deposit (or at least 5 to 10% for your first home), ensure your mortgage payments are manageable, and avoid becoming “house poor,” where all your money goes to mortgage payments.
5. How can I supercharge my wealth?
Supercharging your wealth involves reviewing your retirement fund to ensure it has low fees and strong growth options. Making regular contributions to take advantage of compound interest over time. Consider investing in other wealth-building ventures, including stocks, real estate, or starting your own business.
6. Why is the Mojo account important?
The Mojo account serves as an emergency fund to protect you against unexpected financial hardships, such as losing your job or facing health issues. Having three to six months of living expenses saved in this account provides peace of mind and financial stability.
7. What is the final step in The Barefoot Investor’s plan?
The final step is paying off your mortgage and any remaining debts, such as student loans. Becoming debt-free is the ultimate goal, as it allows you to live comfortably without worrying about monthly repayments, giving you the freedom to pursue your personal goals and financial independence.
