Interview part 2 – planning ahead for your mortarboard and bricks-and-mortar

What gives you the chance to have life on your terms?   To call your own shots?  What lets you sleep at night?

According to Scott Pape, Barefoot Investor, the answer is savings.  For PhD students with limited money, the first part of good financial management is saving your money and staying out of debt.

“HECS is unavoidable, but the last thing you want is to graduate with huge amounts of debt just from your living expenses.  If you can live within your means, that’s the ultimate goal,” he says.

The second thing to remember is that the financial race is only with yourself.

“I believe anyone who’s 27 or 28, in their early 30s, and who’s just starting out financially shouldn’t fall for the trap of trying to get to the finish line too quickly.  Slow and steady really does win the race.

“Don’t try keep up with the Jones’s, because over the next 4 or 5 years, the Jones’s will probably come a cropper.  The global financial crisis has changed the game.”

So what can students do now to plan for their future?

“You’ve got three big assets in life.  Your ultimate assets are your education, your knowledge and your motivation.  The second asset is your home, generally, and the third is your superannuation.  If you’re in your late 20s or 30s, the first thing you want to do is work towards buying your first home.”

If that’s your intention, Scott’s advice is to start a savings program while you’re still studying, and afterward, and get in training for a mortgage.

“Don’t go out and buy a house wondering how you’re going meet a mortgage repayment.  I think we’ve been encouraged by government leaders, bankers, and even our parents to hock ourselves into huge amounts of debt.  When you’re in that situation, you can become enslaved to your possessions, and that’s not a good place to be.

“The Australian Government gives out first home-buyer grants of $21,000 – $28,000 and I think that’s going to end badly for a lot of young people.  Over committing to a property is probably the worst thing you can do.”

Scott explains how the global financial crisis impacts on young people trying to get into the property market.

“We’ve just seen the G20 leaders pumping trillions of dollars into the economy.  Generally what happens when you print more money is that the cost of things goes up.  In my view, we’ll see inflation going up over the next two years, and if inflation goes up, interest rates go up.

“This is going to happen right at a time when the Government is handing out these grants to first home buyers.  At the moment, we’ve got 30-year, generation low interest rates.  But they’re not going to stay low forever and a lot of people could get themselves into serious trouble.

“Because of the Government policies we’ve seen, I also believe that housing is extremely over valued in Australia.   I think it’s a great idea for everyone to own their own home, I just believe you should be starting a savings program.

“The Government’s First Home Saver Account is an absolutely cracking thing to do.  The banks will give you a pretty high interest rate, and the Government will contribute $700 or $800 to help you get into your first home.  You’ll get a good return on your money.  More young people should get behind it.

“Real estate agents say the most important thing in property is location, location, location, but really, the most important thing with property is safety, safety, safety.”

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Part 1: making the best of being broke but brainy

“Young people who invest in their education almost feel like they can’t sit at the big people’s table at Christmas time.  They don’t own property.  They’re just starting out.  But their friends, who may have dropped out of school at year 10 to be tradies, own three houses at the same time their student mates are still struggling to pay the bond.”

Sounds familiar doesn’t it?  Anyone who’s taken the plunge into a PhD knows the drill – more study, a scholarship valued below the poverty line, four years without superannuation contributions and the feeling that you’re dropping behind financially.  It’s frustrating, to say the least.  Scientists are supposed to be important to the Clever Country, and this is what we have to do?

The Barefoot Investor, better known as Scott Pape and the man educating GenY about finance, gave Science Hub an exclusive interview on matters monetary.  While his last foray into the lab was a year 8 experiment with Bunsen burners, he holds the scientific world in high regard.

“The most interesting people I know don’t have all the status symbols around them.  They don’t feel they need them.  If you’re doing a PhD, you’re an interesting person anyway.  You’re doing really interesting work.  That would be the first thing to remember.”

In part one of our interview, the Barefoot Investor encourages us to make the best of our situation as PhD students – learn early about good financial management, and appreciate the value of money when you’re earning very little of it.

“Personal finance is 20% knowledge and 80% behaviour.  So while you’re struggling and only just getting through – living off $10 pot and parma nights – you’re setting in place financial behaviours that will last you a life time.

“You have to understand that education is an investment, not just in a career, but in you as a person.  Although you need more money – I suppose we all could – you’re surviving.   When you become a high income earner, you’ll look back on your student days and know that you don’t need the materialistic trophies around you.”

“And appreciate just how good things are,” Pape continues.  “If you’re feeling down in the dumps, go to www.kiva.org.  Loan $25 to a struggling entrepreneur in the developing world.  She’ll pay you back at $3 a month and you’ll see your money being used to build a business that supports a whole family, and therefore a whole community.  It puts the little money you have back into perspective.”

The second piece of advice Pape offers is to learn how to manage your money.  He speaks from personal experience.

“I’ve been a stock broker and company director.  I’ve met lawyers and doctors, scientists and dentists, who don’t have a cracker to put together at 30 or 40.  They just don’t have any money.  But I’ve also met cleaners who live comfortably and have a really good life.

“Income doesn’t equal wealth.  It’s about being smart with your money and the sooner you learn how to manage it, the greater the compounding of that knowledge.  You just have to set in force a plan that will get you to your main goal, whatever that may be.”

Next month, in our part two of our interview, Scott gives us the practical advice needed to be more financially secure, even as PhD students.

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Under the Australian Taxation Office’s superannuation rulings, you may be eligible for co-contributions from the Government to any personal, after-tax superannuation contribution you make.

Various conditions apply, and we encourage you to look more closely at the scheme’s details here.

Please note: Science Hub takes no responsibility for any financial decisions you make based on this information.

What gives you the chance to have life on your terms?   To call your own shots?  What lets you sleep at night?

According to Scott Pape, Barefoot Investor, the answer is savings.  For PhD students with limited money, the first part of good financial management is saving your money and staying out of debt.

This article will be available in full next month.  Come back, sign-up and read it then.  Thanks!

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• Ex situ – Money: Money advice for students