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Budgeting the “Barefoot” Way


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Budgeting is the core to every financial plan, but we all hate doing it. Being on a “budget” can feel restrictive, and often is often not very successful as a result.

I have read a number of books and papers on budgeting over my years as an adviser, but one I read a couple of years ago really struck a chord and so I thought I would share it with you!

The book is called “The Barefoot Investor” and it’s written by Scott Pape. As an Australian, he has written it primarily for Australians, and there’s some stuff about Super and other things in there, which don’t really apply to the New Zealand market. He is also very anti-advice, and advocates for self-managing your investments via index funds. Whilst obviously biased about this, I have seen the evidence that shows that over the lifespan of an investment, having a financial adviser can add around 3% on average to your returns. I don’t agree with his views on advice and would always advocate FOR advice, but the fundamentals of his budgeting framework are great and well worth reading.

The budgeting framework suggested by Scott goes something like this:


The first thing he suggests, is setting up 5 accounts, or amending your current accounts to this structure.

  1. Daily Expenses – all income comes into this account, and all of your regular outgoings go out of it. This includes groceries, insurances, rates, childcare, bills etc etc. It is for all of your core costs. He suggests aiming for this to be around 60% of all of your income retained here, but may be higher or lower. You can play around with the % until they work for you.
  2. Splurge – this is money to blow between paydays on nice things; coffees, lunches out, treats etc. He recommends 10% of your income go into this account, but you can set the right amount for you. The money goes straight to this account from Daily Expenses each payday (you set up an automatic payment), and you can operate an EFTPOS / Visa card directly from this account.
  3. Smile – this is money for things that make you Smile! It could be a holiday, or something nice for the house. It’s a savings account for things that make you happy. Again, 10% is suggested, but you can set you own amount. Again, money would go into this account by automatic payment.
  4. Fire Extinguisher – this is a savings or holding account for the things that aren’t fun! It could be holding money pending paying off a lump of debt, or savings to cover renovations, a broken boiler, or a big car bill. It’s money that’s there until you need it, or until you can repay debt. He recommends 20% of income goes into this account but flex the numbers to suit you.
  5. Mojo – This is a totally separate account and is an emergency fund. Ideally, you wouldn’t see this or touch it unless in the event of an absolute emergency. The aim is to have 3-6 months’ worth of your Daily Expense requirements in this account.


So, once you’ve got the accounts set up, you generally look to do the following:

  1. Get Mojo to at least $2,000 as a starter. Sell stuff, shuffle money around, but do this first of all. This is your back up.
  2. Start repaying your debts. Starting with the smallest first, knock them off using money from Fire Extinguisher. Whilst financially it makes sense to pay off the highest interest rate debt first, Scott suggests starting with the smaller debts instead. There’s a real sense of achievement when you can cut up a card or cancel an account. This is good motivation to continue. All the money that has been repaying this smaller debt then gets allocated to additional repayments to the next smallest debt and so on. He calls it “dominoing you debt”.
  3. Increase your Mojo account to 3-6 months of income.
  4. Max out your KiwiSaver contributions.
  5. Once you’ve done all this, divert Fire Extinguisher money into a long-term savings plan / account, or repay mortgages.

When it comes to money, everyone is different, so I don’t think there’s one right solution for everyone. This is something that has worked for me. The best bit? It doesn’t feel like budgeting. Once you’ve worked out your percentages and get a feel for it all, it’s very very easy to manage. Yes, you are restricted on buying things by what’s in the “splurge” account, but when you see the other balances increasing, and know that it’s all for a reason, it makes it totally worthwhile.


This article should not be considered personalised financial advice. We have articulated one of very many budgeting strategies available and would always recommend you get financial advice before making any significant changes to your finances. 

More information can be found on This article is not sponsored, endorsed or associated with Scott Pape or the Barefoot Investor.