Barefoot Investor Scott Pape talks all things financial

BAREFOOT Investor Scott Pape answers readers questions on investing, earning, saving and reducing debt.

‘If you’re becoming a family, you need to tackle it together.’

NAT WRITES: My partner and I have four houses — three are investments.

Together they are worth about $1.55 million, and we owe about $1.34 million on them.

We each earn around $145,000 a year and each have about $175,000 in super.

I have $52,000 in savings and he has about $15,000 (with two uni-aged children whom he still heavily supports).

We keep our finances separate. I want to have a baby in 2017 (I am 35) but not lose my independent position.

How can I ensure smooth financial sailing?

BAREFOOT REPLIES:
Why are you planning on having a baby with a bloke when neither of you is prepared to share BSB numbers?

OK, let’s sweep that elephant to one side for a moment and talk money.

On your current income you’ll qualify for 18 weeks of paid parental leave (you may still be able to double-dip if your employer offers any entitlements, though that depends on what Derryn Hinch and his mates decide). Combine that with your $52,000 in savings and your ability to eventually go back to work, and you have the first couple of years sorted.

Now let’s get back to the elephant.

You’ve admitted that you are concerned about the risk of losing your financial independence. Good insight. Most women don’t fully understand the financial ramifications of their predicament until they’re knee-deep in nappies and suffering sleep deprivation.

So before he gets to the fun part of “creating” the baby, you need to sit down together and address your concerns. Start the conversation off like this: “Honey, you need to understand that I’m going to have to take time out of my career and take a big pay cut so I can look after our baby.”

Understand this is not about your financial independence — it’s about your financial security. In other words, you’re becoming a family so you need to tackle it together.

Young Widow Wants Answers

NICOLE ASKS: I am a recently widowed 33-year-old mum of a one-year-old, and I am feeling the pressure of managing my finances. My situation: I have $350,000 in savings but I owe my in-laws $170,000. I have no other debt — I own the house ($600,000), and some friends have set up an education fund for my child.

My Centrelink single parenting payment application was rejected due to my having assets over $200,000. I plan to go back to work half time next year (earning $30-40,000) but I also want to focus on being a mum. Please help!

BAREFOOT REPLIES:
I’m sorry for your loss.

If I were in your situation, I’d do the following:

First, repay your in-laws the $170,000. That way you don’t owe anyone anything, and you’re back on your own two feet. Second, I’d put $10,000 in an online saver account (what I call “Mojo money”) so you don’t have daily money stresses. Third, I’d make a $10,000 contribution to your super to kick it along. Fourth, I’d invest the rest in an investment bond (in shares) for 10 years.

If you do this — and you’re conservative with the value you ascribe to your car and other possessions (mark them down as Gumtree value) — you will get the full parenting payment (single) and the maximum family tax benefit A and B until your child turns eight.

Financially, you’ll likely be in a better position staying at home than you will working and paying childcare. In the long term you should work regardless (it’s good for your self-confidence), but right now you should take the opportunity to focus on the most important person in your life.

Getting Better Returns

MARG WRITES: My husband and I are now retired. We spoke recently to a financial adviser about our super, which is currently in two industry funds (VicSuper and Equip Super). My super is worth about $250,000 and my husband’s is worth about $475,000. The advice was to roll our super over to MLC to get a better return. What do you think about this? My husband is keen, but I am not sure.

BAREFOOT REPLIES: There’s no need to be confused. When the adviser was talking about “getting a better return” it’s likely he was talking about himself — he’ll get paid more if you switch to the products he flogs. He can’t guarantee that you will get better returns by simply switching to another product provider. In fact, most industry funds have underlying investment choices similar to what MLC offers — the only difference is that in most cases industry funds are much cheaper.

Buying the Family Farm

DOUG ASKS: I grew up on a farm and have always wanted my own.

My wife and I are in our late 40s. I work full time six days a week earning $145,000 per annum, and my wife works from home and earns little income. We are empty nesters with our adult kids having left home. We own our home and an investment property outright. We have $250,000 in savings and zero debts.

The farm (weekender) I would like to purchase is 100-plus acres with no house, costing somewhere between $600,000 and $800,000. A little voice in my head says, “Buy the farm. It’s what you have always wanted”, while another voice says, “It’s a lot of debt to get into — plus further outlay such as tractors and fences.” What say you?

BAREFOOT REPLIES: You’re obviously a little weird. It’s not normal to have paid off two homes and have $250k cash and still be in your 40s! Yet what good is having money if you can’t enjoy yourself?

I’d suggest you do three things:

First, buy a calendar.

Second, talk to a stock and station agent about leasing 100 or so acres. They’ll be able to find you a cocky who’ll bend over backwards to carve off a few paddocks for a year or two, especially if you don’t need a house on the block. It’ll cost you $5000 a year tops.

Third, each time you return from a day at the farm, put an “X” on the calendar. At the end of 12 months, sit down with your wife and count up all the Xs.

You might find that working six days a week stops you from spending much time on the farm. You might find that your wife doesn’t share your passion for it. You might decide to continue leasing it as a (relatively) cheap hobby.

Or you might find that you both love it and decide to buy your dream weekender.

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Originally published as Barefoot Investor Scott Pape talks all things financial