Future’s sweet if you follow a plan

If you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

You need to create a sweet success.

QUESTION: I’m a 27-year-old, second-year apprentice chef, and recently moved back in with my parents following a breakup. It’s not the best situation but I’m trying to make it work and I see this as a good opportunity to drill down on some debts I’ve accumulated. I owe a little over $6000 on a credit card and personal loan and $15,000 on a car loan. I know that’s not good. But what are the best steps I can take to set myself up for the future and make sure I enter my 30s on the right path?

Kara

 

ANSWER: It totally sucks to be you right now. Make no mistake, while you’re living under your oldies roof, you’ll have to play by their rules. If they’re not charging you rent or board, they’re effectively giving you money, and that almost always comes with an (emotional) catch.

So, here’s how to make it suck a little less: Put on your big girl pants, sit down with your parents and show them your financial plan.

Here’s a sample one:

First, agree to pay them some form of board (it could be preparing them meals, it might be doing cleaning, it may well be cold hard cash). Whatever it is, it’s important to set the boundaries of what is expected from the get-go.

Second, save $2000 in a high-interest online savings account.

Third, if you have access to public transport, talk to your lender about selling your car and paying down as much of your loan as you can.

Fourth, devote 70 per cent of your after-tax income to paying down your debts.

And, finally, give your parents a definite time as to when you’ll leave the nest — for good.

 

KEEP YOUR NEST EGG WARM AND GROWING

Q My husband and I are close to retirement — aged 66 and 68 — with $500,000 in an allocated pension and $450,000 in our super which is also in a cash account. We have $140,000 in savings, and receive a part age pension of $290 per week. I’m not sure what to do with the balances in our bank and super. I’ve been thinking about transferring to an ANZ online smart choice pension account ... but I’m not sure. What do you think we should be doing with this money?

Margaret

 

A You’re worried about losing your life savings in the sharemarket, right? I totally get that. however, the biggest risk you face is that the rising cost of living will be like a wave that creeps up behind you and financially dumps you. In 20 years time your money will buy you half what it does today. That’s when things get really scary. You already have three years (or more) of your living expenses in savings, so that gives you a very sensible multi-year buffer to ride out a financial downturn. However, the bottom line is that you need to invest the bulk of your assets in investments that are going to grow faster than the rising cost of living. You can talk to your adviser about good-quality property trusts, defensive infrastructure assets and shares. Personally, I like good-quality Aussie shares that pay fully-franked (tax-effective) dividends. You’ll notice that the share price moves around the place all the time — but the dividend payments generally don’t.

 

WHAT’S THE DEAL WITH AMWAY?

Q An old friend of mine has popped out of the woodwork recently, calling to see if I wanted to catch up. When we did meet, she hit me with the Amway sell. I’ve heard of Amway in the same way I’ve heard of ballet — I know it exists but I don’t know the ins and outs. I’m not buying into it (literally or figuratively) but I struggle to find much information on it. Can you give me any advice on why, or why not, I might consider Amway (even if just to stop her trying to sell it to me)?

Chris

 

A The people who are suited to MLM (Multi Level Marketing) schemes are hardcore, ruthless salespeople. You need to be able to convince your family and friends to invest in a “unique opportunity” (that has a 95 per cent failure rate) all for your own personal gain. See, the big bucks in MLM (whether it’s Amway or Goji juice), comes from recruiting people to sell for you, and clipping part of their commission. Because most of your recruits crash, burn, and leave after a few weeks or months, you have to keep replacing them — which explains your ‘friend’ Coming out of the woodwork.

 

DO PEOPLE REALLY ASK THESE QUESTIONS?

Q My partner and I read your Q&As religiously each week as part of our weekend ritual. My husband thinks some of the questions are so ridiculous, surely they’re made up — so I thought I’d write to you and ask you that as my question! So ... are they? It’s OK, I’ll keep your secret.

Stephanie

 

A Every single question is true. I’ve been doing this gig for over a decade — and I’ve learned that most people look a little weird when you strip them down to their balance sheet (though some more so than others). Some of my favourite things about this gig are reading through my overflowing reader mail bag, and randomly meeting people in my day-to-day life who thank me for answering their question. I admire the people who write to me — especially the ‘ridiculous ones’ (as you call them). It takes guts to admit you’ve screwed up and ask for help. It’s much easier to keep borrowing, keep pretending, and then blame someone else when it all hits the fan.

 

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Originally published as Future’s sweet if you follow a plan