We need to honour the immense gift of an inheritance from our parents

IF you have a burning question, or you want to win a fight with your hubby, jump over to barefootinvestor.com to ask Scott Pape a question.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

I’m not your usual 25-year-old girl — financially at least.

Six years ago I lost my parents, and subsequently inherited $1.1 million in cash and assets.

Here’s what I have done with it thus far. I recently bought an apartment in the Melbourne CBD for $540,000.

I’ve got $250,000 in a term deposit (which matures in May), $75,000 in an online saver (earning 3.2 per cent), and several thousand in Mojo. I’m in the process of selling the house I inherited, which is priced at $290,000.

I am completely lost on what I should do. I have very little understanding of investments (I don’t even have a superannuation fund), and I would love your advice on how I should invest this money (close to $600,000), because I fear I could blow this immense gift my parents left to me.

Samantha

Hi Samantha, You will honour the memory of your parents by using their money well.

That’s actually harder than it sounds: inheriting large amounts of money when you’re young can be totally destructive. (Just look at all the footballers, and trust fund brats). However, from reading your letter I get the feeling your parents raised a wonderful, well-adjusted young woman.

So let’s get down to the brass tacks. Well done for buying your own home — that’s a great first step. Keep in mind that you may need to pay capital gains tax on the house you inherited, so it’s important you get an accountant to work that out for you. I’d like you to keep at least $30,000 in an online saver as your Mojo account, and then I’d look to invest the balance into a low-cost Aussie shares investment bond.

And, make me a pinky promise that whoever you date in the future signs a cohabitation agreement that sets out that your money is off limits. If you honestly can’t see yourself doing this, talk to a lawyer about putting your assets in a trust.

If you follow this simple advice, you’ll eventually become a multi-millionaire, and have more money than a reasonable person could spend in a lifetime. So the challenge for you is to view the money not as something to fund your current lifestyle, but as a legacy to your parents’ memory. Make them proud.

HEARTFELT ADVICE A REAL TEAR-JERKER

Q I had to write to you because I had tears in my eyes after reading your heartfelt advice to Lisa last week (“Worthless Single Mother”). What a lovely thing to suggest she keep a diary of the difficult times she is going through so she and her daughter can look back on it in the future.

I, too, am a single mum. I did it hard for years after I separated from my husband more than 20 years ago. At the time my girls were eight and six and we had no child support. We lived on welfare for five years while I studied to become a teacher. My girls, now aged 29 and 27, are the most resilient young women I know, and I am so proud of what they have achieved. They know the value of every cent they earn and are amazing savers. I know that I was my girls’ role model, as they wouldn’t be the women they are today without the lessons we all learned together about budgeting and finding ways to have fun for free.

Well done on your column, and keep telling it how it is.

Sylvia

Hi Sylvia, As Tony Jones would say, I’ll take that as a comment! I got a huge amount of positive feedback this week — and a good number from single mothers like you, who have actually lived the advice that I gave her. Well done, and thanks for sharing.

IN CRISIS AS MINING BOOM, JOB ENDS

I’m 41, married with two young children and after 20 years in the mining industry I’m in debt to my eyeballs and looking down the barrel of bankruptcy.

We own three investment properties: Brisbane: valued at $320,000 — with a $195,000 loan. Broome: valued at $125,000 — with a $203,000 loan (have been trying to sell for 12 months). Townsville: valued at $350,000 — with a $500,000 loan.

All properties are negatively geared, and we have had trouble attracting and keeping tenants.

To keep my head above water, I have been redrawing $2500 a month from my loans. Although, we have now exhausted our borrowing capabilities. My current lender has been less than helpful in offering me options and my application to another bank to restructure the loans was last week refused.

I earn $8500 per month net working in the mines, and we pay $2400 a month in rent. Today, I was made redundant. I am in a crisis, and I don’t know what to do.

Rick

G’day Rick, You’re not on the brink of bankruptcy — well, unless you’re incapable of flipping burgers or delivering pizzas. What you really need to do is pull yourself together, and lead your family out of the mess you got them in. Moreover, you should take the advice of all good politicians, and never waste a crisis.

You’re suffering genuine financial hardship, so therefore you have the right to request that your lender changes your credit contract — which is otherwise known as a hardship variation. Those changes can include moving your loan to interest only, extending the term of your loan, or giving you a repayment holiday until you’re back on your feet. But in your instance, I’d be pushing to restructure your debts. If I were you, I’d be looking at selling the Brisbane and Townsville properties, while keeping the property in Broome, which by all accounts is going through one hell of a slump (remember, the bank doesn’t want to foreclose on that property — it wants you to keep it, and keep paying interest). I would encourage you to find a financial counsellor who can walk you through the hardship process, and ensure that you get a repayment holiday on all your debts until you find work. Call them on 1800 007 007.

Originally published as We need to honour the immense gift of an inheritance from our parents