Family not the ideal bankers
IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.
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QUESTION: Due to losing money in investments, I had to borrow $260,000 from my family, who now want it back. I have tried to get a loan but I stand to lose my home. I’ve suffered severe depression over this. I am nearly 49, and I’ve worked in the same job for 27 years. I don’t want to sell my home as it will be too difficult to get back in the market. I would like your help to get a low-interest loan so I can consolidate my debts and wait for my super to pay it all off.
Peter
ANSWER: This is exactly why I advise people not to borrow from family and friends. Right now you’re in a really tough place, yet the people you need to help you the most are the people you owe the most. If you’re getting knocked back for refinancing, it’s for a reason. I could probably find someone who would lend you the money, but the interest they would charge would eventually end up costing you the house. Your family is now effectively your banker and, by the sounds of it, they’re calling in the loan. But they’re not like a traditional banker, who can screw you over and forget about it after their first slurp of shiraz. Your family love and care about you, or they wouldn’t have loaned you the money in the first place. So, I’d write them a letter. Put all your financial cards on the table: write down your income and expenses, and detail all your assets — cash, superannuation and approximate home value (word up — you may still have to sell it). Then explain how you’re feeling, and share what it would mean for you to lose your home. Once it’s all down on paper, you can work your way through it — as a family.
BEST BANK ACCOUNT
Q I’ve just started working, and I am getting really over the fact that my hard-earned wages are being eaten up by bank fees! What is the best basic, no-frills bank account that you recommend?
Chantelle
A I really like ING’s Everyday Orange Account. If you deposit $1000 a month into it (basically, your wage), there are no ATM fees, there are no account-keeping fees, and there’s a 2 per cent cashback rewards program if you use Visa PayWave. Seriously, it makes the offerings from the big banks look like Shetland ponies.
SLUMLORD MILLIONAIRE
Q Please advise what I should do if I cannot get equity finance from my home, which is valued at $1.3 million, with a home mortgage of $800k, which I often rent out short term. My debts are: $20k personal loan, $35k credit cards, $15k car loan. I earn $3500 a month, but after servicing my loans I have $200 left. I have zero savings. What should I do?
Peter
A If I were in your shoes, I’d work three jobs and clear all the personal debts in a few years — but I’m kind of weird like that. I’m sure if you bark up enough trees you’ll find someone who’ll consolidate your debts. However, there’s no guarantee you won’t end up in the same place in a few years’ time, just with a bigger mortgage. So if I were you I’d sell my home, pay all my debts, get three months of living expenses in my Mojo account, and buy a more affordable home — for cash.
SUPER LEAVES PROPERTY FLAT
Q My husband and I are thinking of buying an off-the-plan apartment in Wheelers Hill as an investment. We do not have any debts and have just over $260,000 in an investment account, plus his super. He’s retired, I’m still working. Should we put money into our super or buy the property?
Sandra
A Don’t buy the apartment. Property is a second-rate investment for retirees: you have to tie up a lot of dough in the one asset, the income it generates is low compared to other investments, and it has a nasty habit of draining your cash flow. You’d be mad not to make the most of the tax advantages of super at your age. My advice would be to sit down with your low-cost industry fund and ask them to select you a professionally managed, well-diversified investment portfolio that covers a range of assets: shares, property trusts, fixed interest and cash.
DISABILITY FUNDS A JUGGLING ACT
Q I’m the financial administrator for my niece. She bought a house from a transport accident (TAC) payout, and receives both a disability pension and TAC payments. I have set up an industry super fund for her. I have surplus funds I wish to invest for her that are currently in online accounts earning low interest. I was thinking of joining an online broker and investing in the Australian Foundation Investment Company. What would you suggest?
Wilma
A There are two main considerations: minimising her tax, and maximising her income. Minimising her tax is easy: she can earn $18,200 a year before she pays any tax. Maximising her income is a little trickier. A single disability pensioner can earn only $4160 a year before her pension begins to be reduced, and the only legitimate way of getting round this is to put money into super, though the downside is she can’t access it until she’s 60. Without knowing the exact figures, I’d be looking at managing three different wealth buckets: keep a good cash buffer in an online savings account, invest in AFIC for the fully franked dividends, and have the remainder go into super.
Originally published as Family not the ideal bankers
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