Fare go for a big spender

IF you have a burning money question, or just want to win a fight with your hubby, shoot over to barefootinvestor.com.au.

GARY ASKS: My wife and I are 39 and have three kids. I am the sole breadwinner, earning $80k plus super, and we live rent-free as part of my job.

We own a rental property with a $298,000 mortgage, with tenants paying $380 per week, which covers the mortgage. We have $8k in credit card debt. Put it all together and we feel trapped!

Each week we just seem to cover our expenses. I would love to get my Mojo account up and follow your share investment tips, but we never seem to have the money. We would love a holiday!

BAREFOOT REPLIES: I may look like a fairy, but I have no magic wand to wave at you. By my calculations you’re pulling in close to $6000 a month in the hand (when you factor in the Centrelink family benefits that I assume you’re getting), and you’re not even paying for a roof over your head? And you have credit card debt? C’mon, cobber! A wonderful holiday for you would be to drive an Uber taxi around your city, five nights a week, until you’ve paid off your credit card.

Family factors

WALLY ASKS: I’m a recently divorced dad with a legal bill of $40k and a credit card debt of $20k. I work two part-time jobs which earn the equivalent of a full-time job, about $75k gross a year. The divorce settlement sees me keeping the property, valued at $1.1 million with a loan of $320k still remaining. My mortgage broker is working on getting a loan for $380k but has come back and said my second job won’t be counted so I have to take out a higher rate investment loan. What can I do?

BAREFOOT REPLIES: Here’s why you’re not getting any love from the banks: you’re bringing in $4800 a month ($75k p.a), and your monthly repayments on $380,000 are around $2100 a month, or about 45 per cent of your monthly income.

Out of what’s left over you’ve got to put food on the table and pay child support. Even if you had one full-time job most banks would charge you a higher interest rate, but given you have two part-time gigs, it makes your income less reliable.

The bottom line is that you’re not in a strong negotiation position.

You have three choices: one, take the higher interest rate loan and chew really hard (though that’s not what I would do). Two, get a higher paying full-time job so you’re not handing nearly half your wage over to a banker. Or three, downsize, pay off your debts, buy a cheaper house, and spend time with your kid.

Too good to be true

MAL ASKS: I am recently retired and I have topped up my AustralianSuper to $400k and put $1,050,000 into my SMSF. I will also have a part of $1.2 million to invest after our Family Court matter is settled. Last week I got a call from a fellow who claims his company made 28 per cent after tax in 2015 through investing in the share market. It is called “Shares XP”. Is this too good to be true?

BAREFOOT REPLIES: Congratulations! You’ve won the money game. With (roughly) $2 million in savings, you can comfortably draw $100,000 per annum tax free in retirement and you’ll never run out of money. There’s only one final risk that you face: financial salespeople getting their mitts on your money. I don’t know anything about Shares XP other than what I’ve seen on their website. It appears part of their service is trading Contracts For Difference (CFDs). These types of trading products are financial cancer. Don’t do it. Stick with AustralianSuper, and find another hobby.

Negative territory

ROSEMARY ASKS: My question is simple, though I know your answer may not be. What do you think will happen with negative gearing? I’m worried because I own three properties (all on interest-only loans, all negatively geared), and I worry what will happen if they abolish it. I am thinking about buying another property in student accommodation.

BAREFOOT REPLIES: Labor’s proposal won’t come into effect until 2017, and they’ve said in their policy document that the changes won’t be retrospective. In other words, your existing tax deduction status is safe. Still, negative gearing is now officially an election issue, and the Minister for Networth will now have to address it, one way or another.

My personal view is that negative gearing, much like superannuation concessions to higher income earners, will eventually be clipped. Not if, but when. That’s why I don’t advocate making an investment solely for the tax benefits. Right now you’re losing money. Work out how to turn that around, because any changes to the tax treatment of housing will likely hit the market hard.

Getting the goods

TEGAN ASKS: You have strongly suggested that homeowners should get a “total replacement” policy. So, I spent my morning looking into it. I looked at ALL the usual suspects ... and not one of them offers it.

Everyone’s recommending it, but someone forgot to tell the insurance companies — and of course, if it is to our benefit, then they will not want to offer it! Any suggestions?

BAREFOOT REPLIES: There’s a reason they don’t offer it. Most people totally underestimate the true cost of rebuilding a brand new home, the same way that most people underestimate the cost of replacing all their possessions.

You’re bearing the risk of this underinsurance, not the insurance company.

That’s the reason I pay an insurance broker to manage all my general insurance: first, to make sure I am insured for ‘total replacement’, and secondly, because they’re experts at dealing with the claims process.

Insurance isn’t like buying baked beans. Cheaper is not better.

Originally published as Fare go for a big spender