Getting rid of debt a solo quest for knight
A KNIGHT in shining armour must pass a final test - getting out of debt - before he gets the hand of his princess, writes Barefoot Investor.
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A KNIGHT in shining armour must pass a final test - getting out of debt - before he gets the hand of his princess.
AMANDA ASKS: My knight in shining armour showed up! The trouble is, with him came the henchmen that are credit card debt, a Cash Converters loan, a jewellery store loan (from when he proposed to his ex), and a monster Telstra bill — all up, around $15,000. Where do we get copies of all these bills, and how do we go about paying them off? He earns $110,000 and can have them smashed out in a matter of months, I reckon.
BAREFOOT REPLIES: It sounds like he’s been a bit loose with his lenders, so I’d suggest he gets a copy of his credit file (if he writes to VEDA, they legally have to provide him with a free copy). It’s the financial equivalent of an STD test — if there’s a nasty surprise, it’ll be on that file. Now, from a logical standpoint, your fella should be able to smash his debt out in a matter of months: he’s earning around $6600 a month after tax. Yet people get themselves into financial strife (and stay there) for all sorts of illogical reasons. So here’s my tip for you. Make your knight in shining armour pass one final test before he gets the hand of you, his princess: make him get out of debt on his own. Encourage him, for sure. But don’t do it for him. That’s his test. Look, I’ve been doing this a long time. I meet a lot of people who have shacked up with a partner thinking they’ll change them. Most of the time it doesn’t work. Especially when it comes to money management. Then again, I could be wrong, I’ve never encountered a knight!
KEEP IT REAL
NAOMI AND BEN ASK: My husband and I have a goal of buying a house in four or five years. Our goal is to have a 20 per cent deposit for a $1 million house. Big goal, but even if we miss the mark we will still have a good deposit. My question is: Is it possible to save this amount of money while living by your 60-20-20 rule? Basic maths says no. We earn $128,000 before tax between us and presume this will go up soon. We also wish to start a family in a year or so. Are we being ridiculous?
BAREFOOT REPLIES: Yes, you are being ridiculous. However, you’re in good company. I meet a lot of newly married couples that want to do in five years what took their parents 25 years. So let’s have an adult conversation: you can’t afford to buy a million-dollar home because you’re earning $128,000 a year, and because you’re about to start a family. You simply aren’t earning enough. Besides, your goal shouldn’t be to buy a million- dollar home — it should be to own your own modest family home outright in 15 years. That’s probably how your family did it.
SITTING PRETTY
WENDY ASKS: My partner left me in a poor financial state when he broke up with me. My house is worth $275k and I own $90k of it. I have $110k of superannuation, I earn $95k and I am 51 years old. I want to retire at 65. So, should I sell my house and try to buy a unit at around $280k on an interest-only loan and salary sacrifice the balance of what I used to pay on my home loan into my super, or should I try to pay off my unit once I’ve bought it?
BAREFOOT REPLIES: Hang around my inbox for a while, Wendy, and you’ll find thousands of people who would happily trade places with you: you’re young, you’ve got equity in your place, and you’ve got more super than most women. Life is good. Now let’s make it better. First things first: there’s no reason to sell your current home — you can refinance your existing home loan to interest only, though I wouldn’t recommend it. Instead, I’d stay where you are, and aim to have it paid off by the time you retire — at 67 (let’s tack on another two years of work). If you pay $1550 a month off your home loan, you’ll be on track to be debt free when you retire (though understand interest rates will likely increase over the next 16 years). If you can get your non-mortgage living expenses down to about $2500 a month, you’ll be able to salary sacrifice $1700 a month into your low-cost growth-orientated superannuation fund. And if you can do that, you’ll be on track to retire with a balance of $560,000.
A WILL AND A WAY
DEB ASKS: I recently lost my beautiful husband unexpectedly. Unfortunately we didn’t have a will. It’s been a stressful and expensive lesson. I want to make a will but don’t really want to pay hefty solicitor fees. What do you think about “do it yourself” will kits? I don’t own any property and just want to protect my savings and super and leave it to my chosen beneficiaries.
BAREFOOT REPLIES: There’s a question behind this question … You’ve been through a traumatic, totally life-changing event. You don’t need a will kit. You need a plan. I’d recommend you sit down with a financial adviser (talk to your not-for-profit super fund). Explain that you need a plan to protect and grow your savings, and a plan to manage your estate — which will include drawing up a simple low-cost will by a solicitor, and completing binding nomination forms for your super. Think of this as an investment in peace of mind.
UNCOMMON SENSE
BILL SAYS: I don’t have a question. I just want to congratulate you on your commonsense approach to financial issues. You stand for self-responsibility, hard work, living within your means, and using time as a path to financial security. I have managed to achieve a comfortable retirement through these principles, not from any great windfall. You avoid the hype and doomsday predictions of other so-called experts and focus on what an individual can do within their own life. Well done.
BAREFOOT REPLIES: I’ve been writing this column for 11 years, and people complain and congratulate me on the exact same thing: “Your stuff is just common sense!” Maybe it’s just not that common these days?
The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice
Originally published as Getting rid of debt a solo quest for knight
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