How to avoid wedding blues: Ditch the rewards card and use your cents
DITCH the rewards card and use your cents to pay for the honeymoon, says SCOTT PAPE
QUESTION: I’m 34 and freshly engaged, with a wedding to come in March 2016. Luckily my fiancee and I are quite good natural savers, with combined income of approximately $200,000 per year. I just tore up my Bankwest credit card on your advice. But now, because we are spending about $40,000 on our wedding, I’m considering a credit card offering the maximum points, to pay for the honeymoon flights. We would then pay off the debt during the interest-free period. Yay or nay? Travis
ANSWER: Congratulations on the wedding, and for ditching your credit card. As a rule of thumb, each rewards point is worth about 1c, and the banks and the airlines constantly manipulate the value of points. Yet I took the liberty of checking what a $40,000 spend would get you on a Bankwest Rewards card. Apparently, you could get a pink KitchenAid Blender. (No, I don’t know why they pre-choose the colour for you, but I’d strongly suggest not saying to your wife “obviously, because it’s a woman’s appliance”). However, to get the $220 blender, you have to pay the card’s $70 annual fee. So the bottom line is that you make $150, but you also run the risk of your wife turning into a Bridezilla, blowing your budget, and putting your credit through the blender. So how about this: You’re young. You’re in love. You’re making 200 grand a year combined. Make a vow to save like mad over the next six months and pay for your wedding with cash!
TOO GOOD TO BE TRUE
Q: We recently had a visit from a financial adviser regarding an opportunity to buy an investment property in Coomera, Queensland, and negatively gear it. Her group would oversee the whole process. We have a $215,000 mortgage. I work part-time earning $38,000, and my husband earns $70,000 with a company car. She advised that, after tax deductions, it would cost us about $3 per week. It sounds too good to be true. Is it? Bronwyn
A: Yes, it is certainly too good to be true.
SON NOT A BABY
Q: My son is 29 and has no savings. We are withholding $125 a week from his wages (which is now at $5000) and we want to invest it on his behalf. We are looking for your advice. Would you invest your son’s money into a listed investment company (LIC), or something else? Brenda
A: There is a 27-year age gap between our sons. I’ve only recently started trying to get Louie toilet-trained … admittedly without a lot of success. Still, I can see it from his point of view: why bother sitting on the cold, old throne when all he has to do is lay back and let Dad do all the dirty work? Your son is essentially saying the same thing to you: he’s still in financial nappies, but he’s 29-years-old. So the best thing you could do is to toilet-train him: buy him the newspaper each week, have him read my column, and make him take responsibility for his own mess.
SMSF NOT SO SUPER
Q: My husband and I are both 57, and have a $290,000 home loan. Our accountant says it would be more tax effective for us to invest money into our super than pay off our home loan. He suggests we open an SMSF and transfer our super across (we’ve only got $170,000). Then we could contribute an amount every month into it and, when we retire, be able to pay off the loan. My question is: can we do this in an industry-based or retail super fund, or do we have to wait until we are retired? Jennifer
A: Yes, it makes sense to be focusing on contributing to your superannuation over your mortgage, because you’ll pay less tax, and when you turn 60 you’ll be able to access it tax free. No, you don’t have enough money to open an SMSF — you’ll pay too much in fees to your accountant (which is why he’s recommending it). Stick with a low-cost industry fund.
WEALTHY HABITS
Q: I just wanted say thank you. I have been following your advice for nearly five years. My partner and I only earn about $100,000 a year combined, but we have just come back from a trip to the US, have just bought our first home, and still have plenty of mojo left in both savings and shares. It’s a really good feeling. Now to pay the mortgage down ASAP! Liana
A: Well done! So many people mistakenly put off building wealth until they’re “earning more”. But the best indicator of future wealth is people’s habits, not their current incomes. You two are killing it — great stuff!
HARD WORK PAYS OFF
Q: Luckily, we will be debt free within the next 12 to 18 months. We are in our early 40s with two kids, and have sacrificed over half our income for many years to achieve this goal. Our super is building well with a high salary sacrifice arrangement, but our other assets are minimal. Is it worth hitting the extra cash into super to build on a healthy balance, or should we be looking at a different strategy to maximise our wealth? Tim and Fiona
A: You are wrong: luck had nothing to do with it. You obviously bought a home you could afford, religiously sacrificed half your wage into it, and have set yourself up to (eventually) be multi-millionaires. After you’ve paid off your home, you should continue salary sacrificing into superannuation. However, because of your age, I’d strongly advise you begin building a share portfolio via a family trust structure.
Originally published as How to avoid wedding blues: Ditch the rewards card and use your cents
Why all that glitters is not gold
The price of gold may be on the rise but it’s not quite as shiny as it seems. When it comes to long-term gain, it pays to follow the golden rule — only invest in things that regularly put money back in your pocket, writes the Barefoot Investor.
Don’t get high on the short-term sugar hit
Despite the COVID crisis, money questions have been flooding in from readers about how to buy and trade stocks, or even gold. Maybe it’s down to raiding super, or the government stimulus, but the key to financial control is first to get out of debt, writes the Barefoot Investor.