If you are looking for home security start planning and acting
BE prepared to make difficult, disciplined decisions if you want to get out of debt and start saving to buy a home, writes the Barefoot Investor.
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BE prepared to make difficult, disciplined decisions if you want to get out of debt and start saving to buy a home.
RACHEL ASKS: I’m wanting to buy my first home but don’t have a deposit. I earn $37,000 a year. I have a car loan that costs me $327 per fortnight and will be paid off in March 2018 (approximately $10,000 remaining), plus a credit card with $3500 owing ($4000 limit). Would I be better off selling my car, paying off my debts, use the remaining money to buy a second-hand car and then save for a deposit? I don’t know which direction to take.
BAREFOOT REPLIES: It sounds like you’ve reached a point in your life where you want some stability. I’d suggest you do three things: First, sell the car, pay off all your debts, buy a second-hand Toyota, and put $2000 into an online savings account. That’s what we Barefooters call “Mojo”. Don’t use it for a house deposit — this is the start of the security you’re chasing. Second, repeat after me: “I, Rachel, promise that from this day forward I will never own a credit card or borrow for a car again.” Third, spend the next 12 months working out how to make yourself more valuable to potential employers. Honestly, $37,000 isn’t going to cut it. Aim for $60,000 a year. That will probably require you to retrain so you can gain skills and experience in a different area (sales and leadership are where the money is). I’d wish you good luck, but I don’t think you’ll need it. From the sounds of your question, you’re prepared to make difficult, disciplined decisions. Keep that up and there will be no stopping you. Email me back on your progress in 12 months. I’ll be here.
TIMESHARE MADNESS
AMY ASKS: We bought 36,000 points in Wyndham Vacation Resorts, but we were retrenched two years ago and have had only part-time employment since then and are struggling to keep up with the club fees of $219 per month. My partner needs two operations over the next year, and we don’t expect to be able to go on holiday anytime soon, or for any extended period in the future. We are considering just not paying the club fees any more and forfeiting our points. What would be the consequences of doing this?
BAREFOOT REPLIES: Oh for the love of coconuts! You bought into a timeshare? Really? Okay, I’m going to take my blood pressure pills and read their very glossy product disclosure statement. I’m guessing you haven’t read the PDS — if you had, you wouldn’t have given them a cent. If you don’t pay your annual fees, the manager will slug you a $15 fee for every reminder letter, and charge you 15 per cent interest on the amount due. They may also appoint a debt collection agency. If you still don’t pay after a final demand, you forfeit your entire membership, not just your points for the year, which Wyndham will “attempt” to sell for the full price. There’s no guarantee you’ll receive anything back. You have the right to lend, give or sell your membership — but, as Wyndham points out, you shouldn’t expect to get anywhere near what you paid. The only “bargain” you got was in the beginning, when they bribed you with the free tickets to Sea World to sit through their high-pressure pitch-fest. The current price for a membership with 36,000 points is $86,940. Good lord. If you’d put that money, plus your $219 a month, into a good Listed Investment Company, it would be worth around $225,000 in 10 years’ time — at which time you’d be earning $11,250 a year in dividends. That’s enough for a very nice holiday to wherever the hell you want. Plus massages. You can sell your membership privately — either on eBay or Gumtree, or through a number of web-based services that specialise in resale of timeshare ownership (though it’s unlikely you’ll recoup much of your initial cost). That’s what I’d do.
SUPER SUGGESTIONS
MEL AND TRENT ASK: My husband and I are looking into an self-managed super fund. Is there anyone you would recommend to set this up? I was looking at ESuperfund — they appear to make the administration side easier. Our plan is to purchase a small, positively geared investment property and hold some cash in a higher-interest online savings account in our SMSF. As our industry funds have insurance, we were thinking of still having our super deposited from work into existing super funds. Thoughts?
BAREFOOT REPLIES: I know it’s very un-Astrayan of me, but I don’t think buying a property in your SMSF is a particularly bright thing to do. First, because of the costs of borrowing in the super fund, second because of the current price of houses in most parts of the country, and third because if you own your own home you’re already overexposed to residential property. Other than that, you guys sound smart: locking in low-cost insurance with your industry fund is a good idea. I’d stick with them and invest in shares, which historically outperformed property over the long term.
SHIFTING THE MONEY
ELIZABETH ASKS: I have an SMSF that I set up some years ago when I invested in land syndicates. The projected maturity date was somewhere between of 2012 and 2014. I’m still waiting. I’ve received some money, with $99,000 outstanding. I have $50,000 in a no-interest business transaction account, with plans to top it up before I retire in seven years. I want to place the money, plus money received from the land syndicates, into a low-fee, conservative super fund. How do I do this while meeting my ATO and legal obligations?
BAREFOOT REPLIES: It’s almost impossible to wind up your SMSF while it still has money owed to it. Still, that shouldn’t stop you moving your superannuation to a more appropriate fund now. The first thing you can do is roll over the $50,000 of cash you’re holding in your SMSF right now. There is nothing stopping you, and the rollover form is freely available on the ATO website. You can treat the money from the syndicate the same if (and it’s a big IF) that starts flowing in. Each time you receive some of the $99,000 you can follow the same rollover process. Then, once all the money has been received and rolled over, you can close your SMSF.
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 If you are looking for home security start planning and acting
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