Let’s take baby steps on setting up a home

TWO women wanting to have a home and children together don’t need to be afraid about sorting out their finances, writes the Barefoot Investor.

A same sex couple could set up an account to save for IVF treatment.

TWO women wanting to have a home and children together don’t need to be afraid about sorting out their finances, writes the Barefoot Investor.

 

KIM WRITES: I am a financial scaredy cat with no idea. I am 34, my partner is 24, and we are awaiting her permanent residency to come through as she is English. We have almost $50k in an ING savings account and no assets but want a house and children (has to be IVF for lack of male parts). I also have a car loan that is costing me almost $600 a month. We earn $85k and $50k but my partner is only on a temp contract until she gets her residency. What should we do?

BAREFOOT REPLIES: There’s no need to be a scaredy cat — we’ll make this really simple. Use some of that $50,000 to pay off the car loan immediately. Then promise me you’ll never borrow money to buy a car again. Next, open another account and call it “our IVF account”. Instead of paying $600 every month towards a car, pay it towards the IVF. In eight months you’ll have nearly $5000, enough for a single-cycle IVF treatment with a top-notch provider. In the meantime, keep bashing away at your home deposit. With a combined income of $135,000, it won’t take many years to save a 20 per cent deposit — as long as you master the trick of living on one income and saving the other. In a few years’ time you should almost have the Triple Ms — mortgage, midget and, depending on who wins the election, maybe even marriage.

 

DEBT OPTIONS

NICOLE WRITES: My partner has informed me he has a tax debt of $260k and that it has been placed in the hands of the debt collectors. He also has $30k in credit card debt. My car is in both our names and we have a mortgage of $200k. My partner has decided his only option is to go bankrupt and wants to transfer the house into my name only. He has been communicating with a “debt specialist”, which sounds to me as dodgy as the mess he is in. Is bankruptcy the only option?

BAREFOOT REPLIES: Your partner is getting bad advice. Transferring the house into your name won’t work. The Bankruptcy Act has clawback provisions that last up to five years for any asset that is transferred or sold for less than it’s worth, prior to going bankrupt. In your case, once your partner goes bankrupt the trustee will become the owner of his share of the house. Depending on how things go, they will probably push for you to sell. Now, I don’t know what a “debt specialist” is, but it sounds like he’s got the financial equivalent of a reiki healer trying to help him with his financial heart attack. Don’t make his mistake. Call Financial Counselling Australia on 1800 007 007 and get a meeting with them. Pronto.

 

TRUST A DOCTOR

TOM WRITES: I am 21 and in my third year of a medicine degree. I have just found out that I will be receiving a generous $100k inheritance from my late grandfather to be held in trust until I am 25. The executor is arranging an accountant to sort out the trust. Firstly, do I get any say in how the money is managed? Secondly, how would you recommend I invest it if I am able? I realise this is a huge headstart in life and want to make the most of the four years in trust.

BAREFOOT REPLIES: You’ll have to read the trust deed, but I doubt you’ll have much say in how your money is managed. Given your grandfather was smart enough to make you wait until you turned 25 to get your hands on the loot, I’m sure he’s thought it through. Best to talk to the executor. Now, in four years’ time you’ll have $100,000 (plus earnings) and you’ll have your medical degree. From an income perspective, you’ll eventually reach the top 1 per cent. So the way to honour your grandfather is to start preparing now, by learning the basic building blocks of wealth and low-cost, long-term compound investment (keep reading my column).

 

SUPER SAVERS

JIM WRITES: My wife and I used to have three investment properties — and we hated every minute of it. Now we own our house outright, and it’s a bloody good feeling. We are happily married with two kids (five and seven). Our situation now is like this: we have NO debt (I mean zero), a combined income of $90k, super of about $75k, shares worth $25k and cash $25k. For the first time we have surplus cash that is not going to banks or rental agents, so please give us some direction. I do not want to waste it.

BAREFOOT REPLIES: You rock. When you don’t have to make a monthly repayment to a bank, you can really start to build wealth. Here’s how: based on what you’ve told me, you’re probably picking up some family tax benefit (around $118 per fortnight, more if one of you is on a low income). So start an investment bond for your kids (a bond can be kicked off with about $1000) and then every month add your family tax benefit to the bond. You won’t pay any tax on the earnings, and in 10 years you can pull out the lot tax free (or leave it to grow, and give it to your kids when they’re older). Best of all, Centrelink ignores investment bond earnings when they work out your family tax benefit. Then I want you to turbocharge your super. Make sure it’s in an ultra-low-fee fund. My standard advice is to boost your pre-tax super contributions to 15 per cent (talk to your bosses about salary sacrifice). If you do that, by age 67 you’ll have over $600,000 (in today’s dollars). But with your mortgage paid, I think you should challenge yourself to do more than that.

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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 Let’s take baby steps on setting up a home