Married ‘til debt do us part

BAREFOOT Investor Scott Pape answers all your burning debt, saving and investment questions and suggests we start getting real about money matters.

HUGH ASKS:

I am at a low point. I have been with my partner for a year now, and I know she is ‘‘the one’’. I want to propose ASAP but I have debt from my earlier days, and I urgently want to be rid of it before proposing. Here is my situation: credit card $15,000 (at 0 per cent, expiring in May), line of credit $15,000 (at 0 per cent, expiring in September), personal loan $10,000 (at 10 per cent), mortgage $290,000 on a house valued at $330,000 (rented out at $1100 per month), salary $85,000 plus super. Please help me, Barefoot! I do not want to start married life with debt hanging over me.

BAREFOOT REPLIES

That’s the power of love!

Or more likely, it’s the power of overplaying your hand while you were dating — showering her with gifts, acting like you had it all together and were husband material — and then madly scrambling to live up to the expectations you’ve laid.

Welcome.

You’re at least 16 months of two-minute noodles away from getting engaged.

You’ve got $40,000 worth of debt. I assume you’re also having to tip in at least $500 a month on your investment property. You’re taking home roughly $5300 a month. So you should be able to save around $2500 per month to knock off your debt if you really pull your horns in.

That means you’ll be debt free in 16 months ... and then you can start saving for the wedding! If she’s a Bridezilla (and you won’t know until you’re 90 days out), you’ll be hit with another $40,000 bill, which is the average cost of a wedding these days. It’s a long road ahead, bucko.

My advice?

I’d be honest with her.

She’s going to work it out anyway when you start wining and dining her at the Ikea food court — “Oh these Swedish meatballs are amazing!”

Admit to her the mistakes you’ve made. Show her you’re man enough to buckle down and get through them without having to sacrifice your long-term investments.

Tell her you’re doing it for her, and your future family.

That’s the sort of bloke I’d like to marry (well, if I wasn’t married already, and if I was gay, which I’m not, and if gay marriage was legal, which it’s not). You get my drift. And remember, if it turns out she’s turned off by your lack of cash, well that’s a very good outcome, too.

The bottom line is that you’re not the first fella who’s punched above his weight to impress a woman.

Now live up to it.

GREAT EXPECTATIONS

JOHN ASKS:

You often quote an ‘‘800-fold increase’’ in the share market in the past 100 years. As an investor in blue-chip stocks for the last 25 years, this regrettably has not been my experience, nor do I have 75 years left for this to right-size itself. For first-time investors, and those seeking your advice, surely it is now time to recalibrate your ‘‘100 years of history’’ example and use a more relevant percentage — the last decade, for example.

BAREFOOT REPLIES

You got your figures slightly off. The US market has actually risen 18,000-fold over the past 100 years.

But, hey, I take your point — in the long run we’re all dead (or cryogenically frozen, like Walt Disney), right?

That’s why I’ve consistently said three things:

First, focus on dividends, not share prices. The bulk of your returns come from dividends rather than capital growth (which is why, in my days working for Channel 7 News, I used to die a little each night when I read out the ASX 200 price index).

Second, over the long run you can expect a return of about 6 per cent per annum after inflation — and that’s a key point; you want your nest egg to grow faster than inflation. At 6 per cent you’ll double your money every 12 years.

Third, there are plenty of lean years in investing where things go sideways, or backwards. That’s the price you pay for earning higher returns over the long run. That’s why I advocate having three to five years of living expenses in retirement in savings and term deposits to get your over a hump.

The share market (as measured by the dork on the nightly news) has basically gone nowhere over the past 10 years. But if you factor in dividends, you’ve made 60 per cent. That’s the real story.

RIPPED OFF?

PETER ASKS:

I read you religiously, so I think I know your thoughts, but I’m just checking. My AMP-administered super fund financial planner charges me a management fee of 2.0058 per cent, less a rebate of 0.4500 per cent, over the range of products I hold with AMP. This equates to about $6500 a year. I then pay an ongoing commission of 0.44 per cent, which adds a further $1800 (pretty much cancelling out the rebate). I am assuming I have read the documents correctly. Am I being ripped off?

BAREFOOT REPLIES:

I once answered a similar question by suggesting that anyone being charged these nosebleed fees (and there’s a lot of people in this boat) should have their name fixed on a gold plaque just above the urinals at AMP HQ.

That way, the 26-year-old fund manager knows who he’s peeing on. “Thank you, Peter from Cranbourne.” However, that answer caused a bit of a stir, and took a few years off my editor’s life, so let’s not engage in toilet humour (again).

Yes, you are being legged. If you have 15 years left till you retire, and you’re contributing $10,000 a year, the cost of your current fee arrangement paid to AMP will be around $283,000. With that type of money you could redecorate a bathroom, or three.

Originally published as Married ‘til debt do us part